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By Rob Wagner, Chair of Praxity’s Global Tax Working Group and managing partner, National Tax Services at US-based BKD, LLP

Rob Wagner

Rob Wagner

In October last year, the OECD issued its 15 point Action Plan, recommending how to curtail multinational companies shifting profits among differing tax jurisdictions. The OECD’s report, endorsed by the G20 nations plus India, represented two years’ intensive work to tackle Base Erosion and Profit Shifting (BEPS).

Fast forward to March 2016 and in an update submitted to G20 finance ministers and Central Bank governors, the OECD reports countries are already making legislative changes in order to implement its BEPS measures, particularly points 2, 8, 10 and 13 of the Action Plans.

Nations are keen to follow the OECD’s recommendations; 32 countries have already signed the Multilateral Competent Authorities Agreement which provides the legal mechanisms to exchange automatic country-by-country reporting and more have confirmed their intention to sign this year.

Given the pace at which change is occurring, it’s important businesses know what the 15 Action Plans are, how they will be implemented and what this means for emerging economies.

In some cases, countries are already tackling the recommendations, while others already have anti-abuse rules in place; for example, the US already has rules to tackle Controlled Foreign Corporation and treaty benefit abuse etc.


As far as implementation is concerned, some measures, such as the revised guidance on transfer pricing, may be immediately applicable; others require changes to bilateral tax treaties – achieved via the multilateral instrument under Action 15.

Others require domestic law implementation. For example, Luxembourg has withdrawn its patent box regime, Ireland announced what it considers the world’s first OECD-compliant patent box regime and the UK is reviewing its patent box regime for compliance with Action 5.

The OECD confirms there will be monitoring, including targeted monitoring of the minimum standards on treaty shopping, on dispute resolution and on the implementation of country-by-country reporting.

BEPS recommendations are not legally binding. While they are soft law legal instruments, there is an expectation that countries will implement them accordingly. Areas are likely to converge over time, ie, hybrid mismatch arrangements, transfer pricing documentation and country-by-country reporting; and it appears we can look for changes to US law or regulations in these areas.

It is highly unlikely, however, the US would adopt any transfer pricing legislation that significantly deviates from the arm’s length standard currently used (indeed Actions 8-10, reaffirm a commitment to the arm’s length standard).

A post-BEPS world

Under this new framework, a key concern is whether governments will enact laws that are politically motivated and inconsistent with BEPS. An example being the UK-diverted profits tax system. Another worry is whether tax authorities around the world will be adequately staffed and trained on BEPS so that the rules are appropriately applied.

Realistically, there could be more potential conflict in a post-BEPS world with some tax authorities not accurately understanding the rules and asserting BEPS as their means for posting tax adjustments against multinational companies. Many US businesses and political leaders are concerned US taxpayers may end up subsidizing the BEPS measures as US multinationals could be subject to higher foreign tax which may be available for credit against US tax liability, thus reducing US government revenues.

There’s also concern BEPS recommendations may embolden tax authorities to overstep their bounds, forcing taxpayers to seek relief from double taxation through costly and time-consuming dispute resolution provisions. Finally, many businesses and legislators are concerned confidential information may be put at risk from competition.

The impact

Most mid-size businesses do not have overly-complicated tax structures so the impact should be minimal on these businesses. But in order to evidence their tax structures, firms will have to demonstrate compliance which brings with it additional costs. Larger multinationals with more complex tax structures will have more work to do to comply with BEPS-related law changes. Businesses should therefore seek advice early on; it will make the process simpler and reduce costs.

Country-by-country reporting is unlikely to have an initial impact on smaller and mid-size businesses as the measures have been crafted to exclude companies with revenues below a certain de minimis threshold (the new country-by-country reporting template does not apply to groups with annual consolidated revenue in the immediately preceding fiscal year of less than EUR 750 million). However, governments do have a tendency to reduce the thresholds over time with new rules creeping in.

Emerging economies

This fairer system will be positive for emerging economies, particularly as it was perceived profits were being stripped out of developing countries and transferred to the parent company. Some advocate using formulary apportionment to determine the profits of an enterprise in a particular country, but this disregards legal distinctions, risks and functions and simply looks at a company as a single unit and divides its income based on some agreed-upon factors. Using formulary apportionment, allocating profits largely on headcount, assets etc without taking into account valuable intangibles, does not seem to be a fair way to allocate profits.

The OECD has a FAQ section on its website, available in English, French and Spanish.

