Tax rules are struggling to keep up with technological progress, creating questions and challenges for leading businesses.
Consider: How much profit from a transaction that uses artificial intelligence can be attributed to an algorithm versus a person? If a product that once was shipped across borders can now be printed there instead, where is the tax due?
“Increasingly, global business operations are being restructured in the sense that they’ve become more virtual. People can work from anywhere,” says Edvard O. Rinck, EY Asia-Pacific Operating Model Effectiveness Leader. “Similarly, you can now distribute goods across borders without even needing physical distribution because you can print them on the other side of the border.”
“In these situations, you can easily end up paying more in income taxes and indirect taxes like VAT and GSD,” he says. “With services, you may get a taxable presence in a country that you didn’t before when you were just selling product.”
“These new value chains raise a lot of questions for which we have no explicit rules yet,” Rinck says. “So the answer is found by intrepeting what we have and reasoning from there.”
Adds Nick Muhlemann, Operating Model Effectiveness, EY Asia Pacific, “Organizations in every industry need to be thinking about how they’re going to transform themselves to give them agility to respond to these challenges and be at the forefront of the new economy.”
Watch more in our video series on the future of tax.