Context

KPMG International hosted a virtual roundtable in November 2025 as part of the Global Responsible Tax Program to explore how governments and businesses can design incentive policies that balance economic growth, fairness and global collaboration.

The discussion took place against a backdrop of shifting industrial strategies, tightening fiscal space and the implementation of global minimum tax rules. With the increasing use of incentives in industrial and political policy, participants from academia, business and civil society examined what an effective, transparent and legitimate incentive policy could look like.

The conversation was held under the Chatham House Rule and included perspectives from multiple regions and sectors. The write-up below summarizes the personal views expressed and does not necessarily represent the position of any particular organization, including KPMG.

Executive summary

  • Incentives are becoming more central, but also more contested. Structural shifts in global trade and industrial policy are making fiscal incentives a defining feature of competition, especially amid the differing approaches of the US Inflation Reduction Act, China’s state support and the EU’s state-aid regime.
  • Implementing what makes a “good” incentive remains elusive. Participants agreed that incentives can be effective when targeted, transparent, time-bound and aligned with clear public objectives — but often fail when poorly designed or politically volatile.
  • Global rules are reshaping competition, not ending it. Pillar Two, World Trade Organization (WTO) disciplines and European Union (EU) frameworks constrain certain incentives, but also redirect competition into new channels, including direct subsidies and expenditure-based reliefs.
  • Certainty matters more than generosity. Businesses value predictability, stability and clarity over headline rates or temporary schemes. Frequent changes undermine credibility and erode policy impact.
  • Transparency, data and coordination are essential. Governments need better data on costs and outcomes, clearer cross-departmental coordination (particularly between fiscal and environmental goals), and more consistent international frameworks.
  • Equity and legitimacy concerns persist. Developing and smaller economies often lack the fiscal capacity to compete with wealthier states, raising questions of fairness, sustainability and long-term global balance.
  • Towards responsible incentives. The conversation underscored the importance of using incentives to address genuine market failures, not simply to win zero-sum competition, and to ensure alignment with environmental and social objectives.

The changing global context

Industrial policy is back, and incentives are at its core.

Participants noted that industrial strategy has re-emerged worldwide as governments use fiscal levers to secure supply chains, attract investment and accelerate green transitions. The US Inflation Reduction Act, China’s extensive fiscal support (estimated at over 4 percent of GDP (Gross Domestic Product) (IMF (International Monetary Fund) Aug 2025) ), and the EU’s relaxation of state-aid rules are reshaping the global policy environment.

This, several argued, marks a shift from the liberal orthodoxy of neutral tax systems towards a more interventionist era. As one participant observed, “the use of incentives as a policy lever to attract investment is at an all-time high.” Yet the asymmetry in fiscal capacity between large and small economies risks widening disparities: wealthier countries can afford aggressive subsidies, while others must rely on limited or less flexible tax tools.

The discussion highlighted growing trade tensions arising from this imbalance. Some feared that without global coordination, disputes over subsidies could increasingly spill into tariff measures — echoing earlier trade frictions between Japan and the United States in the 1980s.

What makes for “good” incentive policy?

Effectiveness lies in clarity, stability and purpose.

A central theme was the need to distinguish effective incentives from wasteful or distortionary ones. Participants emphasized three criteria:

  1. Clear objectives and measurable outcomes: Incentives should address specific market failures (such as under-investment in Research & Development (R&D) or green technology) and include evaluation mechanisms or clawbacks if outcomes are not met.
  2. Certainty and stability: Firms can plan and respond only when policy frameworks remain consistent. Volatility, such as recent UK reforms to R&D credits , undermines behavior change and investor confidence.
  3. Transparency and equal access: Incentives should be rule-based and openly administered, avoiding “sweetheart deals” or opaque discretionary awards.

Several participants stressed that well-targeted incentives genuinely influence decisions when companies can “write them into budgets” — but many schemes simply become windfalls. Others in the group added that full expensing and other timing adjustments are often misunderstood as stimulus measures, when they may just neutralize existing distortions.

The group also debated whether incentives should operate through the tax system at all. Some argued that direct grants or expenditure-based subsidies can be more transparent and efficient; others favored tax mechanisms for their broad reach. The consensus: Incentives should be judged not by form but by function — whether they demonstrably change behavior and serve a public purpose.

Global rules and their limits

International coordination is evolving, but legitimacy gaps remain.

