BEPS requires companies to adapt to the international tax scenario

Combating tax evasion and seeking a greater fiscal transparency at the global level are the BEPS - Base Erosion Project and Profit Shifting core objectives, created by the G20 and OECD - Organization for Economic Co-operation and Development.

In times of new business models and digital economy, BEPS proposes a fifteen-package measure to check gaps and international standards incompatibilities, to prevent companies from finding loopholes to pay fewer taxes and transfer profits to low taxation territories and few economic activities. Thus, project measures focus on combating tax evasion in order to ensure that profits are taxed in jurisdictions where, in fact, economic activities are developed and where value is created.

BEPS is based on three underpinnings: coherence, substance, and transparency. These topics are divided into the standardization of tax treatment between countries, ensuring that the results are reported at the place where the operation was carried out and in the clarity of the process, with cooperation between governments.

Although Brazil is not a member of the OECD, the country is a G20 member and has been committed to the adoption of minimum standards, which relate to combating harmful tax practices and establishing transfer pricing documentation rules, and other actions. Amongst the 15 measures established by BEPS, the Brazilian government is focused on four initial points, in order to serve the project in a minimal way.

A survey carried out by the organization indicates that Brazil, and other developing countries, should also adapt its internal systems, to increase international tax compliance with the information required for the global financial and tax system transparency and integrity.

At the national level, the Public Digital Bookkeeping System (SPED) promotes the integration of tax audits, the tax obligations standardization for taxpayers, and the digital tax data crossing. This system is supplied of information that is also essential to meet the BEPS project, and this internal adjustment already represents a step towards to adequacy at the international level.

In February 2018, Federal Revenue of Brazil and OECD started a joint project to investigate common and conflicting points between Brazilian and international models of cross-border transactions for tax purposes.

Today, the funds transfer from a company in Brazil to another in the same group overseas is taxed based on legal margins for profit and royalties transfers. This model is different from those OECD member countries, which have different rules for different companies’ types, have been practicing. Although simpler, the Brazilian standard increases the double taxation risk and generates higher costs, hampering competitiveness in the international scenario.

Income double-taxation is seen as one of the main problems the OECD should face, which understands that new rules should not result in double taxation, excess in charges or losses to activities between countries.

Impacts and challenges for companies

This entire scenario becomes a challenge for multinationals, who have turned to specialized advisory services in regulations, transfer pricing and Country-by-Country Statement, highlighting the concern on adequacy to the new information standards on global operations.

Recently, the Brazilian government joined the OECD to improve tax legislation on the rules governing transfer pricing. In this movement of joining the entity, which has been conducted since 2017, Brazil is striving for greater convergence with the most common tax system amongst the group member countries. The action aims to attract foreign investment, stimulate foreign trade, and reduce the cases of litigation now registered.

The transfer price is a method to calculate Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) in cases of transactions between parties from the same economic group, when one of them is domiciled abroad. As the methodology allows different applications, the topic raises discussions in judicial and administrative field. That is the need of government to level out the subject in a way to enlighten and fit to the global picture.

Another item with which Brazil is committed concerns the Country-by-Country Statement, which represents an instrument to combat evasive tax practices, by facilitating the identification of locations where entities perform operations aimed at turnover of revenue amounts to areas of low taxation.

This is an annual report that should contain data and indicators related to the activities place, global allocation of income and taxes paid, and due for submission to the tax administration of the final controller's jurisdiction of residence, and other issues.

The Country-by-Country Statement enables the Brazilian tax administration to establish an information base on multinational groups, identifying tax risks related to international taxation. This statement fits to the current international cooperation moment, where nations are seeking ways to combat aggressive tax practices and identify mechanisms internationalized companies use to reduce or transfer their profits.

The multinationals should consider in strategic decisions making the rules established by the BEPS, which are already considered important points. In this sense, Domingues e Pinho Contadores helps businesses to overcome the challenges in this complex scenario, in application of transfer pricing methodology, in preparation of a Country-by-Country Statement and in evaluation of agreements currently aimed at avoiding double taxation situations.