Insight & Analysis

APAC’s tax landscape is becoming increasingly complex

Published: May 2017

A new study by Deloitte highlights that multiple forces are creating a myriad of challenges for multinationals operating across the region.

‘Tax regimes are becoming more complicated’ is a phrase that no business wants to hear. Yet, according to the findings of Deloitte’s 2017 Asia Pacific Tax Complexity Survey, this is exactly what is happening across the region.

The complexity is being driven by a concoction of political, economic and social forces that are seeing governments aim to create an environment that delicately balances the need to attract investment whilst also protecting the tax base.

In Asia Pacific, this is a fairly new phenomenon as countries have been able to attract investment through the growth potential of their economies. In many cases, however, this growth has slowed meaning that tax policies are becoming increasingly important to attract businesses.

Key findings

Deloitte’s study was conducted between December 2016 and January 2017 and attracted 331 respondents across the region. Of these respondents, 35% said that tax regimes have become more complex in the past three years.

Unsurprisingly, given the disparate nature of the region, some countries were considered to be more complicated than others. In China and India, for instance, over half of respondents cited that complexity in these countries has increased in recent years.

On the other hand, countries such as Hong Kong, Macao and Singapore were ranked the lowest in terms of complexity. Again, this is unsurprising given that these countries have some of the simplest tax requirements and regimes in the region.

In a changing environment, one thing that companies want is predictability. Yet, according to the study, nearly a quarter of respondents believe that tax regimes have become less predictable in the past three years. The most predictable tax environments are once again in the more developed countries, whilst countries such as China, India and Indonesia have lower levels of predictability.

In terms of fairness, countries like Australia, New Zealand and Singapore are considered to have the fairest tax regimes and respondents had the highest confidence in their appeal systems and authorities.

Consistent with other findings, Indonesia is a challenge in terms of fairness. The report cites that many companies are questioning the fairness of their tax audits and that there is a lack of confidence in the appeal system. The same can be said for China and India.

The impact of BEPS

Underlying all of these findings in the OECD’s Base Erosion Profit Shifting (BEPS) measures that are currently being implemented across the region. The adoption of BEPS by the region’s various markets is seen by respondents see as being the most critical reform in many countries.

Yet BEPS is also something that concerns the vast majority of companies with 85% believing that it will cause a significant change in how multinationals around the world are being taxed.

According to Deloitte “some respondents’ concerns may arise from an expectation of increased compliance and documentation burdens”.

Business decisions

Tax has always been an important area for businesses, but it seems, according to the survey, that the increasing complexity of tax regimes across the region is seeing it play a more central role in decision-making with 65% saying that complexity, consistency or predictability in tax regimes had a strong, or at least some, influence in decisions to enter or exit certain countries.

Companies are also increasingly focused on tax social responsibility, with 99% saying they have adjusted how tax is managed in the company due to this factor.

Given the increasing complexity of tax regimes and focus on tax social responsibility Deloitte has found that companies will devote more resources to tax management, especially in countries like China and India where the complexity is acuter.

Companies will also be investing more resources to tax management in those countries critical to their operations like Hong Kong and Singapore. This may be because many multinationals are headquartered in these markets, meaning that they will be “generating significant intercompany flows”.

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