‘Amid Economic Uncertainty, Tax Directors Need to Be Forward-looking’
Tax directors facing economic uncertainty, tax and regulatory reform, need to take forward-thinking approaches to re-designing their operations and re-shaping their long-term strategies in response, according to KPMG.
These challenges came into focus at the 2011 KPMG Asia Pacific Summit in Sydney, Australia, and through a new magazine entitled Future Focus: Tax and Transformation in Asia Pacific’s New Business Reality.
Future Focus and the Summit explore how companies doing business in the Asia Pacific region need to examine their tax functions and make transformation and innovation their highest priorities to cope with the increased complexities and rapid development the area has seen.
The magazine, developed by KPMG’s senior tax professionals, identifies how Asia Pacific companies now need to cope with diverse transfer pricing regimes at varying stages of development, from the mature markets of Japan and Australia, to the less developed regimes of South East Asian countries like Malaysia, Indonesia and Vietnam.
“These differences can frustrate efforts to establish consistent company-wide transfer pricing policies. Dealing with newer regimes can also be risky. Even though a company’s transfer prices may be sound, the tax authority’s field team, particularly in Asia’s newer markets, may lack technical experience, which can complicate audits and create disputes,” said Warrick Cleine, KPMG’s Head of Tax for Asia Pacific.
The Asia Pacific region is already seeing higher levels of scrutiny over transfer prices. In China, for example, although the overall number of cases has remained similar over the past five years, the average value of each adjustment has risen rapidly, so that the total value of adjustments has increased 354 percent (from less than RMB500 million in 2005 to over RMB2 billion in 2009).
According to KPMG tax professionals, there are signs that this trend will accelerate. The increase in transfer pricing regulations within the Asia Pacific region and the corresponding documentation has provided tax authorities with a wealth of data they can use to select audit targets.
Due to database technology, tax authorities are able to use this information to target industries, groups or even companies with abnormal results and thus focus their search on transactions within these areas.
Future Focus also discusses how businesses in the region need to plan for indirect tax changes and notes how Oceania’s average VAT/GST rate rose from 12 percent in 2010 to 12.5 percent in 2011 and the average rate in Asia rose from 11.64 percent in 2010 to 11.93 percent in 2011.
Planning and preparedness to manage tax risk management are further highlighted in the magazine and discussions about Japan’s earthquake in March 2011 and its aftermath that shows the importance of having a robust system in place for tracking and planning employee travel.
Emergencies like these can strike without warning, creating a need to move employees out of the danger zone for uncertain lengths of time or marooning them in a foreign country for longer than intended.
“Whether due to environmental disaster, political unrest or other emergency, such moves can cause the same tax exposures as other employee travel,” said Cleine.
As companies in Asia Pacific countries grow and expand into new markets, their tax teams will need to find ways to cope with complex global issues like these while adding value to their organisations.
Luckily, solutions for many of these issues have already been forged over time and with much difficulty by leading organisations in Europe, North America and around the world.
“Asia Pacific companies can bypass these development phases by adopting systems, processes and technologies that are already proven and tested,” says Mr. Cleine.