Can a question put us on course to inspire the future?

Transcription

1 Can a question put us on course to inspire the future? Highlights from the Canadian Leaders Forum 2016

2 Inside Can public opinion help shape public policy?...2 Can greater insights be found by understanding the complexity of the global economy?...3 Does a change in government cause a significant shift in tax policy?...4 Can US tax policy and administration withstand systemic disruption?...5 Overheard in the breakout sessions...6 Short-term business travellers...6 Getting blood from a stone...7 More money for the CRA: more auditors, more audits...8 Treaty relief in Canada: what multinationals need to know...8 From BEPS to Brexit: top 10 tax issues around the globe...9 What you had to say: the in-session polling results Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum

3 Two days of better questions in our nation s capital At EY, we re committed to doing our part in building a better working world. And that starts with asking better questions. Better questions are catalysts. They accelerate transformation, prepare us for disruption and lay the foundation for innovation. The better the questions we ask, the better the answers, and the better the world works. It was for that very purpose that EY convened a world-class group of panellists in our nation s capital over two days in September Business, education, political and thought leaders from across North America led robust discussions on a wide range of today s most important business and tax issues. From the state of the Canadian economy to how geopolitical events around the world are impacting Canadian affairs, to tax policy and beyond, better questions generated thought-provoking ideas. Live polling of attendees also fed the discussions. The following are some selected, non-attributed highlights from those discussions. Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum 1

4 Can public opinion help shape public policy? Just as the Harper government didn t have high popularity ratings when times were good, the Trudeau government is still very popular even in these slow growth times. The Forum kicked off with a look at recent figures from polls of Canadians, and what the numbers indicate. Canadians recognize that the economy is sluggish and that growth will remain slow for the foreseeable future. At the same time, an emerging trend shows the traditional relationship between how people feel about government and the economy has changed. No longer do most people hold the government to account for the lackluster economic environment. Just as the Harper government didn t have high popularity ratings when times were good, the Trudeau government is still very popular even in these slowgrowth times. Canadians appear to have accepted the current economic numbers as the new normal. The panellists predicted that the next federal budget may place big bets on innovation in a wide range of sectors in order to attract investment from all corners of the globe. The majority of Canadians polled (84%) believe that seeking international investment should be the Trudeau government s top priority. Respondents also said they believe resources equal resourcefulness, with the majority viewing the nation s natural resources as our greatest asset to attract investment. Following behind are Canada s energy, tolerance, law and order, universities, cities, work ethic, knowledge of the world, stable political and regulatory systems, transport systems, broadband, climate and tax systems. 2 Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum

5 Can greater insights be found by understanding the complexity of the global economy? The global economy continues to grind along at a slower pace every year, but economists consider this the new normal. This panel looked at the current state of the Canadian and global economies. The panellists agreed: while it s been a long road back from the 2008 financial crisis and that US weakness has been a damper on the global economy, they expect to see stronger growth south of the border in the coming year, which would have a positive impact on Canada and the rest of the world. The crash of commodity prices that has so badly hampered Canada s economic growth in the last few years seems to have less of an impact now. The economy will no longer be held back by low resource prices. Europe s economy is faring somewhat better than it has in the past eight years, but the continent still faces numerous challenges, with Brexit one of the most unpredictable. China is doing relatively well, but the country is going through a massive structural transformation something no nation has ever done without some major economic jolts along the way. The global economy continues to grind along at a slower pace every year, but again, economists consider this the new normal, with no expectations for the levels of growth witnessed during the first decade of the 21st century. The International Monetary Fund is predicting 3% growth in the coming year, compared to the average of 4% before the financial crisis. And while that seems optimistic, our panellists agreed that the potential for growth in Canada beyond 2017 is not likely greater than 1.5% per year. Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum 3

6 Does a change in government cause a significant shift in tax policy? The federal government should broaden the taxation base and lower rates, but the Trudeau Liberals are not moving in that direction. Tax policy in Canada had changed since the last EY Canadian Leaders Forum in September At that time, the federal election was still nearly two months away, and polls were showing the NDP in the lead. In their first budget in March 2016, the Trudeau Liberals shifted policy to the centre-left, away from the centre-right under the previous Harper Conservative government. Canada s tax system is basically sound. Some progressiveness in the system is acceptable, but it should mainly be neutral. Canada rates well in the World Bank review of tax systems. Tax revenues should not be used to feed the beast of bigger government spending, but rather to cut rates to drive a more efficient economy. The government should broaden the taxation base and lower rates, but the federal Liberals are not moving in that direction. We need to eliminate double taxation in the system, and to review the relationship between income tax and sales taxes. The government should not have raised the top personal tax rates above 50%, as it could lead to a return of the brain drain as top income earners seek a lower-tax environment. 4 Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum

