On top of our exclusive update on the 2014 deliverables, authored by two of the leading OECD figures involved in the BEPS project, we bring you initial reactions from taxpayers, advisers, NGOs, academic and other stakeholders as they begin to digest the OECD’s draft recommendations.
Market reactions:
“The BEPS project marks the most significant change to international tax in modern times. Today’s announcements will have a big impact on global firms, whether through greater compliance demands or impacting how they are structured.
Despite many expecting the OECD’s proposals to be watered down to achieve consensus, the first part of the OECD’s ambitious package has been delivered on time and intact. The scale and scope of change surpasses what many people had anticipated at the outset.”
Richard Collier, tax partner at PwC
“For a time now global tax legislation has struggled to keep pace with the reality of the global business world. Clarity is certainly taking shape but caution should be given to ensure that the extra compliance burdens are understood and that there are no unforeseen results that hinder legitimate cross-border activity. Training in-house and within the authorities will be key.”
Lee Holloway, head of tax and corporate finance at Halfords
“Today the OECD announced what I was expecting, so there are no big surprises in particular for CbCR. On first glance, it looks easy to provide because good flexibility for data sourcing is given. But as usual in life, complexity lies below the surface. I expect significant manual efforts in multinationals in collecting data and to define the right level of detail. All data must be prepared consistently, in high quality and on time. Any changes will have to be explained. Once the data has been reviewed for the first time by tax administrations, it will frequently turn out for many MNEs that more detailed data is needed to come up with a valid picture on the key cross-border value chains.
The finance functions of MNEs must now prepare themselves to provide what is requested. As this will be a revolving process annually, standardisation in data flow and reporting will be key. So as time goes by, it will become obvious that input data quality will be the critical success factor to bring meaningful insights out of CbCR.”
Frank Schoeneborn, head of group operational transfer pricing in the finance and accounting division at Merck Group
“It seems we’re facing the beginning of a new international tax system with relevant implications that change the tax policy and tax management of multinationals and the room for tax planning. Some of the current tax structures may be affected in light of the new local and international measures to be adopted. Everything needs to be analysed and revised with the brand new BEPS eyes.”
Maribel Mendez, Spanish group tax manager for an automotive company.
“The US business community has been particularly concerned that the BEPS project risks increasing costs, uncertainty and barriers to trade and investment such as duplicative taxation.
Until [domestic] reform [of the US tax code] occurs, our high rate and worldwide system mean that measures aimed at restricting base erosion – for example limits on deductions of income inclusions – will have a disproportionate adverse impact on US-based companies and US operations, thereby having a potentially far greater negative impact on the US economy, investment and jobs.”
Louis Chenevert, chaiman and CEO of United Technologies Corporation and chairman of the Business Roundtable’s tax and fiscal policy committee
“Regarding country-by-country reporting (CbCR), the template has been agreed and the administrative aspects, such as how to file and disseminate it to tax administrations, will be finalised in 2015.
CbCR creates a risk assessment tool for tax administrations, whose job it is to collect tax. If there are issues other than tax, they are not part of our mandate.
One of the reasons why we’re moving so fast [is] because we want to minimise the risk of countries getting impatient and going off and doing their own thing in a unilateral and uncoordinated manner.
Legal and administrative issues are often preventing efficient dispute resolution. We are focusing on both issues as improving MAP and eliminating double taxation are important parts of the work.”
Achim Pross, head of division at the OECD’s Centre for Tax Policy and Administration
“There is still work to be done to make sure it all fits together.
It is a unique project, with the OECD members and the eight non-OECD G20 countries involved on an equal footing. It is a very short timeframe, but there is strong political willingness to act.
This year’s rules are in draft because of the inter-links with the ones next year – for example TP and intangibles – but the sense of direction is clear.
The digital economy report puts some order on a very confused debate. Specific work has been identified on i) whether CFC rules should apply to income from online activity, ii) how transfer pricing should take account of the spread of global value chains in the digital economy, as well as the value of data and mobility of intangibles, and iii) ensuring that activities that once were preparatory or auxiliary do not benefit from exceptions to the PE definition in cases where they are core activities of the enterprise.
