International businesses are predicting a 5% average increase in effective tax rates as a result of the OECD’s Base Erosion and Profit Shifting (BEPS) action plan, but are split on who will shoulder the burden, according to research by RSM which suggests middle market companies as well as multinationals will feel the impact
The firm’s poll of some 500 businesses worldwide with turnovers from $50m (£34.7m) to over $5bn (£3.47bn) found 72% expect the rules to increase their effective tax rates with 27% expecting their tax bill to grow by more than 10%.
The vast majority (92%) also expect to see an increase in compliance costs as a result of legislation motivated by BEPS with a median expected rise of 17%.
RSM’s research found only 18% of all businesses intend to absorb all of the costs themselves, with 34% expecting customers and 31% expecting shareholders to shoulder some of the burden.
The firm also reports that smaller and middle market businesses have clearly felt the impact of BEPs, which was originally thought to target multinationals exclusively, and are reporting very similar expectations concerning anticipated increase in compliance costs, level of taxation, and business uncertainty.
Rob Mander, head of the RSM global tax leadership group, said: ‘With smaller regulatory teams and less experience dealing with cross-border taxation, complying with the rules is a significant challenge for the middle market, 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.’
Over threequarters (78%) of middle market firms say the rules are creating uncertainty and just 18% have undertaken planning to bring them into line with the new permanent establishment rules and 20% are fully aligned with the revised transfer pricing rules.
Despite the costs, the survey found businesses are broadly in support of BEPS with 69% admitting a global taxation standard is necessary, although some described the project as a ‘work in progress’. The survey found 61% 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%) felt it would largely or completely satisfy the objective of levelling the international playing field.