Pride Partners International

Global association of transfer pricing and valuation consulting firms with presence in the most entrepreneurial cities around the globe.

Read more

BEPS Rears Its Head In Amazon European Tax Policy Shift

Back to news
Amazon made headlines around the world this week when it announced that it would change the way it accounts for revenue from retail sales in Europe. Under the new arrangement, Amazon will book all revenue from retail sales in individual countries in those countries, rather than routing the profits through Luxembourg, which has the lowest corporate tax rate in the European Union.

Consider this the first in what will soon become a rapid succession of major tax policy shifts among multinational corporations operating in Europe. The cause? In a word: BEPS.

As I wrote this past December, BEPS, which is short for the Organization for Economic Cooperation and Development’s (OECD) Action Plan on Base Erosion and Profit Shifting, is one of the more obscure business issues that’s going to have a huge impact on the way multinational corporations run their operations starting this year.

At its root, BEPS lays out a series of actions designed to realign contemporary tax policy with the realities of the global economy. The most significant of these suggests that companies should file detailed tax reports in every country where they do business. They’ve never had to do that before.

Previously, companies had to show only the transaction flow from one country to another. Now, the full details of each companies’ tax payments to each country will be available globally in a standardized, shareable template. Beyond that, the new reporting guideline will require financial, sales and personnel information to help countries determine the value of the operations within their borders and how that should be reflected in taxes for that jurisdiction.

While the ramifications have been obvious for tax geeks, the full implications of BEPS have not really been mainstream news thus far because of the unique nature of the OECD and the role it plays in the global marketplace. Unlike Dodd-Frank or the Affordable Care Act, which were clear-cut laws enacted by Congress and signed by the President, BEPS is a series of suggestions made by a consortium of global government representatives that has no real legislative authority.

So, while the OECD does have a clear-cut agenda and detailed deadlines it hopes to meet with its BEPS Action Plan, actual enforcement of these guidelines will be left up to individual countries.

And that’s where the BEPS story is starting to get interesting. A couple of countries – notably the UK and Australia – have already begun to enact laws that preempt several of the BEPS ideals, even before the final BEPS road map is completed.

In March, the UK Treasury chief George Osborne introduced a Diverted Profits Tax, which is a 25% tax on foreign companies’ profits derived from economic activity in the UK. Quickly dubbed the “Google Tax” by the UK press, it is meant to capture the tax revenue for goods and services consumed by UK-based customers in the UK. For example, under this plan Google would pay UK tax on revenue from ads that are clicked by users in the UK.

Australian Treasurer Joe Hockey introduced similar legislation this month, which will levy a 25% tax on diverted profits. He said he anticipates the measure will raise AU$350 million over the next four years.

Surprisingly, even though these initiatives have been launched in an effort to get out in front of BEPS, the OECD is not a fan of the approach. Speaking before Australia’s Economics References Committee, OECD director Pascal Saint-Amans, said the OECD was concerned by the initiatives:

“We have sympathy for the need to move and there is an electoral context…on the other hand, unilateral actions are not exactly in the sense of what we are trying to develop, which is, ‘let’s wait for a comprehensive package and then countries will decide’.”

Saint-Amans went on to suggest that UK legislators in particular are letting electoral pressures drive them to implement new rules too quickly, before the BEPS timeline is even completed.

It’s an interesting dynamic. You have a global consortium writing a playbook that will be enforced by individual countries and some countries starting to jump the gun on enforcement before the rules of the game are even finalized. Meanwhile, multinational corporations are seeing the writing on wall that sooner or later they are going to make some difficult tax decisions at the hands of forced tax transparency.

Some, like Amazon, will act early, taking the potential tax hit now to avoid becoming a poster child for tax avoidance when the BEPS Action Plan is finalized. Others, like Google and Apple, have been more resolute in their tax strategies, standing by their transfer pricing practices as well within the tax code in the jurisdictions in which they operate.

Whether they continue down that path or opt-in to a BEPS-like country-by-country reporting structure early, one thing is certain. Multinationals will soon have to provide a level of tax transparency that is truly unprecedented. Many will need to get their houses in order before they will be able to comply.  The intervening months, during which time many multinationals will awaken to this even being an issue, will be filled with difficult decisions and hard management choices. Amazon has made the first move.  Who will be next?  I expect that we’ll find out soon.




By: Joe Harpaz
From: Forbes. http://www.forbes.com/sites/joeharpaz/2015/05/29/beps-rears-its-head-in-amazon-european-tax-policy-shift/