This is not about harmonisation or creating a tax policeman of the world. It is a recognition that the world is global and that countries are better off if they come together and address common problems with common solutions.”
Raffaele Russo, head of the BEPS programme in the OECD’s Centre for Tax Policy and Administration
“The OECD and all participants in the BEPS project should be commended for their work in finalising these reports in what has been a tight timeframe.
Ireland in particular agrees with the conclusion of the report on the digital economy that this sector should not be ring-fenced from the economy as a whole. This conclusion echoes that of the European Commission’s expert group released earlier this year.
Significant progress has also been made in the areas of coherence, substance and transparency.”
Michael Noonan, Irish Minister for Finance
“The OECD are to be congratulated on the degree of consensus reached, and on the quality of their communications. However, there is still a long way to go before we have a tax system fit for the 21st century.”
Heather Self, partner at Pinsent Masons
“CbCR heralds a new era of tax reporting for international business. It is a wake-up call for multinationals to risk assess their global tax and transfer pricing policies. One size no longer fits all – they will need to provide significantly more transactional data on a market-by-market basis. For multinationals, that means a tailored approach with intricate knowledge of each and every country in which they operate.”
Anton Hume, global head of transfer pricing at BDO
“The OECD’s initial guidance on BEPS, if adopted by key OECD member countries and observers as expected, will have a significant impact on US multinationals with overseas operations, whether or not the US makes changes in regulations or practices as a result of the recommendations.”
Manal Corwin, national leader of international tax at KPMG in the US, and former deputy assistant secretary for tax policy, international tax affairs, at the US Treasury Department
“In spite of the doubts of many observers, we are delivering. And as soon as they are published, they’ll have an immediate impact on companies.
The ambition of the G20 leaders has not been watered down despite the challenges. This first step is agreed and finalised, and will be formalised in 2015.
This will not please the NGOs but the CbCR information will go to tax administrations only. This is extremely sensitive information.”
Pascal Saint-Amans, director of the OECD’s Centre for Tax Policy and Administration
“In relation to Action 6 on treaty benefits, it’s a relief to see that the OECD has acknowledged the concerns of the funds industry by reserving the position on the application of the LoB provisions to collective investment vehicles (CIVs). The availability of treaty benefits to companies either constituting or owned by CIVs is of fundamental concern to the asset management industry, and the use of the proposed “equivalent beneficiary” concept may help significantly, if adopted. It is critical that any accommodation granted for CIVs extends to companies that are wholly owned by CIVs and which make investments.”
Robert Gaut, head of tax at Proskauer in the UK
“The OECD acknowledges that a single or simple solution with regard to treaty abuse is not available because of the complexities involved. This is no surprise to us. The LoB solution will result in additional administration for taxpayers and does not offer much more certainty.”
Marc Sanders, partner at Taxand Netherlands
“The OECD’s proposals on how to tackle tax avoidance are wholly inadequate. They go nowhere near far enough in helping the world’s poorest countries make sure big businesses pay their fair share of tax.
The OECD itself recently published a report in which it admitted that the benefits to poor countries would be limited.
The realist is that what was promoted at the G20 last year as a giant stride in tackling global tax dodging for poor countries has turned out to be a baby step. The proposals are instead mainly of use to richer nations.
It is now time for other agencies – including the United Nations – to take the lead on reforming the international tax system to make sure it works for developing countries.”
Anders Dahlbeck, Action Aid tax policy adviser
“There will always be global jurisdictions that offer highly attractive, competitive, pro-business corporation tax rates. As such, governments who are serious about wanting to boost their own corporation tax revenues should be urged to become a more desirable location for businesses and investors, rather than signing up to introduce further rules that might ultimately prove ineffective and potentially damaging.
