Middle-market business caught as multinational tax avoidance clampdown takes hold

07 June 2016

Rebecca Reading

A survey commissioned by RSM has revealed that the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan proposals will impact middle-market firms as well as the large multinationals that were its intended target. The results show that middle-market (defined as companies with revenues between $50m to $1bn) and large-company respondents (revenues over $1bn) share similar views when it comes to the BEPS project and the impacts on their business structure and tax bills.

Seventy-two per cent of all businesses surveyed expect the rules to increase their effective tax rates with 27 per cent expecting their tax bill to grow by more than 10 per cent. Forty-one 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. Given the OECD have estimated historic tax lost pre-BEPS implementation as being up to $240bn globally, it is no surprise that businesses expect their tax liabilities to rise.

Compliance costs are also on the increase, with 65 per cent of middle-market companies expecting these to grow by more than 10 per cent. It is here where middle-market businesses may be disadvantaged compared with larger organisations as significant resources will be required to work through the rule changes globally. Despite the increased costs, businesses say they are broadly in support of BEPS with 69 per cent admitting a global approach to taxation is necessary.

We expected the BEPS project to target the world’s largest groups, but the survey shows just how far the BEPS changes penetrate. Many mid-sized businesses will need to be much more proactive in terms of thinking through international tax issues at an early stage and whilst due to their size, some business can ignore many of the disclosure requirements, they will still have the same substance issues, as well as facing other consequential tax changes such as changes to interest deductibility.

Middle-market companies are conscious of the challenges of BEPS and are open to the prospect of these proposals meeting their overall objectives in spite of the possibility of paying more tax. Middle-market businesses would do well to think about BEPS as being about more than tax; it is about having the right business model and operating it in a structured and organised way.

For more information please get in touch with Rebecca Reading, or your usual RSM contact.

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