A new report by Nexia International, a top ten international network of independent accounting and consulting firms, outlines the new obligations for cross-border businesses to counter profit shifting.
The evolution of international tax regimes and increasing globalisation has left numerous gaps in tax laws around the world. This has given multi-national enterprises (MNEs) the ability to reduce, and even eliminate, their corporate tax burden by ‘artificially’ shifting profits to low or no-tax jurisdictions where they have little or no economic activity. In response to such strategies, the Organisation of Economic Co-operation and Development (OECD) has identified 15 specific Action Plans on Base Erosion and Profit Shifting (BEPS).
David Slemmer, Director at CohnReznick, a member firm of Nexia International and author of Nexia’s report explains: “Action plans include addressing tax challenges of the digital economy, preventing the artificial avoidance of ‘permanent establishment’ status, assuring transfer pricing outcomes are in line with value creation, and re-examining transfer pricing documentation.”
BEPS Action Plan 13 (Re-examine Transfer Pricing Documentation) addresses the need for a new approach to transfer pricing documentation. It recommends that each country should adopt a standardized template requiring each MNE to file a number of reports, including a country-by-country (CbC) report that contains information on the global allocation of income, economic activity and taxes paid among the countries in which the MNE operates.”
David continues: “In theory, governments will be able to identify whether companies have engaged in transfer pricing and other practices that have the effect of artificially shifting substantial amounts of income into tax-advantageous jurisdictions.”
“MNEs should monitor the development of the OECD’s recommendations on
implementation approaches for these new reporting requirements,
closely. The OECD is expected to issue a comprehensive package
establishing protocols for inter-governmental exchange of the CbC
template.”
For further information about these new requirements, a more detailed report is available at:
http://www.nexia.com/assets/publications/Base-Erosion-and-Profit-Shifting-DavidSlemmer.pdf
For more information, contact:
David Slemmer
CohnReznick LLP, US
T: +1 646 625 5732
E: david.slemmer@cohnreznick.com
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