Compliance Matters spoke recently to Warrick Cleine, KPMG’s Head of Tax in the Asia Pacific region, about the OECD's Base Erosion and Profit Shifting 'action plan', the details of which are still being hammered out.

Compliance Matters: These are international standards in the making. Could you give us a brief synopsis of progress so far?

Cleine: Tax systems are national, but business has become increasingly international. Most tax systems were designed before the rise of digital commerce and are best suited for business models that are now decades old. Governments are concerned, quite rightly, that many parts of their systems do not fulfil their policies.

In addition, a properly functioning tax system ought to be seen to be fair. In shining their spotlights on the appropriateness of so-called 'aggressive tax planning,' governments have had one aim in mind: to persuade the public that it is time to crack down on tax planning opportunities that they dislike.

Governments realize that they have to create a business-friendly environment so as to attract foreign investment and capital inflows, and create growth and employment. A well-run, stable and competitive corporate tax environment is a significant factor in multinational businesses’ decision making processes on where they make their investments.

With this in mind, in 2013, the finance ministers of the 'Group of 20' industrialised countries asked the Organisation for Economic Co-operation and Development to make recommendations to change the global tax environment. In response, the OECD launched a 15-point action plan called Base Erosion and Profits Shifting (BEPS), to combat many of the features of the current system which are no longer 'fit for purpose'. The OECD is currently on track to release the results of its work in December 2015.

If the great powers of the world approve them, the BEPS proposals will probably result in significant changes to the number of disclosures required of companies and, indeed, the disclosures between national taxing authorities themselves. Many of the perceived problems within the current system will, in my opinion, be phased out. A principal aim is to eliminate so-called 'double non-taxation', where a portion of the income that a multinational company earns is not subject to tax anywhere in the world (or is, but at an unacceptably low rate).

This may mean that the kind of tax planning that companies undertake (which is perfectly legal within the current system) will have to be curtailed. There will be pressure on governments to end tax practices that the great powers think of as harmful and companies will, if BEPS prevails in its expected form, have to consider them when re-evaluating their supply chains.

Compliance Matters: What is the effect on Asia of BEPS (and the broader movement toward tax transparency and anti-avoidance measures)?

Cleine: The effect that the BEPS Action Plan will have on Asian corporations will depend on the extent to which the countries of Asia choose to incorporate its proposals in their domestic laws.

China and India are among the countries developing new regulations of this sort and we do expect to see changes in due course in these countries' laws that apply, for example, to the area of transfer pricing.

Other countries in Asia are taking varying levels of interest in the proposals, but the OECD's recommendations will be very influential when they are completed later in the year. It is likely that most countries will enshrine them in their domestic tax legislation to some extent.

The aim of the BEPS project is to make the global tax environment fairer, especially in respect of situations where profits are moved from an economy focused on, say, manufacturing to another economy focused on being an attractive place to hold intellectual property. If this results in a revision of profit flows in favor of manufacturing countries, then it is possible that Asian economies could benefit.

Compliance Matters: How are corporations and tax advisors across the Asia Pacific region responding to BEPS?

Cleine: As advisors, we are monitoring the discussions around BEPS, contributing to the debate through consultations and other means, and advising our clients on what to expect as the process unfolds.

We are suggesting that clients should talk to the OECD on their own account as well (this was a core theme of our recent Tax Summit in Singapore) and also to do dry-runs of some of the proposed new reporting requirements to see if their systems can generate the required information, and what it looks like when they have done so. Good preparation is everything in these circumstances, and companies may have to begin to comply with these new proposals in a matter of months rather than years.