Is it the correct time to rethink corporate tax system? This is the question which most managers are asking themselves considering the fact that corporations view taxes as a painful but necessary cost of carrying out their business.
Most corporations are now coming up with new methods of maximising their profits so as to counter the new changes in corporate tax system. These changes such as global tax-reduction opportunities, sophisticated tax shelters and high-priced finance have now forced corporations to turn their tax function into a profit centre.
There’s plenty of evidence showing how tax function within corporations has changed from being a compliance function to a profit centre. Corporations are now disconnecting their income reports to capital markets and tax authorities.
This has been made possible thanks to the dual-book system that allows organizations the opportunity of characterizing profits to tax authorities and capital markets separately. Through this system, firms no longer appear worse off to the IRS since they have two points of view on their economic situation.
There are several reasons as to why managers are now changing how they view corporate tax system and enlisting tax advisory Singapore from the pros. First and foremost, financial engineering has tremendously led to cheap re-characterizations of income for book and tax purposes. This has led to the disappearance of tax obligations in firms without strain.
Secondly, the growing global reach of companies and falling costs of global transactions has made managers to re-consider their tax system. Initially, many firms only worked within the country of operation and had no exposure to the outside world. But globalization has led to low costs of financial transactions meaning profits can be reallocated to lower tax jurisdictions.
Last but not least is the fact that there is change in patterns of incentive compensation. This change has sharpened incentives to the point that they can generate profits out of parts of the firm. This could not be possible considering most firms had to count on the same incentives while performing their business.
Rethinking the corporate tax system is a good thing for shareholders as it tends to reduce their burden. Actually, if the shareholders are the recipient of all this value, then it would basically mean a transfer from tax authorities to shareholders. But the extent to which shareholders benefit has not been clearly evaluated. No wonder much more of tax advisory Singapore is required in this regard.
