The big international tax news of 2021 was the agreement by 130 nations this summer for a global minimum corporate tax to be implemented in 2023.
But beyond that headline-grabbing news, we’ve been seeing significant changes in the international tax landscape that can affect corporate treasury strategies. Long-planned regulations that clamp down on base erosion and profit shifting (BEPS) are being implemented. Under an OECD framework, 139 countries and jurisdictions are implementing 15 actions to tackle tax avoidance. Meanwhile, major US tax reforms are arriving quite suddenly, which could mean an increase in the US corporate tax rate and a global minimum corporate tax rate.
Given the importance of taxes on a company’s operations, treasurers have to stay on top of current and forthcoming tax changes, both internationally and domestically, in the markets where they operate. Along with the new rules, we’ve seen new attitudes toward taxation that emphasize ethics alongside legality.
Sometimes financial rules and regulations are not clearly laid out. Understanding this principles-based approach requires more interpretation and a closer examination of existing and future tax structures. By working together, treasury and tax departments can better understand the implications of the new rules.
Here’s our quick checklist to help treasurers respond to tax changes:
- Perform an internal audit of vulnerabilities to find, for example, locations where profits are booked but that lack substance.
- If substance is lacking, are there potential structural changes that can address this?
- Are your treasury center locations justified? Tax authorities ask the same questions, so you need robust answers. Document these explanations; if they’re not clear, then you may need to make changes.
- Identify friction points in your cash and treasury management processes and structures. Analyze the cause of these friction points and consider how to address these. POBO and COBO, for example, could simplify banking and liquidity structures and bank account administration, as well as centralize processes. Are there any barriers, real or perceived, to implementing these techniques?
- Look for efficiencies. Tax changes present opportunities for your team to centralize a portion or all of your treasury activities and can facilitate efforts to gather critical data that can help inform decisions.
As these steps indicate, treasurers and their tax colleagues can better align their financial and commercial activities to provide tax authorities with the transparency they require, ensuring that decisions around organizational structures are fully documented and justifiable.