The new global tax environment. What the global focus on Base Erosion and Profit Shifting (BEPS) means for your business

Transcription

1 The new global tax environment What the global focus on Base Erosion and Profit Shifting (BEPS) means for your business

2 Changing business environment Macroeconomic megatrends, mobility of capital and growth in technology have transformed the way multinational corporations (MNCs) conduct business and communicate with stakeholders. Policymakers and the public are questioning whether the international tax framework is still fit for purpose and whether MNCs contribute their fair share in tax in each jurisdiction. Business trends Globalization/regionalization Digital economy Expansion into new markets as trade barriers ease Increasing complexity of value chains and intra-firm trade Greater specialization in business functions New reality for global economy More attention by governments, media and nongovernmental organizations on the international tax profile of MNCs More complexity in tax laws and information reporting obligations More information sharing between governments More robust audits and more controversy Government issues Balancing investment stimulus and fiscal prudence following the global financial crisis Differential emerging markets growth Political concerns about perceived tax avoidance Public questions about the fairness of tax burdens Page 2

3 Comprehensive changes for businesses and governments The Organisation for Economic Co-operation and Development (OECD) has finalized a 15-point Action Plan to remedy the perceived issues with recommendations for changes in international tax laws. This effort is supported by the G7 and G20 countries, the European Union (EU) is working in parallel, and developing countries are involved as well. Jurisdictions have different interests and are reacting differently to the OECD recommendations, which means complexity and uncertainty for MNCs operating in both mature and emerging market countries. OECD G7 G20 Emerging markets New rules, requirements, risks and opportunities New global tax environment Transparency Substance Sustainability Are you as ready as you need to be? Page 3

4 Overview On 5 October 2015, the OECD issued its final reports on the 15 Action points identified in its Action Plan on base erosion and profit shifting (BEPS). The reports have been the subject of consultation and the content of the reports is largely in line with expectations. For some of the Actions (notably transfer pricing, deductibility of interest, profit to be allocated to PEs, taxation of hybrids and tax treaty abuse) there is still more work to be done. Even in areas where conclusions have been reached on the way forward, significant implementation challenges remain. There will be choices for governments to make, given that the reports contain more flexibility than was envisaged at the outset of the project. The measures range from new minimum standards, through common approaches to guidance drawing on best practice. Page 4

5 Summary of BEPS final reports On 5 October 2015, the OECD issued its final reports on the 15 Action points identified in its Action Plan on base erosion and profit shifting (BEPS), that was agreed at the G20 Finance Ministers' 8 October Peru meeting. The measures range from new minimum standards, to reinforced international standards and best practices for domestic law measures, and can be summarised as follows: Minimum standards Reinforced standards Best practice Action 5 Counter harmful tax practices more effectively, taking into account transparency and substance Action 13 Transfer pricing documentation & country by country reporting Action 7 Prevent the artificial avoidance of permanent establishment status Action 8 Transfer pricing for intangibles Action 9 Transfer pricing for risks and capital Action 10 Transfer pricing for other highrisk transactions Action 2 Neutralise the effects of hybrid mismatch arrangements Action 3 Strengthen CFC rules Action 4 Limit base erosion via interest deductions and other financial payments Page 5

6 Impact on your enterprise Impact on your enterprise being driven by the global focus on BEPS touches every aspect of your organization. You must be prepared to respond effectively across all areas. Strategy Operations Infrastructure Business environment Operating models Reputation and brand Governance and risk Expansion versus contraction Customer and sales Procurement and manufacturing Intragroup transactions Workforce Services Tax compliance and reporting Financial statement reporting Finance and treasury Technology Intangible property (IP) Page 6

7 Potential effects on your business Quick check on key business dimensions How will the dynamics in your market, and your competitiveness versus the other players, be affected by the new global tax environment? Is your corporate reputation at risk of adverse impact by the global focus on BEPS? Potential impact Low Medium High Does your IP strategy take into account the changing tax focus on value creation? What impact will the changing tax focus on profit alignment and substance have on your supply chain and operating structure efficiencies? Does your treasury approach rely on strategies that will be affected by the changing tax focus on financing costs? Does your legal entity structure reflect the business and decision-making processes? Can your information technology systems meet the demands of increased reporting? Will your effective tax rate (ETR) be affected by these changes? How will any change in ETR affect your stock price? How will your organization s relationships with tax policymakers and tax administrators be affected by the new global tax environment? How will the value of any acquisitions or divestitures you are considering be affected by the new global tax environment? Page 7

8 Next steps Key actions Contact(s) Timing/urgency Strategy Business environment Operating models Reputation and brand Governance and risk Expansion versus contraction Operations Customers and sales Procurement and manufacturing Intragroup transactions Workforce Services IP Infrastructure Tax compliance and reporting Financial statement reporting Finance and treasury Technology Page 8

9 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst and Young Global Limited, each of which is a separate legal entity. Ernst and Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. EYG no. DL1443 BMC Agency BACS ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com