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BEPS Issues for Entrepreneurs

Published:
March 24, 2020

BEPS PROBLEMS FOR ENTREPRENEURS. WHAT YOU NEED TO KNOW

BEPS issues for entrepreneurs are a hot topic.

OECD – The Organization for Economic Co-operation and Development deals with the erosion of the tax base and the withdrawal of net profits from countries with high tax rates.

BEPS – The basic strategy for tax evasion is based on the use of all kinds of loopholes in tax legislation with the aim of artificially moving the expected profit to where the tax rate is low.

For example, a company is in the jurisdiction of a country with higher taxes. At the same time, the company sells intellectual property licenses or provides services from its subsidiary in offshore jurisdictions with reduced taxation.

Such a scheme provides for the redirection of cash flows from a country with high tax rates to the jurisdiction of a country with a low tax level. At the same time, tax rates are reduced, as for a multinational company.

Now more than 130 countries have come together to combat the phenomenon of BEPS problems.

Taxes have to pay everything. But how are BEPS control methods compatible with the emergence of online corporations such as online stores, social networks, payment systems, and others?

WHAT DIFFICULTIES ARISE IN THE BEPS DECISION APPLIED TO THE DIGITAL ECONOMY?

The bulk of the created online companies allows their founders to work and live in any country in the world, regardless of the jurisdiction of which country it is located.

The principle of the OECD is based on determining the physical location of a business, company, or entrepreneur. As a result of the analysis of the company’s activities, the location of the central business management body is determined by monitoring the countries generating the main profit.

These methods are only being developed and cannot yet meet the OECD requirements. They are not able to cover all the spectra of opportunities that companies with businesses in the digital economy have.

Businessmen working online have methods to add value to their company, and it is impossible to determine the physical presence of a business. Attempts to such a definition cannot be determined or provide completely contradictory data.

Almost all KIK switched to such a business model. And what remains for startup companies to do?

We can say that we are experiencing the birth of a new class of entrepreneurs. This came as a surprise, including for OECD specialists. This trend is forcing tax authorities to formulate new tax laws for such companies.

Difficulties exist, of course, but overall, the digital economy does not pose much of a problem for BEPS. This is what the OECD says. Although its individual features complicate the problem.

The OECD believes that more attention needs to be paid to the whereabouts of the business. Together, all this will help to more effectively solve the BEPS problem in the digital economy.

WHERE WILL THE DIGITAL ECONOMY TAX BE PAYED?

At the moment, discussions on this issue will be introduced between the legislative tax authorities of various countries. The US insists that online companies pay taxes where their products are made.

The remaining countries claim that they should be paid at the place of sale of the products.

WHAT DOES BEPS Issues for Entrepreneurs MEAN?

Online entrepreneurs are forced to realize that the tax authorities will deeply analyze all issues regarding the place where the product itself is produced and the place of economic activity of the business.

One way or another, today there is no strategy that will help to cope with new challenges that arise in the process of growing popularity of the digital economy. Over the past decades, telecommuting entrepreneurs have created opportunities that did not exist before.

Despite new opportunities, governments of economically developed countries are constantly looking for ever new methods of control and methods for substantiating the economic presence of business.

One progressive method is the analysis of which country the company receives income from. Pay attention to the jurisdiction of which country the clients of a company are located.

The whole logic is as follows: if the company, which owns production units in several countries, is aimed at the customers of any country, then it will have to pay taxes at the place of sale of its product.

WHAT DOES IT MEAN FOR ENTREPRENEURS WHICH BUSINESS IS RELATED TO DIGITAL ECONOMY?

At the moment, there are no opinions on solving BEPS issues for entrepreneurs, as they affect businessmen working online and having no boundaries, except for language or physical ones.

The best solution for entrepreneurs is to familiarize themselves with the laws of countries, with their tax benefits and compatibility with the corporate structure.

To quickly familiarize yourself with the laws of countries, it is recommended to pay attention to the information on our website. It provides all the data on countries and their tax benefits.

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