Ektaa Kumar 4 Jul 2019 04:08pm

Taxing the digital economy: where are we now?

This year has faced the tax market with much uncertainty. The global tax environment continues to develop at an exponential pace with very little signs of slowing down

What has been evident is that the challenges a tax department now face are much more complex than simply managing the Effective Tax Rate (ETR). Issues such as reputational risk, tax transformation and the ever looming- implications of Brexit- are the priority to tax leadership teams, and as such we’ve seen a huge shift in skillset demand in the market.

Making Tax Digital has been a key feature on the agenda for 2019 so far, with digitalisation disrupting traditional business models and changing the ways in which businesses interact with its stakeholders. Meanwhile, the ongoing debate around how digitalised business models should be taxed has garnered more attention than ever, thrusting tax teams and their capabilities into the spotlight.

This has caused an ongoing effect on the treatment of tax and led to the establishment of newly defined tax opportunities for professionals with strong capabilities within the tax technology space.

The argument remains - what do we define as a digital economy? The lack of consensus on the international platform has caused businesses to review their models and ultimately establish stricter guidelines around their services. The business world is becoming increasingly digital with the establishment of apps and the ‘cloud’ solution becoming increasingly prevalent however the global tax regimes are still very much geared toward a more traditional scheme. This saw significant change in 2015 with the establishment of the OECD/BEPS Guidelines however due to the localised approach to digital taxation, there continues to be a higher degree of ambiguity across multinational enterprises (MNE).

Nowadays, businesses are predominantly, taxed where they have a physical presence as opposed to a virtual presence despite many international businesses operating in a multitude of jurisdictions.

This has created challenges in defining where exactly valuation occurs and thus creates obstacles in securing an international consensus on digital taxation. Individual jurisdictions have been encouraged to take matters into their own hands and start to build a more robust plan around tax reforms. This has led to companies reviewing their tax functions and tweaking the structures/backgrounds of individuals to ensure that they are fit for purpose.

The shift of skillset has only been further enhanced by a MNE’s appetite towards tax risk and the reputational issues around this. MNEs have implemented a robust tax infrastructure with the approach of zero tolerance to uncertainty. This has led to tax teams becoming more business aligned which has changed the guard in tax skill. The demand for international tax specialists who are able to interpret this changing tax environment to meet businesses needs has increased exponentially and continues to be a sought after skillset as we continue through 2019.

In tune with these international tax regimes, Brexit has caused an air of caution in the market with Heads of Tax facing the pressures of the outsourcing model, cost reduction and relocation of tax services. However, there has been a strong spike in appetite for tax temporary resource due to the flexible arrangement that this solution offers.

Without longer term stability around the current business climate, hiring managers have been more inclined to consider a temporary resource who, not only, allow for a degree of flexibility but often also approaches the tax team with greater degree of exposure and the ability to hit the ground running (having had to adapt in a few different environments prior to this).

Temporary tax resources are useful for defined periods of time as we move through the changes that taxing the digital economy will bring.

Ektaa Kumar is director- head of tax interim at Morgan McKinley