When governments came together at Bretton Woods, New Hampshire, in 1944, they relied on a spirit of compromise to found the international institutions that would help rebuild a devastated world. Even as the Second World War raged on, leaders looked ahead to a brighter future, and agreed to a monetary system aimed at avoiding future trade wars. As we strive now through vaccination to put the global pandemic in our rearview mirror, are we at a Bretton Woods moment for the global tax system?
The perennial question
COVID-19, like war, created human, economic and fiscal carnage. Deficits, which were already large a year ago, now stand at levels not seen for more than 80 years. And even when we start to return to some semblance of normalcy, governments will need to continue investing substantial funds to repair the pandemic’s damage, while also laying the foundations that will enable societies to tackle longer-term challenges, such as income equality and climate change.
More debt is the obvious short-term option with interest rates so low, but tax will be important in rebuilding national balance sheets in the long run. The perennial question remains: what should be taxed, and how? Even before COVID-19, debates about tax were fractious. Mounting fiscal concerns haven’t helped, and discussion seems stalled at both the national and the international level.
I took up the role of global leader of tax and legal services at PwC mid-pandemic. We advise companies and individuals across the full spectrum of tax issues, working to understand the obligations within the tax system and ensure they are met. This gives us a rare insight into broad-based concerns and priorities. Looking at this landscape, my concern today is the confrontational nature of many discussions of tax systems.
To ease these frictions, I believe we need to embrace the idea of compromise in the spirit of Bretton Woods. Compromise is likely to yield a more stable tax equilibrium that will engender the certainty executives yearn for. More than 1,000 business leaders who attended a series of regional symposia we hosted on tax towards the end of last year said uncertainty—not rates—was their single biggest concern. They’re more likely to get certainty if they strive to shape the tax system in collaboration with policy-makers, who also must work with one another to harmonise national and international interests.
2021 should be a year of building back better. Tax systems can help address the crucial concerns of governments, businesses and citizens, if they are predictable and easy to comply with. Near-term priorities include a better balance between national and global interests, a fairness agenda to help us recouple social and economic progress, and smart digital taxation.
By Carol Stubbings
About the author: Carol Stubbings is Global Tax and Legal Services Leader, Partner, PwC UK
Read the full article at pwc.com
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