Turkey, Italy Top Financially Complex Countries As BEPS Rules Kick In

Turkey, southern Europe and Brazil have the most difficult financial accounting and tax compliance rules in the world, a report by the TMF Group shows.

The most business-friendly jurisdictions in the ranking of 94 countries unsurprisingly are Jersey, Hong Kong, the UAE and the Cayman Islands.

The findings of TMF’s Financial Complexity Index 2017 assume special relevance, as 76 countries and jurisdictions committed in June to reducing loopholes in their bilateral tax treaties and preventing base erosion and profit shifting (BEPS) by multinationals to low-tax locations.

Turkey is the most complex jurisdiction for financial compliance according to the report, which highlights the multiple tax articles and the requirement to report in Turkish and local currency.

The efforts led by the Organization for Economic Cooperation and Development to curb tax avoidance and increase transparency are likely to impact the scenario analyzed by TMF, as multinationals assess the advantages of regulatory certainty against compliance costs.

“If there’s a level playing field around the world, transparency is understood and acceptable, notwithstanding the compliance costs. But from a tax point of view, companies prefer not to be transparent,” says Leo Parmegiani, head of international tax at PKF O’Connor Davies, a New York–based accounting and advisory firm. “You don’t want to be in a country that has full transparency to the world if you don’t need to be in that country.”

The impact of BEPS and changes to transfer pricing are the most pressing issues facing their businesses, according to 20% of respondents in Europe, the Middle East and Africa, against a global average of 16%. Four EMEA countries are in the top 10 most complex jurisdictions.

Given the presence of different bilateral tax treaties and exemptions for some activities, Parmegiani says companies should first look at what activity they are conducting, determine what is taxable, then figure out whether to do business in a country.

Multiple layers of taxation make Italy, Greece, Brazil, Vietnam, Colombia and China the most difficult countries financially, according to the ranking. But the scenario may change. Italy, for example, is reducing tax refund times and bringing its accounting principles more in line with international standards. On the other end, the Gulf Cooperation Council will implement a 5% value-added tax rate beginning in 2018.