Corporate Tax & Finance Execs Divided on OECD BEPS Recommendations

As the Organization for Economic Cooperation and Development works on ways to keep multinationals from shifting profits to low-tax jurisdictions, tax and finance executives are divided on whether its efforts will improve the global corporate tax system.

At the request of the G20 finance directors, the OECD’s base erosion and profit shifting (BEPS) initiative is developing recommendations to curb tax avoidance, including requiring companies to reveal where they earn profits.

A survey of CFOs, tax directors and finance directors in the Americas, Asia and Europe conducted by tax advisory firm Taxand found that 52% thought the OECD’s initiative would produce a more sustainable global tax system, while 48% disagreed. But the vast majority of survey respondents (83%) believe that the BEPS recommendations are likely to boost their compliance costs.

More than half (57%) of the respondents favor a controversial BEPS proposal that would require corporations to report profits on a country-by-country basis, even though 77% are worried that the data might leak out as the result of such a reporting system.

The spotlight that has been trained on corporations’ global tax strategies recently has demonstrated that transparency comes at a price. More than three quarters (77%) of respondents said public airing of the details of corporate tax planning that are seen as “aggressive” has a negative effect on a company’s reputation.

Taxand recommends that companies start now to prepare to meet new requirements, rather than waiting for the OECD to deliver its final recommendations. It noted that individual countries may decide to go ahead and act on the OECD’s recommendations independently. In fact, Australia’s treasurer announced earlier this month that he will go after multinationals that move profits earned there to low-tax jurisdictions to avoid paying Australian taxes. Australia’s plan echoes the diverted profits tax, also known as the “Google tax,” that the UK plans to levy on companies that shift profits out of the country.

Although the G20 nations seem set on cracking down on corporate tax maneuvers, 83% of the Taxand respondents said they expect countries to compete more vigorously on taxes in the next five years to attract multinationals. In fact, 76% said they expect BEPS to boost competition over corporate tax rates.

Transfer pricing topped the list of tax challenges, cited by 20% of the survey respondents, followed by tax litigation and disputes, cited by 15%, and indirect tax and the corporate tax rate, cited by 13%.

Separately, the U.S. Congressional Research Service recently looked at the extent of profit shifting among US multinationals. According to the study it released April 30, US companies reported earning $1.2 trillion in overseas profits in 2012 and attributed half of that to units in seven tax havens: Bermuda, Ireland, Luxembourg, the Netherlands, Singapore, Switzerland and UK Caribbean Islands.