The recent Asia Pacific Conference of Alliott Group, one of the world’s most established international associations of independent accounting and law firms, brought together tax professionals from 13 countries across the Asia Pacific region to discuss Base Erosion & Profit Shifting (BEPS), a project led by the OECD and G20 whose 15-Point Action Plan is being implemented through 2016-17 in cooperation with national governments. BEPS aims to address weaknesses in international tax rules, specifically the perceived avoidance of tax by companies that trade internationally.
The media gaze continues to fall on the tax arrangements and the alleged tax avoidance practices of large international companies such as Amazon, Starbucks and Google. However, the professional advisers working at Alliott Group member firms agreed in Kuala Lumpur recently that in reality, at least one or two of the 15 Action points set out in the BEPS Action Plan are likely to apply to any business, large or small, that operates across international borders.
Jamie Towers, Tax Partner at Hanrick Curran Accountants in Brisbane and Chairman of Alliott Group’s Asia Pacific regional membership, comments: “Discussions among representative members from various Asia Pacific countries agreed the recommendations of the BEPS plan are needed to address the failings of current national and international corporate taxation rules to keep up with today’s global economy. The scale of the project means that this will not be a quick fix and it will be difficult to get new rules through national parliaments let alone enforce them. Some Asia Pacific countries have started to implement a number of recommendations, but in others there has been little progress. For example, in Australia, Action Point 5 has led to specific multinational anti-avoidance rules already entering law and a diverted profits tax has been announced so that if a company shifts its profits from Australia to a low tax jurisdiction, but there is no real substance or value added in the low tax jurisdiction, a tax can be imposed on those profits by Australia.”
The Action Plan is based on three core concepts:
- restoring the principles of international frameworks; and
- greater transparency.
It also introduces changes to address the challenges presented by the digital economy, Jamie Towers commented: “With companies using cloud based technology, it is not always clear where sales originated and whether the selling company has a permanent establishment in the country where the goods or services are consumed and whether tax is therefore due in the country. The BEPS plan seeks to address this.”
Hanrick Curran Partner, Peter Maletz, adds: “Despite the difficulties of global implementation, BEPS is happening – it is the biggest change to the basis of corporate taxation in a generation and companies must monitor the developments and which Actions may affect them. The G20 and OECD estimate that between US$100-240 billion is lost in corporate income tax annually on a global basis – this is more than some countries’ GDP. The BEPS project’s aim is to enable every country to tax the profits of business done within their borders, where the value is actually added and the risk has been taken, and to prevent the avoidance of tax through use of artificial arrangements in low tax jurisdictions.”
As a member of the Alliott Group, Hanrick Curran are 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 our clients.
The 15 Action Points of the BEPS project are as follows:
- Address the challenges of the digital economy to existing international tax rules
- Neutralise the effects of complex financing arrangements that result in ‘double non-taxation’.
- Strengthen Controlled Foreign Company rules to prevent routing income through subsidiaries in low tax jurisdictions
- Limit base erosion via excessive interest deductions and other financial payments
- 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)
- Prevent treaty abuse
- Prevent the artificial avoidance of permanent establishment status
- Assure that transfer pricing outcomes are in line with value creation (Actions points 9 & 10 also)
- Establish methodologies to collect and analyse data on BEPS and the actions to address it
- Require tax payers to disclose their aggressive tax planning arrangements
- Re-examine transfer pricing documentation
- Make dispute resolution mechanisms more effective so that countries can resolve treaty-related disputes under mutual agreement procedures
- Develop a multilateral instrument or model treaty to enable all signed up countries to modify bilateral tax treaties that will strengthen transfer pricing and tax avoidance laws.
Around 60 countries from the OECD and G20 plus a number of developing countries are now committed to the plan.
Peter 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. Clients involved in matters such as cross border intercompany transactions or loans will need the advice of accountants, auditors, tax advisers and lawyers to ensure documentation is rigorous and compliant in different jurisdictions.”
If you are or plan to operate across international borders one or more of the BEPS Action Points may impact your business. Please speak with your usual Hanrick Curran adviser or alternatively contact Jamie Towers or Peter Maletz on 07 3218 3900 for guidance. As an Alliott Group member firm, Hanrick Curran have a strong network of over 170 accounting and legal firms in more than 70 different countries, through this network we can assist to coordinate advice with counterparts around the world on behalf of our clients.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.