BEPS: Multinationals must be ready

Transfer pricing has always been an avenue used by many multinationals to reduce their tax liabilities, albeit in a legal manner. Different jurisdictions have differing tax regimes and frameworks. Large companies can do a massive amount of business throughout the world, but, thanks to some smart profit-shifting arrangements, end up booking most of the profits in jurisdictions with minimal tax.

The speedy growth of e-commerce and the digital economy has made it easier for companies to grow beyond their traditional boundaries, and the need for governments to clamp down on loopholes in the international tax system has never been more apparent.

It is pretty much an accepted fact that most of the existing tax rules were designed in an era where there was very little economic integration between countries, and with a high reliance on physical property, plant and equipment. To keep in pace with the current era, tax rules must change and jurisdictions across the world must collaborate and work together,



The Organisation for Economic Co-operation and Development (OECD) has been hard at work since 2013 to address this issue. Its first report on the matter, "Addressing Base Erosion and Profit Shifting" helped kick off the entire BEPS project.

On the 16th of June 2016, Singapore joined the inclusive framework for global implementation against BEPS. The Government has committed to implement the four minimum standards under the project, i.e., the standards on:

1. countering harmful tax practices
2. preventing treaty abuse
3. transfer pricing documentation, and
4. enhancing dispute resolution.

Singapore also plans to implement Country-by-Country Reporting (CbC) for various multinational enterprises with headquarters in Singapore that the government has been working with for financial years beginning on or after 1 January 2017.

Malaysia also announced plans to introduce the CbC requirement. Together with the new transfer pricing documentation requirements, it is also expected to be effective in Malaysia from 1 January 2017.

Wolters Kluwer has published a white paper on the BEPS project which can be downloaded from the Wolters Kluwer Singapore website. We encourage all multinational enterprises to stay informed of developments, as the BEPS project is set to shake up the world of international taxation as never before.