The BEPS Puzzle: Is it fitting together?

A guest blog by Rebecca Reading, Tax Partner at RSM UK

BEPS is like a puzzle. At least, it is puzzling when you stop and think about how it’s all going to come together. There have been some significant developments around BEPS over the past few weeks. At the very end of June, the OECD’s Committee on Fiscal Affairs held a monumental meeting in Kyoto, Japan where delegates from 82 countries discussed the next steps for BEPS. Countries of wide ranging levels of development came together and 36 new jurisdictions joined the project as a result.  Countries continue to commit to the international BEPS inclusive framework, with the current total standing at 85, as of July 15.

Pascal Saint-Amans, director of the OECD’s centre for tax policy and administration, highlighted the importance of small economies committing to BEPS and with the new signatories out of Kyoto, they seem bound closer to their goal, of creating a level international playing field.

Elsewhere, some of the most influential regulatory bodies in the world, the European Commission (EC) and the US Treasury and the Internal Revenue Service (IRS), announced finalised regulations that will accelerate BEPS implementation. In the midst of these developments came the historic decision by the UK to leave the European Union, which added yet another variable to BEPS implementation and taxation in the UK and Europe more generally. It is apparent that the BEPS puzzle pieces are starting to move, however, the question is are they moving into the right places?

This month, the European Council and ECOFIN formally adopted the anti-tax avoidance package that was set out by the EC on 17 June.  EU member states have until December 2018 to bring these rules into their domestic law. The rules were based on the OECD’s BEPS proposals but the EC indicated that it intends to go beyond the OECD’s recommendations, particularly by making certain key tax data extracted from the country-by-country (CbC) reports public, thus sending a clear message to companies about what’s expected in terms of tax transparency.

Also at the end of June, the US Treasury and Internal Revenue Service (IRS) released their finalised CbC reporting rules, which closely follow the OECD’s original recommendations, and state that US companies will not be required to put key tax data in the public domain. The OECD were very clear about CbC reporting and put forward a process that ensured the reports would only be shared by tax authorities, in part strategically to get the US on board.

From our research earlier this year, we know that, contrary to popular perception, middle market companies will be heavily impacted by BEPS and in many of the same ways as large corporates, but lack the capabilities and experience to deal with the challenges.  With so much going on it is difficult for middle market companies to start planning.

Most importantly, all of these developments bring into question the OECD’s initial goal in introducing the BEPS Action Plans, to have a cohesive approach to tax globally. Eighty five countries have pledged to implement BEPS, but with strict CbC regulations anticipated in the EU and a commitment to confidentiality in the US, it calls into question what that really means. There are indications that there may be moves in opposite directions, we will have to wait to see what other differences come out of the woodwork. It is obvious now that the puzzle pieces are not fitting together quite as easily as the OECD would have wanted.

For more information about BEPS and how the project could affect your business, visit our BEPS site and read our report: The Global Business Reaction to BEPS