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The new economic realities faced by governments around the world mean that significant tax reforms are about to take place. As governments look to recoup lost revenues from the economic downturn, the entire world is in the midst of a period of considerable change with their taxation regimes. A large number of countries are considering, or are in the process of implementing, substantial reforms of their tax systems.

“We are seeing a strong global shift to indirect tax, which will become an area of significant and growing challenge for companies,” says Niall Campbell, Global Head of Indirect Tax Services, with KPMG.

According to KPMG International, indirect tax is one of the more popular ways of gaining back some of the government’s lost revenue – shifting the collection burden to the company rather than the revenue authorities. KPMG’s new 2010 Global Corporate and Indirect Tax Survey shows that since 2009 the average global corporate tax has dropped slightly from 25.44% to 24.99% in 2010. Meanwhile, the average indirect tax rate rose slightly from 15.41% in 2009 to 15.61% in 2010.

The research indicates that indirect taxes will continue rise and corporate rates will continue to lower as evidenced by the many announcements that have been made. According to the KPMG International research more than 17 countries have changed their tax rates—corporate and indirect—since 2009 or have announced their plans for change in their tax rates or regimes in the coming years. For instance, with corporate tax, the UK corporation tax will fall to 24% over four years and in New Zealand there will be a reduction in the corporate tax rate to 28% from the current 30%.

“The issue for companies is who is best placed to absorb the costs of increased taxes as the worldwide pressures for tax revenues to fund stimulus or tackle government debt will impact them either directly or indirectly," says Loughlin Hickey, Global Head of Tax for KPMG International. "Ultimately, the winners will be those companies that are most efficient in their management of tax compliance and controversy, most effective in accessing stable and competitive tax regimes and incentives, and most trusted in helping constructive dialogue about the role of fair tax policy and administration in sustainable wealth creation so they can make informed choices about the location of activities.”

The research also finds that there has been significant progress in two of the world’s major developing economies, China and India, who are at different stages of the implementation of national VAT/GST systems. Furthermore, the debate in the US has progressed to the extent that consensus is building around the need for a fiscal solution such as VAT.

“Global companies require global tax planning,” says Hickey. “It is not enough for a multinational company to adapt separately to each of its local operating environments. To take account of local, regional and national factors – and to thrive – a successful multinational company needs to adapt to all its environments and stakeholders.”

Wilbert Kannekens, Global Head of International Corporate Tax with KPMG, adds that those companies who operate in multiple jurisdictions will need to be highly aware of the regulations and changes that might occur as well as the change in behavior and approach of the tax authorities. "The risk of double or even triple taxation, meaning profits will be taxed more than one time, has become very real,” says Kannekens.

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