United States

Base Erosion and Profit Shifting Action Plan to Impact Middle Market

Customers likely to feel increased costs of compliance and taxes



RSM US LLP (“RSM”) – the nation’s leading provider of audit, tax and consulting services to the middle market – today announced that a survey of 494 international business leaders revealed middle market businesses expect to be significantly impacted by the Organisation for Economic Cooperation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) Action Plan. The survey showed 72 percent of business leaders anticipate a 5 to 10 percent increase in effective tax rates as a result of BEPS, and 92 percent also expect increased compliance costs, demonstrating that, contrary to conventional wisdom, BEPS will impact middle market companies almost as much as large multinational corporations.

While the BEPS Project is intended to level the playing field for smaller businesses, and prevent large multinational companies from taking advantage of differences in national tax laws, middle market businesses (defined as having revenues from $50 million to $1 billion) are reporting expected increases in compliance costs, levels of taxation and business uncertainty.

The majority (54 percent) of businesses surveyed intend to absorb some of these costs themselves and 34 percent expect customers to shoulder some of the burden. Highlighting a key issue regarding BEPS implementation, 78 percent of middle market firms said the rules are creating uncertainty and nearly a quarter of respondents (21 percent) were unsure of whether costs would be shared with customers. Further, just 18 percent of these businesses have undertaken planning to bring their organizations in line with BEPS’ new permanent establishment rules and only 20 percent are fully aligned with the revised transfer pricing rules.

“Addressing the BEPS Action Plan will have a significant impact on US-based middle market companies that have international sales and operations,” said Ramon Camacho, international technical tax lead at Washington National Tax for RSM US. “While BEPS should level the playing field and perhaps curtail corporate ‘tax inversions,' companies of all sizes with international business need to begin to prepare for the tax, compliance and business issues coming their way.”

Despite the increased costs and likely business challenges, companies broadly support BEPS, and 69 percent indicate a global taxation standard is necessary. Most businesses surveyed also 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. Of those surveyed, 61 percent 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 percent) felt it would largely or completely satisfy the objective of levelling the international playing field.

To download and read the BEPS Survey Report, visit RSM's website.

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