PwC sees BEPS action plan posing challenges for oil/gas firms

Already on the radar of governments and regulatory bodies around the world, recent developments with respect to the Organisation for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action Plan are raising further the profile of oil and gas companies globally with both tax authorities and the general public, according to PwC tax experts.

They note that while today’s organisations are growing virtually, digitally, and globally, the changing business models along with increased media attention on international tax matters, led to a growing perception that existing international tax rules are outdated.

The Organisation for Economic Cooperation and Development, supported by the G20, developed an action plan to address these issues, known as Base Erosion and Profit Shifting (BEPS). The aim of the action plan is to ensure that profits are taxed where actual business activity is performed and where value is created.

“It is expected that the OECD’s review will result in significant changes to existing international tax standards,” the experts note.

According to them, given the existing spotlight on transparency in the extractives industry, which predated the OECD’s BEPS initiative, it is critical that oil and gas companies proactively educate themselves with respect to the new BEPS milieu, not just from a tax standpoint but also in light of the wide ranging implications for their businesses in areas ranging from asset deployment and human capital management to the development of intellectual property and public relations.

“Although historically relegated to esoteric tax policy discussions among practitioners, the tax structures used by multinational enterprises – including many in the energy space – are now under scrutiny in the popular press and by governments in public hearings. The outcomes of the BEPS initiative have the potential to significantly impact effective tax rates, restructuring costs, and ultimately enterprise value and market capitalisation,” according to PwC tax experts.

The experts further state in a report titled “Brave new world” that, “it is imperative that oil and gas industry executives and corporate tax and finance professionals conduct cross-functional readiness assessments to determine their level of preparedness to meet the anticipated new challenges posed by the BEPS Action Plan and develop tactical – and practical – strategies to address any observed gaps. Moreover, given the reputation risk posed by the extensive coverage these issues are receiving far beyond technical tax publications, oil and gas companies should take immediate steps to implement a targeted corporate communications strategy to get ahead of inquiries from their people and the public.”

A number of the BEPS actions will impact on how organisations manage and report on their globally mobile workforce.

“Whether BEPS is right or wrong, it is here, and Automotive Multinational Enterprises (MNEs) around the world will be well advised to begin planning their transfer pricing positions and approach for responding to data requirements,” they further note.

 

Iheanyi Nwachukwu