Outlook on International Tax Reform
Changes to international tax policy and the implementation of these reforms are a concern for organizations and a potential source of future disputes. While the majority of tax leaders are optimistic about the benefits of proposed OECD reforms — known as “Pillar One” and “Pillar Two” — many are also concerned about the burden of further change.
Three key sources of asymmetry are likely to arise from OECD reforms. First is an imbalance in the ability of members to enforce proposals. Under-resourced authorities in smaller jurisdictions may struggle to hold their own against more sophisticated operations — outmatched in terms of resource, experience, data and legal support and often lacking robust judicial procedures, dispute resolution mechanisms and international tax treaties.
Second is the tension between global cooperation and national interests — particularly as raising tax revenue has become such an integral part of domestic economic spending in the post-pandemic environment. Varying interpretations of international tax rules designed to maximize tax revenue locally is likely to be a hugely problematic aspect of the rollout of the OECD proposals. While global institutions like the United Nations are trying to create uniformity, global rules will still coexist with domestic ones.
Finally, the thresholds associated with this reform creates a dual track according to the size of organization. While it is not unusual for regulators to make a distinction between companies based on their ability to contribute, proposals certainly raise the burden of compliance for larger taxpayers and create a challenge for these organizations around how to measure, manage and plan for growth.