Middle-Market Firms Concerned About BEPS Shortcomings

by Mike Godfrey, Tax-News.com, Washington

08 June 2016

Middle-market businesses expect to be significantly impacted by the OECD's base erosion and profit shifting (BEPS) Action Plan, according to a recent survey of 494 international business leaders conducted by audit, tax, and consulting services provider RSM US LLP.

According to the survey, middle-market businesses (defined as having revenues from USD5m to USD1bn) anticipate that compliance costs will increase, along with tax burdens and business uncertainty. 72 percent anticipate a 5-10 percent increase in their effective tax rate as a result of BEPS, and 92 percent also expect increased compliance costs.

Most businesses surveyed (54 percent) intend to absorb some of these costs themselves while 34 percent expect customers to shoulder some of the burden. 78 percent of middle-market firms said the rules are creating uncertainty and about a fifth of respondents (21 percent) said they are unsure of whether costs will be shared with customers. Just 18 percent of these businesses have undertaken planning to bring their organization's policies into line with the Action Plan's new permanent establishment rules, the survey says, and only 20 percent said they are fully aligned with the revised transfer pricing rules.

"Addressing the BEPS Action Plan will have a significant impact on US-based middle-market companies that have international sales and operations," said Ramon Camacho, International Technical Tax Lead at Washington National Tax, RSM US. "While BEPS should level the playing field and perhaps curtail corporate 'tax inversions,' companies of all sizes with international business need to begin to prepare for the tax, compliance, and business issues coming their way."

Despite the increased costs and likely business challenges, companies broadly support the BEPS initiative, and 69 percent opined that a global taxation standard is necessary. But most businesses surveyed see BEPS as a work in progress rather than a final solution, recommending that more work is needed from governments globally to ensure the original objectives of the proposals are met. 61 percent were skeptical that the BEPS Action Plan will ensure that tax is paid where profits are created, and just one third of respondents said that implementation of the recommendations will level the international tax playing field.

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