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Accounting & tax: The global and local complexities holding multinationals to account

TMF Group reports on the global accounting and tax landscape, examining the growth of the digital economy and the impact of the COVID-19 crisis on markets worldwide.

Complying with local accounting and tax regulations is an ongoing challenge faced by businesses operating internationally.

The traditional, nexus-based taxation principles do not seem to apply in the new world, where physical flows are replaced by electronic flows and the tracking of goods and services becomes more complex. Consequently, corporate taxation has become a highly contentious topic in recent years. There has been increasing scrutiny on corporate approaches to international taxation, particularly in technology and e-commerce. Jurisdictions are also using taxation on foreign goods as a way of protecting their own economies, as has been seen in the US-China trade war.

The digital economy has become so significant for tax authorities that the OECD in July 2020 issued a global tax reporting framework for digital platforms in the sharing and gig economy, designed to help taxpayers comply with their tax obligations while ensuring a level-playing field with traditional businesses. Companies acting in this field are requested to provide detailed transactional information to tax authorities.

The COVID-19 pandemic has continued to put tax at the forefront, with changes introduced by governments to keep companies up and running and economies in motion. The global economic impact of COVID-19 will be long lasting and far reaching. As part of TMF Group’s reporting on the accounting and tax landscape, they also examined the impact of this crisis as the global economy continues to navigate uncharted territory.

In TMF Group’s Global Business Complexity Index (GBCI), three key themes summarise recent global trends:
  • Internationalisation versus localism with global standardisation harmonising some accounting and tax practices, while local complexities persist – and are even increasing – in some jurisdictions.
  • Modernisation versus tradition as global trends are based around a drive towards modern practices, whereas local considerations often reflect traditional modes of operation.
  • Technology’s role in fostering a globalised business environment and how this is being deployed and used for accounting and tax reporting around the world.

The five most complex markets:

 Turkey 5

Drivers of complexity for the top five most complex accounting and tax jurisdictions are frequent, and rapidly enforced changes in legislation can often lack clarity and be challenging to understand. Another key driver is having varying tax regimes and multiple layers of tax regulations within a jurisdiction. This is particularly apparent in South America, which houses three of the five most complex accounting and tax environments.

The five least complex markets:

 Hong Kong SAR73
 British Virgin Islands77

The least complex jurisdictions for accounting and tax ‘partner’ with businesses that operate within them, establishing a relationship between companies and tax authorities. For some of the least complex jurisdictions such as Curaçao and the British Virgin Islands, there is very little requirement to pay tax as they operate a ‘low tax’ or ‘tax neutral’ economy. Any taxes that do need to be paid in the least complex jurisdictions can usually be submitted through an online portal via user-friendly systems. 

TMF Group

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