BEPS Project

Groups need to review their approach to taxation

Alessandro Dragonetti Alessandro Dragonetti

The prompt implementation of the Country by Country Reporting, i.e. the new compulsory report on transfer pricing of multinationals having profits higher than 750 million in the main countries of the global economy – including United States, Canada, China, India, and the 28 EU countries – proves that the BEPS anti-avoidance project is proceeding quickly, at least as concerns its most significant elements.

As most of the Base Erosion and Profit Shifting (BEPS) Action Plan is made up of best practice recommendations rather than ‘red line’ requirements, it was always going to be applied electively and in different ways from country to country.

Yet implementation has already confounded expectations in the extent to which many of the optional recommendations are being embraced and fast-tracked by major economies worldwide. These legislative changes are set to have a significant impact on financial and operational structures, as well as effective tax rates.

At the same time, some of the BEPS actions that were meant to be universally and consistently implemented have stalled through lack of political momentum or international agreement on how they should be applied.

So, what aspects of BEPS have been most successful in winning government support, gaining an international consensus and delivering on their objectives? What aspects remain work in progress? What do these ‘successes’ and ‘setbacks’ for the implementation of BEPS say about the likely future shape of the international tax landscape, and the resulting challenges ahead for your business?

A recent report published by Grant Thornton International Ltd. analyses the implementation status of the project, thus providing the first answers to these questions, crucial for the future of multinational groups.

A research carried out by our network Thornton in 2016 showed that out of a sample of 2,600 businesses in 36 economies, 78% said they had not changed their businesses approach to taxation following BEPS recommendations (in Italy, such percentage was equal to 72%).

This is an irreversible change and it is impossible for companies operating internationally to ignore it.

The implementation of BEPS recommendations is often desultory and lacking coordination among different countries, but the decision taken by many groups to wait for more clarity seems to be unfounded.

Considering how quickly workings at international institutions (OECD, EU, domestic regulations) are proceeding, corporate groups need to review their approach to taxation immediately, in order to ensure them to be BEPS-compliant.