Finance Centers in the Age of BEPS

Mon Feb 29 16:38:19 EST 2016
By Philip de Homont and Alexander Voegele

In the fifth of a series of articles in International Tax Review on intangibles, NERA Principal Philip de Homont and Affiliated Consultant Dr. Alexander Voegele discussed the ways that finance companies are impacted by the Base Erosion and Profit Shifting (BEPS) measures taken by the Organisation for Economic Co-Operation and Development (OECD).

The article, “Finance Centres in the Age of BEPS,” which appeared in the February 2016 issue of the tax journal, explained that finance companies could expect increased substance and documentation requirements and new questions in field audits. Still, the OECD has provided better guidance that will help taxpayers and advisers plan structures and formulate defenses, the authors said. The OECD has established that finance companies have to actually bear the risks they are remunerated for and they must perform the activities associated with the risk-taking. Purely formalizing the outcome of decisions is not sufficient, and the finance entities involved must have sufficient capital buffers.

In the article, Mr. de Homont and Dr. Voegele examined how economic analysis can be used to document and defend internal financing. Economic tools, such as option-pricing, Monte Carlo simulations of expected income streams, or surveys of decision-makers, can be used to identify the value drivers of a specific company and quantify its respective contributions.