Keeping up with a rapidly changing tax world
Opinion 4 minute read

Keeping up with a rapidly changing tax world

19 January 2018

Substantial changes continue in the world of tax – especially international tax. These changes require corporates and financial institutions to rethink existing practices, and address legacy.

Changes in the international tax framework

Over the past few years we have seen the creation of a new international tax framework. The OECD, instructed by the G20, developed a comprehensive package of recommendations for change; the well-known BEPS (Base Erosion and Profit Shifting) project. Over 100 countries have since signed up for this international framework, applying minimum standards, exchange of information and transparency. The first visible results were the implementation of the Common Reporting Standards, Country-by-Country Reporting and Master and Local Files, and most importantly, the Multilateral Instrument (MLI) amending more than 1,000 tax treaties, and aligning tax systems.

Since 2013 when the BEPS adventure really kicked off, things have been changing. But as many of these changes find their way in the tax accounts of the years 2016, 2017, 2018, and 2019, it can be expected that further changes will come.

Next to this, there is Brexit, resulting in a repeal Bill that may result in a new UK tax framework. In the meantime, the US is undergoing the biggest tax law change in 30 years, which undoubtedly will also change how US-based multi-national corporations (MNCs) organise their business and change how international firms invest in the US.

All these changes and their implementation create great administrative demands, uncertainty and require a review of all existing corporate, financial and tax structures of MNCs. A change in tax structure may create changes in the finance structure and in turn, have a profound influence on the governance as well the administrative structure of an MNC. Some compare this to the massive change and investment that occurred before the year 2000 when the Y2K problem emerged.

The changes are happening for a reason

The purpose of the BEPS project is to reduce the erosion of the tax base of a company through arbitrage between different tax systems from different tax jurisdictions. Even when structures are legal, they are not always perceived as fair, as these may lead to no taxation or double deduction of expenses, interests, dividends, royalties etc. The result of this has been that in the eyes of the general public and tax authorities, several MNCs and financial institutions do not pay their fair share of taxes.

By exchanging information, creating transparency, aligning tax systems and creating awareness, the existing structures become visible and can be subject to both tax revenue and public scrutiny. As a consequence, all existing practices in both the corporate and financial world must be reviewed in light of these changes. New practices, new morals, new principles are emerging and these will affect how business will be organised and conducted.

The impact is becoming clear(er)

The direct impact of all these measures on business, is a direct need to meet new administrative demands that create new complexity and new uncertainty. And at the same time, rethink – and sometimes redo – existing tax and financial practices.

For the back office, this means an overwhelming amount of work in meeting these new demands:

  • changing systems
  • changing processes and procedures
  • adjusting the administrative organisation
  • applying new policies
  • seeking new ways to optimise results
  • determining what is fair and what needs to change.

All this, while there is still uncertainty on how these new rules and demands should be understood, applied and what they will result in.

With each new guidance document issued by the OECD, EU and local tax authorities, new changes may need to be made, and new arrangements may need to be adjusted. Heraclites said that everything is in movement (Panta Rhei) this is now truer than ever for the back office of an average MNC or financial institution.

See you in London?

When battling tax challenges, the first step is to stay informed about latest developments, emerging practices and changing policies. I will be at the 7th Annual IBA Finance & Capital Markets Tax Conference on 29 and 30 January. If you would like to discuss any tax trends and developments, or ask questions about TMF Group’s services, please do contact me to set up a meeting.

Talk to us

TMF Group provides practical solutions to your tax challenges. Servicing subsidiaries of MNCs and financial institutions on a global scale, we can support compliance with new rules and regulations. In practice, we can help on matters such as CRS, FATCA and related to BEPS; the creation of Local Files and rendering support in the creation of Master Files and Country-by-Country reporting.

Need more information? Make an enquiry with us today.

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Written by

André Nagelmaker

Former Managing Director

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