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Report Considers Asian Tax Complexity

by Mary Swire,, Hong Kong

08 June 2010

Business opportunity remains an important consideration when it comes to choosing priority business locations in Asia, despite fears of rising tax complexity in the region, according to a new study by Deloitte.

Deloitte's Asia Pacific Tax Complexity Forecast found that around 55% of survey respondents indicated that their companies had in the past exited or postponed entry to markets because of their concerns about tax complexity and consistency. Most survey participants also expected that China (329 respondents) and India (223 respondents) will have the most complex tax environments in 2013. However, the highest number of respondents rated China (311 respondents) and India (146 respondents) as their priority business locations in the region.

The results of the survey are based on a study by 21 senior tax professionals from 15 jurisdictions and a survey of 1,000 financial and tax professionals operating in the Asia Pacific region.

“The responses reflect generally an alignment between the priority tax locations and the underlying macroeconomic trends. Japan, Singapore and Hong Kong are among the other top five priority locations. In our experience, these top five priority jurisdictions reflect both a business focus on market potential and [the investor’s desire] to optimize tax planning,” said Alan Tsoi, head of the group undertaking the report, on behalf of Deloitte.

"There are also distinct roles played by different jurisdictions in the region, for instance, Australia and Indonesia represent priority tax management areas for energy and resource companies, while Hong Kong and Singapore continue to be popular locations for the financial service industry and for certain regional business functions,” he added.

In addition to China and India, which are expected to have the most complex tax environments in 2013, other respondents said they expected Japan (119 respondents), South Korea (78 respondents) and Australia (76 respondents) to have the most complex tax environment by 2013. “Japan and South Korea are more mature markets and their perceived tax complexity is perhaps the result of previous rapid modernization and resultant tax effects which have not yet been simplified,” Deloitte notes.

“Australia is the jurisdiction with the fifth highest votes for complexity and the launch of the Henry Review may add to further perceptions of complexity. Hong Kong and Singapore are seen to have the least complex tax environments in 2013,” the firm observes.

The report also studied tax consistency and predictability in different jurisdictions as well as its challenges to business. China and India are perceived as less consistent in enforcing tax law, while Singapore, Hong Kong and Australia are considered to have more consistent tax policies and enforcement. According to the survey, tax audits are most common in tax jurisdictions including China, Japan, India and South Korea. Around 144 companies experienced tax audits in the past three years in China, followed by Japan (94 companies), India (87 companies), and South Korea (69 companies).

When it comes to predictability, China, India and Indonesia are perceived to have the least predictable tax environments, while the tax systems in Singapore and Hong Kong are perceived to be the most predictable. Elsewhere, the tax environments of Japan, South Korea, Taiwan and Australia are also frequently selected as being fairly predictable.

“Given the divergence in tax complexity, consistency and predictability among jurisdictions in the region, it is important for companies to consider the appropriate combination for their business of in-house and outsourced resources and the choice of location of certain business functions," said Lili Zheng, co-leader of report study group.

"In response to the aggressiveness in tax audits in some fastest growing markets, companies should pay close attention and devote more resources to mitigate future tax exposure. To manage unpredictability, tax professionals should not underestimate the value of their experience in helping to watch for signals and the likely path of change and enforcement,” Zheng added.

TAGS: tax | business | India | law | audit | Australia | China | Singapore | Taiwan | professionals | tax planning | Hong Kong | Indonesia | Japan

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