The global race to attract high-income earners threatens government taxation

International tax update

As the global corporate tax competition is about to end, countries are competing to attract high-income remote workers, and new threats to government taxation are emerging.

Governments recently agreed on a trade Introduce a minimum tax rate for the largest company in the world, but as an official Finalize the details, The pandemic turned many high-paid people into temporary nomads.

Many professionals have combined work with vacations—joining Zoom phones because they are isolated in foreign villas before taking vacations with their families. Others are expats who work remotely from home to extend the time they can spend there.

Petros Kremonas campaigned for several weeks for a Brussels-based NGO at his home in Corfu, Greece. He said that the pandemic caused him and many others in his social circle to “re-evaluate where time is spent and the priorities in life.” In principle, he hopes to work with his parents for two to three months each year.

The main obstacle for him and others is not the nature of his work, but Potential tax impact.

Employers are cautious about allowing employees to work in different jurisdictions for up to a few weeks to prevent them from assuming tax or social security responsibilities in another country. Even an employee working remotely may, in principle, lead to radical authorities deciding that a company has established a taxable presence there, and its profits are taxed by the company.

A tax lawyer said that anyone who requires long-term cross-border work may face the employer’s “strong inertia and fear of tax risks”, adding that his own company recently rejected the initial job requirements of potential new employees. Their homeland.

But tax practitioners also say that companies that compete for talent are under increasing pressure to get employees to work in places they like.

“This has become so common,” said one practitioner. His multinational clients started from a “very conservative stance” but found that they had to compromise because “companies need to be able to hire where they want in the current environment “.

At the same time, countries with brain drain are racing to attract their citizens — and citizens of other countries — to return permanently.

Greece passed a law in December that allows some new immigrants to cut their income tax by half within a few years. Portugal is advertising huge tax breaks for new residents with certain skills, and Italy increased incentives for workers to relocate in March last year.

Other European countries have followed suit Caribbean countries Provide special visas for “digital nomads”.

Rita de la Feria, a tax law professor at the University of Leeds, said that many governments have not yet realized how much threat this poses to the stability of their tax system.

In most countries, the share of personal income tax in government revenue is greater than corporate income tax. This is also a disproportionate tax paid by highly skilled workers who are easiest to work remotely.

“With the increase in liquidity, the tax base has also undergone more significant changes-just as in [corporate income tax] In the past 40 years,” De la Feria wrote in an article. Paper Co-authored with Giorgia Maffini, a tax policy consultant at PricewaterhouseCoopers and a researcher at the Oxford University Business Taxation Center. The report was published last month.

They say that countries like the United Kingdom that rely heavily on a relatively small number of well-paid professionals to pay taxes are particularly vulnerable.

De la Feria and Maffini estimated that if one-third of high-tax taxpayers and 10% to 50% of taxpayers can work remotely, the UK’s 6.5 billion to 32.5 billion pounds of income from personal income tax and social security contributions may face The risk group chose to leave. Even at the low end, this will offset more than half of the expected gains from the imminent increase in corporate tax.

“All reform efforts are focused on corporate income tax. This will have broader consequences,” De La Ferria said.

She warned that the exodus of highly skilled workers would also affect productivity and reduce consumption tax revenue. “There are very wide social and economic impacts. No one even noticed… A bigger crisis may be brewing.”

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