Global MNC Tax Complexity Survey

What is Tax Complexity?

We understand tax complexity to be a feature of the tax system that is characterized by two sub-constructs:

Source: Intertax, Volume 46, Issue 8/9 (2018), p. 668

2022 Survey Results

Overall Tax Complexity

As a first step, participants had to evaluate the relevance of tax complexity in their country in the past, present, and future:

In less than half of the countries (49.47%), respondents, on average, indicate that tax complexity has substantially increased in the last two years.

On average, the respondents of most countries do not agree that tax complexity has only negative implications for MNCs. This shows that complexity is not negative per se.

The respondents in the majority of countries, on average, do not agree with the statement that tax complexity will force MNCs to shift their business activities to other countries. However, respondents in almost 15% of the countries do, on average, agree with this statement. Although this finding seems to be somewhat ambiguous, it still implies a call for action for policy makers to reduce tax complexity.

Individual responses are aggregated at country level. If the resulting country-level aggregate of responses lies between two response categories, it is attributed to the nearest category.

Tax Code Complexity

Transfer pricing is perceived as the most complex tax regulation

Of the 15 tax regulations examined, transfer pricing is perceived as the most complex: for 65 of 95 countries, it was ranked as most complex. This is in line with transfer pricing being one of the main concerns of the OECD’s BEPS project. Moreover, it is currently one of the core features of the OECD’s Pillar 1, which shall serve to fight tax avoidance and enhance the fair allocation of tax revenues across countries. However, Pillar 1 also has the potential to further increase tax complexity of transfer pricing. The aim of tackling tax avoidance also applies to general anti-avoidance regulations as well as to controlled foreign corporation rules, which, together with transfer pricing, are among the most complex regulations.

Individual responses are aggregated at country level. The analysis only includes countries in which the respective regulation is considered existent.

Record keeping contributes most to complex tax regulations

On average, record keeping is perceived as the driver which contributes most to the complexity of tax regulations. Hence, keeping many records and documents to substantiate tax claims or to complete tax returns seems to be the greatest challenge in the application of tax regulations.

However, individual regulations may be affected differently by the drivers of tax complexity, which is outlined by a closer look at the three most complex regulations: The main driver of the complexity of regulations on transfer pricing, controlled foreign corporations and corporate reorganization is record keeping. The complexity of those regulations is least driven by change.

Individual responses are aggregated at country level. The analysis only includes countries in which the respective regulation is considered existent.

Tax Framework Complexity

Tax Audits

Tax audits describe the examination of the tax returns by the tax authority as well as the extent to which they can be anticipated and prepared by MNCs.

In 60 of 95 countries, lacking or only limited disclosure of selection criteria for tax audit targets is, on average, perceived as the most serious problem in the anticipation of tax audits. This lack of transparency in selection criteria seems to challenge MNCs.

Rules or written guidelines that clearly outline the tax audit process exist in about three quarters of countries. Even though this suggests uniformity in the performance of tax officers, in 70 of 95 countries the inconsistency of tax officers’ decisions is perceived as the most serious problem in the tax audit process. This contrast may exist because tax audit guidelines often leave discretion to tax officers, which leads to varying decisions on similar cases from officer to officer or even inconsistency with the same officer.

Individual responses are aggregated at country level.

Influence of Digital Technologies in 2022

Digitalization is fundamentally reshaping many legislative and administrative processes world-wide. Nevertheless, not all processes are affected in the same way. Therefore, we included a new question in our 2020 and 2022 survey about the extent to which digital technologies have changed the different processes and feature of the tax framework.

In 77 of 95 countries, filing and payment has changed the most due to the use of digital technologies in the last two years. For example, both the remittance of tax payments and the transmission of tax returns are rather standardized procedures in which digital technologies can be introduced comparably easily.

The dimension of the tax framework least affected by digital technologies is appeals. Despite efforts by the OECD to make appeals, and more specifically MAPs, more efficient, the high level of perceived complexity of appeals indicates that there is still room for improvement in the digital access to appeal procedures.

Individual responses are aggregated at country level.

OECD Countries in 2020 and 2022

The Organisation for Economic Co-operation and Development (OECD) is one of the main players in the international tax environment. In the following section, we therefore present the major changes in tax complexity in 2022 as compared to our 2020 Global MNC Tax Complexity Survey for the OECD member countries. The 38 member countries are among the most developed countries worldwide and almost exclusively represent high-income economies.

In 2022, respondents in the vast majority of OECD countries, on average, agree or strongly agree with the statement that tax complexity has substantially increased within the last two years. This majority of 67.56% of respondents who agree or strongly agree to the statement above in 2022 is almost identical to the 2020’s share of respondents (63.89%). In no OECD country respondents disagree with the statement that tax complexity has substantially increased for MNCs in the last two years in 2022. This constitutes a decrease compared to 2020 (5.56%).

Our results indicate that respondents in more OECD countries, on average, agree that tax complexity has substantially increased in the last two years (see above). In addition, we observe that tax complexity has an increasing impact on MNCs’ business location decisions. Respondents in OECD countries in 2022, on average, disagree less (11.71 percentage points) with the statement that tax complexity will be one factor forcing MNCs to relocate their business activities to other countries. In fact, 10.81% of respondents from an OECD country agree with the statement that tax complexity is a factor driving MNCs to relocate their business activities (vs. 0% in 2020).

Individual responses are aggregated at country level. If the country response lies between two response categories, it is attributed to the nearest category.

The OECD countries are: Australia, Austria, Belgium, Canada, Chile, Colombia, Costa Rica*, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland*, Ireland, Israel, Italy, Japan, Korea (South), Latvia, Lithuania, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.

*Please note that in the subsequent analysis, Iceland is not included in the sample for lack of data. Also, Costa Rica has only become an OECD member in 2021 and is therefore not included in the 2020 dataset. This leaves us with a sample of 36 OECD countries in 2020 and 37 OECD countries in 2022.

Acknowledgements

We thank the following participants for supporting us and taking part in the 2022 Global MNC Tax Complexity Survey!

The researchers

The following researchers from LMU Munich and Paderborn University were involved in establishing and conducting the 2022 survey and analyzing the data.

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