As economic conditions improve, CEOs have felt an improvement in consumer and creditor trust in their industry, but there is still much work to be done - and a significant proportion of that work revolves around taxation. Explore this issue further.
CEOs are far more optimistic about the global economy – 44% believe that the economic environment will improve in the next 12 months, compared with just 18% in 2013 – but are less convinced that their own organisation will be able to capitalise on the improvement. Just 39% said they were ‘very confident’ that their organisation’s revenue would increase in the coming year. This is undoubtedly because the search for growth has become far more complicated, with a few developed economies recovering strongly while growth in some BRIC nations has slowed.
CEOs are reviewing where they do business. The US, UK and Germany have become more attractive while the attractiveness of some BRIC nations has waned. Many CEOs are looking further afield to Indonesia, Mexico and Turkey as locations for investment. Many things impact decisions on location, such as resources and skills, infrastructure, customer demand and political stability. But CEOs are very clear that the tax regime of their target business location is also an important factor – 63% said they consider the competitiveness of the local tax regime when deciding where to operate. This has led to tension for Governments, who have had to balance the need to attract investment, long-term growth in jobs and sustainable sources of tax revenues while also generating short-term tax receipts.
The need to manage total tax costs has become a primary concern for multinational corporations in an increasingly competitive global market. As CEOs expand their operations at home and abroad, the tax burden (not only the tax cost itself, but the cost of compliance) is seen as a major potential barrier to growth; 70% of CEOs name the impact of tax and its potential to affect growth as a concern, an increase from 62% last year. Of course whilst much of the public commentary on taxation is on profits taxes, what is important to businesses (as both a cost and contribution) and to Governments (as a vital revenue source) is the total taxes paid by business.
While the tax burden is a serious concern, CEOs are extremely aware of the ongoing need to rebuild and nurture the trust between business and stakeholders. 49% said that a lack of trust in business was hampering their prospects for growth, an increase from 37% 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.
Three-quarters agreed that it was important that their company was seen to be paying its ‘fair share’ of tax. What is or isn’t a ‘fair share’ is of course open to wide differences of opinion. Ultimately, Governments decide on what they believe are the right policies to underpin a fair tax system. 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.
As far as business leaders are concerned, tax reform is the single biggest issue that needs to be addressed; 65% said that the international tax system hasn’t changed to reflect the way multinationals do business today. Add to that the need to rebuild public trust in the system and initiatives like the OECD action plan – and the active participation in it by business and Governments – become all the more important.
In this year’s CEO Survey, 80% of CEOs questioned expressed an opinion on tax issues when asked indicating that tax is moving up the corporate agenda. And “creating a more internationally competitive and efficient tax system” came joint 2nd in CEOs’ views on the areas Governments should prioritise in the country where they’re based. Many were supportive of the principle of greater transparency around tax as a way of building trust and over half were open to proposals put forward by the OECD and G20.