In 2013, the Organisation for Economic Co-operation and Development (OECD) launched its Base Erosion Profits Sharing (BEPS) project. What began as an effort to harmonize taxation and institute a broad global data-sharing program has since morphed into an unabashed European tax grab aimed at American businesses.
BEPS contains 15 “actions,” or proposals that take aim at completely lawful American business practices. Proposals include changes governing where and how business income is taxed, which could lead other taxing authorities to claim a right to tax U.S. business income earned overseas.
A major concerns amongst US lawmakers and the administration is that the plan unilaterally overrides existing tax treaties and will lead American businesses and taxpayers picking up the tab.
In fact, one proposal within BEPS, known as Action 13, has the potential to put taxpayer data at risk through the creation of burdensome disclosure requirements. Once implemented, Action 13 will force American businesses to complete three documents – a Country-by-Country report, a master file, and a local file.
Specifically, Action 13 requires companies to disclose an extensive list of information to almost any country including revenue, number of employees, capital, taxes paid and accrued, and assets held across all subsidiaries.
In essence, these documents will require businesses to share an extensive list of sensitive information with countries that may or may not use it right (and face little punishment for misuse) — all without any oversight or approval from U.S. congress or the Department of the Treasury.
The impetuous behind Action 13 is regulating the practice known as transfer pricing — where companies allocate revenues and expenses across subsidiaries. While this practice can be open to abuse, it is already heavily regulated and monitored by the IRS and foreign governments to ensure appropriate prices are set.
Indeed, the practice has long been used by businesses for legitimate purposes of corporate restructuring and resource allocation. New regulations could impose harsh new burdens on business governance and efficiency. But for EU countries this is not a problem because the burden will not fall on their own citizens, but on taxpayers in America.
BEPS can go into effect regardless of U.S. approval, so American businesses may have little or no protection as the plan moves closer and closer to implementation.
Even so, Congress and the administration need to stand firm and ensure that the interests of American taxpayers are protected so that the U.S. is not left picking up the tab and sensitive taxpayer data is not put at risk.