The OECD’s Base Erosion and Profit Shifting project (BEPS) project is the answer of the G20 to the current public debate around the use of privileged regimes. It is meant to define rules for a fairer and more equitable system of corporate income taxation.
From an M&A perspective, it adds a layer of complexity and uncertainty to traditional deal structuring and due diligence processes, which is already a complex process.
In light of this process, it’s time for companies & funds to revisit their existing strategies. The following points will be of particular importance in the M&A environment:
1. Post-BEPS due diligence
New approaches will be needed that focus on risk and sustainability of effective tax rate (ETR) strategies. Costs of incompatible structures and strategies currently in place will need to be dismantled.
2. Understanding MNC’s value chain
Front-loaded transfer pricing modelling with a sound understanding of the entire business and operational value creation process will become standard.
3. New approach to acquisition planning
Traditional acquisition structures will need to be revisited and possibly reshaped in light of BEPS to rely on substance, transparency (e.g. disclosure of tax ruling) and arm’s length leverage.
4. Assess tax functions, robustness and reporting
All taxpayers should duly assess the impact of the new tax regulations on tax reporting systems, the need for transparency and the costs relating to increased substance.
For more details on what BEPS will change to the M&A practice, read our entire contribution here and follow our next publications on the subject which will each focus on a more detailed aspect of the Transactions continuum.
Hugues Lamon, M&A Tax Partner
