The majority of countries are now committed to the base erosion and profit shifting project in one way or another. However, at the same time, it is becoming harder to dispute assertions that BEPS is creating an increasingly uncertain international tax environment for businesses.
The BEPS project was launched by the OECD on behalf of the G-20 countries and OECD member states in 2013 to tackle the deficiencies of current international tax rules and to modernize rules to keep pace with the evolution of the digital economy. To provide governments with “comprehensive, coherent, and coordinated” solutions for closing gaps that allow corporate profits to “disappear” or be artificially shifted to low- or no-tax jurisdictions, the OECD published a final package of BEPS recommendations in October 2015, arranged into 15 separate “actions.”
Scores of jurisdictions are now implementing the recommendations, both through domestic legislation and via international treaties such as the BEPS Multilateral Instrument and the agreement for the exchange of country-by-country reports.
BEPS – Swapping Tax Avoidance for Tax Uncertainty?
There is perhaps some evidence that the BEPS project is working – although not in the way that was initially intended.
According to Deloitte’s 2017 Asia Tax Complexity Survey, many companies reported that they have taken more conservative tax planning strategies in certain economies in the Asia-Pacific region.
And in a similar vein, UK tax authority HM Revenue and Customs noted “a shift to a more compliant mindset among large businesses in terms of tax planning” in its 2015 Large Business Survey, published in August 2016.
However, the survey shows that these decisions to err on the side of caution with regards tax compliance matters are a response to a much more complex and uncertain tax environment – largely brought about by BEPS – as well as to tax authorities which are auditing taxpayers more frequently and more aggressively.
Respondents to numerous other surveys undertaken in the last couple of years also testify to the fact that uncertainty and tax risk have risen sharply, especially around transfer pricing (the structuring of transactions between related companies in a group).
In Deloitte’s 2017 Global BEPS Survey, 91 percent of respondents agree or strongly agree that tax structures implemented today are under greater scrutiny by tax administrations now than they would have been a year ago.
Similarly, the results of a survey by EY published earlier this year revealed that 79 percent of tax professionals believe dispute resolution is becoming more challenging as countries move to implement the BEPS recommendations.
These trends were observed at a conference hosted by the International Chamber of Commerce, the Business and Industry Advisory Committee to the OECD, and Business Europe earlier this year, at which participants highlighted how BEPS recommendations are creating new burdens and risks of double taxation for businesses, especially those engaged in cross-border activities.
The conference’s key message was that businesses are increasingly seeking certainty from tax policymakers in deciding where to invest and whether to increase investments.
Recent evidence points to the fact that they are facing an environment to the contrary however, and with the BEPS mission far from complete, complexity and uncertainty may become the norm in cross-border investment activity, rather than the exception.