Global corporate tax trends – is the glass half full or half empty?
Paul Monaghan
Chief Executive
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It’s always interesting to look at the big global surveys of tax professionals that emerge now and then. With Deloitte’s tenth Annual Global Tax Policy Survey published end July 2023.
Of course, the data is only as robust as the sample is broad – and these surveys are rarely representative. Furthermore, the organisations that have the resources to undertake surveys such as this tend to be restricted to the big international accountancy firms, and so the questions and analysis can be somewhat leading in places. Nonetheless, Deloitte’s latest survey is impressive and unveils some interesting trends.
The survey was conducted early 2023, with a target audience of tax directors and tax managers from multinational companies. More than two hundred responded from 28 countries, with the largest contingent notably being from the United States. From a tax justice perspective, the following datasets stand out.
Business is still under the spotlight
The pressure is still being felt by business in many parts of the world, and this is translating itself into more assertive tax authorities. A large minority (39%) are concerned as to the continuing interest of media, political and activist groups in corporate taxation; and a similar number (40%) say that in the last twelve months, the tax authority in their ultimate parent’s jurisdiction has become more rigorous in tax examinations. Concern is particularly high in Canada (67%) and Switzerland (50%), with Australia (100%), Canada (67%) and Norway (67%) emerging as hubs of more assertive tax authorities.
Three-quarters (75%) expect stakeholder interest in the tax behaviour of large corporates to increase over the next three years. The Life Science sector had the highest percentage of respondents expecting a significant increase in interest, at 89%. Certainly in the UK, concern about corporate tax conduct remains very high, as detailed in our Fair Tax Nation report.
Tax is a substantive boardroom strategic issue, maybe
Tax conduct is making it to the top table of a large majority of businesses, but this isn’t always translating itself into robust annual review procedures. Two thirds (67%) agree that their C-suite and/or Board of Directors are actively engaged in establishing and/or approving their group’s tax strategy and in assessing and monitoring risk in this area. However, just 40% have an up-to-date tax transparency strategy which has been tested with the senior leadership. A notable exception is Denmark, where those having an up-to-date tax transparency strategy was 85%.
Tax transparency set to increase, but with notable caveats
Public country-by-country reporting (pCbCR) will soon be mandatory for large multinationals operating across the European Union (see our pCbCR explainer). Two-thirds of respondents (65%) say that they will report in line with the EU’s pCbCR Directive within the next three years, but that this will be limited to where they are legally required to report. So, for example, they won’t necessarily disclose activity in the United States or the United Kingdom, which are not EU member states or on the EU’s tax haven blacklist. A worrying 7% say that will resist tax transparency and will utilise the opt out given to those who claim that their information is ‘commercially sensitive’. Against this, a welcome 17% say that they will embrace pCbCR and full global reporting (rising to an impressive 77% of Danish respondents).
Disappointingly, just a quarter (26%) expect to increase their level of voluntary tax transparency over the next year, which is down from a third (33%) in 2022 and 2021.
For many, the impact of the OECD Inclusive framework is seen as diminishing
Whilst just over half of those polled (51%) expect that a critical mass of countries will implement Pillar One by 2025, nearly all (81%) expect that a critical mass will implement Pillar Two. It is therefore surprising that just a third (34%) expect that Pillar One/Pillar Two will result in a significant increase in their group’s global effective tax rate – which has fallen from 47% in 2021 and 62% in 2020. This could a be signal that multinationals are getting their houses in order early, or that they anticipate the OECD’s Inclusive Framework will not raise anything like the additional taxes that it anticipates. It’s noteworthy that two thirds (67%) of respondent groups do not expect that the implementation of Pillar Two will cause them to make significant changes to their corporate structure. On the other hand, 12% say that they ‘will’ make changes, and a further 21% ‘might – so perhaps it looks like the Framework may have real bite for at least a substantial minority of multinationals.
All in all, Deloitte’s latest survey reveals a mixture of positives and negatives. Which is not all that surprising. It is still the case that a small but growing cohort of progressive businesses are setting the pace on corporate tax conduct and transparency, with the law belatedly playing catch up and beginning to push things on somewhat (in places). Thankfully, the international race to the bottom on tax is likely now over, but it’s still unclear what it has been replaced with and how progressive this is.
