Multinationals told to wake up to tax threat

(First Edition)

BUSINESSES operating across national borders must start a fundamental re-think of the way they are structured to counter the changing tax environment, says Ernst & Young, the accountants and management consultants.

The firm, which attracted 450 delegates from a range of companies to its annual tax conference in London yesterday, believes the moves are necessary because nearly every leading economy has either introduced or is planning important changes to the taxation of multinationals.

Among changes already made are the introduction of a draconian penalty regime into US regulations on transfer pricing, or the price at which components or products are traded between different parts of the same organisation, and alterations to the tax treaty between the United States and the Netherlands that may mean that the latter is no longer the country through which international structures should be focused.

John Fairley, the partner in charge of Ernst & Young's London-based international tax group, said: 'The challenge for tax planners in the 1990s is to create new structures to reflect the changing business and regulatory environment.'

In particular, he said that on a global basis tax authorities were responding to the growth of international trade by introducing ever more complex legislation, narrowing the benefits available through tax treaties and co-operating to minimise the impact of planning techniques.

Kevin Paterson, a partner in the firm's financial services group, told the conference that it would be increasingly essential for tax planning to be better integrated into the business planning process than in the past.