BKD LLP is a member of Praxity – the world’s largest alliance of independent accountancy firms

OECD Action Plans

1. Address the tax challenges of the digital economy. Examine; a company’s ability to have a significant digital presence in another country’s economy, without being liable to tax and the attrition of value created from the generation of marketable location-relevant data via digital products and services.

Also investigate the characterisation of income derived from new business models, the application of related source rules and how to ensure the effective collection of VAT/GST following a cross-border supply of digital goods and services.

2. Neutralise the effects of hybrid mismatch arrangements. Design domestic rules to neutralise the effect of hybrid instruments and entities. This may include changes to the OECD Model Tax convention to ensure hybrids/entities are not used to obtain undue treaty benefits as well as domestic law provisions that (i) prevent exemption/non-recognition for deductible payments by the payor,(ii) deny a deduction for payments not included in the recipient’s income, or (iii) deny a deduction for payment that is also deductible in another jurisdiction.

Additionally where necessary, guidance will be given on co-ordination or tie-breaker rules if more than one country seeks to apply such rules to a transaction or structure.

3. Strengthen Controlled Foreign Company rules. Develop recommendations for the design of CFC rules; this will be co-ordinated with other work.
4. Limit base erosion via interest deductions and other financial payments. Develop ‘best practice’ rules to prevent base erosion through the use of interest expense, e.g., using related and third-party debt to achieve excessive interest deductions or financing the production of exempt/deferred income and other financial payments economically equivalent to interest payments. Evaluate the effectiveness of different types of limitations and, in connection with foregoing work, develop transfer pricing guidance including the pricing of related party transactions such as financial and performance guarantees, derivatives, captive and other insurance arrangements.
5. Counter harmful tax practices more effectively, taking into account transparency and substance. Revamp work on harmful tax practices and improve transparency, including compulsory spontaneous exchange on preferential regime rulings as well as requiring substantial activity for such regimes. A holistic approach is required in evaluating these regimes in the BEPS context.
6. Prevent treaty abuse. Develop model treaty provisions and recommendations regarding domestic rules to prevent the growth of treaty benefits in inappropriate circumstances. Clarify tax treaties that are not intended to be used to generate double non-taxation and identify tax policy considerations before entering into a tax treaty with another country.
7. Prevent the artificial avoidance of Permanent Establishment status. Develop changes to PE definition to prevent artificial avoidance of PE status in relation to BEPS, including use of commissionaire arrangements and specific activity exemptions.
8, 9 and 10. Assure that transfer pricing outcomes are in line with value creations. 8. Intangibles – develop rules to prevent moving intangibles among group members. This includes adopting a broad and clear definition of intangibles, ensuring profits associated with their transfer and use are allocated according to value creation, developing rules for transfers of hard-to-value intangibles, and updating guidance on cost contribution arrangements.


9. Risks and capital – develop rules to prevent risks transferring among, or allocating excessive capital to, group members. Adopt measures to ensure inappropriate returns will not accrue to an entity solely because it has contractually assumed risks or provided capital. Ensure returns align with value creation.


10. Other high-risk transactions – develop rules to prevent transactions which would not or rarely occur between third-parties. Adopt measures to clarify circumstances when transactions can be recharacterised and the application of transfer pricing methods (particularly profit splits in the context of global value chains). Protect against common types of base eroding payments, such as management fees and head office expenses.


11. Establish methodologies to collect and analyse BEPS data and the actions to address it. Develop indicators of the scale and economic impact of BEPS as well as tools to monitor and evaluate their effectiveness on an ongoing basis. Assess a wide-range of existing data sources, identify new types of data to collect and develop methodologies based on aggregate and micro-level data. Respect taxpayer confidentiality and tax and business administration costs.
12. Require taxpayers to disclose their aggressive tax planning arrangements.



Design mandatory disclosure rules for aggressive or abusive transactions, arrangements or structures. Use a modular design to ensure consistency, allowing for country-specific needs and risks. Focus on international tax schemes and information sharing between tax administrations.
13. Re-examine transfer pricing documentation. Develop transfer pricing documentation rules to enhance tax administration transparency while considering compliance costs. Require MNEs to provide governments with information related to their global allocation of income, economic activity and tax paid among countries.
14. Make dispute resolution mechanisms more effective. Address obstacles preventing treaty-related disputes under Mutual Agreement Procedure, such as the absence or denial of arbitration treaty provisions.
15. Develop a multilateral instrument. Enable jurisdictions to analyse the tax and public international law issues when developing a multilateral instrument and amend, where appropriate, bilateral tax treaties.

