The global economic crisis has made tax compliance, always complicated, even more of a challenge--especially when it comes to calculating transaction taxes. Rapidly changing and ever more confusing international laws can baffle even the experts, notes Stephen James, a principal and accountant with Dallas tax service firm Ryan & Co.
On top of that, Ryan and other tax authorities expect local, state and national tax agencies to step up audits to bring in more revenue to compensate for anticipated shortfalls. "Tax revenues were failing to match expectations even before the current crisis took hold," says James. "The end result is inevitable: more frequent, more obtrusive and more sophisticated tax audits."
Corporations are concerned. Eighty-eight percent of the of the 150 global 2000 tax leaders recently surveyed by Sabrix Inc. expect more audits in the face of anticipated shortfalls. Slightly more than 60 percent believe the current crisis ups the stress ante when it comes to meeting indirect, or transaction, sales, use and value added tax (VAT) requirements.
The result, experts say, will be a much bigger business burden, in addition to a more complex compliance environment. "The cash burns and the monies that a company owes to the tax authorities must be managed very carefully," explains Steve Adams, CEO of Sabrix, a tax software developer, based in San Ramon, Calif. "It's no longer simply a matter for large multinationals to be in compliance with the indirect sales and use taxes, it's a matter of cash flow."
The Sabix survey also showed that 68 percent intend to make transaction taxes a more strategic focus of their companies as a result of the economic crisis, and 73 percent view VAT/general sales tax as the top tax risk for global finance directors.
The recent decision by the U.K. Chancellor of the Treasury to cut its VAT rates from 17.5 percent to 15 percent underscores challenges companies face. The temporary measure, which runs through Jan. 1, 2010, is designed to jumpstart the flagging British economy. One problem: U.K. officials calculate that businesses will have to spend a total of some 300 million pounds, or about $440 million, to implement the change.
"The U.K.'s deep cut in VAT rates and Ireland's decision to raise theirs by half a point highlights a clear contrast in the approaches that we are seeing when tax is used as a lever to underpin economic policy decisions," says Ryan's James. "We are predicting that these are just the first wave of a host of other changes as countries around the globe explore different ways to balance their books in the coming months and years."