Global tax policy in 2013

The outlook for global tax policy in 2013

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Dramatic tax changes in response to the global financial crisis continue to give way to more targeted, selective and nuanced tax policymaking in many countries around the world, even as most developed economies continue to wrestle with high debts and austere budgets.

While many countries still aspire to wide-scale tax reform, others have stretched their tax bases as far as they believe to be competitively or politically prudent.

Still, the pace of policy change will be temporary in nature, as countries wait to see what recommendations come from the Organisation of Economic Co-operation and Development (OECD) and other supra-national bodies this year.

Our review of tax policies in 57 countries finds countries belong in one of three camps:

  • The first group can actively pursue or achieve significant tax reform, largely without hindrance.
  • The second group can actively pursue or achieve significant tax reform but are seen to be taking a greater risk against a backdrop of annual deficit and gross debt.
  • Countries in the third group wish to pursue or achieve significant tax reform but cannot, either as a result of their economic and/or political situation.

Stronger enforcement of tax laws creating controversy

No matter how well-positioned or ill-positioned countries are to effect structural change, we see near universal commitment to stronger enforcement of existing tax laws, giving rise to more controversy and disputes around the world.

Anticipated changes in tax burden across all countries covered in this report

Tax type Increase in burden in 2013 Decrease in burden in 2013 No change in burden in 2013 Total countries  levying tax type
Corporate income tax (CIT) 13 18 28 59
Personal income tax (PIT) 16 15 27 58
Value-added tax (VAT)/goods and services tax (GST)/sales tax 20 4 33 57

Supranational influence on the rise in 2013

Increasingly, many countries are encouraging activity on cross-border taxation by supranational organizations. The rapid pace of globalization, the rise in connectivity caused by innovations in technology and communications, and the growing importance of intangibles all mean that models differ significantly from those that were the norm when long-standing international tax concepts were developed.

The OECD’s February report titled "Addressing Base Erosion and Profit Shifting" said, "The international common principles drawn from national experiences to share tax jurisdiction may not have kept pace with the changing business environment."

This concern about the tax treatment of global businesses, taken in parallel with broader fiscal pressures that show only reasonable amelioration over the coming five years, means that there is both public and political focus on cross-border taxation. With the OECD set to release in July its initial “action plan” for work going forward in this area, there is little doubt that development in the cross-border taxation landscape will continue to unfold.

Broadly speaking, the OECD work will cover three key areas: transfer pricing, jurisdiction to tax and measures for countering base erosion. The establishment of separate workstreams in each of these areas with country delegates chairing for each — the United Kingdom for transfer pricing, France and the United States for jurisdiction to tax, and Germany for measures for countering base erosion — underscores the keen interest of the OECD member countries in the Base Erosion and Profit Sharing project and its outcomes.

The results of the OECD work are expected to be reflected in a variety of forms, including changes to the OECD transfer pricing guidelines, changes to the OECD model tax treaty for countries to consider incorporating through amendments to their bilateral agreements, and recommendations for changes in tax law and administration. As part of this project, the OECD has also called on the Forum on Tax Administration, which brings together the heads of the revenue authorities of OECD member countries and nonmember countries, to continue its focus on improving tax compliance.

Leading practices for managing tax policy change

By identifying trends and anticipating changes in policy, legislation and enforcement, business can plan for adverse impacts, take proactive steps to adapt to changes and even engage with policymakers to contribute their perspective to the legislative process. Companies today are beginning to take this opportunity to get ahead of the curve on tax changes very seriously.

In that vein, we set out a six-point action plan that may help you manage change in 2013:

  • Integrate all major tax areas for potential tax policy and regulatory changes in key jurisdictions into tax risk planning
  • Understand the local dynamics of the potential tax changes, alternative policy designs and ways in which the changes link to global tax policy trends
  • Assess the implications of the potential change on your business operations
  • Develop clear lines of responsibility, lines of communication and some form of knowledge sharing among all those who are responsible for monitoring and anticipating tax policy and legislative change
  • Fully leverage the tax information, and consider insights provided by outside providers
  • Consider active engagement with policymakers over sources of future controversy

Read on to explore the various implications in local markets:

Americas Tax policy outlook
Asia-Pacific tax policy outlook
EMEIA tax policy outlook