BEPS Gains Steam Causing Tax Planning Concerns

March 2017

While domestic tax reform continues to dominate headlines, major efforts on the international stage also remain a source of anxiety for tax executives. Unsurprisingly, 82 percent of the companies surveyed conduct operations outside of North America, and over half (54 percent) plan to enter or expand into international markets this year.

As tax executives look to optimize global growth, international tax planning is top of mind. But navigating the waters of international tax regulations is never a simple task, especially following the publication of the Organisation for Economic Co-operation and Development (OECD)’s action plan designed to address tax base erosion and profit shifting (BEPS) in 2015. The highest portion of those surveyed (35 percent) say international tax planning, including BEPS, is their primary tax issue for 2017.

In keeping with last year’s survey, BEPS recommendations around transfer pricing (Action Items 8, 9, 10 and 13) generate the greatest concern among tax executives, cited by 51 percent of respondents. Their concern is a valid one, as 76 percent of tax executives surveyed currently include transfer pricing mechanisms in their tax strategy.

While BEPS remains a critical issue for tax executives, strategies for responding to the initiative vary. A majority (57 percent) of respondents say they are proactively taking steps toward implementation based on the Action Item drafts. More than a third (35 percent), however, plan to wait for individual countries to implement BEPS measures before acting. Given recent criticism from China and other nations that the rules may not be appropriately tailored to the developing world, it remains to be seen how global implementation will shake out. 

Despite implementation uncertainty, some BEPS reporting rules are already coming into play, including country-by-country reporting rules. Nine out of 10 (91%) tax executives anticipate meeting the initial country-by-country reporting deadline at the end of this year.

“When the OECD first released the BEPS Action Plan, implementation seemed far off in the future for most multinationals. Now that the country-by-country reporting deadline is looming, businesses need to take steps to proactively adjust their financial reporting practices and prepare for future changes related to transfer pricing mechanisms.” - Paul Heiselmann, national managing partner of Specialized Tax Services at BDO