Analysing BEPS impact across industries
BEPS: Impact on Consumer Business
Launched in December 2016, this report pertains to the subject with the backdrop of concerns raised by governments and revenue authorities about multinational enterprises (MNEs) not paying their ‘fair share’ of taxes by shifting profits to low tax jurisdictions, the G20 nations requested the Organisation for Economic Co-operation and Development (OECD) to develop action plans to tackle Base Erosion and Profit Shifting (BEPS) in a comprehensive manner. The BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profit ‘disappear’ for tax purpose or to shift profits to locations where there is little or no real activity but taxes are low, resulting in little or no overall corporate tax being paid.
BEPS: Impact on Infrastructure sector
In October 2015, the Organization for Economic Co-operation and Development (OECD) released final reports on Base Erosion and Profit Shifting (BEPS) in the form of 15 Action Plans with the objective to reform international tax system and ways to tackle tax avoidance. Clearly the emphasis of BEPS project is to increase transparency, satisfaction of substance test and the need to revamp international tax treaties to avoid situations like treaty shopping, double non-taxation as well as non-taxation of taxable activities through aggressive tax planning by some multinational companies. BEPS Action Plan will not only impact the tax planning done by the groups across jurisdictions but also have a bearing on well settled organizational structures and business models. Like many sectors, even the infrastructure industry is anticipating millions or billions of additional tax due to BEPS action items.
BEPS: Impact on Manufacturing Sector
Released in 2016, this paper seeks to capture some key potential impact of BEPS Actions for Indian MNEs in the manufacturing sector having global operations as well as to MNEs operating in India. India has emerged as the seventh largest economy. Favorable demographics, a burgeoning domestic market and an annual growth rate in excess of 7 percent in recent years has led several multinational enterprises (MNEs) to establish their manufacturing facilities in India. The Indian economy is now getting integrated with the global market and any change at a global level is increasing impacting entities operating in India. Cross border transactions including those between MNE groups have increased manifold inviting attention of tax authorities to safeguard the tax base.
BEPS: Impact on Private Equity sector
In order to address the concerns created by BEPS, G20 countries and Organisation for Economic Cooperation and Development (OECD) BEPS impact on private equity space, an Indian perspective has introduced the BEPS project, for which the final plans were released on 5 October 2015. These plans have been designed to ensure that both developed and developing worlds levy and collect their ‘fair share’ of tax. In this age of increasing focus on bottom lines, it is indeed tempting for a global tax director of a multinational (MNC) to explore leveraging on arbitrage amongst tax rates of various countries and to park profits in low tax jurisdictions. Launched in December 2016, this report covers various topics like FPI investments, FDI investments, interest deduction on debt instruments, applicability of CbC reporting rules to PE, etc.
BEPS: Impact on Technology, Media and Telecommunications (TMT) Sector
India, being a member of the G20 nations, has actively participated in the OECD BEPS project and is committed to its outcome. The BEPS project is extremely relevant for India especially Action 1 on the Digital economy as it has revolutionized traditional ways of conducting business around the world including India and a digital revolution is taking place. The digital economy is based on conventional production of goods and services such as software development, IT services, telecommunications, advertising, or content creation. The global companies serving millions of users are changing the rules of the game and bringing far-reaching changes in various sectors of the economy through - intense reliance on digital technologies and innovative business models. India is on the brink of internet revolution with the latest figures indicating that India has more internet users than the population of the US and has become the country with the second largest population of internet users after China. With new Government initiatives, like Digital India, there will be an increased usage of various services and so will be the complexity in business models that are likely to evolve over time.