Most corporations recognize the important role they play in contributing to society through job creation, innovation, and wealth generation. However, the growing emphasis on ESG globally has led to increased focus on the importance of considering how that wealth is generated and how corporations can demonstrate that they are contributing positively to the societies in which they are a part, including through the tax they pay. There are increasing calls for multinationals to pay their “fair share” of tax, and, whether that comes from civil society or from institutions such as the European Commission, the definition of ‘fair’ when it comes to tax, means different things to different people.
The debate around corporation tax must look at the value chain of particular companies and the rules within the countries where the company operates. Many stakeholders believe that the current international tax accord, established in the 1920s, needs updating, which has led to the so-called Pillar One work carried out by the OECD/G20 Inclusive Framework (IF). The key debate in Pillar One is around the extent to which profits should be reallocated to market jurisdictions, with some arguing that existing corporation tax rules should be fundamentally changed and replaced with global formulary apportionment.
In addition to debates on the allocation of profits, concerns have been raised about countries that use tax rates to compete for international business. Some see them driving a “race to the bottom,” while others believe that low corporate tax rates incentivize companies to shift profits from high tax locations. This has led to the Pillar Two work of the IF, which looks at how to create minimum global tax rules.
Along with the global outlook, it is important to look at how domestic rules function. As part of the Responsible Tax roundtable series on tax policy post pandemic, a number of meetings were held looking at how tax policy could incentivize economic recovery.
Themes examined in this section include:
- Pillar One of the OECD/G20 Inclusive Framework
- Pillar Two of the OECD/G20 Inclusive Framework
- The arm’s length principle and transfer pricing
- The future of corporation tax
- Formulary apportionment
- The EU proposals for a Common Consolidated Corporate Tax Base (CCCTB) now rebranded as Business in Europe: Framework for Income Taxation (BEFIT)
- Incentives to stimulate investment
- Research and Development credits
- Is there an optimal rate of corporation tax?
- Loss utilisation
- Avoidance and evasion