In view of the depth and breadth of the BEPS recommendations and their disparate impact on different industries, there is no one-size-fits-all approach to dealing with BEPS. However, having protocols in place to continuously monitor tax law changes in the countries of operation is essential no matter the size, scope or scale of your business. Having clear and consistently applied tax and transfer pricing policies will also be helpful in reducing risk and controversy.
If controversy cannot be avoided, having a solid dispute management system in place is critical so that questions from tax authorities are answered in a manner consistent with global company tax policy.
What follows are more concrete steps that may be appropriate for businesses to take.
1. Develop a strong controversy management approach that aligns with the level of your business model risk
Businesses with higher-risk business models will have more expensive and complex compliance. They should consider a range of actions, such as assuming full value chain transparency over system profits, undertaking a multi-sided transfer pricing analysis of the global value chain and making greater use of advance pricing agreements.
2. Proactively manage the risk of increased transparency
The 21st-century tax function of a global business will have to be very flexible in order to address a host of technical, commercial, technological, political and social considerations. Businesses should analyze their global tax footprint by, for example, reviewing their draft three-tier transfer pricing reporting (CbC report, master and local file) to find any red flags and consider potential remedial action, such as re-examining their underlying operating models, revisiting transfer pricing policies and/or strengthening transfer pricing documentation.
3. Engage with the competent authorities
While mutual agreement procedures and arbitration continue to remain largely government-to-government procedures, taxpayers and their advisers can help and support the competent authorities in navigating the dispute and successfully resolving the case. Such assistance can include engaging early before positions become polarized; providing the clearest, highest-quality information; and confirming that the same information is provided to each country.
4. Don’t take a ‘wait-and-see’ approach with PEs
Businesses should closely monitor permanent establishment (PE) developments in the countries where they do business. They should also make sure they don’t simply rely on the contractual setup; they must confirm their staff are “living” the business’s tax model.
Navigating the BEPS journey
Having risen to the top of the political agenda of the world’s largest economies, the goal of the BEPS project was not just to change the international corporate tax framework but to change the behavior of businesses themselves.
The BEPS reforms that are being carried out by governments around the world are reshaping business models, industries and key companies within different sectors, as well as prompting businesses to rethink how tax decisions will affect their reputation, brand and communications with internal and external stakeholders.
For businesses, the October 2015 release of the final BEPS recommendations didn’t just mark the start of the implementation phase but the beginning of a challenging, unpredictable journey.
The varying speeds at which countries have acted to implement the BEPS Action items — and their different, sometimes inconsistent interpretations of what the recommendations mean — have created new risks for businesses and shone a spotlight on corporate taxation like never before.