Telecommunications companies should understand that BEPS is now a key component of international tax reform and that measures need to be undertaken.
What is BEPS?
The Organization for Economic Co-operation and Development (OECD) project on base erosion and profit shifting (BEPS), which is supported by the European Union (EU), is aimed at responding to the global concern of tax authorities regarding the potential for multinational companies (MNCs) to reduce their tax liabilities. This is accomplished by shifting income to no-tax or low-tax jurisdictions.
BEPS touches all components of the typical telecommunications organization, including cross-border operations, virtual management teams, sales and channel management, procurement, manufacturing and inventory deployment, and research and development.
In addition, BEPS must be viewed in the broader context of a further tightening of the global regulatory framework.
Telecommunications operators should align themselves with key themes and outputs associated with BEPS, including
- • revamped transfer pricing principles to reflect activities
- • robust documentation requirements
- • transparency around global operations
- • alignment of functional profiles across the value chain to mitigate tax, audit and reputational risk
- • capitalizing on opportunities to manage the group’s effective tax rate.
Many telecommunications operators have been taking steps to properly position themselves as a result of the BEPS Actions. The BEPS project can change the legal and regulatory framework in many countries and represents one of the most fundamental overhauls of international taxation in a generation.
Given the proliferation of domestic law changes, it will be critical for the telecommunications operators to closely monitor the ever-changing and evolving landscape at the specific country level (in both mature and emerging markets).