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Businesses sceptical about intergovernmental action on tax

Global survey finds businesses sceptical about likely success of intergovernmental action on tax

29 July 2014

Only 26% of New Zealand business leaders believe the OECD Base Erosion and Profit Shifting (BEPS) Action Plan is likely to be successful, according to the latest Grant Thornton International Business Report survey.

Globally this figure is even lower. Just 19% of the 3,000 businesses in 40 countries that were surveyed expect the action plan to have the desired effect.

Although there was a great sense of countries working together at the start, as the project progresses, some countries are stepping back from consensus. There are indications that many countries may selectively implement only the changes that suit them, giving rise to added complexity and compliance burdens for business.

Greg Thompson, Partner and National Director, Tax at Grant Thornton New Zealand said the concern is that the proposals could have a disproportionate impact on mid-size multinationals, as few have the resources or capabilities to comply and adapt in the envisaged timelines.

Companies relying on the development of ideas, innovations and creative content (including media and technology) are likely to be particularly affected.

Thompson said: “The Action Plan is set to add yet more complexity to an already fast changing and politically fraught tax landscape. We urge all companies to develop a clear understanding of what the proposals mean for their business. It's not too late to engage in shaping the final form of these proposals, which will evolve and be refined over the coming months and into next year.

“Many of the objectives of the BEPS Action Plan are valid. They include the elimination of loopholes that allow profits to ‘disappear’ for tax purposes. The concern is that the scope has broadened to such an extent that the Action Plan will touch almost every area of international taxation. It’s as if in an attempt to get rid of some traffic black spots, the authorities have decided to overhaul the entire road network and require every driver to modify their car.

“Mid-size companies are going to be swept up in the tide of the changes and face extra work in complying, even though they’re often not the ones using the avoidance schemes the Action Plan is seeking to eliminate.

“Companies face considerable uncertainty over how to structure business going forward, which could hold up investment and stifle creativity,” said Thompson.

Grant Thornton today launched 'Getting to grips with the BEPS Action Plan', a new report into what the planned overhaul of the international tax system means for businesses and how they can prepare. To view the report, click here.

Base Erosion and Profit Shifting (BEPS) is the term used by the OECD to describe tax planning strategies that take advantage of gaps and mismatches in tax rules. These approaches make profits ‘disappear’ for tax purposes or divert income to locations where the prevailing rate of corporate tax is low, but where the company carries out little or no real activity.

The 15-point Action Plan presented by the OECD calls for the development of tools that countries can use to shape 'fair, effective and efficient tax systems', based around three core principles – coherence, substance and transparency. Its proposals have been given additional weight by the strong backing from the G20.

The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of more than 12,500 businesses per year across more than 44 economies. This unique survey draws upon 22 years of trend data for most European participants and 11 years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com

Data collection
Data collection is managed by Grant Thornton's core research partner – Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis. The research is carried out primarily by telephone.

Sample
IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 2,500 chief executive officers, managing directors, chairmen or other senior executives from all industry sectors conducted in May 2014.

“Grant Thornton” refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton International Ltd (GTIL) and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions.

ENDS

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