As the minimum tax law was rolled out on January 1, 2024, businesses face a complex new landscape, with varied global implementations and the daunting task of calculating effective tax rates. Prof Dr Hans van den Hurk highlights the challenges and opportunities this presents, from strategic business adjustments to navigating double taxation risks. This shift not only ramps up compliance costs but also pushes companies towards innovative tax strategies.
Enter tax technology: a game-changer that promises streamlined processes, enhanced decision-making, and strategic advantages. This moment in tax legislation is not just a hurdle but a launching pad for companies ready to leverage technology and rethink their approach to global tax planning.
The implementation of the minimum tax law (“Wet minimumbelasting 2024”), effective from January 1, 2024, introduces significant complexity for international enterprises in the realm of tax reporting. This complexity can be understood from various perspectives, as Prof Dr Hans van den Hurk, specializing in this area, states.
Effective tax rate calculation
The law requires international enterprises to calculate their effective tax rate in a manner consistent with the new rules. This complex process involves accounting for taxes paid across different jurisdictions and various types of income that may be taxed differently and the question whether domestic taxes in a low taxed country can be credited against HQ taxes. Hans van den Hurk highlights the challenges in data collection and financial reporting this calculation presents.
Risk of double taxation
Despite the legislation’s intent to combat tax avoidance, its implementation could result in double taxation for companies in some instances. This is because not all countries will provide tax credits for foreign paid taxes designed to prevent double taxation if the source state does not apply accounting rules in the way the HQ accepts. This risk of double taxation requires careful navigation and planning on the part of companies.
Administrative burdens and compliance costs
The introduction of the minimum tax significantly increases the administrative burden on international enterprises. Companies must adjust their internal processes and systems to meet the new requirements, often leading to higher compliance costs. This aspect of the legislation underscores the need for companies to invest in tax expertise and possibly technological solutions to meet the new demands.
According to Hans van den Hurk’s perspective, transitioning to the new minimum tax legislation requires thorough preparation and a proactive approach to international tax planning. The new legislation is highly complex, potentially incurring administrative costs that could exceed its revenue. Its intended noble goal – to establish a global minimum corporate tax, reduce tax competition, and aid developing countries – seems contradicted by the proposal’s design and content.
The role of tax technology
Tax technology can play a critical role in addressing the complexities and challenges international enterprises face due to the implementation of the minimum tax law. Technological solutions in this domain can help companies more efficiently and effectively comply with new requirements and challenges. Here are several ways tax technology can offer assistance:
Automation of calculations
Tax technology can automate the calculation of the effective tax rate, one of the biggest challenges under the new law. By automating complex calculations and data analysis, companies can determine their tax position faster and more accurately. This includes identifying differences in tax rates between jurisdictions and calculating any additional taxes due to meet the minimum tax requirements.
Data aggregation and analysis
Technology enables companies to collect, integrate, and analyze tax data from various sources and systems. This is crucial for managing the complexity of multiple tax systems and regulations. Having a centralized overview of all relevant tax data allows companies to make better-informed decisions and minimize their compliance risks.
Compliance and reporting
Tax technology solutions can streamline compliance and reporting processes. They provide templates and workflows tailored to the specific requirements of the minimum tax legislation, making it easier to meet reporting obligations and ensure the accuracy of submitted information.
Transparency and communication
Tax technology can also contribute to improved transparency and communication within the organization and with external stakeholders, including tax authorities. By using dashboards and reporting tools, companies can effectively communicate their tax strategies and outcomes, fostering trust and understanding.
In the era of digital transformation, tax technology not only provides a solution to the challenges created by the new minimum tax law but also an opportunity for companies to modernize their tax functions and achieve strategic advantages.
This article is based on an interview with Prof Dr Hans van den Hurk in March 2024
