31st March 2022
The future of tax is complex: make sure you stay on the right side of the law
As the economy continues to recover post-pandemic, staffing firms are identifying fresh opportunities to generate revenue. Where the future of tax is concerned, though, recruitment agencies also face new challenges as the international landscape becomes increasingly complex.
As a recent article from the Institute of Chartered Accountants in England and Wales (ICAEW) highlights, the world has changed significantly since the pandemic – and tax and welfare systems across the globe are evolving as a result.
In particular, Covid-19 further accelerated the rapid digital transformation of the business landscape that was already underway before 2020. Today, physical presence in a specific location is no longer a prerequisite to successfully operating in a particular region. This change is highlighted by the fact that the number of Zoom users increased by 2000% between January and April 2020 alone.
This new world has, unsurprisingly, created a myriad of opportunities for ambitious recruitment leaders. At a time when placing talent overseas no longer necessarily involves a relocation package, and the only barrier to operating globally is an aversion to keeping unsociable business hours, the potential to expand client lists and candidate pools is endless.
However, global tax authorities are also acutely aware of how the world of work is changing – and have recognised that the way that individuals and businesses are taxed must also be overhauled in response.
In response to digitisation and globalisation
Following a landmark agreement on global tax reform, which was brokered by the Organisation for Economic Co-operation and Development, the world is currently working towards the effective implementation of a global minimum corporate income tax rate of 15 per cent for multinational enterprises. This is outlined in ‘Pillar II’ of the OECD’s pillar solution to tax reform, which is also referred to as the Global Anti-Base Erosion (“GloBE”) proposal. ‘Pillar I’, meanwhile, is designed to ensure fairer taxing rights amid an increasingly global – and digitised – economy.
The two-pillar solution is specifically designed to address the tax challenges arising from the modern business environment and has been endorsed by 137 members of the OECD Inclusive Framework. Work on the implementation of the plan is now well underway.
The pandemic has also acted as a stimulus for ministers to take a fresh look at domestic taxation more generally. Now that the population is increasingly working at home, shopping online and building portfolio careers rather than opting for long-term, full-time contracts, it is sensible to reconsider how we finance and tax public transport, how we define a domestic property for tax purposes, and how we tax salaried workers vs. freelancers. It’s perhaps safe to assume that more changes are on the horizon.
As Stuart Adam from the Institute of Fiscal Studies (IFS) highlights, “You want a tax system that’s robust enough to deal with different things happening in the economy. There are longstanding flaws in the tax system that have become more problematic as the economy has changed. For example, there is the fact that we tax self-employed people at lower rates than those employed, which has become a bigger issue because more people are self-employed.”
Lessons from the past
Professor Andy Lymer of Aston Business School, who has studied the history and development of tax systems, recently went on record to say: “There really are points in economic and social history where you get opportunities to do things that there might not normally be the social or political will to do. I tell my students that wars are terrible for everything except the opportunity for effective tax reform because you get the opportunity to think outside the box for a change – as a society and a government. Disasters create that opportunity.”
Navigating the future of tax
Historically, shocks to the economy have been responsible for driving decisions around tax reform – and the recent pandemic is no exception. World governments need to stimulate inward investment and ensure that their tax regimes are fit for the way that organisations and individuals operate in a post-pandemic world.
Keeping abreast of changes to the tax system can be challenging, particularly for those operating across borders, but it is vital that business leaders keep their ears to the ground to ensure they don’t let vital amendments pass them by. We don’t yet know what the future of taxation will look like, but we can be sure that rules are likely to become increasingly complex as various administrations seek to ensure fairer taxing rights internationally – and rebuild public purses which were decimated by Covid.
For staffing agencies, operating globally can be extremely rewarding, but it is not without its challenges – and you have a responsibility to ensure that your own business operations, and any contractors you place, are not inadvertently on the wrong side of taxation laws. If you have questions about the future of tax, talk to 6CATSPRO to ensure you are always operating compliantly.