27 July 2016

‘BREXIT’, ‘BEPS’ AND OTHER CONCERNS FOR COMPANIES

The outcome of the British referendum will severely affect companies from such country, as well as large-scale multinationals, and a large number of small-scale and medium-sized enterprises, especially from the European Union.

We live in an interconnected world. Companies and economies have to compete globally in order to achieve synergies of scale and respond to the challenge of permanent innovation by adapting to the requirements of their clients. The homogeneity of markets and the free circulation of goods, people and capital facilitate commercial transactions, avoid bureaucracy and costs, and enable long-term planning within a stable, constant and familiar environment.

The European Union has enables Spanish companies to gain in competitiveness and size. The presence of our companies on the international markets has been constant, both during booms and in crises. Our products and services compete proudly on the international markets, and foreign transactions have contributed significantly to supporting many SMEs which, without such alternative, would probably have disappeared.

The restoring of trade barriers or the fragmentation of the market hinder competitiveness and introduce additional factors of complexity. Therefore, the business world, in particular the British business world, is concerned by the United Kingdom leaving the European Union. The exit has also created uncertainty in respect of who might be next, and opens the door to individual negotiations on the basis of the threat of leaving the Union.

Changes of an unknown scope are also foreseen in relation to the initiative of the OECD and the G-20 known as Beps (Base Erosion and Profit Shifting). The implementation of 15 actions is foreseen, many pending specific development.

One which is already advanced and of great relevance is that relating to the international exchange of information. The basic premise is to fight against aggressive fiscal planning which, in some cases, takes advantage of taxation loopholes in national legislation to avoid double taxation, thus leaving certain revenues untaxed or taxed at very low rates.

National tax legislations do not easily contemplate modern business contexts such as the problem relating to the digital era, or intangibles sold over the Internet. Tax legislation is seen as a matter of national sovereignty, focused on each country's interests, and competing on occasions with that of other states. The regulating and organising of national tax authorities differ greatly from the current globalisation of companies.

The legitimate desired proposal of states to subject company profits to taxation can introduce factors of complexity or distortion into business organisations, the decisions of which are taken based on a fully legitimate regulatory framework.

Actions have been announced, but the very complexity of some measures make their implementation uncertain. The American presidential elections will greatly condition the speed and extent of the measures, as the Democrats are more committed to the project, whereas the Republicans see many of the measures as restrictions on business freedom. Beyond any administrative complexities which might be involved in the adoption of the measures contemplated in the Beps, the establishing of tax systems limiting highly aggressive tax planning may have a beneficial effect on companies, especially SMEs, as regards avoidance or low taxation structures, only accessible to large-scale enterprises. This allows for a more balanced distribution of tax burdens.

Risk management is an integral part of companies, and the flexibility to adapt to different circumstances is a skill of the best executives. Our companies will clearly continue to strive towards economic progress and contribute to job creation. However, there is no doubt that they would have greater opportunities in a more foreseeable and less turbulent environment.

Antoni Gómez, Vice President of AUREN and member of the SMP of IFAC.

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