Insight & Analysis

Multinational corporates show increasing BEPS confidence

Published: Jan 2018

A recent study shows that many corporates are well under way in making operational changes and preparing to meet the reporting requirements of BEPS.

The latest Global Base Erosion Profit Shifting (BEPS) survey by Thomson Reuters highlights that corporates are growing more comfortable in understanding what BEPS means for their business and are beginning to make the necessary changes.

This comes as good news, given that Thomson Reuters considers this to be its first post-BEPS environment survey, given that many jurisdictions have already implemented various BEPS recommendations.

BEPS: digested

The BEPS project is an OECD Action Plan addressing concerns that the profits of multinationals are being allocated to locations different from those where actual business takes place to help them to reduce their overall tax liability.

The OECD’s BEPS Actions cover a number of areas, each of which addresses particular nuances of international tax law. More detail on each of these BEPS Actions can be found here. The crucial thing for treasurers to note, however, is that within these, the OECD has identified certain cross-border tax strategies which it is not focused on addressing (eg through principal operating companies, financing companies, intellectual property companies and permanent establishment requirements).

Finance feels the pinch

Thomson Reuters’ survey of 135 corporate executives at multinationals around the world found over 50% are making major or minor changes to operations based on BEPS recommendations. A further 14% are waiting for peers to make a move, or additional countries to implement the OECD BEPS recommendations. A surprising 23% are not doing anything at all.

Unsurprisingly, corporates are largely making changes to their transfer pricing policies or intercompany agreements. Interestingly, only 3% are thinking that their company should hire or relocate employees in certain jurisdictions to be compliant with BEPS.

The study reveals that the CFO/finance department is doing a lot of this work. However, with legal, HR and IT also showing involvement, BEPS is truly an organisation-wide agenda.

Resources are lacking

What is slightly worrying is that 90% of respondents said that they were struggling to keep up with new BEPS developments and requirements in countries where they operate. This explains why 37% have dedicated more time to this area and 27% have increased engagement with advisors and/or tax consultants.

What is more disquieting, however, is despite the challenges and the number of time teams are spending focusing on BEPS, only 34% have been granted more resources.

Biggest concern

The biggest BEPS issues for corporates arises from Action 13, which looks at transfer pricing documentation and country-by-country reporting. Some 27% of corporates said they were concerned about this area.

It must be noted that this is a significant drop from last year when 83% were most concerned about Action 13. Despite this, Thomson Reuters comments that “with filings already under way in some jurisdictions, it is concerning that one-third of companies do not yet have a solid grasp on their Action 13 obligations.”

Treasury advice

With BEPS here to stay, Tony Kinnear, Managing Director, ASEAN and North Asia, Thomson Reuters, advises that, if they haven’t already, treasurers must develop a better understanding of funding transactions and the intricacies of the BEPS recommendations pertaining to financing activities. “This means working cross-functionally with different teams within the company.”

Kinnear also says that treasurers must gain better control of data. “This is where tax technology can help align stakeholders and information providers and enable businesses to effectively cope with the regulatory changes,” he says. “Treasury departments must start partnering with relevant technology providers that can help, with the right tools, to ensure compliance and increase efficiency.”

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