Global Tax Policy

Stakeholder interest in tax affairs of large MNEs continues to be high and businesses are increasingly expected to volunteer more information about their approach to the management of tax and its outcomes. As governments continue to seek tax revenues and fight tax avoidance, there is also a proliferation of mandatory disclosure regime. This leads to ever increasing complexity and compliance burden for businesses, impacting productivity. At the same time, tax authorities may lack capacity to effectively utilize the reported information. Recently, some countries began to seek simplification of tax compliance to stimulate growth.

The digitalization of tax processes and advancements in AI/Generative AI are beginning to have an impact on taxpayers, tax authorities and tax advisors, while the governments are only beginning to consider regulation of AI. Tax Administration 3.0, encompassing a digital transformation of a traditional tax authority, with a real-time collaborative approach to tax compliance, paves the way to more streamlined and efficient processes for both sides. E-invoicing, e-trade, new digital products and services all present opportunities and challenges for the global tax community.

Tax policy plays an important role in the international efforts on combating climate change and achieving sustainability and encompasses various initiatives, such as the OECD’s Inclusive Forum on Carbon Mitigation Approaches, Carbon Border Adjustment Mechanisms (CBAMs), and Emissions Trading Systems (ETS). However, as countries adopt their own programs of ’green’ grants and incentives, environmental taxes and carbon pricing strategies, challenges emerge in the form of trade disputes. Ultimately, the ambitious objective is to reach a global consensus on carbon pricing. This is an area of collaboration between tax, trade and regulation.

The global tax policy landscape is changing with the OECD’s Pillar Two introducing a whole new international tax system. Countries are responding, including by implementing new corporate taxes and considering new ways of competing for investment. At the same time, the UN is proposing an alternative approach aiming to be more inclusive for developing countries. Meanwhile, Pillar One (re-allocation of taxing rights) adoption is taking longer than planned, raising questions about re-introduction of digital service taxes. Staying informed and adaptable is crucial for businesses and governments to navigate these complexities.

How we work and where we work is changing. The rise of remote work across borders requires a coordinated approach to address complex tax issues around permanent establishments, profit allocation, VAT, immigration rules and employment law. It can also address issues like base erosion and profit shifting (BEPS) by multinational enterprises, promoting a more equitable global tax system. Internationally, G20, OECD, IFA, and UN are engaged, but no coordinated global approach has been developed.

Progressive tax policies, which tax higher earners at a higher rate, can help to reduce income inequality by redistributing wealth and funding social programs. However, the effectiveness of tax policies in addressing wealth inequality is a complex issue with varying perspectives.

The evolving landscape of global trade and tariffs is at a pivotal stage. Significant shifts in trade strategies have emerged, underscoring the importance of tax policy as a significant lever in this fast-moving area. As these developments rise to the top of the agenda for governments and C-suite executives, a strategic understanding of the implications is essential for navigating the complexities.