7 Can US tax policy and administration withstand systemic disruption? A new government provides a fresh opportunity to review integration of corporate and personal taxes and how pension funds are treated, and how all these elements work together. This panel discussed the current and evolving tax policy and administration environment south of the border, and touched on how the outcome of the US presidential election may have an impact. The last five US presidents have had their first major piece of legislation passed in their first or second year in office. The two major party candidates for the White House have very different corporate tax proposals. Hillary Clinton s platform, while weak on details, is projected to result in modest increases in tax revenues over 10 years. Donald Trump s proposals, however, are predicted to result in potential revenue losses of up to US$31b over the same period. The president is only one part of the equation when it comes to tax, and that the new president will have to work with Congress to come to an agreement. The current US corporate tax system is less competitive than other jurisdictions because of a combination of the high statutory tax rate and the worldwide system of taxing foreign earnings. This means US-resident companies may either decide to relocate to more favourable countries through inversions or become vulnerable to acquisition by foreign competitors. There s been significant disruption at the Internal Revenue Service (IRS), with increased responsibilities but fewer resources due to budget cuts. This has resulted in the agency having to find new ways to audit, undertaking more issuesfocused examinations. The upside is that very large companies may no longer find themselves under continuous audit. Fewer taxpayers are being selected based on the size of the business, and the Large Business and International (LB&I) is shifting to a centralized issue campaign process that focuses on how to identify and address compliance risks. These changes could result in the examination of taxpayers that have never been examined or haven t been examined in some time, fewer issues on examination, more IRS personnel involved per examination, remote examinations and examiners, and changes or possible elimination of the Compliance Assurance Program. Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum 5

8 Overheard in the breakout sessions Short-term business travellers Short-term business travellers can create risks for several functions in an organization, including human resources, tax, payroll, finance and legal. Risks can include the following: Senior assignees in certain countries can create permanent establishment risks for the employing entity Non-compliance with complex immigration, withholding tax, social security and other reporting requirements creates a potential for penalty assessment Allegations of tax evasion by an employer or its employees in a particular country can seriously harm an organization s reputation and may impact its ability to operate in that country Employees don t want personal tax and immigration exposure Non-compliance with local legislation can result in failure to properly budget and allocate costs Tax and immigration laws in many countries have criminal penalties, including imprisonment Unknown employees could pose risk of other employment law exposure to the company 6 Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum

9 Getting blood from a stone EY conducted a global tax risk and controversy survey to explore what tax risks companies are facing today. 75% 64% 57% of companies reported they have insufficient resources to cover tax function activities. cited insufficient internal communications. reported a lack of process or technology. 56% 44% of companies agreed or strongly agreed that a lack of effective technology is a contributor to tax risk in their companies. The good news is that of those companies in the survey that have either started, are conducting or have completed a finance transformation process, 72% reported that tax was in scope. of respondents make no use of technology or software tools to enable and support tax modelling. Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum 7

10 More money for the CRA: more auditors, more audits The federal government has dedicated $444m over five years to enhance its crackdown on tax evasion and combat tax avoidance the biggest investment in the CRA in history. This means the government will need to raise additional revenue to pay for the CRA to hire up to 500 additional auditors and specialists. They ll be tasked with targeting criminal tax evaders, increasing verification activities and improving the quality of investigative work. It is noteworthy that the government has already budgeted for an increase in tax revenue of $2.6b over the five years. The CRA is adding 100 auditors to investigate high-risk multinationals. It is also investing $351.6m to improve its ability to collect tax debts, which is expected to increase tax collection of an additional $7.4b over five years, much of it hard to collect due to a lack of bilateral treaties. With the increased volume of audits, CRA auditors are supposed to just be examining 1+1 current-year taxpayer information plus one year back. However, this is not necessarily being seen in practice consistently across the country. The CRA is also increasing its scrutiny of taxpayers entire global operations, emboldened by the OECD s base erosion and profit shifting (BEPS) initiative. It s far ahead of other countries tax authorities in this respect. Treaty relief in Canada: what multinationals need to know Across OECD Member Countries, new mutual agreement procedure (MAP) cases grew on average at 10% per year between 2006 and 2013, with an average of 1,459 new MAP cases per year. Assuming continued 10% growth, which is without considering the amplifying impact of BEPS, there would be 3,691 new cases per year by % more than in The majority of international tax disputes are transfer pricing. In Canada, when there s a transfer pricing dispute taxpayers are more likely to seek treaty relief via MAP where it s available rather than dealing with CRA Appeals, as the CRA has limited Appeals resources to deal with transfer pricing cases. If, however, a taxpayer were to consider Appeals recourse first, they may have to subsequently consider MAP due to a sustained transfer pricing adjustment. Advance pricing agreements (APAs) are a viable option for treaty relief and tax certainty for recurring transfer pricing disputes. A bilateral APA is a process whereby both countries governments and the taxpayer develop a transfer pricing methodology which all parties agree upon. APAs can resolve some of the most contentious transfer pricing cases, and taxpayers have more input in the process than traditional MAP proceedings. Canada-US arbitration procedures are having the desired effect. Cases are being resolved earlier than in the past and not languishing for years, and few cases have gone to arbitration. 8 Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum

