Upward tax pressure awaits multinational tech companies

Multinational technology companies are going to see significant upward pressure on their global tax rates in 2016 — some of them, even sooner, according to a report ‘the dawning of digital economy taxation’ by E&Y.

This stark conclusion which aims to awaken the new realities of digital economy taxation is not arrived at lightly, but “it is the product of several inexorable changes occurring as policymakers worldwide usher in digital economy taxation.”

“Companies will need time to make the most tax-effective transition from where they are today to where they will have to be in late 2015 to 2016,” Channing Flynn, EY global technology industry tax leader said in the report.

Currently, countries around the world are adopting new tax laws or dramatically changing the way they interpret existing laws and bilateral tax treaties for an increasingly digitised, globalised economy.

The tax changes reflect governments’ attempt to catch up with new cross-border business models employing borderless cloud computing and other cutting edge technologies.

They are also being driven from the top down, by the Organisation for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Project, whose new international tax models are expected to be finalised this year.

“CFO engagement in tax matters has always been critical but is even more so today,” said Stephen Bates, international tax principal, Ernst & Young LLP.

He noted that tax departments should already be communicating to upper management and the board that increased tax scrutiny and cost is coming.

“Multinational technology companies need to be fully aware that global effective tax rates are trending upward — how much remains an open question. Those tax practitioners and international finance executives that prepare now will be in the best position to influence the answer for their own companies”, according to EY’s international network of tax and technology professionals who helps companies understand today’s fast-paced developments toward new digital economy taxation.

Iheanyi Nwachukwu