How to build stable tax policy in an unpredictable world

Can tax policy find stability in an unpredictable world?

In New York’s Times Square you can find people from all corners of the world, facing major changes on multiple fronts. Economic, geopolitical, labor and regulatory transformation can seem relentless, no matter where you’re from. And so far in this podcast series we’ve pulled individual threads to find insights about tax, talent and technology. But are there major themes in, say, tax policy, which may connect the many threads? To find out, I left Times Square to chat with Aruna Kalyanam.

Aruna Kalyanam: “My name is Aruna Kalyanam. I am the global tax policy leader and Americas tax policy leader at EY.”

I met Kalyanam in between her many meetings and panel discussions at the EY International Tax Conference, held just a short walk from Times Square.

Kalyanam: “This is an intense, chaotic, wonderful time. I love this conference.”

It can be tempting to think of tax policy in isolation, as a pre-emptive, preventative or reactive move to a particular trigger. It’s like the old saying: if one part of the world sneezes, another catches a cold, right? 

But Kalyanam has a much more nuanced view. 

Kalyanam: “I think we're seeing across the world, and in a lot of ways led by the United States, a bit of a pulling back from multilateralism and globalism in terms of multilateral agreements, multilateral cooperation. Really a trend towards bilateral agreements. You're seeing this some obviously in the tariff space. But this also extends beyond: the fact that the OECD is revisiting, at the behest of a G7 agreement and the US, revisiting how Pillar Two might be applied, revisiting how the US system will coexist alongside. It's really kind of pulling back from a tax system that was created or really predicated or directed at supporting global commerce. And I think that some of these changes — I think this is a trend to keep an eye on for years to come.”

New ways of thinking

Although no one knows what might happen in the years, or even hours ahead, when it comes to increasingly volatile policy and market events, this volatility is highlighting a need to knock down organizational silos faster. Kalyanam says tax policy and trade policy are crossing streams. Maybe a tax function sitting under a CFO has never had to deal with tariff policy. Now, teaming is critical.

Kalyanam: “It's critical now more than ever for those individuals to hold hands and talk to the person responsible for tariffs, because all of these policy impacts can really create different outcomes if they're considered in isolation versus in tandem.”

Tony Ganzer: The crossing of streams, I imagine this is causing confusion everywhere. There's just so much uncertainty. Is the uncertainty different if you're in the US and out of the US, and are organizations being affected in different ways depending on where they are in this process?

Kalyanam: “I think it's important to think more about where all of the components of your international business plan and where you're siting and locating operations – how exactly all that is going to fit in in this period of what feels like ever-changing rules. In the US, I'll flip the script a little bit. I think we actually have more certainty from a tax perspective with the passage of the One Big Beautiful Bill Act, you really have a tremendous amount of tax certainty in the code. That means provisions that were previously about to become taxpayer unfavorable have been made permanent in a more favorable way. I say that generally. There are some international provisions where you see certain tax rates go up, but the benefits were offset with other policy changes.” 

Balancing policy competition and collaboration 

Businesses typically want to lean on stability where they can. If there is more clarity about tax provisions not expiring on the horizon, they can more easily decide where and how to make investments. But another wrinkle in that investment calculus is whether they expect the world to be more competitive or more collaborative when it comes to tax policy. 

Kalyanam: “This is a great question, and I don't actually think that those have to be mutual, but oftentimes we find these business trends going in one direction or another. I think in certain regions competitiveness is really being redefined and reevaluated. We're seeing, especially in the European Union, a new drive for the member states to really think about what does competitiveness mean as a group of countries together under the EU, but also as individual nation states, and whether or not cooperation is the best way to support that competitiveness, or if there needs to be a departure in some spaces.”

So, if there are still so many unanswered questions about the direction of tax policy, and the level of competition or collaboration, how do we find answers to help shape the phase ahead? Maybe a common thread is that both authorities and individuals are adopting new ways of thinking. There’s no shortage of catalysts for change in the coming year, from scores of international elections to countries calibrating their policies and diplomacy to raise revenue and build stability. 

But again, Kalyanam takes a broader lens to the path ahead.

Kalyanam: “Outside forces outside the policy world that are just innovative developments that I think are going to change the way that we think about these interactions, that we think about these commercial relationships, the way we think about trade, and these are obviously the sort of juggernauts that are changing the whole landscape, like AI, like energy innovations, how we consume energy. And obviously the elephant in the room: geopolitical considerations that feel much less predictable than some of these other economic considerations.”

Seeking stability in the unpredictable

Ganzer: Businesses thrive on predictability. Are there ways that governments can kind of, even with all of this going on, move toward a more predictable landscape? And how can policy making create predictability even with so many competing forces, I guess? It seems like a tough equation to solve.

Kalyanam: “Tony, this is a really tough equation, frankly. I don't like to think about world developments as a series of potential emergencies, but those are really kind of the moments where you have to be ready to reach out for economic support, reach out to shore up some of that stability that will be present in some elements of a country's planning, and maybe not in other areas. But I do think that decisions that are being made by corporations right now, longer-term plans, can help be foundational in terms of governments being able to build upon that and build on that stability. So, it's really more hand-in-hand than I think some would think.”

Maybe the question isn’t about building stability in an unpredictable world. Maybe you need to ask how new ways of thinking can make sure agility is part of your foundation?

Thanks for listening to this episode of the Tax Threads from EY. Please remember to rate this podcast and subscribe for future episodes. For in-depth analysis of tax and law issues, check out our Tax and Law in Focus podcast. It is also available on EY.com, Apple, Spotify and other popular podcast platforms.

Conversations in this podcast should not be relied upon as accounting or legal, investment or other professional advice. Listeners should consult their own advisors. The views expressed in this podcast are not necessarily the views of the global EY organization or its member firms and should be considered in the context of the time in which they were made.