Corporate tax managers have had to negotiate their way through heightened turbulence ever since the Trump-led tax cuts and the Jobs Act became law in 2017. Today’s hot-button issue is the ongoing Organisation for Economic Co-operation and Development (OECD)-led global effort to impose a minimum 15% tax on corporate profits and tighter rules for transferring profits between nations. The goal is to hamper multinational companies from hiding their gains in offshore tax havens.
However, that was just one of five key issues cited by the 1,012 tax managers and CFOs participating in Deloitte’s latest global tax policy survey as having the greatest current impact on corporate tax policy. And it wasn’t the top issue, perhaps because reporting and filing requirements for the Global Minimum Tax (GMT) measure are not expected to take effect until at least 2025.
Transparency and Reporting
Companies are operating under heavy and growing pressure from jurisdictions around the world to be more transparent about their taxation. More than two-thirds (70%) of survey participants said they expect an increase in public reporting in the coming years, driven in part by new county-by-country reporting requirements.
In fact, though, many are looking to report more than is required under current rules. “This fuller reporting may be driven by respondents’ desire to ensure their wider stakeholders understand the context and circumstances underlying the tax data,” Deloitte wrote in its survey report.
Challenges in executing tax transparency strategies start with the need to provide comfort to senior leadership and also encompass issues related to governance, data, risks, and an understanding of applicable rules, Deloitte said.
Digitalization of Tax
A key element of tax digitalization is “Tax Administration 3.0,” an OECD-proposed model for IT governance. Its core aspect is that tax would not be computed by taxpayers but rather by algorithms embedded in taxpayers’ digital devices.
Overall, survey respondents said they expected the transition to bring improved customer service, a more collaborative relationship with tax authorities, few and more efficient tax audits, and less time and expense on tax compliance, Deloitte said.
Still, none of those outcomes were rated particularly highly, Deloitte added, and a third of respondents expected an increase in both cost and complexity.
“This lukewarm assessment of benefits may be due to different perceptions around the world of what Tax Administration 3.0 entails and a lack of clarity on potential outcomes,” Deloitte wrote.
About two-thirds of survey takers said they expected AI to be widely used for tax compliance within the next three years.
International Tax Reform
Deloitte expressed mild surprise that international tax reform didn’t rank higher on the list of tax managers’ concerns. “In our view this is likely a question of timing, with impact of reporting and filing not being felt until 2025,” report said.
More than 140 countries representing over 90% of the global economy have committed to implementing the Global Minimum Tax — also known as base erosion and profit shifting (BEPS) Pillar 2 —proposed by the OECD.
“The global international tax scene has been dominated in recent years by the development of the OECD’s BEPS Pillar One and Pillar Two initiatives, such that we might have expected these issues to be at the top of priority lists across the board,” Deloitte said.
However, countries are in various stages of ratifying GMT/Pillar 2 and drafting legislation to implement its provisions. Notably, the United States hasn’t yet begun the process. “Companies, countries, and those who advise them are still coming to grips with evolving updates, requirements, and implications,” the report observed.
The Future of Work
A range of tax implications are in play with respect to remote working. Three-fourths (75%) of those surveyed identified corporate tax issues related to permanent establishment (where a company has an ongoing, stable presence in a jurisdiction outside its home base) and transfer pricing as one of their top three regulatory concerns for international remote working.
VAT and social security taxes both came in at 65%, while 48% of respondents cited employee tax options as a top 3 regulatory concern.
“Cross-border remote working is a relatively new trend, and international tax regulations and frameworks have yet to be developed,” Deloitte noted. “But organizations such as the International Fiscal Association, the U.N. and the OECD are now looking at the subject.”
Climate and Sustainability
A large majority of survey participants (83%) said they expect ESG initiatives to affect their tax function. Most of those (84%) expect the greatest impact from taxes on energy consumption, Deloitte noted, with a third expecting only a minor impact from taxes on waste and pollution.
