One in 10 multinationals to restructure 'soon' due to BEPS and ATAD

The BEPS Project and the EU Anti-Tax Avoidance Directive (ATAD) are forcing some companies into restructuring, according to a new survey. But mant' are still waiting for more clarity before they decide their next move. 

Of the respondents to the survey, 14.9% are engaged in minor restructuring projects and 9.9% are undergoing major restructures. A further 9.9% will begin restructuring soon.

"Both BEPS and ATAD are about changing the mindset of corporate decision makers," said Tanja De Decker, EMEA leader for tax at Baker Tilly International, which published the survey on July 6. "Fair taxation, transparency and recognition of value creation are the driving forces behind the policy changes taking place." There is no doubt that both initiatives are having the effect desired by their creators.

There is no doubt that both initiatives are having the effect desired by their creators.

A large real estate company told International Tax Review: "Our global real estate business is active in over 5o countries and we are constantly restructuring and expanding our operations to both meet our commercial needs and ensure local compliance obligations are met."

Despite the impending applicability of BEPS Action 15's multilateral instrument (MLI) — and the principal purpose test (PPT) within it, 32.7% of companies surveyed are waiting for more clarity on new BEPS-related rules and the ATAD.

However, 22.8% of respondents listed the MLI as a key concern.

"Since all countries involved will follow their own domestic ratification procedure and parties to the MLI have the freedom to opt out of certain parts of the instrument, the MLI is a elear example of increased complexity in the post-BEPS international tax environment," said Marijn Verhagen, Baker Tilly's African tax desk kader.

This tendency to wait despite the MLI being a key concern could indicate that these companies are confident enough that their structures reflect their actual business models that they feel they can delay making changes longer than many in the tax community initially expected.

"The OECD's Action Plan on Base Erosion and Profit Sharing (BEPS Action Plan) was expected to fundamentally change the international tax landscape," said De Decker. "And it will, but gradually rather than with the big bang that some were expecting."

"For the majority of multinational entities, their international tax structure reflects the economie reality of their business model. As a result, few will have to undertake large-scale restructuring projects," she added.

The survey also reveals that transfer pricing (TP) is the key concern for companies surveyed by an overwhelming margin.

Almost three-quarters (74.3%) of companies said it was a "key tax uncertainty", which the next most-pressing concern being permanent establishments, listed by 37.3% of companies.

Key tax uncertainties for our business relate to permanent establishment rules and transfer pricing," said the real estate company.

Despite the level of concern, many companies are unprepared for the importante transfer pricing is taking on for international tax departments.

"Roughly two out of three groups of respondents have not drafted transfer pricing documentation yet or are only now in the process of adjusting their documentation to meet the new standards following the roll-out of new documentation rules as part of the BEPS Action Plan," said Winning and Burgstaller.

"We expect that documentation will undergo extensive fine-tuning over the coming years as a wave of tax audits hit the years for which the new transfer pricing documentation rules apply."

Source: International Tax Review - Joe Stanley-Smith