Legislation and regulation underwent seismic change during the pandemic. Governments have passed more than $33.6 trillion in support and stimulus programs, or the equivalent of 39% of global Gross Domestic Product (GDP) according to the International Monetary Fund (IMF). In many cases, that relief took the form of tax measures, many of them temporary.
As the world emerges from the pandemic, tax and finance functions have to contend with an unwinding of temporary policies, a return to a longer-term view, and tax reform that was already gaining speed pre-COVID.
“Governments are focused on their fiscal stability and will likely seek to recover what was spent on the pandemic,” says Eng Ping Yeo, EY Asia-Pacific Tax Leader. “This means the already rapid pace of legislative and regulatory change might accelerate. Businesses also have to contend with more tax law enforcement activity, which will place additional pressures on resources.”
The most significant policy developments have been prompted by the Organisation for Economic Co-operation and Development’s (OECD) project on addressing the tax challenges of the globalization and digitalization of the economy, including the agreement in October 2021 on new global minimum tax rules at a rate of at least 15%.
This global tax reform is also set in the context of policy change taking place on national levels around the world. In the US, for instance, there have been proposals to significantly increase the corporate tax rate from 21% – although the currently pending legislation does not include such an increase, discussions are still in a state of flux. In the UK, the corporate tax rate is set to rise from 19% to 25% in April 2023 for all affected businesses. And these are just two examples of major, ongoing change.
The difficulties faced by organizations in this shifting global tax landscape are significant. According to the EY International Tax and Transfer Pricing Survey 2021, 76% of respondents say they are being challenged by the sheer volume, pace and complexity of global tax reforms. But this is only part of the picture.
“While keeping up to date with the regulatory and legislative landscape is critical, tax teams are also having to deal with changes to reporting obligations,” says Bridget Walsh, EY EMEIA Tax Managing Partner. “Tax authorities have become increasingly sophisticated in recent years and a continued shift to digital filing and a move toward real-time or near-real-time reporting is increasing the compliance, risk and cost requirements.”
According to the TFO survey, 59% of respondents believe that complying with emerging digital tax filing requirements will increase the cost of running the tax and finance functions.
The cost of compliance will be considerable as well – with 83% of all companies expecting to spend at least $5 million, an average of $11.1 million, to comply with emerging digital tax filing requirements over the next five years (rising to 92% for companies with revenue at $30 billion or above and an average spend of $13.2 million).