The OECD’s Base Erosion and Profit Shifting (BEPS) initiative is progressing toward a crucial phase during which U.S. policymakers will balance its priorities with their own agendas.
This initiative will doubtlessly create new concerns as well as new opportunities for multinational companies whose businesses transcend borders. But necessary preparation for BEPS compliance should not delay or distract businesses from addressing risk and efficiency issues that have immediate impact.
In the United States, domestic tax reform of both the corporate and individual variety is unlikely to move forward until after the 2016 election allows voters to articulate a mandate. This means lawmakers are likely to turn attention to international tax policy in the meantime. Globally, there is a sense of urgency to move the BEPS action plan forward, but not having complete buy-in from Washington would stymie its progress.
This seems to be the current state of play, given comments on the subject from a high-ranking Treasury official.
Reacting to one already complex thing—potential changes to domestic tax legislation—set inside the frame of an even more complex thing—global tax standardization—would seem like the top priority of corporate financial executives everywhere. While the BEPS project and generic movements to unify global tax environments should be a priority for tax executives, today’s primary tax reporting challenge for the business community is still speed.
Reporting the Bare Minimum
Regardless of how BEPS plays out, multinationals will remain likely to report the bare minimum sought, nothing more. No company wants to over-report, in the same way as no company wants to underreport, and it will be fairly straightforward what exactly needs to be retained and reported.
But consider the operational difference between a company that derives real-time business intelligence from tax and one that can’t. Answering questions like “What are the tax implications of changing our supply chain strategy?” or “Where should we build that new factory?” or “What will our effective tax rate be when we report our numbers next month?” are tremendously important for financial executives and the tax and accounting professionals who collaborate with them.
The mechanics involved in creating systems and processes to do this is where there are degrees of separation from one multinational to the next. Some multinationals are very active in creating systems and processes that transform their tax departments into centers of actionable, forward-looking business information. Others lag behind.
Companies aren’t playing by the same rules—or even the same game—in creating and implementing these systems and processes.
This is why, today, the internal workings of corporate tax are more dynamic than the external reporting responsibilities.
Real-Time Reporting
Tax departments can help a company gain a competitive advantage by achieving real-time reporting of meaningful business metrics. To do this, they need the right tools and processes in place. They need simpler organizational structures to ease the implementation of data collection and retention, real leadership that is accountable for leveraging technology to its fullest extent, and responsible vendors—as few of them as possible—in the mix.
Take Cox Enterprises, the U.S.-based media conglomerate. Through the use of software that helps them manage their files and processes, the company’s tax department has gone virtually paperless and now benefits from fingertip access to their data, more efficient centralized processes, and quicker auditing reviews. The manual, paper-based processes Cox used to use were inefficient and posed needless risk.
The BEPS initiative, though historic in its intended scope, should not delay financial executives from pursuing these kinds of essential improvements.
Stephen McGerty is head of ONESOURCE Income Tax, Provisions, and Workflow at Thomson Reuters.
