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FOCUS 11
CORPORATE INCOME TAX IN A POST BEPS WORLD
If the sector’s main players want to gain greater certainty over their future tax liabilities, and maintain a fl ow of funds for essential R&D, they need to reconsider their organisational and legal structures, and quantify the value of intellectual property and intangible expenditure such as marketing.
Although full equality of corporate income tax and tax incentives around the world is unlikely, there could be a degree of convergence as a result of the BEPS Action Plan. This could actually simplify the rationale behind choice of location for production, distribution, R&D and sales and marketing, as commercial and logistical benefi ts would be the driving force, rather than the need to optimise the corporate income tax position.
In order to reduce uncertainty over transfer prices, companies can make better use of advanced pricing agreements, which establish an agreed pricing formula for a set period of time, and minimise the prospect of costly legal challenges. Life sciences companies should also embrace the move to greater transparency, as this creates better relationships with tax authorities, and enables more dialogue on tax planning.
The outputs from the BEPS Action Plan are rapidly taking shape. Businesses that understand the implications and adapt their business model in line with the direction BEPS is going should minimise the impact of inevitable ineffi ciencies in the system caused by a lack of certainty as to which markets adopt which recommendations. In the medium term, this should give them the best possible chance to maximise the availability of R&D funds, in order to gain innovation leadership.
The four actions life sciences companies should consider taking ACTION 1:
Review the use of representative offi ces within global business operations, quantify the impact that a change in the defi nition of a permanent establishment may have and consider restructuring to reduce the potential impact on post tax revenues.
ACTION 2:
Assess the relationship between the owner of all intangibles across the business and measure the relationship between business activities ensuring that they are commensurate to the revenues generated in the place of ownership.
ACTION 3:
Establish a robust transfer pricing documentation system so that exposure to audit and transparency demands will not result in a change to where profi ts are able to be allocated for tax purposes.
ACTION 4:
Develop a system which is able to measure the value of data that is collected through business activities, enabling you to predict the potential of a data asset to become taxable and the amount of taxable profi t which would be generated.
© 2014 KPMG LLP, a UK limited liability partnership, and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.
BEPS
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