11 From BEPS to Brexit: top 10 tax issues around the globe Engagement by countries around the world in the OECD s Base Erosion and Profit Shifting (BEPS) project has been extensive and is expanding. On 23 February 2016, the OECD invited all interested jurisdictions to participate in its BEPS project as BEPS Associates. They would stand on an equal footing with the G20 and OECD member countries on the remaining standard-setting under the BEPS project, and the review and monitoring of implementation of the BEPS package. The new, expanded group held its first meeting in June, with an initial focus on the implementation of the four BEPS minimum standards with respect to harmful tax practices, treaty abuse, country-by-country (CbC) reporting and crossborder tax dispute resolution. The EU has been very active in following the BEPS initiative. It has passed an extensive anti-tax-avoidance package, among other measures. All member states have agreed to the package. As for Brexit, it will result in changes to customs and trade practices between the UK and the EU. Trade with EU members may be restricted trade barriers (tariff and nontariff) require negotiation. The customs compliance burden may increase; rulings and EU-wide authorizations under EU legislation will lose their validity outside the UK. It s uncertain what will happen to trade with non-eu countries. Trade barriers (tariff and non-tariff) require negotiation. See you next year! We hope you enjoyed this year s Canadian Leaders Forum and came away with new ideas and perspectives. We ll continue to generate better questions as we plan for next year s event, and we hope you ll join us once again. Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum 9

12 What you had to say: the in-session polling results We asked and you answered. And here s what you told us about what you think about current hot topics in Canada and globally. Canadian and global economic update 1. Where do you see the greatest business opportunities? 2. How fast will the Canadian economy grow in 2017? 2% 15% 3% 18% 6% 13% 36% 63% Domestic North America Global All of the above None of the above 45% 1% or less 1.50% 2% 2.5% or higher 3. What is your expectation for Canadian inflation in 2017? 4. How quickly will your own business grow in 2017? 11% 7% 13% 24% 21% 26% 44% 1% or less 1.50% 2% 2.5% or higher 55% No growth or contraction Up to 5% Up to 10% 10% or higher 10 Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum

13 Some totals may not add up to 100% due to rounding. Tax policy 5. What are the biggest barriers to your business growing? 6. Which response most closely reflects your expectations concerning the tax expenditure review? 0% 10% 5% 18% 16% 25% 26% 25% 9% Taxes Regulatory Access to foreign markets Competition from China, US, elsewhere Skilled labour Other 11% 55% Most tax expenditures will be eliminated Many tax expenditures will be eliminated A few tax expenditures will be eliminated No tax expenditures will be eliminated Undecided 7. Should the Government of Canada commission an independent, comprehensive and broad-based review of the entire Canadian tax system? 8. What is your view concerning the importance of tax competitiveness as a determinant in deciding the location of global business investments? 15% 2% 4% 5% 12% 32% 32% 40% Strongly agree Agree Disagree Strongly disagree Not sure 59% Most significant determinant One of the more significant determinants Moderate determinant Very minor determinant The evolving tax policy and tax administration landscape in the US 9. Will tax reform in the US help you resolve any of your current tax controversy issues? 10. In the next two years, do you expect increased IRS tax examination scrutiny in your company? 12% 19% 10% 9% 33% 36% Yes Maybe No Not applicable 34% 12% 2% 33% Increase significantly Increase somewhat Decrease significantly Decrease somewhat Same Not applicable Can a question put us on course to inspire the future? Highlights from the 2016 Canadian Leaders Forum 11

14 How do you erase borders and create global opportunity? Find out how EY s international tax advisors can help you with your complex global tax issues. ey.com/ca/tax #BetterQuestions

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16 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com/ca Ernst & Young LLP. All Rights Reserved. A member firm of Ernst & Young Global Limited ED none This publication contains information in summary form, current as of the date of publication, and is intended for general guidance only. It should not be regarded as comprehensive or a substitute for professional advice. Before taking any particular course of action, contact Ernst & Young or another professional advisor to discuss these matters in the context of your particular circumstances. We accept no responsibility for any loss or damage occasioned by your reliance on information contained in this publication. ey.com/ca