Recent initiatives by the OECD could change how global corporates pay tax, placing an increased burden on global mobility teams to monitor international assignees in order to ensure profits are allocated and taxed to specific jurisdictions accordingly.
While much was written about the recent Apple Tax ruling against the Irish Government there was underlying commentary about recent initiatives by the Organization for Economic Cooperation and Development (OECD) that ‘would change how global corporates pay tax’. The Base Erosion and Profit Shifting reports (BEPS) that were presented to the G20 group of nations near the end of 2015 lay out guidelines for national governments to transpose into law. The aim of these reports are to standardize the approach to taxing global corporates and to remove the possibility of companies playing off one jurisdiction against another and seeking to move profits from high tax locations to low tax locations.
After many years of austerity policies there is an emerging political and citizen will to see global corporates pay their fair share of taxes in the markets where they generate the profits.
A corporation tax risk could potentially be created in the new market
Action 7 seeks to reduce the threshold by which a ‘Permanent Establishment’ (PE) is created. This effectively means the obligation to pay corporation and other taxes in a jurisdiction. In the past many companies were able to work at arm’s length in some countries and sign contracts with clients in the area of lower corporation tax – effectively moving the profits to the low tax PE.