Multinationals are divided as to whether the base erosion and profit shifting (BEPS) project will create a more sustainable global tax system.
According to the annual global survey of multinational CFOs, conducted by tax adviser network Taxand, 52% of multinationals agree that the Organisation for Economic Co-operation and Development’s (OECD’s) initiative will meet its objectives, while 48% disagree.
Base erosion and profit shifting is a term that is used to describe tax-planning strategies that exploit gaps and mismatches in tax rules to make profits disappear for tax purposes or to shift profits to low-tax locations.
The aim of BEPS is to eliminate base erosion and profit shifting by giving countries the tools they need to ensure that profits are taxed where the economic activities that generate those profits are performed. It will also give greater certainty to businesses by reducing disputes over the application of international tax rules.
Multinationals are already witnessing the impact of BEPS as governments and authorities drive an aggressive approach to stamping out tax-avoidance loopholes and expose the tax affairs of corporates through greater transparency and across the media.
While the OECD aims to achieve more sustainable global tax landscape, the lack of clarity on key issues will mean further confusion for multinationals on how they should implement BEPS from an operational point of view. The survey found that while 80% thought tax initiatives to fundamentally reform the international tax architecture are desirable, just 55% think it is achievable.
The BEPS initiative will require close international cooperation, transparency, data and reporting requirements from all countries and multinationals. Survey respondents felt that it will have a material financial and operational impact, with 83% globally believing that enhancing global tax transparency will increase the cost of compliance.
Despite the increase in the administrative burden, the lack of clarity on who will have access to information, and the potential for misinterpretation of the data supplied, 57% of global respondents were in favour of the BEPS proposal of reporting country-by-country profits.
There is a downside to this approach, however, since 83% of respondents believed that tax competition will increase over next five years.
Frederic Donnedieu, chairman of Taxand, said: “Multinationals are facing a new frontier where the landscape is uncertain.”