Industries requiring significant investments in infrastructure and machinery, such as oil and energy sectors and big government projects, usually contract foreign companies to perform the EPCC (Engineering, Purchase, Construction, and Commissioning) projects. These contracts, which can reach values of hundreds of millions or even billions of dollars, include different activities large-scale activities.
Tax Strategies in EPCC Contracts
Companies used to fragment these contracts to reduce the tax burden, as in Malaysia, assigning a significant part of profits to foreign entities. Regarding the above, tax administrations have focused on these practices.
Response to Tax Authorities
Tax authorities worldwide have identified them as aggressive tax planning. They are addressing these strategies in different aspects, including:
- Transfer Pricing: Assessing whether declared earnings in the country comply with the Arm’s Length Principle, i.e., whether remunerations are according to functions, assets, and risks that several enterprises face.
- Anti-Elusion Rules: Ensuring profit sharing is commercially valid.
Accessing Country-by-Country reporting allows tax authorities to overview a multinational group’s transactions and compare the level of profits declared in each jurisdiction. In addition, tax agreements facilitate information exchange among countries, which is more effective taxation.
Implications for Multinational Companies
Due to the increasing scrutiny, multinational companies must review their tax strategies related to EPCC contracts. They must ensure that their Transfer Pricing practices precisely reflect the value creation in each jurisdiction and that documentation supports the allocation of realized profits.
Conclusion
Fragmentation of EPCC contracts is no longer a feasible strategy to avoid taxes. Tax authorities are equipped with tools and international agreements to identify and defy aggressive tax planning practices. Multinational companies must adopt transparent tax practices and comply with current regulations in each country where they operate.
TPC Group: The Best Transfer Pricing Option
At TPC Group, we understand the difficulty of international tax regulations and the significance of appropriate tax planning. Our experienced team can assist your company in implementing Transfer Pricing strategies that comply with current rules and optimize its tax position.
Contact us today for customized advice and to ensure compliance and success of global transactions.
Source: The Sun