Indirect Taxes May Surge Globally

KPMG International survey shows multinationals preparing for higher VAT, other levies, as global tax rates generally fall.
Stephen TaubMay 29, 2008

Multinational corporations are preparing for a surge in indirect taxes from governments, according to a global survey of senior finance executives.

With corporate tax rates generally declining around the world, three quarters of major global businesses believe that governments will rely more on indirect taxes such as the value-added tax (VAT) or general sales taxes, according to the survey commissioned by KPMG International.

In fact, 82 percent of those who responded indicated that their organization’s annual “VAT throughput” was between $200 million and $1 billion per year.

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“Indirect tax is becoming increasingly important for global businesses as corporate tax rates decline,” said Niall Campbell, a KPMG partner and global head of Indirect Tax.

KPMG’s survey was carried out for it by Lighthouse Global, and consisted of 521 telephone interviews with senior finance professionals at large multinational companies. Of those, 40 percent were finance directors and the remainder were senior tax or VAT directors or managers.

The increasing reliance on VAT has come with an additional cost — VAT errors. In fact, half of the survey respondents rated errors in VAT compliance as the top global tax risk for their organization, significantly ahead of corporate tax risks (38 percent).

“The levels of VAT which global businesses are now handling are quite staggering and are clearly causing finance directors and tax directors real concern,” said Campbell. “As the cost of getting VAT wrong is so material, it makes sense that errors in VAT compliance have now been identified as the biggest tax risk for these businesses — quite a shift in attitudes away from the traditional focus on corporate and income taxes.”

Not surprisingly, then, the senior financial executives singled out complex VAT legislation as the number one issue for global businesses in the next five years, concerning two thirds of those interviewed. This was closely followed by compliance obligations (55 percent concerned) and the threat of penalties (45 percent).

Asked to name the key priorities for effective VAT management, the respondents cited investment in training and technology to raise employee awareness.