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'Surprise tax rulings are toughest challenge to corporates'
December, 14th 2007
Tax and death are two certainties in life, but its the uncertainty about what could be coming from the taxhounds that makes corporates die a thousand times.

In a survey by PricewaterhouseCoopers, 61% of the organisations have named unpredictable rulings by tax authorities as the toughest tax risk challenge to corporates, especially the multinationals. The lack of clarity in tax laws is giving India Inc sleepless nights.

Conflicting judicial positions and frequent changes in tax laws were other areas of concern, PwC executive director Ketan Dalal said while releasing the survey.

With litigations lasting for 12-15 years, overhauling the tax administration and dispute resolution mechanism are the need of the hour, Mr Dalal said.

Income-tax, which directly hits bottom line, is top of the corporates tax woes list. New kid on the tax block, service tax is the other item that keeps the companies on their toes.

Corporates perceived loss of image due to non-compliance as more damaging than loss of investors confidence or financial penalties in the event of a default.

For MNCs, transfer pricing taxation is the most important potential risk while IT/ITeS firms are more worried about M&As.

Interestingly, only about 16% of the firms surveyed were ready to litigate for settlement in case of a tax dispute.

Talking about the advance ruling window, Mr Dalal said it could be an option but not many companies would be ready for it as they apprehend an unfavourable ruling would close the doors for further appeals, he added.

When asked to compare the prevailing tax administration scenario in the country with that elsewhere, Mr Dalal said, India needs to mature in case of tax administration and laws.

About 95% of organisations acknowledge the importance of managing tax risk, though it remains an ad hoc process, and if carried in an unlinked manner, it may pose a much greater risk to the organisation in future.

The 8-month-long Tax Risks in India survey covered 81 large Indian and multinational companies.
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