Almost three-quarters of internationally operating middle market businesses (defined as having revenues from $50m to $1bn) expect to pay more tax as a result of the OECD’s Base Erosion and Profit Shifting (Beps) action plan as uncertainty around how the rules will be implemented hits the boardroom.
An independent survey of middle market businesses worldwide commissioned by RSM shows that out of the 72 per cent, many of these organisations plan to bear the brunt of the costs, but will pass on some costs to shareholders and customers.
RSM is the sixth largest network of independent audit, tax and consulting firms, encompassing over 120 countries, 760 offices and more than 38,300 people internationally, including Malta.
It found that 41.2 per cent of middle market businesses expect their tax burden to grow by up to 10 per cent, with 31 per cent expecting their effective tax rate to increase by more than 10 per cent.
The pattern continues for compliance costs with 65 per cent of middle market companies expecting these to grow by more than 10 per cent. The majority (53 per cent) intend to absorb some of the costs themselves but 35 per cent expect customers and 30 per cent expect shareholders to also shoulder some of the burden.
“With smaller regulatory teams and less experience dealing with cross-border taxation, complying with the rules is a significant challenge for the middle market,” Rob Mander, head of the RSM Global Tax Leadership Group commented. “It is no surprise that three-quarters expect that they will need to alter their corporate structure to conform to changes in the law. While smaller businesses will not need to comply with all of the disclosure requirements resulting from the Beps Project, they will still have to deal with the same substance and international tax changes that affect other companies.”
Despite the potential impact to their bottom line, just 18 per cent of middle market businesses have undertaken planning to bring them into line with the new permanent establishment rules and 20 per cent are fully aligned with the revised transfer pricing rules.
More than three-quarters (78 per cent) of middle market companies say that the rules are creating uncertainty. Even with these cost increases, businesses of all sizes are broadly in support of Beps, with 69 per cent admitting a global taxation standard is necessary. Indeed, when asked to rank the guiding principles of Beps legislation, simplicity and business practicality ranked the highest with cost of implementation ranked as the lowest consideration.
However, most businesses surveyed see Beps as a work-in-progress rather than the final solution, with more work needed by governments globally to ensure the original objectives of the proposals are met. Almost two-thirds (61 per cent) of those surveyed felt the Beps action plan only moderately, slightly or did not at all satisfy the primary objective of ensuring tax is paid where profits are created and only a third (35 per cent) felt it would largely or completely satisfy the objective of levelling the international playing field.
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