Cross Border Taxation: What Regulatory Changes Can We Expect in 2023?
Regulatory Changes We Can Expect in Cross Border Taxation in 2023
As globalization started knitting together different economies of the world, cross-border taxation came to the limelight. In 2023, we might witness several regulatory changes in cross-border taxation that will have a huge influence on businesses all over the world. Let us discuss some of the top regulatory changes that might be applicable to cross-border taxation.
1. FirmTransfer Pricing Regulations
Transfer pricing is applicable to goods and services that are exchanged between various parts of an MNC. In 2023, we might see firmer regulations around transfer pricing that will contribute to increased transparency. Meanwhile, companies engaging in abusive practices will also begin to face stricter penalties.
Several companies have been accused of manipulating transfer pricing to reduce their tax liabilities. But the robust regulations and penalties will help put an end to this controversy.
2. Digital Service Taxes (DSTs)
DSTs are applicable to companies offering digital services to customers in a specific country. Some countries argue that DSTs can help ensure that digital companies are paying their share of taxes. But others argue that it is discriminatory, which leads to segmentation in the digital economy. While debates surrounding the effectiveness and impact of DSTs are unlikely to end, we might see India introducing DSTs in 2023.
3. International Collaboration
In recent years, countries have started to come together to fight the issue of tax evasion. International collaboration is paving the way to ensure that companies are paying their fair share of taxes. In 2023, more countries will start cooperating on cross-border tax issues and sign-up international agreements.
4. Value-Added Tax and Sales Tax
VAT and sales taxes are applicable on goods and services sold within a specific country and are significant revenue sources for different governments. In 2023, more countries are likely to find ways to streamline the VAT and sales tax systems. Moreover, countries will also introduce strict measures to ensure that these taxes get collected effectively.
5. Digital Taxation
Due to rapid digitalization and eCommerce growth, governments find it challenging to tax companies operating across borders. But the idea of the digital tax is in the talks, and countries are likely to levy it on businesses that offer digital services, irrespective of their location. It will enable nations to collect the right amount of tax from companies operating out of low-tax jurisdictions.
How Can Businesses Prepare for the Regulatory Changes in Cross Border Taxation
Businesses should keep the following pointers in mind to smoothly navigate through the regulatory changes in cross border taxation:
Stay Updated: Businesses are required to stay updated with the latest changes in cross-border taxation. It’s crucial to keep track of regulatory changes and seek professional advice to comply with the new regulatory measures.
Evaluate Transfer Pricing: Businesses must evaluate their transfer pricing policies to remain compliant with the regulatory changes. It will help improve transparency and documentation for abusive practices and save them from penalties.
Assess the Current Business Structure:Considering the regulatory changes, companies should assess their business structure to ensure that it is still effective. Some restructuring might be necessary to remain compliant with the latest regulations.
The concept of cross-border taxation has always been tricky and will continue to remain so even after the regulatory changes. But global tax services will help businesses navigate through the complications of cross-border taxes. Global tax services will help businesses comply with tax regulations and ensure that they can avoid inherent risks.