There has been a lot of talk in the media and in tax circles recently about BEPS proposals internationally. Basically the problem is that countries do not believe that existing transfer pricing regimes ensure that the correct amount of tax is paid. One only needs to look at companies like Google, Starbucks and Apple to see the contrived international structures that they use.
However, in our opinion, BEPS is likely to never go anywhere. The reason for this is simply that countries are not going to collectively sit down and work out how a corporate group’s profit should be divvied up between them and who gets the right to tax what. Firstly, they do not have territorial authority over profits made in other countries. Secondly, it ignores the simple political reality that each country will want to take a greater share of the profits and tax them than the others may agree. For example, developing countries where goods are manufactured will argue that they should receive a greater share of the profits because they actually manufacture the goods, whereas developed countries will argue that they hold the IP and the IP gives rise to the profits.
The real problem underlying all the discussion around where tax should be paid and how much tax should be paid is that the very countries that are whinging and whining about the use of these structures are the very ones that create the opportunities. The beneficial tax regimes in Ireland, the UK and the USA are there for all taxpayers to use. Often the governments will put them in place so that they retain the very large companies that they then berate for paying no tax.
In some ways the analogy is of letting a child into a candy shop, not supervising them and simply telling them they should not help themselves to any lollies when all the lids of the jars are taken off and they are all within easy arms reach. The governments themselves need to look at their rules before they can get concerned about what the companies are actually doing.