It is striking, it not surprising, to see that CEO respondents to the 2021 KPMG CEO Outlook Pulse Survey cited tax risk as a top concern when it comes to potential barriers to growth.
Tax risk and the related business considerations have been slowly moving up the leadership agenda in recent years ― in the most recent KPMG CEO Outlook pulse check, Tax moved up to number two in the list of barriers to growth identified by CEOs.
This risk was identified as most significant by French, German, Japanese and US companies. My view is that the concerns stem from a confluence of factors, including:
- The impending potential reform in the US
- The uncertain global taxation environment, especially considering still unresolved issues surrounding the taxation of digital companies
- The likelihood of the EU legislating country-by-country transparency
- New cross border taxes to capture carbon leakage and the likely increase in taxes as COVID stimulus tapers (as evidenced in the UK)
- A long range of broader business issues that have a tax implication (including supply chain, sustainability, territorialism and reputational matters, among other business issues
- The cumulative weight of facing all the above factors at once
These challenges combine to create a complex environment with which CEOs need to grapple. My view is that while higher taxes will of course increase the cost of capital and therefore may stymie marginal capital projects as businesses make investment decisions, companies that can successfully navigate the increased uncertainty will outperform their competitors and mitigate the tax risks that could otherwise hinder growth.
In my full article on this topic, I offer an in-depth look at the risk areas identified by CEOs, considering them through a tax lens, show how tax priorities have shifted in recent years, and provide a comparative view of how KPMG research into tax departments aligns to the CEO findings. Finally, I offer these three key things tax leaders can do to help mitigate risks and put their CEOs’ minds at ease.
1. Stay across the evolving reform and regulatory framework and ensure that the CEO and other leaders are briefed. The impacts of impending changes on investment decisions will need to be a key focus over the next few years.
2. Seek ongoing engagement with regulators. Regulators that understand the issues faced by business and the ongoing complexity will make better policy decisions and the tax leader can help bring the voice of business to the table.
3. Maintain an appreciation and understanding of the complex environment that business finds itself in, including from an ESG perspective and across the broader stakeholder environment. Assisting the CEO to manage that complex stakeholder environment is more important than ever.