Critical factors shaping the international tax regulations for corporations
Corp tax managers have been navigating stormy waters ever since the Trump-led tax cuts and the Jobs Act became law in 2017. Today, they're tackling the ongoing OECD-led global initiative to impose a minimum 15% tax on corporate profits and tighter rules on international profit transfers, aiming to curb multinationals from stashing their gains in offshore tax havens.
But this was just one of five major issues surfaced in Deloitte's latest global tax policy survey, impacting corporate tax policy the most. And guess what? It wasn't the top issue, perhaps because the reporting and filing requirements for the Global Minimum Tax measure won't kick in until at least 2025.
1. Ramping up Tax Transparency
Businesses are facing increasing pressure worldwide to open up about their taxation, with 70% of survey participants anticipating a jump in public reporting in the near future. Aside from new reporting requirements, many companies are going the extra mile, sharing more details to ensure broader stakeholders understand the context behind their tax data.
But implementing tax transparency strategies isn't a walk in the park. It involves wooing senior leaders, nailing down governance, managing data risks, and understanding the applicable rules.
2. Embracing the Digital Tax Revolution
The OECD's proposed Tax Administration 3.0 model represents a significant shift: instead of taxpayers calculating their tax liabilities, tax algorithms embedded in digital devices will do the heavy lifting. While tax digitalization promises improved customer service, a more collaborative relationship with tax authorities, fewer audits, and reduced compliance time, the reality is a bit more convoluted. The benefits are appreciated but not universally celebrated, with half expecting complexity to increase.
Interestingly, around two-thirds of participants believe AI will dominate tax compliance within the next three years.
3. International Tax Reform
It's a surprise that international tax reform didn't rank higher on tax managers' agendas. With over 140 countries, representing 90% of the global economy, committed to implementing the Global Minimum Tax, the international tax landscape is undergoing a seismic shift. However, countries are still in various stages of ratifying and implementing the required provisions. In the U.S., the process hasn't even started yet.
4. The New Normal: Remote Work and Tax Implications
A plethora of tax implications are emerging as a result of the rapid shift to remote working. Three-fourths of surveyed professionals have identified corporate tax issues related to permanent establishment and transfer pricing as one of their top three regulatory concerns for international remote working. VAT and social security taxes follow closely behind, with employee tax options still on the radar.
Cross-border remote working is still largely uncharted territory, and international tax regulations are yet to catch up. But various organizations, such as the International Fiscal Association, the U.N., and the OECD, are already probing the issue.
5. Climate and Sustainability
ESG initiatives are anticipated to affect taxes. Most respondents expect the greatest impact from energy consumption taxes, with a third expecting a minor impact from waste and pollution taxes. As sustainability dialogues and regulations continue to evolve, businesses must remain nimble and adaptable to stay ahead of the curve.
In the ever-changing world of corporate tax policies, understanding these key themes will help tax managers stay afloat and anticipate the waves that lie ahead. So, keep your eyes on the horizon and stay tuned for more updates as the tax landscape continues to evolve.
- Although the Global Minimum Tax measure will not take effect until at least 2025, 70% of survey participants anticipate a surge in public reporting about taxation in the near future.
- The OECD's Tax Administration 3.0 model, which involves tax algorithms embedded in digital devices calculating tax liabilities, promises improved customer service and reduced compliance time, but half of the survey participants expect complexity to increase.
- International tax reform, with more than 140 countries committed to implementing the Global Minimum Tax, is undergoing a significant shift, although countries are still in various stages of ratifying and implementing the required provisions.
- In the shift to remote work, three-fourths of surveyed professionals have identified corporate tax issues related to permanent establishment and transfer pricing as one of their top three regulatory concerns for international remote working.
- Most respondents expect energy consumption taxes to have the greatest impact on taxes from ESG initiatives, while a third expect a minor impact from waste and pollution taxes.
- The increasing focus on tax transparency requires companies to woo senior leaders, establish governance, manage data risks, and understand applicable rules to implement their strategies successfully.
- In the sports industry, hemp-based products could be of interest due to their potential benefits in areas like wearable technology and athlete recovery, although taxes and regulations associated with hemp are not yet well-defined.
