WINNER FARSIGHT AWARD 2014/15 - Clear support for reducing the scope of tax avoidance globally continues to be expanded by austerity budgets, increased public awareness, and, above all, tighter regulatory environments. As a result, long-term shareholder value is at risk for companies engaging in aggressive tax minimisation.
Tax planning techniques are already under threat in two main areas: the use of tax havens and the use of intergroup transactions that are not based on real commercial activity, including intercompany hybrid loans, transfer pricing used in IP royalties valuation and M&A. All jurisdictions, not just those offering secrecy and “harmful tax competition”, face immense pressure to increase transparency and curtail the use of such mechanisms.
Banking has been the most affected sector, with non-cooperation with authorities on the identities of account holders no longer a viable business model for wealth management. While consumer-facing companies and the pharma sector have faced controversies and transfer pricing litigation, respectively, OECD proposals to make digital transactions more transparent mean that cyberspace may no longer be the largest tax haven.
The EC is introducing country reporting legislation for the extractives and banking sectors and further sectors are likely to be added in the long term. In Kepler Cheuvreux's view, country data has myriad uses in financial valuation and ESG analysis beyond tax.