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This week in tax: FTSE 100 firms demand lower audit costs

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Chief financial officers from FTSE 100 companies are demanding that ‘big four’ firms lower their costs to avoid further audit price hikes, while the French government calls for an EU response to US tax credits.

A group of CFOs from the FTSE 100 companies have demanded that big four firms Deloitte, EY, KPMG and PwC cut costs rather than raising the price of audits, reported the Financial Times today.

The 100 Group has sent a letter to the big four arguing that the firms should not be passing on costs in the form of higher audit fees to FTSE 100 companies at a time of high inflation. Audit partners at big four firms have responded by stressing that the CFOs do not commission their work.

Big four audit prices have increased by 22% in four years. FTSE 100 companies paid auditors more than £1 billion ($1.2 billion) in 2021, according to data service Audit Analytics.

These price hikes are partly down to a stricter regulatory environment, including the enforcement of mandatory auditor rotation. KPMG told the FT that new regulatory pressures would increase the base cost of audits by between 5% to 20%.

At the same time, the big four have also stopped cross-subsidising audit services with revenue made from consulting services. Regulators had hoped the end of this practice would reduce conflicts of interest among service providers. What they didn’t foresee was how it might increase costs for businesses.

Macron calls for the EU to counter the Inflation Reduction Act

French President Emmanuel Macron called on EU leaders yesterday, December 15, to come up with concrete plans to counter the threat posed to the bloc’s industry by the US Inflation Reduction Act.

He said that the EU needed to urgently simplify its subsidy rules to ensure fair competition and to match US laws.

Macron made the comments at the start of a two-day meeting of EU leaders in Brussels on Thursday. At the top of the agenda is the potential trade dispute between the US and Europe following the passing of Inflation Reduction Act in August.

European Commission President Ursula von der Leyen and her fellow EU leaders have voiced concerns about the US legislation which offers significant tax breaks to producers and consumers. These measures threaten to discriminate against EU businesses and to lure investment away from the bloc.

Other European concerns include production subsidies that could result in a subsidies race between the two economic powers and the ‘buy American’ principle that underpins the Inflation Reduction Act.

Von der Leyen is looking to loosen state aid rules and to bolster investment in climate-friendly energy solutions. The bloc’s green technology and automotive sectors appear to be most vulnerable to Washington’s measures.

Semiconductor chipmakers set to reap the rewards of Chinese tax credits

The Chinese government is reportedly working on a support package, including tax credits, for its semiconductor industry in a bid to boost domestic production amid US opposition.

Sources claim China is planning to rollout a ¥99.7 billion ($143 billion) package of subsidies and tax credits for the industry as early as the first quarter of 2023, reported Reuters on Tuesday, December 13.

Stocks of Chinese semiconductor companies have surged in response to the news. Shanghai-based Semiconductor manufacturing International Corp (SMIC) saw its shares jump by 5.2%. However, China’s State Council Information Office has not responded to the claims.

Meanwhile, the US government is implementing a plan to provide $24 billion in tax credits to semiconductor production plans. The US has also been lobbying trade partners such as Japan to restrict exports to China which could be used to product semiconductor chips.

Global demand for semiconductor chips has surged in recent years. But production has been blighted by supply chain problems and US-China trade tensions. At the same time, the COVID-19 pandemic and extreme weather events have hit production hard.

Next week in ITR

As 2023 approaches ITR will be reviewing the top tax stories of 2022 covering the most important trends in corporate tax, transfer pricing and indirect tax.

ITR has just published its yearly Global Tax 50 edition profiling the most influential figures in tax, including policy officials, industry leaders, tax authorities and NGOs.

Readers can expect these stories and plenty more in the new year. Don’t miss out on the key developments. Sign up for a free trial to ITR.

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