Starbucks, Apple, McDonalds, Google or Amazon ...
These multinationals make the headlines, yet they would rather pass by! They are booed for having domiciled some of their assets (intangible) in countries with low taxation and created tax optimization schemes, penalizing countries where they have their actual operational activities and where they generate their income. These assemblies, deemed abusive according to the OECD, represent a shortfall for injured States estimated between 90 and 210 billion euros. If justice punishes those companies, customers, outraged, boycott their products and create considerable pressure on their financial results.
Governments, faced with recurring budget deficits, follow their public opinions and now require multinationals to pay taxes where their jobs and their economic activities are. Thus, on request of the G20, the OECD has set up the BEPS project (Base Erosion & Profit Shifting), a set of rules to reform the international tax system and allow for more consistency, transparency and substance. The action plan is now known and will be rapidly implemented in different countries. It will generate the most significant changes for over 30 years for the taxation of international companies and focuses particularly on intra-group transactions and transfer prices (goods, services, intellectual property and financing).
States have already started to make tax audits and the number of inquiries from the tax authorities explodes. This creates uncertainty for businesses and a substantial risk of increasing their tax burden. The new documentation requirements and the automatic exchange of information between countries will, by 2016, generate a lot of commotion and massively increase the number of adjustments and disputes whose settlement procedures are lengthy and expensive.
The BEPS rules will really affect the structures and the business operations of multinationals. These should quickly assess the impact of the changes on their activities, on the location and the value of their assets and on transactions between group entities. Companies must prepare and address some of the following points:
1.Sanity check and stress test: review of existing transactions, tax risk assessment and sensitivity analysis
2.Planning and implementation: functional analysis and pricing strategy to achieve business objectives, allocation of profits and costs, asset valuation when redeploying activities
3.Documentation and litigation: establishment of documentation (master and local file), litigation management (renegotiation of intercompany agreements, compensation) and Advanced Pricing Agreement (APA) with the tax authorities.
BEPS and the Corporate Tax Reform in Switzerland (CTR III) affect all companies, large or small, multinational or not. A healthy tax risk management requires thoughts and analysis of the existing situation, as adaptation or reorganization takes time. Some of you or your customers may be affected by these changes and may wish advice in this area.
I encourage you to contact RSM and get advice on this matter !