How to tax in the new global alignment

KPMG International hosted a virtual discussion in May 2026, as part of the Global Responsible Tax Thought Leaders Group, to explore how tax systems can respond to an increasingly volatile and fragmented geopolitical environment.

The discussion took place against a backdrop of overlapping pressures: conflict-driven fluctuations in energy prices, shifting trade relationships, rising defence spending, growing debt burdens, renewed competition for capital, technological disruption, cross-border migration, climate transition, and changing perceptions of economic security and so-called “safe havens”.

The conversation asked: How should tax systems respond when volatility becomes structural rather than cyclical and temporary? What policy tools are governments deploying or considering, and with how much success? What happens to international tax cooperation, transparency and information exchange in a more fragmented geopolitical environment? And how can governments maintain credible, predictable tax frameworks while navigating competing pressures around security, growth and fairness?

Held under the Chatham House Rule, the roundtable brought together a self-selected group of participants from business, civil society and public policy who want to take a more active role in shaping the Global Responsible Tax Program’s work. This group meets twice a year. If you want to be part of it, please reach out to us.

The write-up below summarizes the personal views of participants and does not necessarily reflect the view of any particular organization, including KPMG.

Tax policy is being asked to operate in a world where shocks are increasingly structural, interconnected and politically charged.

Participants questioned whether “volatility” adequately captures the current moment. If volatility is treated as a temporary disturbance, governments may reach for temporary tools: reliefs, subsidies, windfall taxes, emergency spending or short-term freezes. But if volatility is a structural condition, tax systems need to be designed differently. They need to anticipate repeated shocks, allocate burdens fairly and maintain legitimacy when some actors are seen to benefit from disruption while others bear the costs.

Participants noted that recent crises have not affected all groups equally. Some households have been pushed into deeper insecurity, while some companies and individuals have seen gains. The discussion linked this to wider concerns about inequality. If citizens believe the gains from crisis are privatized while the costs are socialized, trust in tax systems and democratic institutions can weaken, and polarization and populism can increase.

The Uruguay example suggested that long-term transition policy can reduce exposure to future shocks.

One of the most concrete examples discussed was Uruguay’s energy transition. Participants noted that Uruguay had shifted away from fossil fuels before recent energy instability began, which could be considered not simply as an environmental achievement, but also potentially as a case study in resilience. Countries that have already reduced dependence on fossil fuels may be better insulated from geopolitical energy price shocks than those trying to reform under pressure.

The discussion highlighted the policy mix behind this, and the importance of tax incentives on one side and the removal of environmentally harmful subsidies on the other.

However, the Uruguay example also prompted a harder question: have some countries left it too late? Reform is easier when governments have fiscal space, political trust and time to manage distributional effects. It becomes much more difficult when energy prices are already high, households are under pressure and governments are facing debt constraints. Removing fossil-fuel subsidies or increasing the relative cost of carbon-intensive activity may be economically rational but politically explosive if introduced during a cost-of-living crisis.

For many businesses, certainty may matter as much as the headline tax burden.

Competitiveness is often framed as a question of lower rates, but participants suggested that a stable institutional environment, clear rules, efficient administration and reduced complexity may be equally important. This is especially true for long-term investment. If companies cannot “bank” on a tax incentive lasting over the relevant investment horizon, they may discount it entirely, weakening the effectiveness of policy tools. Some participants argued that businesses would even accept a higher tax burden if it came with durability and simplicity.

Participants also emphasised the importance of small and medium-sized enterprises. SMEs are often described as engines of growth, but they may have fewer resources to navigate complexity, uncertainty and compliance burdens. A tax system that is manageable for large multinationals may still be too difficult for smaller businesses.

Everyone supports simplification in principle, but tax complexity often survives because every relief has a constituency.

Participants noted that tax systems have accumulated layers of reliefs, exemptions, special treatments and targeted measures. Each may have a rationale, but collectively they create complexity, reduce transparency and make reform more difficult.

There was a sense that governments often express support for simplification but struggle to act on it. The work of the Office of Tax Simplification in the UK was mentioned positively, but participants questioned whether its recommendations gained sufficient traction or became embedded in policymaking.

