Where Tax Rates Fall, Multinationals Follow

by Robert Lee, Tax-News.com, London

22 May 2006

The worldwide trend among multinational corporations towards moving their operations from high tax to low tax regimes has accelerated in the past year according to a poll of senior tax executives by KPMG, the accounting firm.

The survey of tax executives from 120 multinational corporations at this year’s KPMG international tax conference in Berlin revealed that 62% were planning to move assets or operations to low tax regimes, a significant increase on the 55% who gave the same answer in a poll at the 2005 conference in Rome.

More than one in ten respondents (14%) reported that they have already moved part of their operations to a lower tax regime in response to more aggressive tax planning challenges from tax authorities.

“The clear message from business is that tax rates are important, but in our experience they are not everything when it comes to deciding where to site your operations,” noted KPMG’s Global Head of Tax, Loughlin Hickey.

“If companies find a country in which relations with the tax authorities are conducted in a constructive and predictable way, they may accept a higher tax rate and more contact with the authorities as a reasonable cost of doing business.

However, a signficant proportion of companies still appear to be putting their faith in tax planning to mitigate their tax liabilities.

"Over 70% of our poll said that they had reacted to more aggressive challenges by the authorities by becoming more sophisticated in their tax planning and management of tax processes," observed Mr Hickey.

The US was seen as the territory with the most aggressive tax authorities, followed by the UK and Germany.

KPMG's survey also showed a rapid rise in the level of interest among investors and shareholders in corporate tax affairs. In 2005, 69% of executives said that they were finding it of great or increasing importance to communicate with investors and shareholders about tax matters. This year, that number had risen to 80%.

“This is a very significant change,” said Mr. Hickey.

“Tax is clearly being pushed onto the boardroom agenda by shareholders and investors as well as tax authorities. Tax policy is no longer a backroom issue, it is a fundamental part of good corporate governance, which needs to be communicated openly and effectively," he concluded.

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