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BEPS will mean higher costs and uncertainty for middle-market companies

Survey finds that middle market expects significant impact from BEPS


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The Base Erosion and Profit Shifting (BEPS) project will have direct and significant consequences for middle-market companies. It will increase compliance costs and global effective tax rates, and is creating considerable strategic uncertainty. Many companies will need to make changes to their corporate structures, and these changes may be significant. These are among the findings of a recent survey commissioned by RSM and conducted by Euromoney Institutional Investor in early 2016. More than 750 executives in leadership roles at multinational enterprises gave us their insights on the perceived risks associated with, and sentiments about, the BEPS project. 

The BEPS Project will have a significant impact on the middle market

The BEPS project was launched in 2013 by the Organisation for Economic Cooperation and Development (OECD) and the leading rich and developing nations known as the G-20. It aims to provide governments with ways to close perceived gaps in existing international tax rules that can be used by multinational enterprises to make profits disappear for tax purposes, or to shift profits to low-tax jurisdictions where these enterprises have little or no real activity, allowing them to pay low or no corporate taxes. When the BEPS Project was initiated, many assumed that it would have a limited impact on middle-market companies. This is clearly not the case. Middle-market companies (revenues ranging from $50 million to $1 billion) and large companies (revenues of more than $1 billion) report very similar expectations concerning anticipated:

  • Increases in compliance costs
  • Increases in effective global tax rates
  • Uncertainty regarding business strategy
  • Changes to corporate tax structures
  • Activities necessary to align with new transfer pricing and permanent establishment rules

By comparison, respondents from small companies (less than $50 million in revenue) were less likely to anticipate increases in compliance costs and tax rates, reported lower uncertainty, and were less likely to anticipate changes to their corporate structures.

Compliance costs and global effective tax rates will increase

The vast majority of respondents, 68 percent, expect their compliance costs to increase by at least 10 percent, with 34 percent expecting those costs to increase by 25 percent or more. Most also anticipate an increase in their worldwide effective tax rate, with 72 percent expecting some increase and 31 percent expecting an increase of more than 10 percent.

The BEPS Project is creating strategic uncertainty and will likely mean changes to corporate structure

More than 70 percent of respondents report that BEPS is causing uncertainty regarding their business strategies. Companies also anticipate having to change their group structures, with 73 percent expecting to make some change and 41 percent planning to institute a significant change to or even a complete overhaul of their structures.

Most agree change is necessary but see BEPS as a work in progress rather than the ultimate answer

The majority of respondents, 69 percent, believe it is necessary to implement some form of global taxation standards. However, 61 percent felt the BEPS Action Plan only moderately satisfies, slightly satisfies or does not at all satisfy the primary objective of ensuring tax is paid where profits are created, and only a third (35 percent) felt it would largely or completely satisfy the objective of leveling the international playing field. However, overall, while conscious of the flaws in the BEPS process, our survey respondents seem well-disposed to, or at least open minded about, the benefits it could deliver.

For more information, download the complete report here

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