Business of all sizes - everywhere in the world - are affected in some way by these trends, so it's important to take the necessary steps to ensure your operations comply.
In April 2019 I had the pleasure of speaking at the 19th Annual US and Europe Tax Practice Trends Conference in Paris. The world is truly global now, and so is the tax policy landscape, which has changed considerably in the past several years. And there are good reasons to expect that it will continue to evolve for some time to come.
Currently, global tax authorities have two main areas of focus:
- Safeguarding tax revenue
- Ensuring a level playing field between local and foreign suppliers, while fostering economic growth.
They're quite ambitious goals that are essential for cross-border businesses to understand in terms of how they translate into tax policy and therefore impact company operations. Here are four key trends that stem from global tax authority priorities. If you need help assessing the impact on your business operations from an accounting and tax perspective, make an enquiry with us.
1. The rise of digital tax reporting
Of great concern for the majority of conference participants was the digitisation of tax reporting, as it requires businesses to provide much more detailed information to the tax authorities - and in a new format.
Most businesses need to carry out internal reviews, restructure processes and data capture to ensure they have the necessary information in their systems. But that's just step one; business systems need to be able to 'talk' with the newly-digitised systems of the tax authorities. This typically requires not just an investment in personnel but also a potentially significant investment in new technology. Reporting more detailed information obviously means tax authorities will have more insight into business operations, and therefore audits may become more frequent.
I should point out that the rise of digital tax reporting is not a complete headache for business – tax authorities are harnessing the latest technologies in helpful and creative ways to provide better service to taxpayers:
- Spain has launched a virtual system to answer questions regarding international tax
- In Australia, 'Alex your Virtual Assistant' – aka a chatbot, has become the online face of various government departments to answer taxpayer queries.
2. Tax rate and rule changes
Tax rules and regulations are of course changing all the time, but one change that is very much top-of-mind at the moment is related to Europe's VAT system. Eventually, the European Union would like to see alignment between all accounting and tax principles in the bloc, and the definitive VAT regime set to commence in 2022 is a step in that direction. Companies – particularly those involved in online trading platforms – need to be aware of these changes and the transitory measures coming in year-by-year.
Also very high on the agenda is tax reform in the USA and how it's going to impact business structuring via other parts of the world. US tax authorities have made it easier for American companies to repatriate their profits, and the M&A world is set to boom as a result. Amid the increase in transactions and acquisition prices, and considering US companies can now more easily repatriate their money, there is a question mark over whether it still makes sense to do business via European vehicles. Companies trading across borders need to actively seek advice and be proactive about understanding how US tax reform will impact their operations.
Another conference hot topic was Permanent Establishment (PE) and how it can be triggered by the responsibilities of travelling senior company executives. According to the commentaries under the OECD Model Treaty, a PE tax liability is deemed to be in existence for a parent company if its subsidiary in a jurisdiction has the authority to conclude contracts in the name of the parent company.
However there is room for interpretation, and not all countries agree on a single definition. It's important for businesses to examine the role and responsibilities of their senior executives in the context of their work locations globally, their travel patterns and assess any added obligations.
3. The increasing need for tax transparency
2018 and 2019 are consolidation years for global businesses. All the additional reports introduced through Transfer Pricing (TP) and Country-by-Country Reporting (CbCR) are now live, and it's time to adhere to the new requirements.
An increasing number of countries outside Europe are adopting OECD guidelines and regulations. It's essential for European businesses to check whether TP regulations apply in the jurisdictions they wish to expand to. Brazil, Argentina and Japan – to name just a few – have embraced the regulation on TP files and documentation. It's expected that in the near future, TP will be akin to VAT reporting globally and other types of 'everyday' tax.
4. Growth in business incentives
Global initiatives such as the OECD'S BEPS Project are resulting in a more level playing field from a corporate tax perspective. But there will always be incentives on offer from various governments to attract foreign investment to keep local economies growing. One increasing trend to note is the offering of R&D (research & development) tax incentives. Many EU countries are offering a variety of tax incentives to companies or entrepreneurs which carry out R&D activities: supplementary tax deductions, exemption/decrease of personal income tax for employees, exemption of corporate income tax etc. In Romania for example, personal income tax and corporate income tax exemptions apply. However in order to apply them, it is very important to understand the supporting documentation that needs to be in place.
Talk to us
Business of all sizes - everywhere in the world - are impacted in some way by these trends, and it's important they take the necessary steps to be able to comply with new rules and filing procedures. TMF Group's global accounting and tax experts can help you in a number of ways. We can:
- Assess how looming tax changes will impact your business and provide information on what actions you need to take
- Take care of your tax reporting using our own locally-compliant tools and systems, so you can continue operating worry-free
- Provide transitory accounting and tax compliance solutions so that you're covered while making the necessary back-office system changes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.