Globalisation, digitisation, and ESG will continue to affect tax preparation in 2022
To manage the rapid pace of global tax legislation, businesses like Siemens and Uber are among those that are changing their tax strategies.
Globalization, digitalisation, and ESG, according to experts, are still impacting company strategy in 2022 as governments establish and rewrite legislation to meet the complicated global economy.
These three key legislative change catalysts, according to the "big four" advisors, are increasing the complexity of handling international tax for their multinational customers.
According to Kate Barton, vice chair of tax at EY in Boston, "there is an unprecedented amount of legislation coming out as a result of those drivers. It is important for all clients to take note of them."
Taxpayers claim that worldwide legislative reforms, such as the Inflation Reduction Act passed by the US Senate, are not slowing down and that such measures will refocus the efforts of key tax authorities.
The first significant factor is globalization, which has increased the interconnectedness of governments and nations, meaning that the results of policies in one one may have repercussions in another.
According to Barton, the implementation of the Inclusive Framework and the post-BEPS climate boosted the EU's influence over issues related to international tax policy. The crisis between Russia and Ukraine is the most recent event to bring attention to the bloc's international policy amid inflation and supply chain issues.
Barton continues, "There have been geopolitical shifts in policymaking, particularly in the last couple of years."
Since the dispute has brought attention to the necessity of supply chain security through tax reform, nations are debating whether to take unilateral action or join global tax efforts. Taxpayers anticipate further international initiatives involving nations outside the Inclusive Framework, like the OECD's two-pillar approach, to be implemented.
Even though the US introduced the Tax Cuts and Jobs Act of 2017 and played a key role in the OECD's pillar two negotiations in 2021, the US's influence in policy discussions has decreased as Europe has advanced a directive on pillar two and public country-by-country reports (CbCR), both of which are significant revisions to corporate tax planning.
Even without public CbCR, Europe already has one of the most sophisticated tax transparency setups in the world, according to Barton.
According to sources, reforms in Europe and North America have given tax authorities in other countries more confidence. Because of the European Council decision on guidelines to combat the exploitation of shell corporations, which was released in December 2021, Indian authorities, for instance, are more demanding of substance criteria.
In order to demonstrate the quick speed of legislative change, Vikas Garg, director and head of indirect tax at Siemens India in Mumbai, refers to developments in India's goods and services tax (GST) system from 2017.
"A sore point for many companies has been the rapid pace of compliance requirements," according to Garg.
"The government was much more accommodating to taxpayers during the first three years of the GST regulations, but tax authorities have become more aggressive in their enforcement," he says.
"The gap in compliance and the frequency of changes in tax laws creates mistrust between businesses and tax authorities, and we have seen the government issue hundreds of tax notifications and circulars to clarify their own regulations in the last five years," he argues.
The second major force for change is the digital revolution, which has given businesses with direct-to-consumer business models a number of previously unheard-of tax benefits. Due to the absence of a physical presence, the model enables enterprises to access international markets with minimal to no tax obligations.