The impact of the UK’s decision to leave the European Union remains the subject of much discussion. But while Brexit may in future affect companies doing business in the UK and the EU, changes are already under way which are potentially more significant for the international tax landscape, resulting from the Base Erosion Profit Shifting (BEPS) initiative.

The recommendations of the BEPS project, led by the Organisation for Economic Cooperation and Development (OECD), seek to tackle the perception that multinational groups are not paying their fair share of tax by taking advantage of an international tax system that is no longer fit for purpose.

They involve 15 action points designed to counteract aggressive tax planning, which fall under three core principles:

:: Coherence – establishing an international taxation system that is more consistent, taking into account that the way companies do business has changed;

:: Substance – ensuring that the tax effects of a transaction follow the commercial reality of what is happening by analysing both the contractual arrangements and the conduct of the parties involved; and

:: Transparency – clear boundaries on how intercompany transactions should be valued and documented.

As the BEPS initiative has been globally led, Brexit is not expected to have an impact and indeed HM Revenue & Customs is already enacting some of the OECD recommendations into UK legislation. In particular, there is a shift in the way HMRC is approaching its relationship with corporate tax payers, moving away from the detail of the numbers and instead seeking a better commercial understanding of what a company does and how it interacts with other group members.

There will be an increased focus on a company’s international tax arrangements with the expectation that this should be clearly set out and transactions within the group are supportable as being “arm’s length”, along with a range of measures which will encourage compliance with the updated rules.

Whatever changes result from Brexit, BEPS will increase the compliance burden for a number of UK companies, particularly those that are part of a larger multinational group, or are the UK headquarters of an international subgroup. Companies should ensure they take appropriate steps to meet the additional requirements these new initiatives will bring.

:: Phil Hall is East Anglia tax partner at BDO LLP.