• Tim Sarson, Partner |
4 min read

At KPMG’s recent EMEA Virtual Tax and Legal Summit, a panel host asked me if I think we’ve entered an era of deglobalisation.

The question took me back to a talk I gave on the same subject back in 2014 (doesn’t that feel like a different time altogether?). I had dramatically warned the audience about the coming deglobalisation, and the rise of national borders.

Not everything I predicted came to pass – I believe I forecast that Marine Le Pen would be President of France by now. But deglobalisation is here. In fact, it’s been with us for some time – and isn’t going away. 

Drivers of deglobalisation

So what exactly is deglobalisation?

In crude terms, it means less goods, services and money moving around the world; and shorter, more dislocated supply chains. In a deglobalised economy:


  • Products are made and stored closer to where they’re sold.
  • Fewer goods and services are imported and exported, while more are home-grown.
  • Equity and debt investors put their money into domestic businesses and sovereign debt vehicles.
  • Governments take a muscular, ‘country-first’ approach to private sector intervention.

The data tells us that this is happening. Most indices of cross-border trade and capital flows show a sharp fall around the time of the financial crisis in 2008. They then flatline or continue to slow until 2020 – when the decline becomes an all-out nosedive during the COVID-19 pandemic.  

We don’t have to look far for the causes of deglobalisation. It’s being driven by several well-documented factors – some good, some bad:


  • Climate change
    Decarbonisation and sustainability demand shorter supply chains. We’re beginning to see this in western middle-class consumption patterns – though it’s being dwarfed by the opposite trend in emerging markets.
  • Financial conservatism
    Less bullish, and more tightly regulated since the financial crisis, the mainstream financial sector is still rebuilding its balance sheets. However, this is being offset somewhat by the growing role of private equity.
  • Economic nationalism
    Brexit and Trump’s ‘America First’ policies have been the most visible manifestations of trade and resource nationalism in some western countries. And in part due to government policy, we’re seeing a slow switch from export orientation to domestic consumption in China.
  • Technological advancement
    Digital technology is making more of what we consume intangible – music, TV and films being obvious examples. And it is driving a steady decline in business travel (which has been accelerated by the pandemic). At the same time, the rise of 3D printing is localising the manufacture of physical products.

Value on the move

Interestingly, technology is a double-edged sword when it comes to deglobalisation. Why? Because in the digital era, intellectual supply chains have never been more global, or more rapid.

An intellectual supply chain is one where ideas, innovation and value travel around the world at speed. No longer reliant on physical interactions, their movement is now restrained only by server capacity and data regulation.

We’re all familiar with news and opinions spreading virally on social media: within minutes, an event in one country is being digitally debated across the globe. Earlier this year, a vaccine trial in South Africa had the world eagerly speculating about its results for days before it was published. Closer to home, my children would happily spend hours on Roblox, chatting with the avatars they call ‘friends’.

What’s more, technology now enables us to do our jobs, and operate physical supply chains, remotely.

This is what I call the ‘real drone economy’: not using autonomous flying craft, but conducting faraway, value-generating tasks from our desks. And it’s already here. Using digital tools, employees can hold meetings, track container ships, monitor oil rigs or control mining operations – without leaving the office or home. 

Shifting sands

You might be forgiven for wondering what all this has to do with tax.

Value, ideas and innovation are what allow businesses to make the profits that authorities impose tax on. Where businesses make decisions determines where they make those profits, and where they pay tax on them.

The value created in intellectual supply chains is currently taxed through clunky, old-fashioned channels like corporation tax and transfer pricing. But deglobalisation, intellectual supply chains and the drone economy are transforming the geography of taxation in complex and contradictory ways.

As transaction flows are shifting, so is the physical infrastructure of supply chains. New fiscal barriers are being put up. Covid has turbocharged the move to remote value creation. All of which puts traditional forms of taxation under stress.

And even before the pandemic, multinationals were replacing the ‘HQ-vs-market’ dynamic with a distributed model, where HQ (or ‘above market’) sits anywhere and everywhere. As a result, conventional transfer pricing is creaking, and managing the complexity of a global organisation is becoming ever more difficult.

This all adds up to a fascinating challenge for tax leaders. There’s never been a better time to identify and articulate the value divers in your organisation. If you don’t, then the tax authorities will be happy to do it for you.

As you do so, I’d offer the same words of advice I gave at the panel discussion.

First, keep a careful on eye on what’s actually going on in your value chain. It may be different to what your corporate blurb or the financial press say. Second, watch out for new trends, as they have a habit of becoming the norm. What seems outlandish now could be business as usual within a few short years. And finally, do what you must to adapt to change. It is not, and never has been, the role of the tax function – or tax authorities – to tell a business how to make money.