By Dr. Paul Kielstra
Working closely with its 34 member nations, other G20 states and various other developing economies and business groups, the OECD finalized 15 specific recommendations for action in October 2015, less than four years after the unprecedented agreement by world leaders in Mexico to work collectively on the issue.
“The major challenge and risk of the BEPS process is that we will see more disputes and double taxation as countries take opposing views and the will to resolve such disputes remains very low.“
Jesper Barenfeld — Senior Vice President and Head of Corporate Tax at AB Volvo
The core principles
The 15 individual BEPS Actions can seem overwhelming but can be synthesized into three core principles:
“Even where the resultant tax liability may be negligible, or already fully covered by transfer pricing adjustments, this can bring substantial compliance and accounting costs.”
On the other hand, notes Barenfeld, the current degree of uncertainty limits just how much companies can do immediately.
“In response to BEPS, companies will need to be extra vigilant that their tax function is aligned with other parts of the business.“
John Connors, Group Tax Director for Vodafone Group Services Limited
Key action points
- All functions need to work with the tax function to consider the implications that BEPS reforms will have for business operations. Current supply chain, HR, treasury and other policies and strategies now bring tax risks.
- Monitor the implementation of the BEPS recommendations in countries relevant to the company. Be prepared for inconsistencies between the regulations of different jurisdictions.
- Engage with tax authorities during the implementation process to avoid unintended effects.
- Be prepared for a substantial increase in tax controversy. Certain jurisdictions are already asking for nontax information in an aggressive way, which may be a sign of a future approach. Moreover, given the vagueness in some BEPS recommendations, countries themselves will likely argue as to where income is taxable, raising the risk of double taxation.
Read more: A brief BEPS project glossary
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