A path forward: Five priorities for tax leaders
Being resilient and ready for the year ahead
Article by Albert Baker | Posted: 21 Jan. 2021 ⌚ 4 min. read
- Tax relief and fiscal measures
- OECD Pillar One and Pillar Two
- Digital Services Taxes
- Beyond COVID legislation
- Transfer pricing
As we start 2021, amid a surge in COVID-19 cases, many governments have started reinstating lockdown measures. While optimism is rising with the rollout of vaccines in a growing number of countries, the personal and financial fallout from the pandemic remains high on the priority list for policy makers. As addressed in the Deloitte article, “Recovery from the COVID-19 crisis. What role will tax policy play?”1 tax policy has—and will—continue to play an important role in addressing this fallout and building back economic strength.
Tax relief and fiscal measures
Many countries have implemented tax and non-tax emergency measures to support individuals and businesses. Some of those temporary measures have expired, some have been extended, others have been modified with more targeted measures, and some have been replaced with new regimes.2 As a result, many countries have significantly increased levels of debt due both to funding of emergency measures and a loss of tax revenue with the contraction of economic activity. However, most are not yet prioritizing the repayment of debt. Instead, and wisely, governments for the most part are focused on measures to support individuals and businesses and to stimulate growth.
Businesses still need to keep abreast of the changes to the various government programs and understand their eligibility for and indeed whether they can and should take advantage of available government tax and non–tax measures/financial reliefs in countries where they operate.
OECD Pillar One and Pillar Two
The OECD Pillar One and Pillar Two project3, which is focused on reallocating certain income between jurisdictions and implementing a global minimum tax, remains at center stage of global tax policy. The G20 continues to support and endorse the project4 but the target of reaching political consensus by the end of 2020 was not achieved and has been pushed back to mid-2021, although even that seems very ambitious given the complexity of the issues and inevitable challenges of negotiating during a pandemic.
Digital Services Taxes
The fact that political consensus has not yet been reached globally has likely contributed to the recent onslaught of unilateral Digital Services Taxes (DSTs).6 One consequence of such unilateral measures is increased complexity and potentially double taxation thereby hampering cross-border trade, investment, and growth. DSTs are also leading to trade disputes and potential tariffs.7
Businesses impacted by the Pillar measures being proposed should engage in the debate so that their voices are heard. This can be directly or via trade or business associations and the outreach can be to the OECD Secretariat, or through local country officials who are participating in the negotiations. Many organizations have already responded to the OECD’s request for input in anticipation of the 14-15 January 2021 virtual consultation.5
Businesses that are impacted by DSTs must keep well-informed of these developments both so that they can comply with any new rules but also to be able to anticipate and seek to mitigate any potentially negative effects.
Beyond COVID legislation
Aside from COVID-specific legislative developments, many jurisdictions are considering broader tax reform measures including those related to climate change. For example, the European Union (EU) is exploring reform measures on several fronts such as a carbon border adjustment mechanism.8 The US election could also result in tax legislative changes9 and Brexit is resulting in new trade agreements and new tax measures impacting cross-border trade between the UK and the EU.10
Be prepared. Keep up-to-date with developments to know what may be coming, to manage the consequences, and to be compliant when new rules are enacted. Given the volume of changes and uncertainty about exactly which changes will be enacted, modelling and scenario planning are crucial. Consider the use of technology tools to access current information and conduct this effectively. It is also crucial that tax leaders keep the C-suite and the board informed of what may be coming.
In December 2020 the OECD released much anticipated guidance on the potential impact of COVID on transfer pricing.11 For many organizations and industries, the pandemic has resulted in dramatic changes to business models, operations, and financial results. In addition, the impact of remote work may impact employee taxation, employer tax obligations, permanent establishments, corporate residence, and transfer pricing.
Multinationals need to pay attention to the impact of COVID on transfer pricing along with considering the impact that remote work may have from a tax perspective.
New demands on tax reporting
There is an increased focus on reporting of environmental, social and governance (ESG) metrics—and growing standardization12 in this area. In fact, an increasing number of business are already voluntarily disclosing these metrics. Some of the existing frameworks for reporting in this area (e.g., World Economic Forum, International Business Council and the Global Reporting Initiative) include tax related metrics in their frameworks.13 14
All of this suggests a year ahead with both potential for change and continued uncertainty. Some tied directly to COVID, or otherwise accelerated or influenced by the pandemic. All of it comes with both risks and opportunities, especially for resilient tax leaders who stay in front of all of the developments.
1 Recovery from the COVID-19 crisis: What role will tax policy play? | Deloitte article
2 Tax & Financial Measures in response to COVID-19 | Deloitte article
3 OECD/G20 Inclusive Framework on BEPS invites public input on the Reports on Pillar One and Pillar Two Blueprints | OECD
4 Leaders' Declaration | G20 Information Centre (21 November, 2020)
5 Public comments received on the Reports on Pillar One and Pillar Two Blueprints | OECD
6 Deloitte Tax Atlas – DST: A global view on Digital Services Taxes | Deloitte article
7 Deloitte Global Trade Advisory Alert - Section 301 Tariffs on French Goods | Deloitte article (28 July, 2020)
8 EU Green Deal (carbon border adjustment mechanism) | European Commission
9 A change in course Tax policy implications of the Joe Biden presidency | Deloitte article (7 January, 2021)
10 Brexit: The EU-UK Trade and Cooperation Agreement | Deloitte article
11 Guidance on the transfer pricing implications of the COVID-19 pandemic | OECD
12 Sustainability Reporting | IFRS
13 Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation | World Economic Forum (22 September, 2020)
14 Welcome to Global Reporting Initiative (GRI) | GRI