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Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19



Deloitte: Middle East organizations need to rethink their workforce in the wake of COVID-19 1

Organizations in the Middle East have had to take immediate actions in reaction to the COVID-19 pandemic, such as shifting to remote and virtual work, implementing new ways of working and redirecting the workforce on critical activities. According to Deloitte’s 10th annual 2020 Middle East Human Capital Trends report, “The social enterprise at work: Paradox as a path forward,” organizations now need to think about how to sustain these actions by embedding them into their organizational culture.

“COVID-19 has created a clarifying moment for work and the workforce. Organizations that expand their focus on worker well-being, from programs adjacent to work to designing well-being into the work itself, will help their workers not only feel their best but perform at their best. Doing so will strengthen the tie between well-being and organizational outcomes, drive meaningful work, and foster a greater sense of belonging overall,” said Ghassan Turqieh, Consulting Partner, Human Capital, Deloitte Middle East.

According to the Deloitte report, many organizations in the Middle East made quick arrangements to engage with employees in the wake of the pandemic through frequent communications, multiple webinars where senior leaders addressed employee concerns, virtual employee events, manager check-ins, periodic calls and other targeted interactions with the workforce.

The report also discussed how UAE and KSA governments have reexamined work policies and practices, amended regulations and introduced COVID-19 initiatives to support companies and the workforce in the public and private sectors. Flexible and remote working, team-building and engagement activities, well-ness programs, recognition awards and modern workspaces are among the many things that are now adding to the employee experience.

Key findings from the Deloitte global report include:

  • Only 17% of respondents are making significant investments in reskilling to support their AI strategy with only 12% using AI primarily to replace workers;
  • 27% of respondents have clear policies and practices to manage the ethical challenges resulting from the future of work despite 85% of respondents saying the future of work raises ethical challenges;
  • Three-quarters of leaders are expecting to source new skills and capabilities through reskilling, but only 45% are rewarding workers for the development of new skills; and
  • Only 45% of respondents are prepared or very prepared to take advantage of the alternative workforce to access key capabilities despite gig workers being likely to comprise 43% of the U.S. workforce this year according to the Bureau of Labor Statistics.

“Worker well-being is a top priority today, and similarly to the rest of the world, companies in the Middle East are focusing their efforts to redesign work around well-being by understanding workforce well-being needs,” said Rania Abu Shukur, Director, Human Capital, Consulting, Deloitte Middle East.

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One in five insurance customers saw an improvement in customer service over lockdown, research shows



One in five insurance customers saw an improvement in customer service over lockdown, research shows 2

SAS research reveals that insurers improved their customer experience during lockdown

One in five insurance customers noted an improvement in their customer experience over lockdown, according to research conducted by SAS, the leader in analytics. This far outweighed the 11% of customers who felt it had deteriorated over the same period.

This is positive news for insurers during such challenging times, with 59% of customers also saying that they would pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.

The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of insurance customers using a digital service or app has grown by 10%. Three-fifths (60%) of new users plan to continue using these digital services moving forward.

However, while the number of digital users grew over lockdown, half of the insurance customer base has not yet chosen to move to digital insurance apps or services.

Paul Ridge, Head of Insurance at SAS UK & Ireland, said:

“It’s impressive that there was a net improvement in customer experience during lockdown, despite the challenges the industry was facing with a transition to remote working and increased claims for things like cancelled holidays. While many were forced to wait on customer help lines for long periods, part of the improvement may be explained by even a small (10%) increase in the number of digital users.

“However, it’s clear that a huge number of customers are still yet to make the move online. It’s vital that insurers provide the most accurate, timely and relevant offerings to customers, and this is best achieved by having additional insight into online customer journeys so they can understand them better. Using analytics and AI, insurers can seize this opportunity to digitalise their customer experience and offer a more personalised approach.”

Meanwhile, for insurers that fail to offer a consistently satisfactory customer experience, the price could be severe. A third (33%) of customers claimed that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service.

For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer? 

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The power of superstar firms amid the pandemic: should regulators intervene?



The power of superstar firms amid the pandemic: should regulators intervene? 3

By Professor Anton Korinek, Darden School of Business and Research Associate at the Oxford Future of Humanity Institute. Gosia Glinska, associate director of research impact, Batten Institute for Entrepreneurship and Innovation, Darden School of Business

Recent news that Apple hit a market cap of USD2 trillion highlights an extraordinary success story: A once struggling computer-maker on the verge of bankruptcy innovates its way to becoming the most valuable publicly traded company in the United States.

