3 things to know about taxation around the world

Nothing can be said to be certain, except death and taxes. So said Benjamin Franklin, one of the Founding Fathers of the US.

And while that’s largely true, the way we pay and approach tax is evolving as digitalization remoulds everything we do. Taxes are moving up the international agenda as governments grapple with how to apply them to modern businesses and the sharing economy, while the World Economic Forum’s new Davos Manifesto calls for companies to pay their “fair share”.

Here are three aspects highlighted by Paying Taxes, an annual report from PwC and the World Bank Group, which compares the tax systems of 190 economies.

1. It’s easier than ever to file and pay

Electronic systems for filing and paying taxes mean the time it takes and the effort to file have been lowered around the world. The US was the first economy to introduce e-filing in 1986, followed by Australia in 1987, and many other countries in subsequent years.

“E-filing and e-payment have various benefits that have made the tax preparation process easier for businesses,” the report says. These include “the ability to file a tax return from one’s office at a convenient time and the ability to prepopulate tax returns with data already held by the tax administration.”

2. The proportion paid hasn't changed much in a decade

The data shows that the overall tax rate on profits and labour is little changed between 2008 and 2018, at around 16% for both. The rate of “other taxes” has fallen to 8.1% in 2018 from 15.5% in 2008.

Compared with a year earlier, there was little movement to the total tax and contribution rate. North America saw the biggest reduction, after cutting its statutory rate of corporate income tax to 21% from 35%.

3. Looking ahead, we need to work out how to tax the digital economy

Modern companies and technologies pose questions for international tax policy. For example, how do you tax a multinational business on sales into a territory where it has little or no physical presence? And how do you assign a value to user-generated data and content and build that into taxation? And how can governments compensate for a possible reduction in labour tax revenues resulting from the automation of routine tasks?

“At a global level, the most prominent tax-policy issue is how to tax the digital economy,” the report says.

Tax rules for multinationals and new types of business models are a key topic for policy-makers around the world. The World Bank estimates that governments are missing out on anywhere from $100 billion to $600 billion each year as companies legally avoid taxes by shifting profits to other regions.

The Organisation for Economic Co-operation and Development has published proposals for allocating profits arising from digital companies, aimed at ensuring large and highly profitable multinationals pay tax wherever they have significant consumer-facing activities and generate their profits.

“Data on the global activities of multinational enterprises need to be more transparent,” says Marcello Estevão, Global Director, Macroeconomics, Trade & Investment at the World Bank. “And, they need to be adaptable to cover business models that have not been invented yet. If history has taught us anything, it is that innovation will happen fast and we need to be ready.”

The World Economic Forum published a whitepaper last month on Corporate Tax, Digitization and Globalization, outlining the challenges to overcome and exploring how corporate tax systems can better meet citizens' expectations.