As businesses go digital, tax functions also need to keep pace with digitization and digitalization. New technologies are also transforming the way businesses deal with their tax work. This makes corporations to feel necessity to build more effective tax functions using digital technologies.
Besides, In June 2013, an Action Plan was announced to the public by the OECD. Almost all of the countries fully or partially support the changes to have made via the OECD’s BEPS Action Plan. Therefore, the decisions and regulations made under the Action Plan have been mostly reflected in the country regulations at different degree, based on the needs of that country.
However, adopting the rules that have been accepted as the minimum standard (e.g. three-tier transfer pricing documentation) has not been left to each country’s discretion.
Nearly half of the countries committed to implementing the OECD BEPS Action Plan on a large scale and to adopt minimum standards to their tax legislation. These countries are generally comprised of the G-20 and OECD countries and consist of the countries holding most of the global trade.
The Action Plan aims at removing the situations that inherently create BEPS, thus the changes made/to be made also aim to eliminate/limit such situations. However, even though limited, it is observed that some areas apart from the BEPS are included in the scope of the Action Plan.
How should companies react to recent BEPS developments?
Within the scope of diagnostic analysis, it may be possible to create a BEPS risk map by; collecting the information and documents required for an assessment from group companies, reviewing the group’s operating model, evaluating the group transactions and businesses in terms of BEPS, holding meetings with group companies and evaluating the BEPS Actions.
From a risk analysis perspective, it may be possible to; identify the risk-bearing BEPS areas for the group, prepare the BEPS risk inventory of the group, identify the BEPS risk levels for group companies, identify the areas requiring immediate measures and the potential impacts of the legal changes on the group.
It may be possible for MNEs to prepare a report showing the BEPS areas that bear a risk for the group, identify the actions and steps to take against risks, present the group’s BEPS assessment report to the senior management of the group, undertake the required efforts in the relevant areas in accordance with the findings in the assessment report.
The existing structure of the supply chain is directly affected by the BEPS Action Plan and changes may be required from many aspects. Particularly value-creating group companies are expected to acquire more return from the total profit. In this sense, the existence of misalignment increases the risk of challenges by tax authorities. IP ownership and hence the functions undertaken by the party generating income, its capacity to meet the IP related risks and its financial strength are of significance.
Is tax technology helpful for MNEs?
Tax function of MNES has been coming under increasing pressure for years. Digitization of business, the evolution of tax authorities, and the continued demand for efficiency in the back office are driving MNEs to change their business including tax function.
For instance, a three-tiered new system has been introduced for transfer pricing documentation by many countries. Only tracking transfer pricing documentation requirements per count is an extensive work for many MNEs. Most visible documentation obligation is Country-by-Country Reporting (CbCR), in this regard. CbCR contains three separate tables. Table 1 lists the turnover of the relevant group company in terms of each country, the taxes paid by the group companies in the relevant country and their commercial activities; Table 2 includes information such as the activity areas and main functions of the companies within the group in the relevant category for each country and Table 3 contains additional explanations that are considered necessary by the group.
MNEs need certainly to comply with Country-by-Country Reporting requirements imposed by tax authorities. Financial and tax managers of subsidiaries within an MNE Group collect data and prepare CbCR tables in excel sheets. After the data collection is completed, MNEs must export CbCR tables and report them to relevant tax authorities.
More importantly, analysing of CbCR data according to regions, countries, entities, years are crucial to see potential risks of respected groups. Such analyses may include revenue ratios, employees’ ratios, Profit-before-Tax ratios, earnings ratios and activity ratios.
Another example could be transfer pricing management of the group companies. An advanced tax technology should be helpful for MNE for transfer pricing issues, as well. Through such transfer pricing solution, one tax or transfer pricing manager should be able to;
- Monitor intercompany transactions,
- List all intercompany transactions,
- Add external benchmarking results and compare with actual results,
- Compare the target and actual profitability of group companies and
- Calculate adjustment ratios and amounts for intercompany transactions.
As can be easily understood from the above explanations, if a tax technology does not contain such features, it will not meet the expectations of MNEs and today’s tax requirements in many countries. This clearly shows that a tax technology should make tax executives’ life easier and helpful for MNEs.
Challenges for the tax function may be rising, but the good news is that recent technological advancements are enabling new solutions. Tinvento is one of these technology solutions developed specifically for MNEs and their high-level managers.
Tinvento provides a holistic solution for tax issues through the software platform developed. The modules in Tinvento ensure significant solutions for other tax issues, such as transfer pricing, CbCR and intra-group services.
Tinvento has also a distinctive aspect which allows for integration with ERP systems of multinationals. We handle integration of Tinvento on a project basis. Our software platform is truly different from its peers and provides more benefits than its competitors because it meets more needs of multinationals.