Current international tax rules were established back in the 1920’s. These rules have not kept pace with the globalization of corporations and the digital economy, leaving gaps that can be exploited by multi-national corporations to artificially reduce their direct income taxes.
Many of the existing rules which protect multinational corporations from paying double taxation too often allow them to pay no taxes at all. These rules do not properly reflect today’s economic integration across borders, the value and nature of intellectual property or new communications technologies.
The gaps, which enable multinationals to eliminate or reduce their taxation on income, give them an unfair competitive advantage over smaller businesses. They hurt investment, growth and employment and can leave average citizens footing a larger chunk of the tax bill, which in turn undermines the fairness and integrity of tax systems.
The OECD’s (Organisation for Economic Co-operation and Development) Base Erosion and Profit Shifting (BEPS) project, an initiative instigated by the G20 countries, but subsequently signed up to by many other countries, was implemented to overcome these gaps.
The BEPS recommendations, delivered in October 2015, are wide ranging covering financing, operating models, compliance and reporting. The recommendations were based on 15 ‘Actions’, which can be found here.
With the OECD’s timeline for implementation fast approaching and the first country by country reporting requirement set to be filed no later than one year from the fiscal year-end beginning on or after 1 January 2016, multi-nationals have a limited window of opportunity to understand the potential implications of the BEPS project, the fundamental changes it introduces and how to act to ensure risks are identified and managed.
Now is the time for multi-national groups to ask themselves the questions: ‘Are we BEPS Proof? What do we need to do to become BEPS compliant in the territories within which we operate? Are our transfer pricing policies adequate in this new international tax environment?’.
Dafferns has allied with the international association of accountants, AGN, to give businesses the support they need to operate within multiple territories and to guide them through the maze of dealing with the implications of BEPS. A coordinated approach across different jurisdictions is required in order to ensure joined up thinking on transfer pricing policy and tax efficient group structure, as well as protecting corporate reputation.
Whether you are a large multi-national organisation or a small company operating in just two countries, BEPS is going to impact on you. How much will vary enormously, but it would be unwise to ignore these new measures.
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