The OECD’s BEPS Action Plan has created a suite of global tax and financial reforms built upon the foundations of transparency and transformation – making tax compliance much tougher for the corporate world.
In the last year alone, tax authorities and regulators have powered ahead, taking on the surge in the digital economy, crypto-trading, and taxing of cross-border capital flow in their efforts to shut down tax avoidance.
Many multinationals are playing catch up to address these complex cross-jurisdictional requirements, adjusting systems and processes, but more significantly, rethinking policies and the corporate mindset to embrace tax transparency.
All of this is happening against the clock – tax has become a fast-paced environment. What long-term impact this will have on the business world remains to be seen.
But in the meantime, as we approach what is the first BEPs anniversary for multinationals operating in Australia, what have we learned? CbC and Transfer Pricing technology specialist, Joanne Ting offers a snapshot of the challenges, key learnings and what to expect as we move into year 2.
Key issues for Multinationals in Australia
The majority of MNEs across the globe have found the first year to be difficult, with country-by-country (CbC) reporting, transfer pricing and permanent establishments topping the list of issues according to Baker & Tilly’s 2018 International Tax Survey.
But as Joanne notes, companies who were required to report on Australian activities “faced some unique challenges.” These included:
- Early adopter: Australia was amongst the first jurisdictions to implement BEPs, forcing a complexity in reporting upon companies operating across jurisdictions at different stages of implementation.
- Local file, local flavour: The specificity and uniqueness of the ATO local file format and requirements imposed an antipodean complexity to the reporting task for inbound SGEs in Australia.
- Stick not carrot tactics: Non-compliance attracted far harsher penalties under Australia’s laws than those recommended by the OECD. However, this meant many acted swiftly by outsourcing but paid a high price in adviser and outsourcing fees.
- Interpretation: Negotiating jurisdictional variances has been hard, given the differences in reporting requirements, thresholds, deadlines, methods of submission, etc.
Year 2: Transparency or exposure?
“The year ahead is not looking any easier. Bolstered by technology and a bank of data, tax authorities will have higher expectations” according to Joanne. So how can MNEs prepare? Joanne highlights the stand-out items to look out for:
- More questions: The ATO has increased the number of questions in the local file for Year 2 lodgments, meaning more detail and justifications for an entity’s tax profile.
- TP risk assessments looming: When it comes to transfer pricing, the ATO will concentrate on risk and compliance activity, as well as developing additional risk assessment frameworks.
- Broader net: Cross-border financing by small and medium-size MNEs will also be in the ATO’s sightlines.
- Forces unite: Tax authorities across the globe have begun exchanging CbC reports. This wealth of data is being channeled into setting robust tax profile benchmarks for all industries.
- Publish and be damned? OECD has published guidance on “appropriate use” of CbC reports. However, if this data is made public, it would be hard to control how it is used by the media and received by what is increasingly a cynical populace.
- SGE: The Australian government is proposing to expand the definition of a Significant Global Entity. If this is legislated, it would mean even more entities would be required to not only complete CbC reporting, but they would also be captured by Diverted Profits Tax and Multilateral Anti-Avoidance Law, face the potential for increased penalties, and be required to prepare general purpose financial statements.
It is clear that the tax landscape for MNEs is only going to become more complex, making it harder and harder for companies to remain compliant. Specifically, in relation to BEPS reporting, the ATO is going to have higher expectations for Year 2.
For more insights and tips on how to improve your local file process in Year 2, join Joanne and Transfer Pricing professionals at BDO at The Tax Institute for a BEPS Australian local file reporting webinar event. Register now.