Global business sceptical about success of BEPS – Grant Thornton survey
01 August 2014
Posted by: Author: Grant Thornton
Author: Grant Thornton
But will SA businesses be supportive?A global survey of 3,500 businesses in 40 countries conducted by Grant Thornton finds that 81% of executives worldwide believe the implementation of a new intergovernmental action plan to shape fair, efficient and effective international tax systems will not be successful.
But what view are SA businesses likely to take? Grant Thornton’s annual tax planning survey which drew research from 3500 respondents worldwide and 150 executives in South Africa specifically, between November and December 2013, revealed that 64% of South African business leaders would welcome more global co-operation and guidance from tax authorities on what is acceptable and unacceptable tax planning, even if this provided less opportunity to reduce tax liabilities across borders.
So, although there may appear to be an appetite from South African businesses to obtain clarity regarding cross border tax rules, AJ Jansen van Nieuwenhuizen, Partner: Tax Services and Head of Transfer Pricing at Grant Thornton Johannesburg raises concerns that when the detailed complexities surrounding BEPS are better understood by South African executives, they may also become reluctant to its implementation.
The new international tax system’s action plan, which has been developed by the Organisation for Economic Co-operation and Development (OECD) is termed the Base Erosion and Profit Shifting (BEPS) Action Plan.
"BEPS describes tax planning strategies that take advantage of gaps and mismatches in tax rules,” says Jansen van Nieuwenhuizen. "These approaches make profits ‘disappear’ for tax purposes or divert income to locations where the prevailing rate of corporate tax is low, but where the company carries out little or no real activity.”
Any South African multinational corporation or South African company that forms part of a multinational group will be exposed to and affected by BEPS.
Grant Thornton’s global survey reveals that although there was a great sense of countries working together at the start in support of the BEPS Action Plan, it appears that – as the project progresses – some countries are stepping back from consensus.
A key concern is that the proposals could have a disproportionate impact on mid-size multinationals, as few have the resources or capabilities to comply and adapt in the envisaged timelines. Companies relying on the development of ideas, innovations and creative content (including media and technology) are likely to be particularly affected.
During 2013, the low levels of corporation tax which multinationals like Amazon, Apple, Google and Starbucks are paying hit the headlines worldwide, sparking outrage and a global calling for more clarity and transparency.
The 15-point BEPS Action Plan calls for the development of tools that countries can use to shape ‘fair, effective and efficient tax systems’, based around three core principles – coherence, substance and transparency. As South Africa is a member of the G20, the organisation that mandated the OECD to develop the BEPS Action Plan in the first place, it fully endorses the Action Plan, to the extent that the South African Revenue Services (SARS) has representation of all 15 elements of the Action Plan.
There are indications that many countries may selectively implement only the changes that suit them, giving rise to added complexity and compliance burdens for business.
"What seems clear right now is that the real convergence and consistency are inconceivable and without this convergence, the burden on business will only increase with even greater complexities developing in the tax system between countries and companies,” warns Jansen van Nieuwenhuizen.
Francesca Lagerberg, global leader – tax services, at Grant Thornton International Ltd. said: "The Action plan is set to add yet more complexity to an already fast changing and politically fraught tax landscape. We urge all companies to develop a clear understanding of what the proposals mean for their business. It’s not too late to engage in shaping the final form of these proposals, which will evolve and be refined over the coming months and into next year.”
According to AJ Jansen van Nieuwenhuizen: "Many of the objectives of the BEPS Action Plan are valid. They include the elimination of loopholes that allow profits to ‘disappear’ for tax purposes. The concern is that the scope has broadened to such an extent that the Action Plan will touch almost every area of international taxation. It’s as if in an attempt to reduce traffic congestion in a handful of intersections, the authorities have decided to overhaul the entire road network and require every driver to modify their car.”
To meet tougher permanent establishment stipulations, businesses will need to demonstrate that people and structures are there to support the bearing of risk. Transfer pricing is going to be more complex and more important as a result.
Grant Thornton Transfer Pricing leaders around the world had the following additional comments to make regarding the BEPS Action Plan:
Wendy Nicholls of Grant Thornton UK said: "Mid-size companies are going to be swept up in the tide of the changes and face extra work in complying, even though they’re often not the ones using the avoidance schemes the Action Plan is seeking to eliminate.”
Michiel van den Berg of Grant Thornton Netherlands said: "The Action Plan will fundamentally change the international tax landscape.”
Jason Casas of Grant Thornton Australia said: "Companies face considerable uncertainty over how to structure business going forward, which could hold up investment and stifle creativity.”
Grant Thornton today launched ‘Getting to grips with the BEPS Action Plan’, a new report into what the planned overhaul of the international tax system means for businesses and how they can prepare.
This article first appeared on gt.co.za.