Many groups support simplification in the abstract, but lobby for specific reliefs or favourable treatments in practice. Every tax reduction or relief has a cost, but that cost is not always visible. Participants noted that people may lobby for lower VAT (for example) without engaging fully with who bears the cost of the resulting revenue loss.

Several participants suggested that fewer tax breaks might produce a better system overall: simpler, more transparent and easier to administer. But this requires political courage, because removing reliefs creates identifiable losers, while the benefits of simplification are diffuse. The group therefore returned to the importance of longer term consensus. Without a shared view of what the tax system is for, simplification will remain desirable but elusive.

Technology was discussed as an important tool for improving tax administration and simplifying the taxpayer experience. Participants noted that some governments are investing in modernizing tax authority systems, replacing outdated infrastructure and using digital tools to close tax gaps.

However, technology might simplify experience without simplifying the underlying system. It may make it easier to comply, but not necessarily easier to understand the choices being made. Participants stressed that taxpayers need to understand their options and obligations. If digital systems obscure the logic of tax, they may reduce friction while weakening transparency.

Siloed government makes it harder to use tax strategically.

Participants discussed the problem of tax policy being developed separately from wider policy objectives.

One participant described this as a problem of tax not having a clear political master. The left hand and right hand of government may not be aligned. A department may pursue one social or economic objective while the tax system creates incentives in another direction.

Tax should be designed alongside the relevant policy tools, not added at the end as a revenue mechanism. This would require coordination across departments and a willingness to think about tax as part of the machinery of government, not merely as a funding source.

Participants disagreed on whether global tax cooperation is fragmenting permanently or entering a difficult transitional phase.

The conversation turned to the future of international tax cooperation. Participants recognized the achievement of the OECD-led Inclusive Framework, particularly in bringing a very large number of countries into a shared process. From a business perspective, that kind of broad agreement is valuable because it creates a common basis for implementation and reduces the risk of overlapping regimes.

Some participants viewed the UN process as exciting and potentially historic. But others saw it as a symptom of fragmentation. Parallel processes are emerging, they suggested, because the old model of global consensus is weakening, making agreement through existing institutions harder to achieve.

Several participants were skeptical about the prospects for new international tax initiatives that materially affect powerful economies’ taxing rights. When one country’s gain is another country’s loss, cooperation becomes much harder. Participants noted that social media, AI and digital commerce businesses are especially sensitive because many of the largest companies are concentrated in particular jurisdictions.

Countries may assert taxing rights unilaterally, while others respond with countermeasures or pressure. Companies can then find themselves caught in the middle, facing competing claims, double taxation or uncertainty about where liabilities ultimately sit. Consumers and workers may also bear costs if tax conflict increases prices or discourages investment.

Given the difficulty of universal agreement, participants explored the role of “coalitions of the willing”. These may be most effective where the distributional stakes are less zero-sum, or where participating countries see mutual benefit. Regional cooperation, issue-specific agreements and smaller groups of aligned countries may provide laboratories for policy development.

Towards the end of the conversation, participants drew a distinction between stability at the national and international levels. At the national level, the route to greater stability is at least conceptually clear: broader political consensus, longer term thinking, better coordination across departments, simplification, investment in administration and a clearer connection between tax and policy objectives.

The problem is that these reforms are politically difficult. They require governments to resist short-term incentives, give up some tactical flexibility and create spaces for cross-party or cross-sector discussion. They may also require confronting the constituencies that benefit from complexity.

At the international level, the route is less clear. Participants recognized the need for cooperation but questioned how far the international balance of taxing rights can realistically be reset in the current environment. Competition for capital, geopolitical rivalry and fiscal pressure all make agreement harder. Where the stakes are high and the winners and losers obvious, multilateral tax reform becomes especially fragile.

Even so, participants identified some areas of relative optimism. Information exchange, global mobility and certain forms of administrative cooperation may still be possible. These may not resolve the most contested questions, but they can preserve habits of cooperation and create practical benefits. In a fragmented world, maintaining those channels may itself be important.