A middle market opportunity?
While the majority of businesses are focused on the cost implications of the BEPS action plan, there is also a need for companies to place due consideration on how the action plan may affect the very hearts of their businesses – their strategies and day-to-day operations.
The majority of business leaders agree that BEPS is causing uncertainty with respect to business strategy. They anticipate an impact on group structures, whether in the form of a small, incremental change or a complete overhaul. This type of structural change is not only quite costly, but also time-consuming and a daunting task to complete. It is not surprising that the majority of middle market leaders, 78% to be exact, expect to change their corporate structure significantly as a result of BEPS, as many have less experience dealing with cross-border taxation.
Rather than viewing these necessary changes as a hindrance, should middle market firms be viewing this as an opportunity?
The conversation about BEPS and its impact has shifted. Initially, large corporations were in the spotlight, and it was thought that they would be the only ones affected by BEPS. Now that we know middle market firms will also be impacted, the focus is shifting towards them to see how they will react and respond to these challenges.
While an outsider might consider middle market companies to be at a disadvantage to larger ones in implementing the changes brought about by BEPS, in some instances, middle market businesses will be able to more nimbly reshape their organisations internationally. Larger companies, by their very nature, take longer to implement changes and amend operational structures.
Transparency is a perfect example of the type and level of change that BEPS will bring about. In some cases, BEPS will require businesses to change their reporting systems to capture information necessary to comply with reporting requirements. Smaller, less complex organisations should be able to comply with BEPS with less disruption to their information flows and work streams.
In anticipation of countries issuing BEPS-related legislation and requirements, companies have already begun aligning with specific requirements in three key areas – country-by-country reporting, transfer pricing and permanent establishments.
Going forward, middle market companies can stay ahead and take advantage of opportunities by performing risk analyses to navigate country changes, applying these analyses to strategic planning, and constantly evaluating and monitoring current systems and country changes. By remaining proactive, middle market companies can turn what was strategic uncertainty into a concrete strategy that takes full advantage of their unique characteristics.
by Jerry Martin, Partner - International Tax Services, RSM US