A fundamental pillar of the BEPS project has been to align profits of the business with underlying substance and activity – and in the majority of cases, substance will be driven by the individuals working for the business, their roles and responsibilities, and their capacity and authority to make decisions relating to their part of the business.
Any BEPS review of the group’s material assets and activities will require a complete understanding of the activities of the responsible individuals and whether their role is integral or secondary to that asset or activity. There must be appropriate local resource to manage each material asset and activity. In practice, this may mean that it is necessary to either change the physical location of the teams responsible for the asset or activity, or alternatively, change the dynamics of the roles and responsibilities within a team to make sure that those with the primary authority are located alongside the asset or activity.
For those employees and executives who are internationally mobile, it will be important to ensure that the business has appropriate systems in place to maintain a full and accurate record of where individuals are working. To the extent that important business decisions are made – whether management decisions at executive level, or the entering into sales contracts – the location of the individuals at the relevant time could result in the creation of a new taxable presence under the BEPS recommendations. If the business has sight of what decisions individuals are making and where they are located then this could help mitigate exposure to unexpected taxes and penalties – either through ensuring the correct filings are made, or by implementing a framework to prevent the exposure arising in the first place.
A perhaps unexpected impact of BEPS is the impact on remuneration: to the extent that the group operates a long term investment plan (LTIP) or share based remuneration scheme, its performance could be affected if the BEPS changes result in reduced EPS for the group.
Finally, on a practical level, the recommendations put forward in the BEPS project will mean fundamental change and will radically redraw the tax landscape. It will take time and knowledge for management to fully understand the proposals and their impact on the wider business: multinational groups will need dedicated resource to manage the business model changes that may be needed to ensure models are appropriate in a post BEPS word.
We have worked with multinational businesses in designing and implementing business model change projects, involving detailed interaction with individuals across the business. Alongside our colleagues in “People and change” we work with clients to accomplish major and sustainable change within their operating models. We understand the practical and often personal challenges associated with such projects, and we can bring our experience of developing appropriate and achievable solutions to ensure a sustainable tax strategy that underpins the wider business objectives in a post-BEPS world.
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