Australian corporates are the most confident among their peers around the world in their organisations’ ability to control tax risk despite Australia’s authorities leading in international tax compliance.
The revelation comes from Allen & Overy’s global corporate tax report which surveyed senior executives in Australia, the US and Western Europe about their perceptions of, and response to, changes in the external tax environment.
An overwhelming 97% of Australian corporates surveyed are confident in their ability to manage or avoid tax risk.
Even more telling of sentiment among Australian corporates is the fact that 80% don’t even think they need to make any changes to their business or corporate structures as a result of tax changes.
Allen & Overy is warning, however, that complacency in the face of regulatory changes may cost corporates especially given the changing tax setting in the world.
Australia is set to adopt further OECD BEPS (Base Erosion and Profit Shifting) recommendations this year, the firm noted. The country is also looking to unilaterally introduce a diverted profits tax aimed at addressing public concern over corporate tax avoidance.
“Out of all the jurisdictions in our survey, Australia has some of the most complex corporate tax regulation and most aggressive expansion of taxing powers, but corporates here remain the most confident in their compliance and risk management,” said Sydney-based Allen & Overy tax counsel Ka Sen Wong.
“Nevertheless, it’s important that businesses don’t underestimate the impact of the changes. Even those companies that feel they have everything in hand need to be mindful of the past, and in particular the potential for the authorities to apply a new lens to old tax structures that might have been considered acceptable tax planning by past standards.”
From tax reduction to tax risk minimisation
According to Allen & Overy, Australian corporates have shifted their approach to tax planning from tax reduction to tax risk minimisation.
The top firm also found that tax is increasingly a boardroom issue with around 62% of Australian respondents saying their boards discussed tax issues at least once a month - the highest of any jurisdiction. This is also an increase of over 30% in five years.
The trend of prioritising the minimisation of tax risk over tax reduction is a global trend, the report found.
Furthermore, it found that boards around the world are discussing tax issues significantly more frequently, with roughly a quarter (23%) of corporates who said their board discusses tax issues more than once a month, up from just 5% five years ago.
The study also found that 38% of the respondents worldwide said tax issues are now discussed at board level at least once a month.
“This shows us that the approach to tax planning has undergone an absolute transformation. Tax departments used to have a mandate to minimise tax liabilities – now they have a mandate to minimise tax risk. On its face, that’s a win for the tax authorities, but we should be paying close attention to the potential for legitimate business activity to be stifled by the increasing level of regulation,” Wong said.
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