At the beginning of the year, the World Economic Forum Annual Meeting prompted the headline, “Davos Leaders Agree: Share More Wealth, or Face the Consequences.” Wealth redistribution is the common keyword. But they seemed split over the model – voluntary or through taxation.
When the G20 endorsed the Base Erosion and Profit Sharing (BEPS) Action Plan in 2013, it became a common model to fight against the unfairness of taxation. The BEPS Project aims to provide governments with clear international solutions for fighting corporate tax-planning strategies that exploit the gaps and loopholes of the current system to artificially shift profits to locations where they are subject to more favorable tax treatment.
Meanwhile, about 100 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS.
Since the endorsement of the BEPS Package by G20 leaders in November 2016, the focus has shifted to ensuring consistent implementation, including the new transfer-pricing reporting standards developed under Action 13 of the BEPS Action Plan.
The recent country implementation summary published by KMPG shows a wide range of countries already in the final legislation state. So for multinationals with (at least) headquarters in those countries, it’s time to think about how to implement the new reporting requirements.
As always, there are decision boundaries for the right solution. Options range from short-term actions to provide basic data, maybe collected half manually, to integrated solutions that consistently sit on top of operating IT architecture. All tax advisory companies bring in their knowledge of legislation and procedures, and some also provide IT solutions to manage the data within a separate instance. Tax departments might have a favorite for such solutions since they manage “their” own data, and such solutions might be deployable on short notice to meet deadlines.
However, the new tax reporting have implications in at least five areas:
- Additional reports – Significant additional disclosure and reporting requirements, in particular around reporting of business activities by jurisdiction, country, transfer pricing, and inter-company transactions
- Increased communication to tax authorities – Increased potential for audit by tax authorities, in particular around transfer pricing, likely to require greater transparency and systemization of transfer-pricing policies and activity
- Compliance check – Required compliance with stated transfer-pricing policies
- Reorganization – Required restructuring and/or relocation of resources where legal and tax structures have been created that do not reflect underlying economic reality
- Transparency – Potential for large and very public tax reassessments, where legal and tax structures and transfer-pricing policies are not adjusted to reflect economic reality, or insufficient data exists to defend against reassessments
So it is all about enhancing business and reporting processes and ensuring compliance. The country-by-country (CbC), master file, and local file reports correspond to your transfer-pricing strategy, which sits at the end of the transactional data of an enterprise resource planning (ERP) system – and hence is an integral part of the overall group reporting.
What’s needed are consistent platform solutions, as well as a solution for BEPS within the preferred legal consolidation platform, to allow harmonization of group consolidation and reporting requirements. Look for the following capabilities to support BEPS challenges:
- A single source of truth for CbC reporting data with workflow, security, and a highly collaborative interface
- Flexible maintenance of the CbC reporting requirements on top of the existing systems
- A central tool that can easily interface with any source system
- Preconfigured rules, controls, calculations, and templates for data input to perform, validate, and publish required financial data
- A flexible platform to meet constantly changing requirements