International Conference for Accountants and Lawyers Highlights Fundamental Changes to Taxation of Companies Involved in Cross Border Business

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The recent EMEA Conference of Alliott Group, one of the world’s most established international associations of independent accounting and law firms, brought together tax professionals from 28 countries across the world to discuss Base Erosion & Profit Shifting (BEPS), a project led by the OECD and G20 whose Action Plan is being implemented from 2016-17 onwards in cooperation with national governments. BEPS aims to address flaws in international tax rules, specifically the perceived avoidance of tax by companies that trade internationally.

Tax avoidance by international companies is being tackled at the global level by the OECD's BEPS Action Plan

Tax avoidance by international companies is being tackled at the global level by the OECD's BEPS Action Plan

The aim of the BEPS project is to enable every country to tax the profits of business done within their borders, where the value is actually added, and to prevent avoidance of tax through use of artificial arrangements in low tax jurisdictions.

The media spotlight continues to focus on the tax arrangements and alleged tax avoidance of large corporates such as Amazon, Google and Starbucks. However, Alliott Group’s International Corporate Tax Group highlighted to member delegates from all over the world at its recent EMEA Regional Conference that at least one or two of the 15 Action points set out in the BEPS Action Plan will apply to any business that operates across borders, whatever its size.

“The BEPS plan addresses concerns that current principles of national and international corporate taxation have failed to keep up with the modern global economy. BEPS is happening – it is the biggest change to the basis of corporate taxation in a generation and companies must keep an eye on the developments and which Actions might affect them,” commented David Gibbs, corporate tax partner at London accounting firm Alliotts and co-chair of Alliott Group’s International Corporate Tax Group.

The Action Plan is based on three core concepts: cohesion; restoring the principles of international frameworks; and greater transparency. It also introduces changes to address the challenges presented by the digital economy.

Alliott Group CEO James Hickey comments: “Every country wants to protect the amount of tax it can collect. However, the G20 and OECD estimate that between US$100-240 billion is lost in corporate income tax annually on a global basis. The overall aim of the BEPS project is to enable every country to tax the profits of business done within their borders, where the value is actually added, and to prevent the avoidance of tax through use of artificial arrangements in low tax jurisdictions. Alliott Group membership ensures independent firms are kept fully up to date on what is happening at the global level and how different countries around the world are implementing the Action Plan and how that may affect clients who are operating across borders.”

The Actions arising from the BEPS project are as follows:
1. Address the challenges of the digital economy to existing international tax rules
2. Neutralise the effects of complex financing arrangements that result in ‘double non-taxation’
3. Strengthen Controlled Foreign Company rules to prevent routing income through subsidiaries in low tax jurisdictions
4. Limit base erosion via excessive interest deductions and other financial payments
5. Counter harmful tax practices more effectively, taking into account transparency and substance. The main focus has been on intangible regimes such as patent boxes (intellectual property)
6. Prevent treaty abuse
7. Prevent the artificial avoidance of permanent establishment status
8. Assure that transfer pricing outcomes are in line with value creation (Intangibles)
9. Assure that transfer pricing outcomes are in line with value creation (Risks and capital)
10. Assure that transfer pricing outcomes are in line with value creation (Other high-risk transactions)
11. Establish methodologies to collect and analyse data on BEPS and the actions to address it
12. Require tax payers to disclose their aggressive tax planning arrangements
13. Re-examine transfer pricing documentation
14. Make dispute resolution mechanisms more effective so that countries can resolve treaty-related disputes under mutual agreement procedures
15. Develop a multilateral instrument to enable countries to modify bilateral tax treaties.

Around 60 countries from the OECD and G20 plus a number of developing countries are now committed to the plan.

Gibbs adds: “The issue of ‘substance’ will be a key consideration for tax authorities - this will be looked at more closely in terms of what value was really added in the jurisdiction where a company is proposing to pay tax on its profits. Furthermore, there are different tax rules in each country on how profits are taxed. For example, in some countries revenues from patents are not taxed, but in others they are. Therefore, companies will be obliged to undertake country by country reporting of taxable profits and the method of calculating taxable profits for such reporting purposes will need to be harmonised. If any of our clients are concerned about the impact of BEPS on their business, we invite them to speak with us directly and we can also coordinate advice with our Alliott Group counterparts around the world.”

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Giles Brake
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