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Is your business ready for BEPS? Read the Impact of BEPS actions on your business & the approach of EY for BEPS.

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is your business ready to respond to beps

Is your business

ready to respond

to BEPS?

background

Background

The OECD has now reported back on all the

action areas targeted as part of the base

erosion profit shifting (BEPS) initiative. The

project is moving toward its finalization and

implementation phases, and many significant

territories have already begun the process

of implementing their domestic responses.

Many of the specific actions that make up the

BEPS project give rise to tax risks within the

operating, holding and financing structures

used by Indian multinational enterprises (MNEs).

“We are strongly committed to a

global response to cross-border

tax avoidance and evasion so that

the tax system supports growth-

enhancing fiscal strategies and

economic resilience.”

G20*

India being part of G20, has been very actively

participating in the BEPS discussions, since

its inception. The Government of India has

expressed strong commitment to initiate action

in line with final BEPS recommendations.

Some of these recommendations (for example

country-by-country reporting) are likely to be

introduced in India as early as February 2016.

* http://articles.economictimes.indiatimes.com/2014-09-22/

news/54199227_1_tax-base-g20-tax-evasion

the world after beps

The world after BEPS

External pressures

Relevance to the

business model

Responses

• OECD BEPS project

• Base protection in

source territories

• EU responses, e.g., state

aid, changes to parent-

subsidiary directive

• Local territory

responses, e.g., (French

interest limitation, UK

Diverted Profits Tax)

• Increased internal focus

on risk management and

corporate governance

• Publicity concerns and

media coverage

• Increased focus on

deductibility of:

• Interest

• Hybrid debt

• Increase in local withholding

taxes and gains taxes

• Increased transparency

focus on Transfer Pricing

(TP) documentation

• Increased compliance and

reporting obligation

• Increased focus on

permanent establishment

• Increased focus on

alignment between profits

and substance

• Revisit holding cos or hub

cos (business alignment,

substance, transparency,

sustainability and rulings

renewal)

• TP policy and documentation

review and refresh

• Permanent establishment

risk management policy

review and refresh

• Rebalance capital structure v.

supply chain

• Increased use of unilateral

and bilateral Advance Pricing

Agreements (APAs)

• Restructure affected

financing structures

impact of beps actions on your business

Impact of BEPS

actions on your

business

BEPS is expected to transform the global tax

environment in which MNEs operate.

The output from the BEPS project is primarily

in the form of recommendations for the design

of countries’ domestic laws, as well as proposed

changes to tax treaties.

Response to BEPS will have to be managed in a

phased manner and will require proactive and timely

planning. Companies will have to build consideration

of potential BEPS impact into current tax planning

and prepare different scenarios for its application.

Implementation of changes will have to be managed

through robust program management across various

company stakeholders in the entire value chain.

slide5

Limiting treaty access

Introduction of General/

Specific anti-abuse provisions

Increased focus on alignment

between profits and substance

• Introduction of new CFC

rules in some countries

• Strengthening of CFC rules

where they exist currently

• Impact on passive

intercompany income

Limitation of interest

deductions for debt

funding

Impact on various

financial instruments

Rebalance of capital

structure v. supply chain

9

1

Broadening the

Permanent

Establishment concept

Impact on agent/

commissionaire

arrangements

Control Foreign

Corporations

(CFC)

Access to

Treaties

8

Interest

Deductions

2

Permanent

Establishment

Substance

TransparencyCoherence

BEPS

Business

Impact

Consider transfer pricing for

intangibles

Consider transfer pricing for

risk and capital

Consider transfer pricing for

other high-risk transactions

Impact on hybrid

arrangements/

instruments

Increase in local

withholding taxes on

such instruments/

arrangements

Hybrid

Mismatch

Transfer

Pricing

7

3

Dispute

Resolution

Aggressive Tax

Planning

6

Increased

Documentation

4

Disclosure of aggressive tax

planning arrangements

Revisit holding company or hub

companies structure

Countering harmful tax practices

(Tax rulings, etc.)

Possible changes to

Parent-subsidiary directive

5

Re-examine the approach

toward dispute resolution

Increase in disputes post BEPS

reforms

Greater use of Mutual

Agreement Proceedings

Country-by-country reporting

Automatic exchange of

information between countries

Master file/local file

Re-examine transfer pricing

documentation

what is country by country cbc reporting

What is country-by-country (CbC) reporting?

Implementation of the CbC in India is imminent.

Since this is a minimum standard, India is bound to

implement such a reporting requirement. Therefore,

companies need to be prepared to comply with CbC

reporting requirements.

• ► Designed to increase transparency by providing

tax authorities with sufficient information

• ► Requirement to use a consistent template to

provide information on global allocation of income,

economic activity and taxes paid in affected

countries

• ► Failure to comply may expose the company to

regulatory actions

• ► Applies to MNEs with annual consolidated group

revenue of more than €750 million

• ► Filing with tax authority in parent country, to be

shared with tax authorities in countries where

group has entities

CbC Report

High-level information about jurisdictional allocation of revenue,

profit, taxes, assets and employees to be shared with all tax

authorities where MNEs have operations.

Master File

High-level information about MNEs’ business, transfer pricing

policies and agreements with tax authorities in a single document

available to all tax authorities where MNEs have operations.

Local File

Detailed information about MNEs’ local business, including

related party payments and receipts for products, services,

royalties, interest, etc.

beps risk review ey approach

BEPS risk review: EY approach

BEPS risk review

Why EY?

• A heat-map summary to

enable groups to form a

prioritized plan to mitigate

risks

• An objective and critical

assessment of the key

BEPS risks for each

investment structure

• Identification of specific

risks within different

jurisdictions

• A follow-up plan to mitigate

or, where relevant, monitor

the risks

Our International Tax Services are provided by a global team of BEPS specialists.

They are uniquely placed to assess BEPS-related tax risk, with:

• EY India’s response team, which have developed significant intelligence based

on proactive interaction with the Government of India on the BEPS initiative

• EY’s Global BEPS response team, who have significant global insight related

to the BEPS initiative

• EY has a proprietary high-level assessment tool that help gain initial insight of

potential risks and offers opportunity to strategize dealing with these risks

• Relevant country specialists with detailed understanding of local territory

legislative changes

• Practical experience of structures commonly used by MNEs

• Prior experience of risk reviews of this type

Partner contacts

Ahmedabad

Dhinal Shah

+ 91 79 6608 3850

dhinal.shah@in.ey.com

Bengaluru

Rajendra Nayak

+ 91 80 6727 5454

rajendra.nayak@in.ey.com

Chennai

Ashwin Ravindranath

+91 44 6654 8512

ashwin.ravindranath@in.ey.com

Delhi

Vijay Iyer

+91 11 6623 3240

vijay.iyer@in.ey.com

Raju Kumar

+91 124 671 4221

raju.kumar@in.ey.com

Himanshu Bhatia

+91 124 612 1694

bhatia.himanshu@in.ey.com

Hyderabad

Jayesh Sanghvi

+ 91 40 6736 2078

jayesh.sanghvi@in.ey.com

Mumbai

Keval Doshi

+ 91 22 6192 0650

keval.doshi@in.ey.com

Keyur Shah

+91 22 6192 0970

keyur.shah@in.ey.com

Giselle H Barboza

+91 22 6192 0735

giselle.barboza@in.ey.com

Pune

Amit B Jain

+91 20 6603 6160

amit.b.jain@in.ey.com

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