Multinationals the world over are having to rethink their tax reporting in light of BEPS, but it is unlikely to be the last upheaval in the name of transparency.
BEPS – the OECD’s package of measures to fight base erosion and profit-shifting – is one of the most remarkable tax developments of recent decades.
It governs most of the world’s economies, and in some cases can change nations’ laws without further intervention by a legislature.
It has been implemented at breakneck pace over just two years: as recently as 1 November 2017, just two months before the first reporting deadline, the OECD was still holding discussions on how BEPS would deal with the digitalisation of the economy.
The BEPS challenge
This speed comes with a cost. Thomson Reuters’ discussions and survey work have made it clear that many multinationals are hanging back from implementing their own solutions.
They lack confidence in their abilities to manage the process themselves. In many cases they are waiting to see clearly how national governments will put in place BEPS rules.
Francesca Lagerberg, Global Leader for Tax Services at Grant Thornton, says this passivity is a normal consequence of regulatory uncertainty.
And dealing with BEPS measures in-house can require changes to IT systems, sometimes a risky activity.
In Australia, the Australian Taxation Office has moved faster than most to prepare for BEPS. The Tax Commissioner, Chris Jordan, believes this is changing reporting; he said earlier this year he saw “positive changes in behaviour from taxpayers and their advisors”. OECD officials also believe the BEPS measures are driving change.
Nevertheless, most large organisations are still unsure about how to handle BEPS in the long term, notes Ben Scull, Thomson Reuters Managing Director for Tax and Accounting ANZ.
Thomson Reuters still sees large numbers of multinationals passing their first year of BEPS work to outside firms such as major accounting firms.
The road to BEPS success
But outsourcing to accounting firms can be an expensive process, particularly if it is to be repeated over many years. The lower-cost alternative is in-house BEPS management.
Thomson Reuters, itself a multinational with an impending BEPS reporting deadline, understands the challenges of dealing with BEPS inside the company. Simon Haddad, Thomson Reuters’ Australian tax director, says that the volume and complexity of data demands on multinationals in Australia constitute “a perfect storm” for tax departments.
As Ben Scull explains, Thomson Reuters focuses on resolving data issues as transaction information enters its system. With this data correct, multinationals can be on the road to ensuring accurate compliance outputs – and BEPS success.
Thomson Reuters manages its own BEPS response affordably by using its own BEPS Action Manager software. It’s a system which tax director Simon Haddad describes as “indispensable”.
Scull says success starts when multinational companies look beyond their immediate problem – the first round of BEPS reporting in 2018 – and put in place a solution that ensures the accuracy of the underlying data.
To do that, he says, companies have to ask difficult questions – What are the cost implications of an in-house system as opposed to outsourcing? Do I have the right people in my tax team to take this path?
BEPS arose because of a political outcry about levels of corporate contribution to tax revenues, centred on digital giants like Apple and Google and consumer products giants such as Starbucks and McDonalds.
Many analysts believe the underlying political concerns that drove BEPS will soon build up pressure for further tax system changes.
Tax lawyer Jan Bart Schober of Dutch legal firm Loyens & Loff, for instance, argues that BEPS is just one symptom of a push to move the point of taxation closer to the point of consumption – a so-called “destination-based model” for corporate profits taxes. Country-by-country reporting, in particular, reflects this direction.
For some, such as KPMG US tax principal Jesse Eggert, tax reformers would do best to stay committed to a system that taxes value where it is created. But the globalised and digitised economy, experts has made this a less certain aim, and tax experts continue to grapple with it.
The success or failure of BEPS will play a role in deciding where the corporate profits tax debate goes next. But concerns over the form and the fairness of such taxation are likely to continue. BEPS may be an important point in the transformation of global profits taxation. It is probably not the end.
BEPS Action Manager software
Thomson Reuters’ BEPS Action Manager brings together tax data from multiple centres, enables consistent application of reporting definitions, and helps tax teams prepare draft reports. It effectively manages the complexities of country-by-country reporting, as well as the compilation of master and local files. And it interfaces directly with the ATO.
Learn more at tax.thomsonreuters.com.au/onesource/beps-action-manager/
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