Global tax rules are rapidly changing. The final reports on the base erosion and profit shifting (BEPS) Action Plan have been released by the Organization for Economic Co-operation and Development (OECD) and endorsed by the G20. These reports recommend significant changes in international tax laws and treaties.
BEPS is the most comprehensive change in international taxation in recent history due to unique global alignment on the matter. The OECD’s BEPS initiative seeks to close gaps in international taxation for companies that allegedly avoid taxation or reduce tax burden in their home country by engaging in tax inversions (moving operations) or by migrating intangibles to lower tax jurisdictions.
Most would assert that tax systems have not kept pace with business developments, including technology advances, new business models, and increased globalization. The OECD has stated that governments worldwide are losing between $100 billion and $240 billion each year in tax revenue due to base erosion profit shifting.
The BEPS Project aims at developing recommendations for changes in international tax laws and treaties that governments can implement to address the perceived inadequacies in the global international tax system.
In October 2015, the OECD presented final reports on all 15 focus areas and the G20 leaders endorsed these reports in November 2015. These reports set forth detailed recommendations for changes in countries international tax laws and tax treaty policies. Generally, the BEPS recommendations can be grouped within the following three categories:
Coherence — Different countries’ tax laws should interact coherently. The intention is to close the gaps in the interaction of countries’ tax systems so that no income is inappropriately untaxed, but at the same time still preserving the principle of preventing double taxation
Substance — Alignment of profits with the functions that contribute to value creation
Transparency — Tax authorities should have insight into the global operations of taxpayers and should be able to share relevant tax information with each other
BEPS will result in a fundamental transformation of the global tax regulatory landscape. Since the OECD is not a government, it will require tax authorities around the world to pass laws and regulations to support the BEPS Action Plan and compel companies to comply with those rules. Countries are now deciding which recommendations to implement, when to implement them, and ultimately how to implement them. Different countries have different interests, which means they will respond differently to the OECD recommendations and will react on different timetables. This will create complexity for businesses that operate in multiple countries
It will be critical to build consideration of potential BEPS impacts into current tax planning, re-examine supply chains, analyze current and future financing arrangements, and share updates on the changing global tax environment frequently with management, the audit committee, and other affected stakeholders
To be successful, now is the time to evaluate the potential BEPS pressure points for your business and develop plans for ensuring that your business models and structures are aligned with the new global tax mindset
The Mexican Tax Authority has been following the BEPS results closely and actively participated in the OECD’s working groups. Mexico has also embraced the anti-BEPS movement through early legislative change. In 2014, Mexico implemented a tax reform based on certain concepts mentioned in preliminary BEPS reports, including several new deductibility restrictions.
In fact, the 2016 tax reform introduced new reports that will expand Mexico’s existing transfer pricing disclosure requirements. The Mexican government enacted the requirement to file a master information return (Master file), local information return (Local file), and Country-by-Country (CbC) report on a calendar-year basis, starting in FY2016 (due by December 31, 2017). These provisions are consistent with the OECD’s Base Erosion and Profit Shifting (BEPS) initiative with respect to Action Plan 13: Guidance on the Implementation of Transfer Pricing Documentation and Country-by-Country Reporting.
Venko Consultores as a business consulting firm supports companies in their success strategies. We have dynamic and experienced collaborators to provide you with solutions and tangible results through excellence in our service.