Cross-Border Tax Compliance

Political volatility and shifting regulatory landscapes are placing new pressures on global businesses to manage cross-border tax compliance more effectively. In particular, international reforms such as the Organization for Economic Development’s (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 framework are driving sweeping changes to how multinational enterprises (MNEs) structure and report their tax obligations.

For companies operating across multiple jurisdictions, failure to adapt to these reforms can result in financial penalties, audit exposure, and reputational harm. This blog post outlines the current challenges in cross-border tax compliance and highlights actionable strategies businesses can implement to remain compliant and agile amid global tax reforms and compliance risks.

Background and Context

Cross-border tax compliance involves adhering to the tax laws of every jurisdiction in which a business operates. As political shifts reshape national tax priorities, countries are increasingly leveraging international cooperation and unilateral measures to protect tax bases.

The OECD/G20 Inclusive Framework on BEPS 2.0 represents a pivotal step in harmonizing global tax standards. The framework consists of two pillars:

Pillar One: Focuses on reallocating taxing rights to market jurisdictions for large and highly digitalized companies.

Pillar Two: Introduces the Global Anti-Base Erosion (GloBE) rules to ensure large MNEs pay a minimum 15 percent effective tax rate globally.

These changes are backed by over 135 jurisdictions and are in various stages of implementation. Political developments—including elections, trade tensions, and policy reversals—can affect how and when these reforms are enforced.

What Has Changed or Been Clarified

Recent developments affecting cross-border tax compliance include:

• Adoption of Pillar Two Minimum Tax Rules: Countries are enacting domestic legislation to enforce the 15 percent global minimum tax on qualifying MNEs.
• Revival of Digital Services Taxes (DSTs): In the absence of full OECD consensus, countries such as France, India, and the United Kingdom continue to apply DSTs targeting revenues from digital platforms.
• Increased Reporting Obligations: Jurisdictions are mandating GloBE information returns, country-by-country reports, and expanded transfer pricing documentation
• Unilateral Adjustments: Political shifts are prompting some countries to adopt protectionist tax policies or to diverge from international norms, creating mismatches in reporting and enforcement.
• Greater Use of Data Analytics by Tax Authorities: Governments are deploying advanced analytics to identify discrepancies and initiate cross-border audits.

Real-World Impact

For multinational companies, the stakes are high:

• Compliance Gaps: Firms that fail to monitor and respond to jurisdiction-specific changes risk incurring penalties or facing denial of treaty benefits.
• Audit Exposure: With greater international cooperation, tax authorities are more likely to share information and coordinate audits.
• Double Taxation Risks: Inconsistent implementation of Pillar Two and DSTs can lead to overlapping tax claims.
• Operational Burden: Finance and tax departments must navigate differing deadlines, forms, and documentation rules across dozens of countries.

Example: A U.S.-headquartered tech company with subsidiaries in France and India may face DSTs in both countries, a Pillar Two top-up tax in Europe, and separate reporting obligations—all while maintaining compliance with U.S. tax law.

Compliance and Reporting

Key requirements businesses must address include:

• GloBE Information Returns: Jurisdiction-by-jurisdiction reporting of effective tax rates, covered taxes, and substance-based income exclusions.
• Country-by-Country Reporting (CbCR): Required for groups with consolidated revenue above €750 million. Includes revenue, profits, and headcount by jurisdiction.
• Transfer Pricing Documentation: Comprehensive master files and local files documenting intercompany transactions, economic substance, and comparable analyses.

Necessary Forms and Filings:

• Form 5471 (Foreign Corporations), Form 8858 (Disregarded Entities) and Form 8975 (CbCR for U.S. groups)
• Non-compliance can result in severe penalties, disallowed deductions, and disqualification from treaty benefits.

Things to Consider

Political Uncertainty: Elections or policy reversals may delay or alter BEPS 2.0 implementation in some countries.
State-Level Divergence: In federated systems like the United States, states may introduce their own tax rules, creating compliance friction.
No One-Size-Fits-All: Each country has unique definitions, thresholds, and timelines for BEPS implementation.
Evolving Standards: Further OECD guidance and local regulations are expected, requiring continuous monitoring.

Conclusion

Global businesses face unprecedented challenges in maintaining cross-border tax compliance in a politically dynamic environment. As reforms like BEPS 2.0 reshape global tax norms, MNEs must adopt a proactive, well-resourced approach to compliance.

Recommended actions:

• Implement centralized compliance tracking systems.
• Strengthen internal tax governance and interdepartmental coordination.
• Conduct jurisdictional risk assessments and scenario planning.
• Engage legal and accounting professionals to address complex and evolving requirements.

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. For personalized guidance, the experienced International Tax attorneys at RJS LAW are well versed in current global tax regulations and can help you understand changing tax laws and structures to accomplish your long-term goals. For a no cost consultation, please visit us on the web at RJS LAW or call 619-595-1655.