COVID-19 has added to an already chaotic international tax reform landscape. In addition to preparing for the fundamental shift in international tax revenue allocation arising from the OECD and EU tax reforms, organisations also need to prepare for domestic tax changes which will enable governments to pay for Covid-19 related debt. Increasing tax competition and tax protectionism are evident within the EU and in the wider global economy. Tax policy uncertainty remains a key threat to organisations in 2021.
But how do CEOs, particularly Irish CEOs, feel about these issues and the impact on their business?
Global CEOs now rank Tax Policy Uncertainty as 7th in terms of perceived threats to their organisations. This has increased from 15th place in 2020. Tax Policy Uncertainty now ranks only behind pandemics and other health crises, cyber, over-regulation, more general policy uncertainty and populism.
In addition, increasing tax obligations for organisations now rank as the 8th most pressing threat for global CEOs. 30% of global CEOs are now “extremely worried” about increasing tax obligations. This is not altogether surprising given the turbulence of the past year when it comes to international tax reform. CEOs are faced with changing tax policies as a result of the new Made in America Tax Plan, at EU level under the NextGenerationEU plans, via the OECDs plans to modernise the taxation of the digital economy and from their own governments who urgently need to raise public funds to pay for Covid-19 responses.
However, when we breakdown the responses further, we find that Irish CEOs appear to be more comfortable with both Tax Policy Uncertainty and increasing tax obligations.
Our study suggests that Irish CEOs are overall less concerned about tax policy uncertainty in 2021 - ranking it their 14th more pressing threat. Irish CEOs are more likely to be concerned about climate change and environmental damage or a shortage of key skills (ranking 4th and 5th respectively). This is also the case when it comes to increasing tax obligations - Irish CEOs rank this threat as their 18th most pressing compared to an 8th place ranking by global CEOs. While 30% of global CEOs are “extremely worried” about increasing tax obligations, only 16% of Irish CEOs profess to be so worried.
But what does this mean? Do Irish CEOs feel more removed from global tax reform and as such are less concerned? Are they more accepting of higher tax costs into the future?
The Irish CEO certainly seems to react less strongly to tax than their global equivalent. Our survey shows that 63% of Irish CEOs either strongly agree or agree that tax policy changes to address rising government debt levels will increase their organisations’ total tax obligation - this is broadly in line with global CEO responses with 60% of global CEOs agreeing or strongly agreeing. However, the planned response to this threat from Irish CEOs is interesting. Irish CEOs are less likely to let this threat of an increased tax obligation impact their organisation’s decision making or planning, the cost structure of the organisation, the geographic footprint or the workforce strategy. Global CEOs show a greater willingness to make changes to their organisation in these areas to manage the risk of a higher tax burden. The global CEO seems more prepared to take decisive action to manage tax costs and as such is ever so slightly less convinced that the organisation's total tax obligation will increase.
The Irish CEO is also less likely to want their government to prioritise an effective tax system - 32% of Irish CEOs rank this as a “Top 3” government priority compared to 44% of global CEOs. However, the fact that it is so highly ranked means that Irish CEOs still want their government to address tax concerns and have an effective system. There is little doubt that Irish CEOs feel the government should respond to tax competition and tax protectionism with a strong and stable Irish tax regime.
However, is it the case that Irish CEOs are just more comfortable when it comes to Tax Policy Uncertainty or are we simply playing catch up when it comes to recognising this as a key issue? While only 18% of Irish CEOs were said to be “extremely concerned” about Tax Policy Uncertainty in 2021 (compared to 31% of global CEOs), this was up from 10% of Irish CEOs who said they were “extremely concerned” in 2020. The numbers of Irish CEOs “somewhat concerned” about Tax Policy Uncertainty has also increased from 42% to 46% from 2020 to 2021. So while Irish CEOs are less concerned than their global counterparts when it comes to tax as a threat to their business, this concern is increasing year-on-year.
The difference in thinking may be attributable to the relatively stable tax regime that exists in Ireland (particularly when compared to other countries) and high levels of stakeholder engagement in recent years. We believe that this gives Irish CEOs a sense of “buy in” to the tax reform process that is not matched elsewhere. The overall growing concern around tax policy could be testament to the fact that Irish CEOs are increasingly required to consider the tax ramifications of policy changes not only in Ireland but on a worldwide basis.
The findings of our CEO survey offer a real insight into how the Irish CEO considers the risk of an uncertain tax landscape. Ireland is truly at the centre of international tax reform and our government is working hard to help shape the rules that will govern international tax in future decades. Both Irish and global CEOs can and should take action to make sure their organisations are kept up to date with the latest tax reform news. Here are three easy ways to keep abreast of the latest developments:
Who better to advise you on how tax changes will impact your organisation than your usual PwC contact. Our people are kept up to date with the latest tax reform news. Even better they understand your business and will be able to make sense of all of the noise and pinpoint where you need to focus your energy and take action.
Whether your concern is interest limitation rules, BEPS 2.0 or tax reporting and disclosures, www.pwc.ie/services/tax/insights.html should be your first port of call in keeping up to date with major tax policy shifts.
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