PwC’s 17th annual Global Economy Survey found that 65% of 1,344 CEOs in 68 countries believe that the international tax system has not changed to reflect the way multinationals do business today. This finding ranged from 82% of German CEOs – closely followed by the US (81%), Australia (79%), Africa (74%), Japan and the UK (both 72%) - to 44% of their Swiss counterparts. The G20’s BEPS initiative, which the OECD is leading, is attempting to address defects in international tax rules over the next two years.
Half of the CEOs said that “creating a more internationally competitive and efficient tax system” should be a priority for the government in the country where they are based.
Support for tax reform
The survey’s authors believe the fact that 80% of the CEOs were prepared to offer an opinion on tax reform suggests that it is a boardroom-level issue. They argue that the executives are not opposed to the principles behind some of the proposals on BEPS, which include country-by-country reporting, a clampdown on the migration of intellectual property to low-tax jurisdictions and measures to combat the abuse of tax treaties.
For example, the survey found that 59% of CEOs agreed that multinationals should be required to publish revenue, profit and tax disclosures on a country-by-country basis, though 36% of US CEOs - 19% globally - disagreed.
“That 59% of CEOs agreed is surprising given what are believed to be widely held concerns that mandatory “country-by-country” disclosure requirements will focus on data that is costly for businesses to generate and is not easy for the reader to understand,” the authors wrote.
Even if a majority of company bosses agree that international tax rules need to change, they are gloomy about the prospect for consensus on how this should be achieved: only 27% believe agreement will be possible in the near future and just 7% of CEOs of US companies do.
Pressure to explain
The finding about support for country-by-country reporting and others in the survey reflect the fact that multinational companies have come under fierce pressure since the financial turmoil took hold around the world in 2008 to be more transparent about the amount of tax they pay and where they pay it. The increasing prominence of tax as an issue for business, as well as tax, executives, is a result of this pressure.
Three-quarters of CEOs said it was important to be seen as paying their fair share of tax and almost half (49%) said that a lack of trust in business was hampering their prospects for growth. This is up 12 percentage points from last year.
“Many CEOs are emphasising the importance of promoting a culture of ethical behaviour in business decision-making as a result, and tax has a part to play in that,” the survey said. “Companies can do much to improve the public perception of their tax footprint by choosing to explain it in the specific context of the nature of their business and in a way people can understand.”
Tax impact on growth
While CEOs may be concerned about tax as an ethical issue, they are also worried about its effect on their companies. The impact of tax and its potential to affect growth was cited as a concern by 70% of them, which is up from 62% in the 2013 survey and 55% in 2012. PwC points out that this concern is about the total taxes paid by business, not just about a reflection of worries about higher taxes on profits.
Latin American CEOs led the way as being the most concerned (81%) about the impact of tax on growth, followed by North America (75%) and Asia Pacific (69%). There were differences by sector too. For example, 83% of mining CEOs felt that the increasing tax burden was a barrier to growth. This figure was 59% in the technology industry.
Some of the results of the survey are striking and show that the executives at the top of multinational companies have had to think about tax and its effects, not least on reputation, more deeply than at any other time.
