The OECD’s BEPS initiative continues to be one of the most defining changes for the tax landscape in a number of decades. The impact of the changes were discussed today at Taxand’s Global Conference 2016 in Dublin and involved Tax Directors from Experian, GE, Ferrovial and FCA Bank Group.
It’s indisputable that the BEPS initiative is dramatically changing the way in which international tax is both thought about and practiced. It is shifting the overall global tax environment and how companies interact with it, whilst also bringing about very specific implications for companies in different sectors, of different sizes and in different locations. Listening to clients from across the globe, one thing is clear, that things will never be the same again.
One of the fundamental issues and reasons behind BEPS, is how to deal with the digital economy, given that the existing tax system was built around a bricks and mortar world where goods were delivered by ships and trains, not over the internet. Where digital revenues are taxed lies at the heart of this. However, we should not expect a quick resolution here; the OECD’s conclusions on how to deal with the digital economy is not expected until 2020 as they continue to monitor how the digital landscape is evolving.
Inevitably, there is somewhat of a turf war playing out between the OECD, the EU and other European organisation, as they look to take a proactive role in the reconstitution of the global tax systems. Unfortunately, this makes it challenging for multinationals to know how to best approach the new BEPS rules, particularly those covering substance. With a number of options available for the assessment of ‘substance’, it’s unclear whether companies should, for example, follow an EU approach, through the Principal Purpose Test (PPT), or instead go down another route.
Similarly, country by country reporting is another primary concern for a number of multinationals. It provides perhaps the biggest compliance burden of the BEPS initiative, particularly through the requirement to disclose, across the master and local files, a raft of information such as tangible assets, number of employees and both revenues and profit, across each jurisdiction in which you operate. The preparation and resource necessary to comply with this is unprecedented for many companies and brings little benefit to the business or its stakeholders, apart from the authorities in each of the jurisdictions in which they operate, who are likely to use it to dispute the tax paid by the company. Moreover, considerable care will have to be taken in the preparation of these reports if the EU proposals for public disclosure of similar information proceeds.
As the BEPS initiative evolves further, communication and collaboration between tax authorities and taxpayers will be essential in finding the best way forward in what is potentially a minefield of complexity.