Executive Briefings

OECD Action Will Cause Major Tax Changes Globally, Survey of Executives Says

Most senior tax executives see significant international tax changes over the next two years spurred by the Organisation for Economic Co-operation and Development's base erosion and profit shifting (BEPS) project, according to a survey released by EY at its 34th Annual International Tax Conference.

OECD Action Will Cause Major Tax Changes Globally, Survey of Executives Says

Eighty-eight percent of tax directors believe the BEPS project will have a profound effect on tax matters. As a result, 46 percent of respondents expect to make significant changes to their tax profile, up from 28 percent last year.

"Tax directors are anticipating and preparing for shifts in their company's tax profile with a growing sense of urgency due to the OECD's BEPS project," said Kate Barton, EY Americas Vice Chair of Tax Services. "In previous years, fewer tax professionals anticipated significant change, even over a longer time-frame."

Already, 61 percent of respondents have been affected by BEPS-driven legislation in at least one country where they operate. While concerned about several areas of the BEPS recommendations, 33 percent of respondents expect country-by-country reporting to have the greatest impact. Most respondents (73 percent) have already begun to analyze what country-by-country reporting will mean to their company, a significant increase over last year (47 percent). Transfer pricing had been the key concern in 2014 and remains the second most prevalent concern this year.

In addition, one third (33 percent) of respondents already saw tax authorities raising audit issues that reflect BEPS areas, with 64 percent identifying transfer pricing as the most prevalent BEPS-related audit issue. They anticipate making changes, particularly to transfer pricing documentation (56 percent) and methodology (35 percent), as well as financing structures (35 percent). In addition, 64 percent said they are more likely to consider using the APA process to manage risk and obtain certainty.

“Companies now more than ever should take action to identify the impact of these recommendations on their business and tax planning,” said Jeff Michalak, EY Americas lead for International Tax Services. “These BEPS recommendations will likely be followed by inconsistent and uncoordinated country implementations, leading to uncertainty for taxpayers, the possibility of double taxation and potential controversy.”

Overall, 52 percent of respondents are currently under audit in five or more countries, an 8 percent increase year-over-year, with 66 percent reporting that the enforcement posture and tactics of foreign tax authorities are more aggressive. When asked to rank the issues that arise as challenges in their organization’s foreign country audits, respondents selected transfer pricing related to goods and services and transfer pricing related to intangible property first and second at 31 percent and 27 percent, respectively.

Other findings of the survey include:

• 83% of respondents expect upward pressure on their global tax rate within the next few years, 65% of whom see tax law changes as a primary contributor

• 83% also believe the evolving taxation of the digital economy is important to the future of overall worldwide taxation, affecting primarily nexus, permanent establishment and treaty evolution

• 27% are contemplating new operating models for digital transactions

• 66% anticipate a significant corporate transaction within the next 12 months, with 81% of those respondents expecting an acquisition

• Respondents cited India (30%), the European Union (25%) and North America (21%) as the most contentious regions for transfer pricing audits.

The 365 survey respondents represent senior tax executives from large public and private companies across 22 countries, 74 percent of whom are from companies headquartered in the U.S.

Source: EY

Eighty-eight percent of tax directors believe the BEPS project will have a profound effect on tax matters. As a result, 46 percent of respondents expect to make significant changes to their tax profile, up from 28 percent last year.

"Tax directors are anticipating and preparing for shifts in their company's tax profile with a growing sense of urgency due to the OECD's BEPS project," said Kate Barton, EY Americas Vice Chair of Tax Services. "In previous years, fewer tax professionals anticipated significant change, even over a longer time-frame."

Already, 61 percent of respondents have been affected by BEPS-driven legislation in at least one country where they operate. While concerned about several areas of the BEPS recommendations, 33 percent of respondents expect country-by-country reporting to have the greatest impact. Most respondents (73 percent) have already begun to analyze what country-by-country reporting will mean to their company, a significant increase over last year (47 percent). Transfer pricing had been the key concern in 2014 and remains the second most prevalent concern this year.

In addition, one third (33 percent) of respondents already saw tax authorities raising audit issues that reflect BEPS areas, with 64 percent identifying transfer pricing as the most prevalent BEPS-related audit issue. They anticipate making changes, particularly to transfer pricing documentation (56 percent) and methodology (35 percent), as well as financing structures (35 percent). In addition, 64 percent said they are more likely to consider using the APA process to manage risk and obtain certainty.

“Companies now more than ever should take action to identify the impact of these recommendations on their business and tax planning,” said Jeff Michalak, EY Americas lead for International Tax Services. “These BEPS recommendations will likely be followed by inconsistent and uncoordinated country implementations, leading to uncertainty for taxpayers, the possibility of double taxation and potential controversy.”

Overall, 52 percent of respondents are currently under audit in five or more countries, an 8 percent increase year-over-year, with 66 percent reporting that the enforcement posture and tactics of foreign tax authorities are more aggressive. When asked to rank the issues that arise as challenges in their organization’s foreign country audits, respondents selected transfer pricing related to goods and services and transfer pricing related to intangible property first and second at 31 percent and 27 percent, respectively.

Other findings of the survey include:

• 83% of respondents expect upward pressure on their global tax rate within the next few years, 65% of whom see tax law changes as a primary contributor

• 83% also believe the evolving taxation of the digital economy is important to the future of overall worldwide taxation, affecting primarily nexus, permanent establishment and treaty evolution

• 27% are contemplating new operating models for digital transactions

• 66% anticipate a significant corporate transaction within the next 12 months, with 81% of those respondents expecting an acquisition

• Respondents cited India (30%), the European Union (25%) and North America (21%) as the most contentious regions for transfer pricing audits.

The 365 survey respondents represent senior tax executives from large public and private companies across 22 countries, 74 percent of whom are from companies headquartered in the U.S.

Source: EY

OECD Action Will Cause Major Tax Changes Globally, Survey of Executives Says