KPMG’s 2021 summit on tax and legal developments in the Asia Pacific region drew lessons from the current and global economic disruption but at a time of accelerated transformation. The virtual nature of the summit itself symbolized the challenges and opportunities faced by businesses in the region.
Despite COVID-19 and the global economic disruption, the mood at the summit was upbeat, with presenters voicing optimism over significant advances in tax policy work, business opportunities and economic development, driven by accelerated technological change.
Speakers at the summit explored a range of tax and legal developments both globally and in Asia Pacific against the current background of economic uncertainties. Even before the emergence of COVID-19, global businesses experienced a wave of disruption caused by innovation, hyper-connectivity, urbanization, ageing societies, and the rise of a global middle class.
Key insights from the Summit
1. Demands on tax departments are increasing due to workforce changes
Jenny Clarke, KPMG’s Asia Pacific Head of Compliance Management Services, asserts that tax departments are increasingly expected to do more with less. Workforce changes are increasing the complexity of tax governance and management within organizations as employees become more transient, removing the built-in efficiency of having people remain in the same position for a long time.
Furthermore, the massive shift to remote working is challenging tax departments to provide employees the information they need to meet the organization’s compliance obligations more effectively.
Catherine Light, KPMG in Singapore’s Tax Technology lead, says that tax departments have more superior tools at their disposal to meet these demands when in-person collaboration has been replaced mainly by virtual collaboration. Applications such as Microsoft ® Teams ® now enable teams to work together more efficiently.
In responding to the increasing demands placed on them and the technological advancements made by tax authorities, remote working, and heightened expectations of what they can do with their new tools, tax departments can make a strong business case within their organizations for an investment in new technology.
2. Companies need to manage a global workforce responsibly
Will the changes in work patterns caused by the pandemic persist after it is over? If so, how can companies meet this challenge?
It looks like remote working is here to stay. According to Michelle Zhou, KPMG Partner in China, between a quarter and a third of the workforce will be working remotely — permanently — by 2022. This is both because some employees prefer to work at home and because remote work can increase productivity and save on costs, for example, by eliminating commuting. Companies are therefore investing heavily in making work more digital-friendly.
The switch to remote working highlights KPMG’s finding in its 2020 CEO Outlook Asia Pacific edition survey that talent risk is the most significant threat to business in the ASPAC region. Matthew Fenwick, KPMG Corporate Tax Partner in Hong Kong (SAR), China, sees this as an opportunity to adapt and thrive by attracting and retaining the best talent. He points up a new challenge to tax officials, who had previously said “no” to a truly agile workforce. They need to focus on identifying risks and dealing with compliance issues, especially in jurisdictions where tax exposure hadn’t previously existed.
“Working from anywhere” raises a host of issues regarding tax liabilities and labor laws. Which laws apply? Where does an employee pay tax when living for an extended period overseas because of pandemic border restrictions? Organizations need to go beyond ad hoc measures and document the arrangements they have made for remote working due to government restrictions to deal with COVID-19. They have to learn to manage remote employees. And they need to develop an understanding of policies and procedures relevant to their situation to ensure compliance in a changing global work environment.
3. The implications of new technologies
The current crisis has accelerated technological changes already in progress, and new technologies combine to provide a transformed working and business environment. These new technologies will have significant implications for tax work.
For example, artificial intelligence (AI) is increasingly available to power tax analytics. Tax departments need to make optimal use of all these new tools to meet the new era's increasing demands.
4. Tax departments will have to deal with new and unfamiliar business models
Leonie Ferretter, KPMG’s Asia Pacific Leader for Trade and Customs, points out that the tax environment is changing as the pandemic accelerates shifts in supply chains that were already underway before 2020. This is especially relevant for Asia Pacific.
All countries and territories have experienced limited access to air freight, border closures, travel bans, factory closures, lockdowns, container shortages, massive job losses, and export and import controls of goods deemed critical for health and safety.
Offshoring is giving way to “onshoring” and “reshoring”. Especially in the context of new “mega deals” like the Regional Comprehensive Economic Partnership, companies have to consider adjusting their supply chains to see how they can get the best value for money and serve their markets in the most agile way. In doing so, they will have to consider how tax incentives, subsidies, and the trade and customs environment (including tariffs and other restrictions) affect their business.
5. Governments are working together to strengthen taxation of multinationals in the digital economy
A vital feature of the international background is the changing regulatory climate. As Dean Rolfe, KPMG’s Head of International Tax in Asia Pacific noted, the rise of the digital economy and digital companies’ global success have challenged governments to find ways of taxing them.
Especially at a time when governments need revenue to finance their stimulus and recovery programs and reduce the massive debt built up during the pandemic, governments are concerned about how to deal with tax planning strategies that may be used by multinational enterprises which exploit gaps and mismatches in tax rules to determine where and how much tax they pay (known as base erosion and profit shifting (BEPS) in the terminology adopted by the Organisation for Economic Co-operation and Development (OECD). Over 135 countries and territories work together within the OECD/G20 Inclusive framework to implement measures to tackle this tax avoidance.
Indeed, countries and territories, including those in Asia Pacific have made a strong commitment to do this but have not yet reached an agreement. Businesses are advised to keep themselves informed about progress with the BEPS project so they can be ready with implementation.
Conclusion
In an eventual post-pandemic world, successful businesses will survive only if they are agile, close to their customers, take account of more frugal consumption habits, cooperate more with their erstwhile competitors and focus on safety and health — not to mention manage the challenges of climate change.
Businesses need to review their corporate structures, operating and trading models to ensure readiness for compliance across multiple jurisdictions.
In the concluding interview conducted by KPMG Global Chairman and CEO Bill Thomas, the key message was optimism based on technological advances and the resilience of teams demonstrated over the pandemic in the past year.
