The Impact of BEPS Actions 8-10 on Multinational M&A Transactions

Frederik Boertmann Voss & Matti Schwartz

Student thesis: Master thesis


In recent years, multinational enterprises have found new ways of increasing their earnings by developing complex structures and carefully thought out ways of boosting their profits by exploiting disparities in the domestic tax laws. In consequence, international tax avoidance has become a prioritised political topic, since the current rules enables the opportunity of base erosion and profit shifting (BEPS). As a result of this, OECD and G20 countries have adopted a 15-point action plan to address BEPS. The objective of the report is to avoid government revenues being reduced and to ensure that profits are taxed where economic activities and value is created. This thesis analyses the impact of BEPS Actions 8-10 on multinational M&A transactions, which has not been elaborately described in the BEPS final reports. With years of potential uncertainty ahead, an investor of a multinational enterprise will need to observe several potential effects resulting from the release of the BEPS-plan. In order to assess the impact comprehensively, this thesis compares the treatment of the arm’s length principle in the Transfer Pricing Guidelines 2010 and BEPS Actions 8-10 respectively. It is noticed, that the actual conduct of the parties should be used to clarify or supplement the terms of the contract, or even replace the contract in case the contract is not supported by the conduct. In continuation hereof, a case company is introduced containing various internal transactions. Based on the previous guidelines in Transfer Pricing Guidelines 2010, the Discounted Cash Flow-method is used to determine the value of the case company. Subsequently, the internal transactions are analysed in the light of BEPS Actions 8-10, after which necessary changes are made in accordance with an arm’s length compensation. After appropriate changes have been made, a new valuation of the enterprise is calculated. It is found, that the explicit impacts from BEPS Actions 8-10 are, that the effective tax rate increases, and hence the total value of the company decreases. Finally, the potential tax risks associated with an acquisition are examined. It is shown, that BEPS Actions 8-10 affects the way tax risks should be considered. There is supposedly high uncertainty associated with the outcome of historic and future tax payments, and the uncertainties should be covered or included in the valuation of a company.

EducationsMSc in Commercial Law, (Graduate Programme) Final ThesisMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages134