As the consultation phase of BEPS draws to a close we could say that a second phase – implementation – is about to begin. This is when we will see if countries will really follow through with the agreements or if they will start to cherry pick parts they like and leave parts they don’t.
BEPS is about addressing perceived avoidance, unfairness and outdated international tax rules, but it is also about raising more tax. If a country finds that when it looks at implementation steps it will be a net loser of revenue, will it find ways to resist? Already we have seen the House Ways and Means Committee and the Senate Finance Committee in the US fire warning shots across the bows of the US Treasury for including implementation of the Country by Country Reporting proposal in their work programme. It does not appear that the US will seriously backtrack but we should not assume that all the BEPS proposal will be implemented globally in an efficient and integrated manner.
Here in the UK, our hope is that BEPS is implemented with thought and vision to ensure it is sustainable and effective. In some ways the UK Government needs to tread a fine line. On the one hand it needs to take a lead in ensuring that the BEPS programme is followed through and countries do not back away at the last minute. On the other it needs to ensure that new rules are not “gold plated” or introduced in a unilateral manner that could end up damaging British business. This will require the communication of a clearly articulated plan for the integration of the recommendations at a local level, proper consultation periods from the outset, a demonstration that the views of stakeholders are taken into account and an effective transition of the recommendations into legislation. Following the implementation of BEPS at a local UK level, we encourage the Government to allow a period of stability to allow businesses to manage their transition into the post-BEPS regime.
It is our view that if BEPS policy is implemented in this manner this should allow the UK to maintain its position as an attractive and competitive location for business, and will encourage long term investment into the UK.
A final thought. Before the dust has settled on the BEPS proposal, there are already calls from several quarters for a more fundamental review of international tax, in particular the division of taxing rights between source and residence countries. For corporates, engagement in policy and having a flexible tax strategy which can cope with change is the order of the day.