The OECD’s BEPS Action Plan is designed to redefine and revolutionise the taxation of companies across the globe. It is the most coordinated attempt to reach common objectives – in both developed and developing economies – that we have seen in some time.
But it’s clear from today’s press conference that whilst the OECD’s plans are undoubtedly a further step to tilt the balance of power further towards tax authorities, how they will be implemented and the form they will take is very much unknown.
Multinationals should be concerned that in many ways, the OECD Action Plan legitimises the aggressiveness we have already seen from tax authorities towards taxpayers, particularly in areas such as transfer pricing. Time will tell whether all of the OECD’s BEPS initiatives will be implemented and indeed how they will be enforced, but there is still cause for concern.
At the heart of the BEPS proposals is a reorganisation of the way in which profits are taxed, particularly in light of the new and ‘borderless’ digital economy. The global initiative, coming to the first stage of its deliverables today, will require close international co-operation, transparency, data and reporting requirements from all countries and multinationals.
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However, progress with the OECD’s plan are moving at glacial speed – obtaining broad international agreement will not happen easily, as many countries fight to maintain their competitive advantage which attracts both employment and investment. We are seeing a number of countries stalling on any legislative changes whilst they wait for BEPS to fine tune the guidance, particularly around the digital economy, whilst others are legislating changes in advance of international agreement, causing greater confusion for multinationals as they try to adhere to varying tax rules across their countries of operation.
Country by country reporting likely constitutes one of the most critical elements of the BEPS initiative. The technicalities are still unclear but will be watched with interest. There are a number of questions to be answered, namely around the information required to be published, whether the information will be published centrally or locally, and how confidentiality will be ensured. What’s clear is that misinterpretation of the reporting could be damaging for taxpayers – causing unfair reputational risk, as well as a heavy administrative burden.
Companies should be prepared for this impending transformation in taxation which BEPS will enforce. It’s clear that there is a general consensus amongst nations that these issues need to be addressed. But for now it appears business as usual whilst the OECD continues its lengthy deliberation over the form it will take.
Frederic Donnedieu, Chairman, Taxand, the world’s largest independent global organisation of specialist tax advisors to multinational businesses.