Apple’s 13-figure valuation is indicative of a larger trend that is not entirely benign — the rise of a handful of superstar firms that dominate the economy. Over the past three decades, advances in information technology, mainly the Internet, have supercharged the superstar phenomenon, allowing a small number of entrepreneurs and firms to serve a large market and reap outsize rewards. And COVID-19 has greatly accelerated the phenomenon by pushing us all into a more virtual world.

Apple — along with Amazon, Facebook, Google, Microsoft and Netflix — is a case in point. The combined market value of those six companies exceeds USD7 trillion, which accounts for more than a quarter of the entire S&P 500 index. Even amid the pandemic’s economic wreckage, these megacompanies continue to prosper. The combined share price for Apple and its five peers was up more than 43 percent this year, while the rest of the companies in the S&P 500 collectively lost about 4 percent.[1]

Superstar firms can be found in almost every sector of the economy, including tech, management, finance, sports and the music industry. They command increasing market power, which has consequences for technological, social and economic progress. It is, therefore, critical to understand how their advantages arose in the first place.


The “economics of superstars” was first studied by the late University of Chicago economist Sherwin Rosen. Forty years ago, Rosen argued that certain new technologies would significantly enhance the productivity of talented workers, enabling superstars in any industry to greatly expand the scope of their market, while reducing market opportunities for everyone else.[2] Digital innovations, including advances in the collection, processing and transmission of information, is what Rosen envisioned would lead to the superstar phenomenon.

Digital technologies are information goods, which are different from the traditional, physical goods in the economy. What it means is that fundamentally different economic considerations apply. Unlike physical goods — a loaf of bread or a car — information goods have two key properties: They are non-rival and excludable. Non-rival means that something can be used without being used up. Excludability means that an owner of digital innovation can prevent others from using it, by protecting it with patents, for example. These two fundamental properties of information goods are what give rise to the superstar phenomenon.

In a working paper I co-authored with Professor Ding Xuan Ng at Johns Hopkins University[3], we described superstars as arising from digital innovations that require upfront fixed costs that allow firms to reduce the marginal costs of serving additional customers.[4] For example, once an online travel agency has programmed its website at a fixed cost, it can easily displace thousands of traditional travel agents without much additional effort, scaling at near-zero cost.

Because a firm can exclude others from using its digital innovation, it automatically gains market power. The innovator then uses that power to charge a mark-up and earn a monopoly rent — basically, a price superstars charge in excess of what it costs them to provide the good — which we call the ‘superstar profit share’.


In a vibrant free market economy, businesses compete for customers by innovating and improving their offerings while keeping prices low; otherwise, they are displaced by more innovative rivals entering the market. Unfortunately, the increasing monopolization of the economy by technology superstars is weakening the competitive environment around the world.

Monopoly power is the main inefficiency from the emergence of superstar firms, because superstars can exclude others from using the innovation that they have developed.

So, what policy measures can be employed to mitigate the inefficiencies arising from the superstar phenomenon?

We do have antitrust policies designed to promote competition and hence economic efficiency. Authorities could take a drastic measure and break up monopolies. Or they could tax all those excess profits megacompanies make.

Another policy to consider involves giving consumers control rights over their data. Right now, only companies have that data, and they are selling it. If you free it up and don’t allow them to sell it anymore, it reduces their monopoly profits. And if you give consumers more freedom over their data, they could, for example, share it with the latest start-up and create a more competitive landscape.

However, such policy remedies can be a double-edged sword. On the one hand, they reduce monopoly rents. On the other hand, they can also reduce innovation.

Innovation requires investments in R&D, which represent a significant sunk cost that only large firms can afford. Government regulations can easily backfire, discouraging large firms from making long-term R&D investments.

What, then, is the best policy intervention? Professor Ding Xuan Ng and I believe that basic research should be public. Digital innovations should be financed by public investments and should be provided as free public goods to all. This would make the superstar phenomenon disappear, and the effects of digital innovation would simply show up as productivity increases.[5]

We live in a brave new world that is increasingly based on information. Because the information economy is different from the traditional economy, antitrust policy should be revamped to reflect that. Instead of worrying about the economy being eaten up by these gigantic monopolies, policymakers need to focus on the question ‘What specific actions can we pursue to make the economy more competitive and efficient?’

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