BEPS

Will businesses start planning taxes differently?

Kristjan Järve Kristjan Järve

The most recent global survey revealed that when it comes to the BEPS[1] action plan – an initiative against tax optimisation – businesses are most concerned with the increase in administrative burden and cyber security. That doesn’t exactly come as a big surprise, considering expectations of what sort of information should be distributed by authorities. Yet our study showed that a year after the publication of the BEPS action plan, 78% of companies have not changed their approach to tax planning.

With over 80 countries now having agreed to adopt at least the minimum requirements of the action plan, the BEPS, developed by the OECD, can’t simply be overlooked. Yet our global survey, conducted in 36 countries and 2,600 companies, found that the BEPS programme has thus far underperformed compared to expectations. Worldwide, 78% of businesses say they have not changed their company’s approach to taxation and the impact of the programme is even lower in the G7 countries (83%). In the US, 89% of companies and 86% of British companies say that BEPS has only a limited influence on their tax planning. The action plan has had the greatest influence in Indonesia (35%), Nigeria (38%) and India (36%).

Looking back in time

Last year the Grant Thornton’s global leader for tax services Francesca Lagerberg said that the project’s effectiveness will be determined by how extensively and consistently it is implemented, but certainly there are noteworthy differences in the timing of the implementation and interpretation of the rules. We are currently seeing partial or modified application on local markets, which fosters even more complicated requirements than before.

The biggest concerns for businesses

As part of the BEPS plan, businesses are asked to make corporate tax information available to local and international authorities. The two biggest problems in this area are excessive increase in administrative burden (in the opinion of 25% of businesses), followed by the cyber security problem (15%). Excessive administrative burden was mentioned as a problem by 35% of British and 32% of American businesses.

What does the future hold?

It’s interesting that after the initial excitement about BEPS and the possible game-changing elements of the plan, so few of the participants have actively made decisions to change what they are doing. There are likely many reasons for this. Many businesses are reluctant to be the first to take a decisive step in this area and instead looking to see what others are doing in their industry.

Governments haven’t yet explained how or even if they will implement BEPS in some countries, so that leads to business caution. Business leaders prefer black and white to grey. Businesses would undoubtedly benefit from more guidance on what they should do next. Many will have been bitten by retrospective legislation or rule changes on tax in recent years and will be nervous about action before the ground rules are clear.

However, we will see faster action in large companies that are perhaps more in the public eye and sense greater pressure to take action. The future seems unclear for medium-size companies and thus they wait to see what will start happening.

The implementation of BEPS is still in an early phase. Even if it hasn’t yet caused all businesses to take notice, it’s clear it will become a true global regime that covers both advanced and emerging markets. Lack of caution will result in higher tax risks and exposures. The capability of forecasting and managing changes will be the primary source of competitiveness.

 


[1]base erosion and profit shifting