While the OECD’s sweeping new rules and regulations will sound appealing to many individuals – and will be trumpeted by vote-hungry politicians – they could, however, unleash serious, wider, unintended consequences.”
Nigel Green, CEO of the deVere Group
“Most, if not all of the proposals, are ones that should not surprise people.
For example, the OECD have accepted it is very difficult to isolate the taxation of the digital economy from other parts of a domestic tax code, especially when you consider the importance of digital tools to all businesses.
In another unsurprising move, the hybrids action plan calls for both changes to domestic rules and amendments to tax treaties to prevent the use of hybrid instruments and entities which can give rise to double non-taxation of an item of income or gain. The hybrid report sets out an initial blueprint for dealing with detail points such as substantial shareholdings, dividend exemptions and transparent or dual resident entities.
The tax treaty action plan continues to advocate both a specific anti-abuse rule based on legacy limitation of benefits clauses as well as a general anti-abuse rule as ways of combating perceived treaty shopping arrangements. This may give rise to issues under both domestic and EU law and these concerns have been acknowledged by the OECD.”
Sandy Bhogal, head of tax at Mayer Brown in the UK
“The OECD has, in the first 12 months of the BEPS project, covered a lot of ground and managed to stick to its timetable of deliverables for its comprehensive review of the international tax system. The next challenge will be to maintain momentum over the coming 15 months, stay on track with the next set of deliverables and secure political buy-in and agreement to the proposals so that they make a difference in practical terms.”
Ian Young, international tax manager at the Institute of Chartered Accountants of England and Wales (ICAEW)
“The biggest news here from a technical perspective is the new master file and CbCR template requirements. Historically companies only had to show the transaction flow from one country to the other. These new changes show a company’s global structure with key financial metrics. This will introduce an unprecedented amount of detailed data reporting to global tax authorities. Companies have never had to collect, let alone report, this kind of data, and countries have never had to enforce it.”
Brian Tully, head of ONESOURCE transfer pricing at Thomson Reuters
“In relation to the 2014 actions arguably the easy work is complete. The challenge is now whether, and to what extent, countries will adopt into local legislation the recommendations that have been made, particularly where the recommendations are, by the OECD’s own admission, not formally finalised. While support at the G20 level is there, it is to be hoped that this translates into coordinated and consistent action.
While it is stated that countries will be able to start implementing certain of the recommendations now, it is unclear how far they will be able to go in the short term given the interdependency between the 2014 and 2015 actions and the need for the detailed guidance. While it is desirable that there is quick action, both to provide certainty and deal with public concern, there is a risk that hasty unilateral action could put a country at a competitive disadvantage or require significant modification once the package is finalised.”
Chris Morgan, head of tax policy at KPMG in the UK
“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.
Progress with the OECD’s plan is 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 while they wait for BEPS to fine tune the guidance, particularly around the digital economy, while 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.”
Frederic Donnedieu de Vabres, chairman of Taxand
“Most strikingly, the OECD believe it is possible to achieve the changes [in the areas of hybrids, treaty abuse, transfer pricing, CbCR and permanent establishments] through a multilateral instrument, so that it is not necessary for individual double tax treaties to be renegotiated.”
Dominic Stuttaford, head of tax, Europe, Middle East and Asia, Norton Rose Fulbright
“The impact on businesses will depend partly on how the rules are implemented by tax authorities across the world. If tax authorities take an iron fist, standard trading structures could be affected, regardless of any tax avoidance motive. More disputes between businesses and tax authorities are inevitable as the rules get amended, particularly where tax authorities previously blessed the arrangements in question. The OECD’s work to improve dispute resolution will be a crucial next phase of the BEPS project to ensure a smooth transition.
While the importance of today’s milestone should not be underestimated, the next part of the BEPS project is likely to be more controversial, with different tax authorities likely to have different views on what’s acceptable and what’s not. However, the package of papers released today sends a strong statement of intent on pushing through the agenda in a decisive and determined way.”
Richard Collier, tax partner at PwC
