Americas: Regional interview
What is the most significant change to your region/jurisdiction's tax controversy/disputes legislation in the past 12 months?
The Americas have recently seen a number of changes that will impact controversy matters. In December 2017, certain countries passed major tax legislation and there is an increased need for the use of alternative dispute resolution strategies to preclude the need of entering costly and unnecessary litigation. Additionally, funding across the taxing authorities varies greatly and will have an impact on the compliance approaches that the authorities may take to encourage voluntary compliance and deploy resources to the most significant non-compliance. Appropriate funding coupled with recently enacted tax legislation will likely impact the way audits will be conducted in the Americas.
What has been the most significant impact of that change?
It is too early to tell what the impact of tax reform will be on tax controversy. In some countries, an issue-focused approach has been implemented. Decision-making is centrally administered and the deployment of limited resources should allow for a more strategic approach on the issues to be examined. Although true, it may take time for the tax authorities to see real change as many audit personnel have traditionally scoped their examinations independently and may not adjust to the new approach immediately.
How do you anticipate that change impacting your work and the market moving forwards?
Tax controversy specialists will likely focus more on the examination process with a goal of trying to resolve issues at the lowest level possible. As a result, it is essential to have resources who are not only technically proficient and procedurally savvy, but also know how and when to elevate an issue to the appropriate levels within a taxing authority. Such competencies will likely be a demand from clients as issues become more difficult to resolve at the examination level.
How has this changed the way you offer tax advice?
Deloitte tax controversy professionals in the Americas take seriously the premise that financial statement certainty and issue resolution are goals of chief financial officers and tax executives. Moreover, Deloitte tax controversy professionals in the Americas appreciate that tax and reputational risks are concerns for tax-oriented corporate executives. Deloitte in the Americas continues to strive to provide clients with the best tax advice, but we have augmented the experience by offering insight into the merits of regional campaign processes, as well as the thought processes into how these issues develop in various countries.
What potential other legislative changes are on the horizon that you think will have a big impact on your region/jurisdiction?
The recently enacted tax legislation will inevitably be followed by formal guidance in the form of regulations, procedures and other interpretive rulings. Tax administrators and executives will be forced to deal with various issues that may arise as a result of the new legislation. Until tax administrators issue clear guidance, taxpayers will likely be addressing issues without any clear answers.
What are the potential outcomes that might occur if those changes are implemented?
Tax administrators are in the process of hiring staff who will be providing much-needed guidance with respect to the new tax law. Such guidance may result in the need to amend tax filings by taxpayers who file tax returns prior to such guidance being issued. Dedicated professionals on both sides of tax administration should work hard to get up to speed on the technical changes presented by the new tax law and examinations may slow down as filing matters take precedence.
Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
As these changes occur, clients will seek a tax controversy practice that has a deep bench of experienced tax controversy specialists and, particularly, a firm with professionals that have experience in pre-filing, examinations and appeals. In addition, a tax controversy practice should be staffed with respected senior executives who have significant experience and knowledge of the inner workings of taxing authorities.
How are issues surrounding the taxation of the digital economy affecting your jurisdiction?
Tax administrators have evolved to face changes in the ways taxpayers do business. There may be some time needed to catch-up to changes in the digital economy, but ultimately the taxing authorities should employ the needed safeguards to ensure equal application of the tax laws to taxpayers, regardless of one taxpayer's exposure to the digital economy.
What is the tax authorities' approach to tax auditing?
Taxing authorities are transitioning to an issue-focused examination approach. With the exception of taxpayers involved in aggressive tax planning, authorities may no longer target specific industries or taxpayers for audit, and its goal is likely to be more cooperative and transparent with taxpayers.
How has tax advice adapted to the changing tax audit approach, and how do you expect it to change further?
Educating taxpayers on the issue-focused approach will be a major part of the educational curriculum for taxpayers. One of the main points that Deloitte member firms in the Americas stress in that process is the elevation of an unresolved issue within the taxing authority. Tax controversy professionals across Deloitte's member firms in the Americas believe that effective use of elevation will be needed in taxpayers' audit defense considerations.
For disputes that require litigation (pre-litigation, and court proceedings), how are matters evolving in your jurisdiction/region? Are pre-court settlements becoming easier, and why?
Pre-litigation resolution is often accomplished at an appellate function. Traditionally, appeals are comprised of more seasoned professionals, and recently such functions have been adversely affected by retirements. It takes longer to schedule an appeals conference, and as such, appeals-based settlements are more difficult to accomplish in a timely fashion. Again, taxpayers should escalate their unresolved issues during the course of the examination to avoid delays in appeals determinations.
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Deloitte Tax LLP, Managing Director – Washington National Tax, Americas Tax Controversy Services Practice