U.S. Corporate Tax Directors Have a Hard Time Adjusting to BEPS

Tax executives at U.S.-based multinational companies are having a hard time adjusting to the new rules demanded by the Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting plan, also known as OECD BEPS, according to a new survey.

While OECD BEPS is not a requirement in the U.S., the action plan has influenced the Treasury Department’s recent rulemaking. The action plan aims to discourage multinational companies from shifting their profits and intellectual property to low-tax countries in order to preserve the corporate tax base. Even without all the U.S. rules in place, the OECD BEPS project has made inroads in Europe, so multinationals need to take steps to comply with rules like the various requirements if they want to do business in Europe. Even in the U.S., some parts of the OECD action plan, such as country-by-country reporting requirements, known as BEPS Action Item 13, were enshrined in the Treasury and IRS regulations last month (see Treasury and IRS Finalize Country-by-Country Reporting Rule).

A new survey of 207 corporate tax executives and transfer pricing directors around the world by Thomson Reuters found that 83 percent of the survey respondents said the documentation and country-by-country reporting requirements for transfer pricing have required the biggest operational changes at their companies. But 71 percent of U.S. respondents said their company has not yet provided more resources to help their department prepare for BEPS implementation.

“In general tax and finance departments that are in charge of complying with BEPS regulations either don’t have enough people, or they are starting to make some plans related to how to move forward with this, but they are digging into the data and sometimes the data doesn’t align,” said Sam Cicogna, vice president and head of ONESOURCE Transfer Pricing at Thomson Reuters.
European companies appear to be somewhat ahead of their U.S. counterparts, according to the survey.

“The U.S. just passed their regs at the end of June, and some of those other countries already had regs,” Cicogna pointed out. “And the U.S. filing deadline is going to be later than those other countries based on the regulations. Some of the other countries will have to file based on their 2016 calendar years, whereas the U.S. is going to be for tax years starting on or after June 30, 2016.”

The survey respondents cited audit risk as their biggest issue resulting from BEPS Action 13 compliance (42 percent). “A very high percentage of them mentioned audit risk as a key concern related to the transfer pricing process on the survey itself,” said Cicogna.

The survey didn’t ask the respondents how they feel about the regulations, but in talking with corporate tax executives, Cicogna hears many of them are baffled.

“I do think there’s still confusion related to the number of country-by-country filings that a U.S. multinational will need to actually submit,” he said. “Many of the countries in Europe, for example, have signed a binding multilateral competent authority and exchange of information agreement that basically says if you file with one of them they will exchange information with one another. The U.S. is handling this by enacting treaties or using the treaties they have enacted with each individual country and amending them for the situation, so it’s going to be slower because it’s one on one. Because of that, U.S. multinationals are probably a little confused about the number of countries they’ll need to file with directly and the number that will just be contained in the U.S. filing that they’ll share.”

Compared to other parts of the world, the U.S. spends the least amount of time preparing for BEPS, with 50 percent of U.S.-based multinationals reporting they spend two hours or less per week preparing for BEPS. Still, 64 percent of the respondents at U.S. multinationals said they are proactively taking steps to prepare for BEPS, compared to 75 percent of European respondents.

“We asked them how much time they were spending related to complying with the BEPS regulations,” said Cicogna. “In the prior year a lot of them were really not spending much time, but that jumped, as you would expect. They’re not getting more resources, they’re not getting more people, yet they’re spending more time. Where does that extra time come from?”

In some ways, technology is helping them catch up. “The other thing that jumped out from the survey results is when we asked them how they felt about the systems that were in the market to help them comply, a larger percentage of them said they felt better about the systems that are on the market than the year before,” said Cicogna.

While the technology seems to be getting better, there are still concerns about the quality of the data.

“The data that you need to fill these templates out is difficult to get, and even when you do get it, it’s not necessarily what you want,” said Cicogna. “When you pull it out of systems it’s a little bit muddled together. It’s fine for financial reporting, but when you dig and try to separate out things like related and unrelated party revenues, there’s a lot of noise in there. Put all that stuff together, and in my mind it points toward a need for solutions and technology to help so you can efficiently pull everything together and have a process in place that gets you a good strong feeling that can project as far as your position is concerned.”