As companies expand their efforts to understand the strategic implications of tax, they’ll need to bring a higher level of tax expertise to an activity that provides their broadest view of the future: scenario planning.
Chief Tax Officers (CTOs) may be asked to articulate a view of what the world could look like a couple of decades from now. For a fascinating answer to that question, see a Special Report in Tax Notes International authored by Jon Sappey, Vertex’s director of industry relations, titled Four Visions of the Future: Scenario Planning for Tax Departments in Multinational Companies.
In the report Jon describes part of Vertex’s Global Tax Futures project, which uses scenario planning methods to explore possible developments in tax policy and globalization and how they may affect tax departments, extrapolating as far as 2035. The article describes four scenarios:
- Stalled Engines. This protectionist scenario reflects some recognizable current trends in international taxation policy. Globalization has stalled and governments act unilaterally to protect their own interests. Ominously, the majority of global citizens have grown skeptical of their governments’ capability to govern, and eventually “cities like Chicago and Lagos, Nigeria mount efforts to gain statehood within their respective federal governments.”
- Gated Globalization. Large regional trading blocs play a central role in this scenario. “National governments have less power, as blocs create their own economic systems, environmental rules, and shared energy reserves.” Tax complexity is reduced within blocs, but continues to hinder trade across them.
- Interconnected World. Tax transparency and regulatory standardization characterize this low-complexity, cooperative scenario. Globalization is firing on all cylinders, bringing benefits to many parts of the globe. “Confronted with rising labor costs in China, India, and other Asian countries, corporations respond by shifting some production to Africa, where low labor-cost countries such as Nigeria and Zambia offer attractive investments.”
- Corpocracy. Powerful global corporations take on some of the traditional responsibilities of governments. Though still profit-driven, they’re driven to expand their influence in social and political areas. “As the super-companies’ influence grows, they discover that they must address food, water, and energy scarcity issues because governments cannot do so. Corporations increasingly influence education and social agendas, as well.”
As Jon’s analysis makes clear, the range of possible futures is wider and more surprising than we might have imagined. It’s the job of scenario planning to challenge our assumptions, and by doing so ensure what’s unexpected doesn’t become disruptive.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.