Zoya Malik March 16, 2021
The British accounting and tax system is the 11th most complex in Europe, a new report published by TMF Group – making the country a trickier proposition for accountants than Russia, France or Germany. Emina Constantin comments
The report, entitled ‘Accounting & tax: The global and local complexities holding multinationals to account’, analysed the accounting and tax system in 77 jurisdictions worldwide and ranked the UK’s as 20th most difficult globally, sharing that spot with Austria.
Specifically, the new “making tax digital” scheme is one of the small category of digitisation programmes that introduce rather than remove complexity. Focussing on VAT, it creates a net increase in requirements and processes for companies. In addition, the introduction of a digital services tax, and forthcoming changes from Brexit are issues accountants in multinational firms will have to grapple with.
The report highlights many areas where the UK is more competitive than its neighbours. For example, companies deal with one central tax authority, as opposed to countries such as France, Germany, Italy and Spain where firms must liaise with multiple bodies. In addition, UK’s tax system is simpler than that of Germany, where companies must pay different taxes at federal, state, and local level as opposed to the single corporate rate of 19%.
A further driver of complexity for accountants is the United Kingdom’s divorce from the European Union. Emine Constantin, TMF Group’s Global Solutions Director, Accounting and Tax, said: “The UK’s unstable economic outlook and the introduction of greater laws and regulations relating to “economic substance” requirements in the next 5 years because of Brexit impacted on the UK’s ranking. Specifically, the new “making tax digital” scheme is one of the small category of digitisation programmes that introduce rather than remove complexity, at least in the short run. Focussing on VAT, it creates a net increase in requirements and processes to be implemented by companies. In addition, the introduction of a digital services tax, and a series of forthcoming changes are issues accountants in multinational firms will have to grapple with.”
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Globally, additional findings of the report include:
- E-filing and e-reporting technology is advancing quickly across the world, with the COVID-19 pandemic speeding up adoption rates in some jurisdictions. That said, adoption varies considerably from one region to the next. In South America, 70% of jurisdictions have made electronic transaction reporting mandatory, compared to 34% in the EMEA Region and 15% in APAC.
- Alignment to international accounting standards is strongest in North and South America – with 50% of jurisdictions subscribing to International Financial Reporting Standards (IFRS). While in APAC and EMEA, local Generally Accepted Accounting Principles (GAAP) are in place in 71% and 44% of places respectively.
- Governments are taking a more flexible approach to tax audits and filing, particularly in APAC. Companies can extend tax/statutory filings deadlines in 50% of places across the region, and in 43% of places businesses can postpone the start of a tax audit, compared to just 10% of places in South America, for both those criteria.
- Authorities continue to face challenges around managing tax revenues as economies become increasingly globalised and capital flows unconstrained by borders – with multinational digital service providers a particular focus. Many jurisdictions have introduced digital services taxes and profit allocation, ensuring taxes are paid in the country where value is created and preventing companies from moving profits to other jurisdictions. The UK, France, Austria, Italy and Turkey are among those that have already introduced such taxes.
On a global level, the five countries with the most complex accounting and tax systems are: Argentina, Bolivia, Greece, Brazil and Turkey, while the five least complex are: the British Virgin Islands, Denmark, Curacao, Switzerland and Hong Kong.
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As an expert in accounting and tax systems, I bring a wealth of knowledge and experience to shed light on the complexities mentioned in the article dated March 16, 2021, regarding the British accounting and tax system. My expertise is grounded in a comprehensive understanding of global financial regulations, accounting practices, and the dynamic landscape of taxation.
The article discusses a report published by TMF Group, which ranks the British accounting and tax system as the 11th most complex in Europe and the 20th most difficult globally. This report, titled 'Accounting & tax: The global and local complexities holding multinationals to account,' evaluates systems in 77 jurisdictions worldwide, providing valuable insights into the challenges faced by accountants and multinational firms.
One of the key issues highlighted in the report is the introduction of the "making tax digital" scheme, a digitization program that, contrary to simplifying processes, adds complexity, particularly in the realm of VAT. The digital services tax and the aftermath of Brexit further compound the challenges for accountants in multinational firms.
The complexity of the British accounting and tax system is contrasted with some positive aspects, such as the centralized nature of the tax authority, which distinguishes the UK from countries like France, Germany, Italy, and Spain, where companies must interact with multiple bodies. Additionally, the UK's single corporate tax rate is noted as simpler compared to Germany's multi-level tax structure.
Brexit is identified as a significant driver of complexity, impacting the UK's economic outlook and necessitating the introduction of more laws and regulations, particularly relating to "economic substance" requirements in the next five years. The report emphasizes that the "making tax digital" scheme, focusing on VAT, contributes to a net increase in requirements and processes for companies in the short run.
Expanding the scope, the report also provides global insights, revealing trends such as the rapid advancement of e-filing and e-reporting technology worldwide. The COVID-19 pandemic is noted as a catalyst for accelerating adoption rates in some regions. Notably, North and South America exhibit the strongest alignment to international accounting standards, with 50% of jurisdictions subscribing to International Financial Reporting Standards (IFRS).
Governments globally are adopting more flexible approaches to tax audits and filing, with particular emphasis on the Asia-Pacific (APAC) region. The article highlights that APAC governments allow companies to extend tax/statutory filing deadlines in 50% of places, while 43% permit the postponement of tax audits.
Furthermore, the global challenge faced by authorities involves managing tax revenues in an increasingly globalized economy, with attention on multinational digital service providers. Many jurisdictions, including the UK, France, Austria, Italy, and Turkey, have introduced digital services taxes and profit allocation to ensure taxes are paid where value is created.
In summary, the intricacies of the British accounting and tax system, as outlined in the TMF Group report, reflect a broader global landscape of evolving financial regulations, digitalization trends, and the challenges posed by geopolitical events such as Brexit. This information serves as a valuable resource for professionals navigating the complexities of accounting and taxation on both a local and global scale.
