-- Multinationals predict shift to indirect taxes as global tax
competition drives down corporate income tax rates
-- VAT errors now considered a greater risk than corporate tax errors
-- 75 percent of global businesses expect governments to rely more on
indirect taxation in the next five years.
-- 50 percent of global finance directors rated errors in VAT
compliance as the top global tax risk for their organization,
significantly ahead of corporate tax risks (38 percent)
-- 82 percent of global businesses prepared to give an estimate said
their total annual VAT throughput was between US$200m and US$1bn
Hong Kong, May 26 /Xinhua-PRNewswire/ -- Three quarters of major global businesses believe that governments will rely more on indirect taxes (such as VAT or general sales taxes) in the future according to a worldwide survey of senior finance professionals at over 500 large corporations in 22 countries around the world commissioned by KPMG International.
The research, some of the most extensive KPMG has ever commissioned on this subject, helps to provide further evidence of the increasing importance of VAT and other indirect taxes globally. It also provides evidence on the level of VAT which global organizations are struggling to manage every day, with 82 percent of those who responded indicating that their organization's annual "VAT throughput" was between US$200m and US$1bn per annum.
Niall Campbell, KPMG's Global Head of Indirect Tax and partner in the Irish firm, said: "This survey, is one of the largest and most comprehensive we have ever commissioned on large multinationals' views on indirect tax, helps to confirm what we have been seeing on the ground in recent years, namely that indirect tax is becoming increasingly important for global businesses as corporate tax rates decline.
"The levels of VAT which global businesses are now handling are quite staggering and are clearly causing finance directors and tax directors real concern. As the cost of getting VAT wrong is so material, it makes sense that errors in VAT compliance have now been identified as the biggest tax risk for these businesses - quite a shift in attitudes away from the traditional focus on corporate and income taxes."
Other Key Findings
-- Complex VAT legislation is the number one issue for global businesses
in the next five years, concerning two thirds of those interviewed,
closely followed by compliance obligations (55 percent concerned) and
the threat of penalties (45 percent concerned).
-- Investment in training and technology key priorities for effective VAT
management: 66 percent of global businesses believe that their
organizations need to invest in training to raise employee awareness
of VAT and 42 percent believe that investment should be made in
improved VAT systems and technology.
-- Low level of awareness of opportunities presented by VAT: only 11
percent of finance directors identified VAT as a potential source of
competitive advantage.
Niall Campbell continued: "Our research indicates that while businesses are now becoming increasingly aware of the scale of their global VAT risks and obligations, there is still a gap between awareness and actually investing in effectively managing the issues on a global basis. The results deliver a very strong message that if businesses want to adequately deal with the challenges which VAT is expected to present over the next five years, they will need to seriously engage and invest in areas such as employee VAT awareness training, VAT systems and technology, additional internal resources and relationship building with tax authorities and regulators."
"There are also significant opportunities which more effective global management of VAT can produce for businesses. However, our research shows that there is currently a low level of awareness of those opportunities, especially amongst the finance directors in the sample group. Combined with the strain on internal resources within many organizations, this may be causing significant savings to be lost to many organizations.
"In addition, our research shows that the majority of businesses view VAT as purely a compliance obligation. However there appears to be a growing number of businesses that see VAT in a more external, market focused way. There is a clear competitive advantage to be gained by those businesses that can achieve an optimal VAT position when making a range of business decisions from product pricing, outsourcing and new business locations. As shareholders continually challenge management to improve business performance, finance directors who now engage and invest in managing VAT risks and realizing VAT opportunities can deliver real shareholder value."
League table of VAT-friendliness
When asked which jurisdictions the respondents had found it most easy or most difficult to do business in from a VAT perspective, the UK came out as the most "VAT-friendly" with a net 10 percent of the sample saying it was easy. Italy was cited as the most difficult with the respondents remaining relatively neutral on other countries, according to the sample.
"The key finding in the KPMG study is in line with what we have seen in China. The country promulgated the Provisional Regulations of the PRC on VAT in 1994. Administered by the State Administration of Taxation, VAT is now an important source of income for the Chinese government," said David Ling, Tax Partner of KPMG China, citing that VAT revenue hit 1.55 trillion yuan in 2007, against the government's tax income of 4.56 trillion yuan for the same year."
Notes to Editors
KPMG's survey was carried out by Lighthouse Global on behalf of KPMG International. It consisted of 521 telephone interviews in 22 countries around the world carried out during March and April 2008. All respondents were senior finance professionals at large multinational companies; 40 percent were finance directors and the remainder were senior tax or VAT directors or managers.
About Lighthouse Global
Lighthouse Global provides independent business research and strategic analysis to businesses in the professional services, financial services, private equity, retail, media & technology sectors.
About KPMG
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 145 countries and have more than 123,000 professionals working in member firms around the world.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. KPMG International provides no client services.
About KPMG China
KPMG China has eleven offices (including KPMG Advisory (China) Limited) in Beijing, Shenyang, Qingdao, Shanghai, Chengdu, Hangzhou, Fuzhou, Guangzhou, Shenzhen, Hong Kong SAR and Macau SAR, with more than 7,000 professionals.
In 1992, KPMG became the first international accounting firm to be granted a joint venture license in China, while our Hong Kong SAR operations have been in place for over 60 years since 1945. This early commitment to the China market, together with our unwavering focus on quality, has been the foundation of accumulated industry experience that cannot be rivaled, and is reflected in our appointment by some of China's most prestigious companies.
As China businesses join the global economy and international companies seek to enter the China market, KPMG's blend of international experience and local knowledge leaves us well-positioned to serve our clients in this increasingly complex, but exciting market.
Our single management structure for all our China offices allows efficient and rapid allocation of experienced professionals wherever a client is located in China. The flexibility of this single structure allows us to effectively serve companies across China - and we have many projects where staff from different offices work together on project under the control of a single nominated client partner, who has operational control of all resources.
Our business in China has established industry groups, enabling targeted, industry-specific experience to be delivered where needed. For our clients this focus on industry and country specific knowledge means we can deliver exceptional people with an intimate knowledge of your specific business issues, as well as an overriding commitment to strive for the highest quality services. KPMG has a leading position in the China market and our clients include the most prestigious and sizeable companies.
