With more than 80 countries now having agreed to adopt at least the minimum elements of the Base Erosion and Profit Shifting (BEPS) Action Plan, there’s no getting around BEPS.
But partial or modified application in different local markets is creating an even more complex patchwork of requirements than before. A lack of sophisticated tax management capabilities can result in competing demands and a greater risk of tax disputes and double taxation that follows. So what are the complexities facing your business, why are the risks increasing and how can you manage the impact?
Accelerating and simplifying implementation
The acceleration in take-up owes much to the OECD’s introduction of an ‘inclusive framework for the implementation of BEPS’. By focusing on the minimum rather than the broader recommended BEPS standards, the framework aims to encourage states to ‘work collectively on an equal footing and in a co-ordinated manner to level the playing field
What does this mean for businesses operating internationally? The growing application of BEPS in both developed and emerging markets worldwide means that it will impact on all firms with an annual turnover above the BEPS threshold (€750 million). And some countries are planning to set much lower qualifying thresholds for the reporting requirements – as low as €45 million in Spain, €50 million in the Netherlands and €100 million in Germany.
The new international tax landscape would be reasonably manageable if it were to result in a genuinely level playing field. But selective application and the different pace of implementation across various jurisdictions worldwide actually mean less certainty and consistency than before.
Disparity heightens complexity
These different and possibly competing tax rules multiply the compliance demands. The extra burden will fall most heavily on mid-size MNEs, which tend to lack the well-developed capabilities needed to deal with the increased information gathering, record-keeping and reporting requirements.
Adapt, improvise and overcome
BEPS is still in the early stages of implementation. But it’s already clear that this will be a genuinely global regime, which embraces developed and emerging markets and offers little or no shelters. For the unwary, there are heightened tax risks and exposures. But the ability to anticipate and manage the changes will be a key source of competitive differentiation.
The impact of BEPS could provide a valuable catalyst for reviewing your operating structures as you look to control costs, improve enterprise-wide oversight and develop the capacity to reach into new, fast growth markets. Read the full article (PDF) [ 2102 kb ] and explore the actions that your business could be taking to address vulnerable areas.