By Professor Katie Metz, Senior Lecturer at the Kelley School of Business
Thinking of investing in NFTs? Interested in exactly what the G20 is discussing this summer? Exploring the possibility of a unique consulting career path? These are just a few of the topics you might investigate when learning about international taxation.
When I started my career in international tax for a public accounting firm (straight out of the accounting undergraduate program at Kelley!), I was surprised by how many components of international tax are present in everyday business decisions, even if the company or issue doesn’t “seem to be global.” Tax rules not only impact routine business and individual financial decisions, but they also play a key role in economic innovation— an issue we are currently seeing at the forefront of legislation on the digital economy.
Nations should create tax rules that support fair and logical economic policies for their own citizens. They also must work with other countries and world organizations like the Organization for Economic Cooperation and Development (“OECD”) to ensure the rules promote equitable and straightforward economic transactions across borders and that the rules do not clash with each other or initiate potential consequences like retaliatory tariffs. Predictably, these philosophies collide on the world stage when nations try to work together to create a single set of tax rules using very different frames of reference.
International taxation is constantly changing as the global economy evolves. As I write this post, the world is working toward creating new tax policies to discourage tax evasion and avoidance by trying to make the tax rules broader and information easier to access. In early July of this year, the G20 finance ministers and central bank governance met with the OECD Secretary-General to discuss tax challenges resulting from the digitization of the economy. While most nations agree that something needs to be done to address this challenge, the OECD’s two-pillar approach to solving the challenge has been years in the making and is still not completely resolved. Many of the solutions the OECD proposes in this two-pillar plan are unprecedented and controversial, but also vital for nations to increase their tax revenue and implement more equitable economic policy in their own nations and in their trade negotiations. The OECD estimates that this new global minimum tax proposal will generate an additional $150 billion in global tax revenue each year – but where will that revenue be located?
As a future business person, it will be important for you to understand the basics of international taxation and how international taxation is changing economic policy and innovation, even if your interests are not in tax or even international business. First, your future company will almost certainly have some role in the global economy. Having a foundation in international tax will help you understand how your company will be impacted by the evolving tax rules, what strategic steps the company should take to continue promoting economic innovation, and what other companies in your supply chain are impacted. For example, the global minimum tax proposal has the potential to disproportionately impact tech firms based in the United States. Next, understanding the basics of international taxation and how it interacts with your industry will help differentiate you from your peers and provide added value to your clients and company. Being “conversational” in this topic can go a long way toward helping your clients plan strategically for the future in a global economy.
Finally, international tax policy informs some of your own personal economic decisions. I’m sure you engage in some sort of digital activity every day, and it will be important for you to understand how your activities are taxed (and of course, how the rules are changing) so you can make the best financial decisions for yourself. International taxation is not merely about understanding the roles, but also examining how all the pieces fit together and anticipating how policy is changing.
In my spring International Taxation course, I challenged students to think about some of the technical topics we covered in a practical context by writing an article or delivering a podcast for a fictional online magazine called “Digital Marketplace Today”. Students discussed topics like NFTs in the music industry, K-Pop marketing campaigns, the Biden administration’s clash with the new OECD plan, and the transfer pricing of cryptocurrency. This exercise demonstrates the broad reach that international tax issues have – even into topics we might think have nothing to do with global business or taxation. International tax is everywhere, and I’m excited to continue to discuss that with you and your peers in the coming semesters!
Learn more about International Taxation and other topics in the Masters in Accounting with Data and Analytics Program and the 3/2 MBA Program at the Indiana University Kelley School of Business.