OECD BEPS Action Plan to hit middle market business
72% of internationally operating middle market businesses (defined as having revenues from $50m to $1bn) expect to pay more tax as a result of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan as uncertainty around how the rules will be implemented hits the boardroom. An independent survey of middle market businesses worldwide commissioned by RSM, the world’s sixth largest audit, tax and consultancy network, shows that these organisations plan to bear the brunt of the costs, but will pass on some costs to shareholders and customers.
41.2% of middle market businesses expect their tax burden to grow by up to 10%, with 31% expecting their effective tax rate to increase by more than 10%. The pattern continues for compliance costs with 65% of middle market companies expecting these to grow by more than 10%. The majority (53%) intend to absorb some of the costs themselves but 35% expect customers and 30% expect shareholders to also shoulder some of the burden.
It is worth mentioning here that Poland is one of European leaders in implementation of OECD guidelines as regards BEPS to local legal system. A part of regulations in this area entered into force on 1.1.2016 while the vast majority will come into effect from 1.1.2017. However, a role of a pioneer is difficult as it causes a wide range of doubts and technical, content-related and methodological problems, which haven’t been coped with by anyone until this time, and Polish entrepreneurs will have a honor to settle them in a very close perspective.
Rob Mander, Head of the RSM Global Tax Leadership Group commented, “With smaller regulatory teams and less experience dealing with cross-border taxation, complying with the rules is a significant challenge for the middle market, it is no surprise that three quarters expect that they will need to alter their corporate structure to conform to changes in the law. While smaller businesses will not need to comply with all of the disclosure requirements resulting from the BEPS Project, they will still have to deal with the same substance and international tax changes that affect other companies.”
Despite the potential impact to their bottom line, just 18% of middle market businesses have undertaken planning to bring them into line with the new permanent establishment rules and 20% are fully aligned with the revised transfer pricing rules.
More than three quarters (78%) of middle market companies say that the rules are creating uncertainty.
Even with these cost increases, businesses of all sizes are broadly in support of BEPS, with 69% admitting a global taxation standard is necessary. Indeed, when asked to rank the guiding principles of BEPS legislation, simplicity and business practicality ranked the highest with cost of implementation ranked as the lowest consideration.
However, most businesses surveyed see BEPS as a work in progress rather than the final solution, with more work needed by governments globally to ensure the original objectives of the proposals are met. 61% of those surveyed felt the BEPS action plan only moderately, slightly or did not at all satisfy the primary objective of ensuring tax is paid where profits are created and only a third (35%) felt it would largely or completely satisfy the objective of levelling the international playing field.
Implementation of guidelines taken from BEPS into Polish tax system substantially raises the game of level of difficulty and detail of reporting applied within capital groups. Our observations and conversations with clients show that Polish entrepreneurs start to prepare themselves for changes for real in order to meet these expectations. And it has to be remembered that this process is time- and cost-consuming. Additionally, it involves many departments of a company (not only accountants or financial directors) – said Tomasz BEGER, Tax Partner in RSM Poland.