The introduction of Pillar Two has altered the landscape of global tax competition. By imposing a 15 percent minimum rate, it restricts the space for low-tax strategies and certain profit-based incentives. Yet participants noted that it does not distinguish between “good” and “bad” incentives — for example, between renewable energy tax credits and fossil-fuel subsidies.

This bluntness, combined with differences in administrative capacity, risks entrenching inequities. Developing economies may find themselves constrained by minimum-tax rules while wealthier nations shift towards direct subsidies outside those frameworks. Several pointed to emerging middle-income economies caught between these models — too fiscally constrained to match the US or EU, yet too developed to benefit from concessional treatment.

Participants discussed Europe’s move towards recommendation-based guidance under its Green Deal Industrial Plan, reflecting both ambition and political limits. Smaller member states expressed frustration that looser state-aid rules overwhelmingly favor large economies with deeper pockets. As one participant observed, “It will be the richer countries that can afford to take advantage.”

Business confidence and policy durability

Stability is the ultimate incentive.

Across sectors, participants agreed that credibility matters more than generosity. Multinationals emphasized that unpredictable or short-lived incentives cannot be relied upon in investment planning. Several noted that temporary measures such as accelerated depreciation can provide useful upfront cash-flow benefits, particularly for smaller firms, but offer limited advantages to large, listed companies that already have access to finance and see the benefit reversed through deferred tax effects. For these firms, smaller but permanent tax changes are often more valuable. This “horses for courses” dynamic means governments may spend heavily on temporary incentives that do little to influence investment by large companies, when more modest, enduring measures could be better targeted and more effective.

Participants noted that in competitive markets, firms prioritize overall conditions — skills, infrastructure and regulatory clarity — above tax incentives alone. Yet once other factors align, certainty around incentives can tip decisions. The volatility of the UK’s innovation regime was cited as a cautionary example: repeated rule changes and complexity have eroded trust, making the system “more hostile to business and innovation.”

The group also discussed how different firms experience incentives differently. Large corporates value predictable frameworks; smaller firms rely on refundable or cash-based reliefs to manage liquidity. Designing stable policy requires recognizing these distinct realities.

Lessons and directions: Towards responsible incentives

Transparency, coordination and purpose must define the next phase.

Three cross-cutting priorities emerged for future work:

  • Transparency and data. Governments need robust evidence on the costs, beneficiaries, and outcomes of incentives. Several participants noted that in many countries, even basic data on tax expenditures is incomplete or unreliable, hindering accountability and reform.
  • Coordination across government. A recurring theme was the disconnect between fiscal and environmental policy. Participants called for integrated approaches linking treasury and climate objectives to ensure incentives align with long-term sustainability goals.
  • Equity and legitimacy. Fairness remains central — both between countries and within them. Without capacity-building and information-sharing, developing economies risk being permanently disadvantaged. Participants highlighted initiatives such as the new coalition on tax expenditure reform launched at the 2024 ECOSOC Financing for Development (FfD) Forum as promising steps.

Finally, contributors reflected on the principle that a responsible incentive should aim to correct a genuine market failure, not simply outbid competitors. Incentives should be embedded within coherent national strategies, assessed transparently, and aligned with shared global goals.

Contributors:

  • John Connors, Chair of the International Chamber of Commerce's Global Tax Commission
  • Raluca Enache, Head of KPMG’s EU Tax Centre, KPMG in Romania
  • Tommaso Faccio, Head of Secretariat of the Independent Commission for the Reform of International Corporate Taxation (ICRICT)
  • İrem Güçeri, Associate Professor of Economics and Public Policy, Blavatnik School of Government (Oxford University)
  • Dr Frederik Heitmüller, Associate Postdoctoral Fellow (International Tax), International Centre for Tax & Development
  • Becky Holloway, Programme Director, Jericho
  • Neal Lawson, Partner, Jericho
  • Ewan Livingston-Docwra, Cause Strategist, Governance & Transparency, B Team
  • Dominic Mathon, Head of Tax & Treasury, RELX
  • Chris Morgan, Tax Partner, Head of EU Tax Group, KPMG in the UK
  • Jenny Tragner, Partner, R&D Tax Incentives, S&W Partners
  • Conrad Turley, Head of Global Tax Policy, KPMG International
  • Dr Ben Waltmann, Senior Research Economist, Institute of Fiscal Studies