As governments around the world try to adapt tax policy to deal with the changing global landscape, three key areas stand out.
Sweeping global trends brought about, or intensified, by the pandemic have been impacting all aspects of our lives, and as tax authorities around the world try to adapt legislation to deal with this evolving environment, there are three areas where changes in the tax environment are most profoundly impactful.
Taxation against climate change
In recent years, the European Union has undertaken a series of initiatives aimed at combating climate change. Among these, the European Green Deal, launched in 2019, aims to achieve climate neutrality for Europe by 2050 through a number of initiatives such as the Circular Economy Action Plan, which includes the EU’s plastics strategy, the Zero Pollution Action Plan for air, water and soil, and the recently adopted (March 2022) 8th Environmental Action Plan (8EAP), which aims to accelerate the green transition by ensuring climate and environment laws are effectively implemented. The Fit for 55 package (2021), a set of proposals to revise and update EU legislation, aims to align EU laws with the EU’s climate objectives, including the reduction of net greenhouse gas emissions by 55% by 2030. The policies aim to combat climate change, introduce a new economic model, transform the EU into a more sustainable, efficient, and competitive economy, and boost growth. Greece has incorporated these initiatives into its National Energy and Climate Plan, which includes a detailed roadmap for achieving certain objectives by 2030 and a longterm strategy for 2050, and its National Action Plan on Circular Economy, which aims at the longterm adoption of circular economy principles. The adoption of the first Greek Climate Law is expected.
taxation is becoming an important environmental policy tool
Taxation is key to achieving these objectives. Direct taxation measures include the favorable treatment of expenses related to zero or low (up to 50g CO2/km) emissions vehicles (i.e. superdeduction, increased tax depreciation rates), including the purchase or leasing of cars, their use by employees, and the construction and installation of charging facilities. Indirect taxation includes a wider range of measures, such as the eco-tax on plastic bags, the environmental levy on single-use plastic—or plastic-coated paper—cups and lids and disposable food containers, the recycling fee for products whose packaging includes PVC, the EU plastic tax on non-recycled plastic waste, and the environmental tax on imported old vehicles with high emission levels. Thus taxation is becoming an important environmental policy tool, either as a disincentive to actions that need to be restricted or as a reward for desirable behaviors. Significant developments are expected both at a European and a national level, which businesses should monitor closely.
Transfer pricing in the new era of global tax reform
Global initiatives to increase tax revenues from multinational enterprises operating in multiple jurisdictions date back a decade to when tax was added to trade and transparency to form the 3Ts on the G8 agenda. This led to the OECD’s BEPS project, whose scope has grown exponentially, increasing companies’ tax and compliance requirements. The need to redesign and strengthen supply chains, -which became painfully obvious after the spread of COVID-19, added impetus to these initiatives and intensified problems for tax functions.
In an ever-evolving world, tax is a living and breathing organism
Today, tax authorities throughout the world cooperate much more closely, exchanging information and data, and have a far more detailed picture of international transactions, enabling more targeted and in-depth audits. Almost three out of four respondents in a recent EY survey, reported facing difficulties due to the volume, pace and complexity of global tax reforms, while more than half expected an increase in transfer pricing audits, and one in four expected that the global tax reform would increase their transfer pricing costs. In line with these global developments, the Greek Independent Authority for Public Revenue (AADE) has been focusing on transfer pricing, aims to participate in the ongoing five multilateral audits, and has targeted 220 specific cases with a potential tax value of €35 million. In response, companies must be proactive and utilize a variety of available tools, including advanced pricing agreements (APAs), which are agreements with the tax authorities for their intra-group transactions and which have been shown to work effectively in Greece, and the OECD’s International Compliance Assurance Program (ICAP), a voluntary program allowing the examination of transactions by the tax authorities within a framework of cooperation, which Greece does not yet participate in. Companies must also look to leverage digital technology and integrate different IT systems. The coming years will certainly be challenging, and companies will need to change their transfer pricing strategy.
Digital nomads and the new work model
The pandemic has paved the way for a new work model that allows much greater flexibility as to where and when one works. One of the consequences of this change is the emergence of digital nomads: employees, freelancers or entrepreneurs, who chose to live and work from a location remote from the company they work for or the market they are addressing, leveraging the opportunities created by digital technology. They are often high-income individuals who can create value for their host country.
Greece is uniquely positioned to attract digital nomads, because of its quality of life, climate, and natural beauty. To ensure that, in addition to these advantages, the country is also attractive from a financial point of view, the government has introduced legislation providing significant tax benefits. Law 4758/2020 seeks to attract individuals (employees or freelancers) who start new jobs or develop new business activity in Greece, by exempting from income tax and the special solidarity contribution 50% of their paid work income that arises in Greece during the tax year. A second law (L. 4714/2020) targets individuals earning income from pensions abroad, who choose to transfer their residence to the country. These individuals must submit a tax return in Greece for income earned in the country and abroad and is subject to alternative taxation. They will then pay income tax at a flat rate of 7%, exempt from the special solidarity contribution for income earned abroad and tax on the income earned in Greece based on the general provisions. Finally, Law 4646/2019 targets high-income individuals who will be subject to a flat tax of €100,000 per year on income earned abroad plus additional benefits, including exemption from inheritance tax on foreign assets.
The above developments demonstrate that, in an ever-evolving world, tax is a living and breathing organism that evolves as well. What will businesses do to reframe their tax functions for the future of taxation?