While global response to BEPS is cautious, Europe is increasingly leading the drive toward implementation 

• Despite recent moves to formalize global tax reform, many jurisdictions are in fact reducing corporate income tax burden and rates
• While Europe leads BEPS implementation, most jurisdictions are yet to respond
• 69% cite new transparency requirements as key implementation priority in light of OECD and European legislation

Most countries globally are moving cautiously in their response to the G20/OECD’s Base Erosion and Profit Shifting (BEPS) project, with Europe setting the precedent for tax reform. This is according to EY’s Outlook for global tax policy in 2016, which combines insights and forecasts from EY tax policy professionals in 38 jurisdictions across the globe.

Despite the announcement of final BEPS regulations in October 20151 and related draft legislation introduced by the European Commission (EC) earlier this year2 , many countries appear to be waiting for early adopters to set the pace before introducing national tax rules. Data show that the majority of countries are yet to begin implementation of most of the 15 BEPS recommendations.

Rather than increasing the corporate income tax burden, more jurisdictions are forecast to lower the burden in 2016 (34% compared to 16% in 2015), while 45% project no change at all. In addition, seven of the 38 jurisdictions surveyed globally3 have either announced or are forecast to announce falling corporate income tax rates in 2016.

Chris Sanger, EY’s Global Tax Policy Leader, says:

“The lion’s share of BEPS-driven change appears to be ahead, and not behind us. Given the sheer number of variables reflected in the final BEPS recommendations, and the complexity inherent in coordinating between domestic tax systems globally, there may be significant distance between agreement in the OECD process and national adoption in 2016 and beyond.”

EU Member States will take the lead on BEPS implementation in 2016

European Commission efforts to build Europe-wide consistency in implementing tax reform appear to be driving the first major response to BEPS among the European Union’s (EU) 28 Member States.

The growing influence of the EC’s tax agenda is reflected in moves to respond to Hybrid Mismatches4 (Action 2 of the BEPS project). Of the 14 jurisdictions (37%) either experiencing or forecasting legislative change to address Action 2 requirements, 12 are EU Member States.

Calls for greater tax transparency and disclosure by both the OECD and EC are driving further activity, with 69% of jurisdictions citing transparency requirements (BEPS Action 13) as their first or second BEPS implementation priority.

Sanger says: “Europe’s drive for increased harmonization is increasingly placing it at the center of BEPS implementation. However, the numerous initiatives led by different EU bodies could create an uncoordinated approach. It will, therefore, be more critical than ever that business closely monitors what has been recommended and implemented in order to manage increasing levels of complexity.”

Transfer pricing reform – a key component of the OECD’s October 2015 recommendations – will also be prominent in 2016, with 18 of 38 jurisdictions surveyed (47%) indicating changes in this area that will result in increased tax burden. Changes in tax enforcement approaches, meanwhile, are forecast to increase the overall tax burden in 14 of the 38 countries (37%) in the year ahead.

Brazil and Singapore project highest number of burden-increasing changes

The report highlights Brazil and Singapore as the jurisdictions projecting the largest number of changes that will result in an increased burden on taxpayers, with Brazil forecasting changes in nine areas of tax policy. Conversely, China and Malaysia project the highest number of burden-easing changes – both across five areas of tax policy respectively.

Source: EY

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