While significant progress continues to be made by the Organisation for Economic Co-operation and Development (OECD) on its Action Plan on Base Erosion and Profit Shifting (BEPS), tax executives at many U.S. multinational companies do not believe the OECD has allowed adequate time to accomplish the plan’s goals, according to a survey by KPMG LLP, the U.S. audit, tax and advisory firm.
The survey of some 220 U.S. senior tax professionals – conducted prior to KPMG’s U.S. Cross-Border Tax Conference in Miami taking place May 6 to 8 – revealed that 64 percent of respondents said the OECD’s 24-month timetable was not sufficient to address concerns regarding profit shifting or “double non-taxation” and provide a “level playing field” among tax systems and taxpayers. Only 21 percent were positive on the issue of timing.
“Tax leaders may not believe the OECD has adequate time to achieve all the objectives in the Action Plan, but with the significant political demand for immediate action, the deadlines are not likely to change,” said Manal Corwin, national leader of KPMG’s International Tax practice and principal-in-charge of International Tax Policy in the firm’s Washington National Tax practice.
“Corporate tax departments need to engage with the OECD and policymakers on the specifics, keep a sharp focus on the potential compliance implications, and anticipate the impact of likely changes on their global operations,” Corwin added.
Said Brett Weaver, KPMG’s partner in charge of tax transparency services and the firm’s West Area international tax practice: “The OECD is moving full-speed ahead with an initiative that will drastically change the international tax landscape. It’s critical that the business community is prepared.”
Of particular interest in the survey: While a vast majority of respondents (82 percent) feel the BEPS Action Plan is an issue that has garnered the attention of their board and C-level management, only 11 percent believe these two groups have a high level of understanding of the initiative or are concerned about its implications on their companies.
Delving further into awareness of BEPS outside the tax department, almost half (48 percent) of tax executives said their board and other C-level executives are having an ongoing dialogue on BEPS developments; some 37 percent said these two groups understand the plan and are having some internal debate about it but are not concerned; and 24 percent said the groups are aware of the debate but are neither concerned about nor engaged in regular dialogue on it. Eleven percent said their board/C-level members are unaware of the project.
“The survey indicates that BEPS is definitely on the radar of boards and the C-Suite and is not exclusively the tax department’s domain,” said Corwin. “While senior management may not be fully focused on BEPS at the moment, as the project progresses and individual countries begin to take concrete action, we expect to see an increased focus across organizations, not only with planning for changes, but also with respect to managing tax risk and revisiting tax governance.”
What’s Keeping Tax Executives Up At Night
When asked to pick their two top concerns about the OECD’s Action plan, most tax executive respondents cited tax information disclosure requirements (50 percent) and transfer pricing rule changes (47 percent), followed by changes to long-standing international tax norms, such as permanent establishment rules and ruling practices (36 percent).
In terms of the most significant steps they expect their company to take in response to the BEPS project, most survey respondents (56 percent) pointed to determining that their documentation and compliance is adequate. Of particular interest, 35 percent cited modeling the potential impact of the action plan on the company’s tax costs.
The survey also revealed that 56 percent of respondents “strongly agree” or “agree” that their company’s tax burden and reporting obligations in various jurisdictions will increase, assuming the OECD’s work on tax challenges of the digital economy will result in changes to the international standards for taxation and provide certainty needed in this area.
In other key findings:
- Nearly half of respondents (47 percent) with foreign intangible-property holding companies were either concerned or very concerned that the BEPS project would restrict or eliminate the structures. Only 11 percent of respondents were not concerned.
- Thirty-seven percent said they were concerned that the BEPS project might restrict or eliminate the use of financing structures that incorporate hybrid instruments currently being used by their company. Fourteen percent felt it wouldn’t and 33 percent weren’t sure.
- Respondents were mixed when asked if the BEPS project would cause them to reexamine their company’s transfer pricing protocols, with 41 percent responding affirmatively and 43 percent negatively.
- A majority (53 percent) expects U.S. and/or foreign tax benefits derived from the use of disregarded entities will be restricted or eliminated as a result of the BEPS initiative.
“Executives throughout the organization need to appreciate that the Action Plan has already significantly increased the scrutiny of multinationals’ tax structures in a number of countries, even before its own deadline,” said Corwin. “More than ever before, it is important for multinational leaders to be fully aware of and comfortable with all of the facts supporting their tax profile.”
The KPMG “pulse” survey, conducted March 18 to April 4, reflects the responses of 220 senior tax professionals including tax directors, tax managers, vice presidents of tax, chief tax officers and tax analysts.
About the OECD Action Plan on BEPS
The OECD launched its Action Plan on BEPS in July 2013, identifying 15 specific actions needed in order to equip governments with the domestic and international tools to address the challenges identified by the initiative. The plan emphasizes the importance of addressing the digital economy and developing new approaches to prevent double non-taxation. The plan was fully endorsed by the G20 Finance Ministers and Central Bank Governors at their July 2013 meeting in Moscow, as well as the G20 Heads of State at their meeting in Saint-Petersburg, Russia, in September 2013. More information can be found on the KPMG Institute Network’s BEPS/Tax Transparency page.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.
Robert Nihen/Deborah Primiano