2016 Tax policy outlook

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Be prepared to face new legislative and regulatory requirements around the world in 2016 that will be more voluminous, complex and fast-paced than most enterprises have ever experienced.

In our sixth annual report, The 2016 Tax Policy Outlook, we highlight government proposals for new legislation, an overview of global tax trends and offer a deep dive into individual countries’ policies as predicted by EY’s tax policy leaders in 38 countries.1

The Outlook also addresses that although the recommendations from the Organisation for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project were announced in October 2015, the vast majority of legislations were swiftly adopted by countries around the world, way ahead of companies, still trying to grasp hold of the various legislative changes.

Our report indicates, in 2016, a key focal point for the implementation of BEPS recommendations will be the European Union, where on 28 January 2016, the European Commission unveiled a wide-ranging proposed Anti-Tax Avoidance (ATA) Directive. The proposed directive is designed to drive the prompt and consistent adoption of a number of the OECD BEPS recommendations across the European Union’s 28 Member States.

BEPS recommendations targeted by the Directive are OECD BEPS Actions 2 (hybrid mismatches), 3 (Controlled Foreign Company (CFC) rules), 4 (interest limitation rules), 6 (general anti-abuse rule, or GAAR) and 7 (permanent establishment (PE) status).

Our report also notes that the proposed ATA Directive goes much further than the OECD’s BEPS recommendations and in fact represents a compromise between the harmonization-focused 2011 EU Common Consolidated Corporate Tax Base (CCCTB) proposal and a common response to the OECD’s Action Plan.

“Data shows that the vast majority of BEPS-driven change is ahead of, not behind, companies” says Chris Sanger, Global Tax Policy Leader for EY. “While we have seen some legislative action at the start of 2016, it very much looks like Europe will drive the implementation of the OECD’s recommendations, creating the possibility that companies will have to deal with 28 Member States all changing their tax laws at the same time.”

Other key messages include:

  • Corporate income tax rates are continuing to fall in many countries, but in fewer countries and with lesser magnitude than in the previous two years.
  • Other findings show that the overall corporate income tax burden is projected to fall in a slightly higher number of countries in 2016 than in the previous two years, with declines in corporate tax rates forecasted in almost twice as many countries as compared to the increases (34% of countries versus 18% of countries).
  • This would seem to indicate that countries have paused in putting in place tax changes in anticipation of understanding the recommended changes within the OECD BEPS project.
  • Transfer pricing changes are forecasted to be the leading issue during a higher tax burden for business taxpayers, followed by enforcement changes and legislation to tackle hybrid mismatches (CCCC).
  • The majority of the transfer pricing changes are being driven by BEPS Action 13, where countries are putting in place new legislation to implement country-by-country reporting requirements.
  • In terms of BEPS implementation priorities, EY’s policy leaders forecast that BEPS Actions 13, 8-10, 2, 5 and 7 (in that order) will be countries’ implementation priorities in 2016.

Some recommendations for companies to consider in 2016 include:

  • Monitor and assess ongoing tax policy developments
  • Run economic and financial modelling so that the impact of any change is known as early as possible
  • Be an active participant in tax policy development
  • Consider the possibility of working with other similarly affected companies to help the government understand the overall impact of their policies on taxpayers

1 The 38 countries covered are Australia, Belgium, Brazil, Canada, China, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Hong Kong SAR, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Norway, Philippines, Poland, Russia, Singapore, Slovakia, South Africa, Spain, Switzerland, Taiwan, Thailand, United Kingdom, United States and Vietnam.