Efficient tax risk management needs tax expertise, robust controls, valid data sources, and in-depth knowledge of tax changes. Companies should address all these factors in their tax policies and digital strategies.
FREMONT, CA: Recent developments in tax- from minimum rates to reporting requirements and enforcement, has made a greater impact in tax policies. Tax rules and reporting requirements adopted by governments to escalate tax revenues are dominating the post-pandemic tax world. Experts believe that tax changes will become more complex and frequent and there will be significant changes in the rules that will define the tax world in the coming years.
The Introduction of the Global Minimum Tax Rate
Large companies with consolidated revenues of over 750 million euros should pay a minimum tax rate of 15 per cent shortly. This new rule has already impacted a few countries where corporate income tax was not a major concern until now. It is anticipated that many countries will follow suit and either raise the tax rates or alter their taxation rules.
Businesses functioning cross-border are required to review their global operations to determine whether there will be an increase in their effective tax rate. This is done to assess the impact on cash flows and monitor legal changes in low-interest jurisdictions, and also to examine the changes that affect their effective tax rate, even if they are not large companies.
The Spread of Taxation in the Digital Economy
This trend focuses on the expansion of definitions of services included in the digital tax scope. The result is that more companies either have to pay the digital tax or register in countries where they previously did not have to report more information about their transactions in which both ways increase the cost of doing business. Companies operating in this sector have a great responsibility to keep their knowledge and understanding of the digital permanent establishment rules and service definitions up to date.
Wider BEPS Adoption
Base erosion and profit shifting (BEPS) activities have become more prominent recently. The OECD has upgraded the transfer pricing guidelines and published draft rules for nexus and revenue sourcing. Many countries have even provided more clarity for the definition of permanent establishment (PE). Tax departments must follow the transformations and continually evaluate the implications of PE and the requirement for registration.
Increasingly Complex Tax Reporting Requirements
The digitalization of tax filing is driven by tax authorities, who also change how they engage with taxpayers. Digitisation can be as simple as filing tax returns online and as complex as having a real-time interface with tax departments to report every transaction. The number of tax administrations that opted to require real-time interface with tax authorities to detail transactional reporting has increased over recent years.
Digital tax administration transforms how companies manage and validate data, invest in technology and accelerate tax digitisation at the business level. However, it requires consolidation of data sources, a better understanding and configuration of tax rules in tax technology, and an upstream shifting of tax validations because once data is submitted, there is no going back. Data management and technology adoption strategies for businesses are altered by the anticipation of the tax administration's digital techniques.
