Global tax changes expected as a result of recent OECD recommendations

Ernst and Young recently completed their 34th annual international tax conference and according to a survey released during the event, 88% of senior tax executives believe that the Basic Erosion and Profit-Sharing (BEPS) project initiated by the Organization for Economic Co-operation (OECD), is going to have a significant effect on international tax in the near future.

Significant review of company tax profiles forecast

In view of the forecast changes to global taxation approximately 46% of companies that took part in the survey stated that they would be reviewing their tax profiles as a result. This compares with only 28% when a similar survey was conducted last year

According to Kate Barton who is Ernst and Young’s vice-chair for tax services, there is a growing urgency amongst Financial Directors with responsibility for their company’s tax structures, to be prepared to implement significant changes following the completion and results of the recent BEPS project.

The impact of country-by-country reporting

The survey reveals that 61% of executives taking part have already been infected by legislation instigated following the BEPS project in one country alone. 33% of those who took part in the survey are expecting the most significant impact to come from country-by-country reporting. Whereas last year only 47% of those surveyed announced they were going to evaluate what country-by-country reporting would mean to their organizations, this year that figure has risen to 73%.

Transfer pricing remains a key issue

In 2014 one of the key concerns was transfer pricing which, now in 2015, is still high on tax executives’ priorities lists, being the second most prevalent concern in tax circles this year.

33% of survey respondents advised that they have already seen their local tax authorities bringing up audit issues as a result of the BEPS project. Amongst this number 64% highlighted transfer pricing as being the most predominant BEPS linked audit issue. They anticipate making the following changes:

  • Revising transfer pricing documentation – 56%
  • Revising transfer pricing methodology – 35%
  • Revising transfer pricing financial structures – 35%

64% of respondents reported that they will probably consider incorporating Advance Pricing Arrangements (APA) in order to help them to mitigate risk.

Global tax confusion looms

Jeff Michalak of Ernst & Young Americas believes it has become increasingly important for companies to now identify what impact these recommendations could bring to bear on their businesses and their tax planning functions. He also believes that there could be a lot of confusion in terms of taxpayers paying double taxation and other controversial issues as a result of the BEPS recommendations being implemented without any consistency on a country by country basis.

Other bullet points of interest from the Ernst and Young survey

  • 83% of survey respondents await increasing pressure on their global tax rates in coming years
  • 65% anticipate changes to tax laws as being a major contributory factor to tax rate pressure
  • 83% anticipate digital economy taxation as being an important factor in the future of worldwide taxation impacting on nexus, and permanent establishment plus treaty evolution
  • 27% of respondents anticipate revised operating models with regard to digital tax transactions
  • 66% of respondents await a significant corporate transaction in the next year with 81% anticipating an acquisition
  • In terms of regions to go under the microscope of transfer pricing audits, 30% of respondents believe India will be targeted, 25% the European Union and 21% North America.

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