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.