What are the recent trends in international tax planning that businesses need to be aware of?
Recent trends in politics and economics have resulted in new tax laws and regulations across the globe, with many jurisdictions displaying increasing vehemence toward tax enforcement.
Businesses have to be switched on to these developments, and consider the impact of such trends on existing structures, and taking action as part of a proactive strategy for tax risk management.
Brexit will continue to fuel uncertainty for taxpayers active in UK and European markets, with the impact on organisations’ operating structures and tax planning contingent on an exit deal being reached between the British Government and the EU.
We are also seeing growing important apportioned to indirect taxes, including value-added taxes (VAT), goods and services taxes (“GST”), sales and use taxes, other consumption/transaction taxes, and real estate transfer taxes. For multinational companies, strategies are needed to deal with these trends effectively and favourably in the context of cross-border planning.
It is the Base Erosion and Profit Shifting (“BEPS”) initiative which has and will continue to precipitate the most significant change in international tax planning.
Companies are facing uncertainty around implementation of the many measures planned and approved under the initiative, with many jurisdictions having already taken action beyond BEPS guidance and recommendations.
What is the Base Erosion and Profit Shifting (“BEPS”) initiative?
BEPS is an OECD initiative to develop and implement an international framework that “addresses gaps and mismatches” in global tax rules.
The implications on corporate international tax planning strategies are immense, extending to anti-avoidance measures such as GAARs, CFC regimes, thin capitalization rules and treaty anti-abuse rules; tax treatment of related-party debt financing, captive insurance and other intra-group financial transactions; international tax considerations of mismatches in entity and instrument characterisation; international tax aspects of transactions involving intangibles; recent developments concerning transfer pricing.
For international businesses with multinational tax liabilities, it has become critical to stay up to date with progress on the implementation of BEPS. This involves assessment of the various measures and adapting tax planning strategies accordingly.
For example, we are seeing enhanced coordination between authorities in enforcing tax laws and regulations, and companies should expect more aggressive transfer pricing audits across the globe. This includes a need to develop a unified, global strategy for transfer pricing documentation, including CbC reporting and preparation of Master and Local Files.