A Glance at the Tax Developments in 2022

Changes in tax legislation and tax reporting requirements enacted by governments to increase tax collections dominate the post-pandemic tax landscape.

FREMONT, CA: Large corporations with consolidated revenues over €750 million ($844 million) will be required to pay a minimum tax rate of 15 percent beginning in 2023. Nonetheless, experts can already observe how this new regulation affects those nations where corporate income tax was not previously an issue. For instance, with the introduction of a 9 percent corporate income tax on June 1, 2023, the United Arab Emirates will end a lengthy "no tax" period. Experts anticipate that other nations will either boost their tax rates or alter their taxation policies.

Regardless of when and what reactions will be triggered, companies operating across borders will need to review their global operations to determine if there will be an increase in their effective tax rate, analyze the impact on their cash flows, and monitor the legal changes in the low-rate jurisdictions. It may impact their effective tax rate even if they do not fall under the OECD's definition of a large company.

The tendency is toward widening the area of services subject to digital taxation. As a result, more enterprises will be required to pay the digital tax, register in countries where they were not previously required, and report more transaction-related information. In either case, the cost of conducting business rises. It falls heavily on businesses operating in this industry to be current with the service definitions and comprehend the digital permanent setup standards. Mexico, Ukraine, and the Czech Republic are among the nations that have made modifications in this area.

Numerous base erosion and profit shifting (BEPS) actions began the year. The OECD has released proposed nexus and revenue sourcing rules and amended the Transfer Pricing principles. At the national level, Costa Rica, Denmark, and Peru have clarified the Permanent Establishment (PE). Tax agencies must keep up with the changes and regularly evaluate their PE consequences and registration requirements.

How tax authorities communicate with taxpayers and the digitization of tax filing is influenced by tax authorities—digitization could be as essential as filing tax returns through online portals or as sophisticated as having a real-time interface with tax authorities to report each transaction. The percentage of tax administrations that need detailed transactional reporting in real-time or near real-time climbed from 40 percent in 2020 to 45 percent in 2021, and the upward trend continues. For example, Poland recently stated that electronic billing will be implemented in 2023. In 2022, Romania will test SAF-T reporting for large taxpayers, with expansion planned for 2023.

Digital tax administration alters how businesses handle and validate data and invest in technology. Digital tax administration accelerates tax digitization at the corporate level. Still, it requires data sources to be unified, tax laws to be appropriately understood and configured in tax technology, and tax validations to be shifted upstream, as there is no point of return after data has been submitted.

Anticipating the digital tactics of the tax administration is crucial for shaping businesses' data management and technology adoption strategies. Due to the potential tax implications of internal digitization and automation efforts, the tax department should be one of the primary stakeholders.

As a result of Covid-19, tax officials are more concerned with ensuring that tax regulations are observed, and tax revenues are collected. Particularly in those jurisdictions that have implemented digitalization, tax enforcement has become increasingly data-driven. Transactional information gathered from taxpayers is utilized to determine which poses a danger and to prepare tax audits.

Another factor is that tax administrations have eliminated the exemptions granted during the pandemic. No longer are extended filing deadlines and fines waived, so businesses must assure adequate and timely compliance.

Companies must rigorously check the correctness of tax data reported, and data reconciliations become essential. In addition, businesses should monitor the evolution of tax rules and adjust their tax practices accordingly to minimize the risk of tax controversies.

The pandemic has compelled tax administrations to increase taxpayer communication. In 2020, just 52 percent of tax administrations assisted in understanding tax rules and regulations. In 2021, however, this figure improved dramatically.

In addition to this support, the United States has created cooperative tax compliance programs for major corporations. Companies and tax administrations collaborate to develop tax control frameworks and manage tax risks, thereby mitigating the difficulties associated with following diverse tax standards. Less time is spent on tax audits, tax positions are clarified, and tax disputes are diminished.

In conclusion, effective tax risk management necessitates tax expertise, rigorous controls, valid data sources, and an in-depth understanding of tax developments. Businesses must handle all these points in their digital strategies and tax policies.