Companies worry about double taxation from global tax reform

Date: January 09, 2024

International tax professionals are concerned that multinational companies could be facing the prospect of double taxation as a result of the Organization for Economic Cooperation and Development’s tax changes, according to a new survey.

• 84% of respondents believe companies face a “moderate” or “significant” risk of double taxation due to global tax reform
• 71% believe global minimum taxes will have a “moderate” or “significant” impact on their transfer pricing policies

The 2024 EY International Tax and Transfer Pricing Survey indicates that the respondents, including 1,000 transfer pricing professionals and stakeholders in 47 jurisdictions, expressed concerns about the potential for double taxation. This is in response to the base erosion and profit shifting initiatives by the OECD (Organization for Economic Cooperation and Development). The survey revealed that 84% of respondents believe companies face a “moderate” or “significant” risk of double taxation as a result of the global tax reform. Additionally, 71% of respondents believe that global minimum taxes will have a “moderate” or “significant” impact on their transfer pricing policies.

The survey also found that tax professionals are worried about the impact of tax rate stability, inflation, higher interest rates, and changes in supply chains and commitments to environmental, social, and governance (ESG) objectives. Over three-quarters (77%) of respondents predicted that inflation would have a “moderate” or “significant” impact on their transfer pricing policy over the next three years. Half of the respondents said higher interest rates have impacted their medium- and long-term intercompany debt pricing. In addition, more than six in 10 (62%) anticipate changes to supply chains having a “moderate” or “significant” impact on their transfer pricing policy in the next three years.

To address these concerns, companies are using technology, such as artificial intelligence, to respond to the risks. However, the survey revealed that ineffective use of technology and poor data quality were cited as the biggest challenges in implementing technology solutions. Despite this, the majority of respondents believe that investing in more sophisticated operational transfer pricing technology would lead to moderate or significant improvements in risk management, and 88% expect transfer pricing technology to save their organization money over the next three years.

Marna Ricker, EY’s global vice chair of tax, emphasized the importance for organizations to prioritize tax in their data and technology transformation roadmap, in order to equip tax teams to deal with the complex reporting requirements resulting from global tax reforms. Ricker also highlighted the need for tax professionals to embrace emerging technologies, such as generative AI, robotic automation, and quantum computing, to meet these demands.

The survey also revealed an increase in companies using advance pricing agreements (APAs) to create greater certainty around their transfer pricing positions. More than half of the respondents indicated that bilateral and multilateral APAs will be “very useful” in managing transfer pricing-related controversy over the next three years, up from previous years. Unilateral APAs were also considered to be valuable in managing transfer pricing-related issues.

Overall, the survey highlights the concerns of international tax professionals regarding double taxation, global minimum taxes, tax rate stability, inflation, changes in supply chains, and the importance of leveraging technology to address these challenges.