As global taxation is undergoing rapid transformation, a handful of key trends are defining the emerging tax landscape.
Geopolitical events, climate change, the evolution of business models, and social trends drive the tax policy decisions of governments and the business strategies of global organizations. Let us go through some of the most significant trends in taxation in the global landscape.
Firstly, one may observe a continuous evolution of business models. Part of this change is the result of digitization, while supply chains are also being redrawn by changes in macro factors, such as oil prices and geopolitics, and in micro factors, such as evolving technology and local tax changes. Tax undoubtedly remains one of the most important factors to take into account and as organizations change their business models, policymakers will likely in turn adjust taxation to respond to different ways of creating value.
Organizations must look forward and outward and seize the opportunities lying ahead
Secondly, it is a fair statement to make that tax transparency is here to stay: On the one hand, organizations have obligations for targeted tax-related disclosures (e.g. the existing country-by-country reporting (CbCR), the EU public CbCR rules, Mandatory Disclosure Rules etc.), and on the other hand, information on a group’s tax position will also be relevant in the context of the EU Corporate Sustainability Reporting Directive (CSRD) under which organizations will need to prepare extensive sustainability reports as part of their management reports. For tax, this will likely represent a step beyond quantitative data and towards a focus on qualitative information.
Thirdly, the fact that a critical mass of countries have agreed to adopt the game changing principles of BEPS 2.00 Pillar Two for 15% global minimum tax is one of the greatest achievements of the past decades in the field of global tax policy. Significant issues, however, do remain unresolved that could impact further success as currently there is no global consensus on the treatment of incentives.
Fourthly, there is increased use of technology tools and of Generative AI. Tax administrations use Generative AI to evaluate the enormous volumes of available taxpayer data they now have access to that allows them to identify and address significant compliance risks. In addition, organizations’ tax functions have implemented technology providing data analysis and insights closer to real time and use Generative AI to expedite tax compliance, identify potential areas of controversy and obtain instant access to aggregated knowledge enabling tax functions to focus on strategic activities.
Lastly, audit activity has increased, and it is far more aggressive. Transfer pricing issues are the most common type of dispute, followed by interest expense and indirect tax challenges leading to significant adjustments. Organizations must be well prepared to deal with tax audits and make informed decisions about whether to settle or to initiate the various available dispute resolution mechanisms.
The global tax landscape is changing rapidly. Organizations must look forward and outward by monitoring developments, be prepared to comply with new obligations, be confident they can produce the right data to effectively respond to ongoing obligations, and be alert to evolve their business models with as much certainty as possible and seize the opportunities lying ahead.
