We consider here action 13 of the OECD's BEPS Action Plan, aimed at re-examining transfer pricing documentation requirements — and in particular providing for more information from taxpayers. Such information will offer useful indicators for risk assessment and allow tax administrations to better focus their limited resources.
20 December 2018
Cyprus announced it had extended the filing deadline for the CbC Report for the year to 31 December 2017 by one month to 31 January 2019
1 December 2018
More countries have clarified their TP and CbC Reporting requirements, including:
13 November 2018
Proposed Bulgarian Transfer Pricing Master File and Local File requirements will apply to those with balance sheet asset values exceeding BGN 8m or net sales exceeding BGN 16m each as at 31 December of the preceding year and Local File requirements apply to five different categories of assets by size: our Tax Newsletter explains.
27 August 2018
More countries having clarified specific requirements of the TP document and CbC Reporting regimes include...
16 July 2018
Hong Kong’s Legislative Council passed a Bill which, in implementing BEPS minimum standards, also introduces a TP regulatory regime, TP documentation and CbC reporting requirements into the tax legislation as we describe in our July 2018 Newsflash.
7 June 2018
Italy’s Decree on transfer pricing (Article 110 par. 7 of the Italian Tax Code) deals mainly with TP methodology but also elaborates on when the new documentation requirements will, if followed, be considered acceptable for penalty protection purposes. Our Tax Insight of 7 June 2018 notes that it refers to a Regulation addressing these new documentation requirements to reflect Action 13 being published in due course.
23 May 2018
Our 2018 Norway Budget summary notes that, with effect from 1 January 2018, the country has decided to bring its secondary reporting into line with the BEPS standard so that there is a specific requirement for an international agreement between Norway and the jurisdiction of the ultimate parent entity.
6 April 2018
Argentina has extended the filing deadline for country-by-country (CbC) notifications, an official bulletin has announced, so that taxpayers now have until 2May 2018 to file CbC notifications where the ultimate parent company of a multinational group has a December 2017 fiscal year end.
4 April 2018
Singapore has published 2018 TP documentation rules that do not formally match the BEPS master file/ local file recommendations but, as we describe in our Tax Insight of 30 March 2018 are largely consistent focusing on describing businesses relevant to the Singapore taxpayer.
28 February 2018
The Polish Ministry of Finance is working on the Decree, which as our Tax & Legal Alert of 20 February explains, will...
extend the deadline for submitting a statement on transfer pricing documentation to 9 months after the end of the fiscal year. Taxpayers who ended their fiscal year on 31 December 2017 would then be required to prepare transfer pricing documentation by the end of September 2018.
Pakistan clarified a number of issues following the late 2017 introduction of CbCR rules, establishing notification/ filing dates and content, as well as formalising Master File and Local File requirements, as set out in our publication of 19 February 2018 (and earlier flyer of 8 December 2017).
10 February 2018
Costa Rica has passed a resolution that the parent company of a multinational group resident in Costa Rica with consolidated group revenue of the equivalent of EUR750m in the Costa Rican currency – must comply with the obligation to file a country-by-country report there.
9 February 2018
The OECD has announced in a press release of 8 February 2018 further changes made by the Inclusive Framework to the guidance on country-by-country reporting (CbCR) on...
As previously, the complete set of guidance related to CbC reporting issued so far is presented in the released document.
Also released is a compilation of the approaches adopted by member jurisdictions of the Inclusive Framework with respect to issues where the guidance allows for alternative approaches.
24 January 2018
Liechtenstein has adopted a transfer pricing regime from 2018 which allows for a wide range of methodologies, together with a two-tier system of transfer pricing documentation depending on the size of the taxpayer.
5 January 2018
It was stated in the October 2015 BEPS reports that the information in CbC reports was somehow useful for some undefined “high-level” transfer pricing risk assessment, but …
nonetheless could not actually be used for making transfer pricing adjustments.
The OECD’s Forum on Tax Administration 90-page “Handbook on Effective Tax Risk Assessment” states the most important purported risk indicators consist of certain “key” ratios, which may be compared for each jurisdiction, against the group as a whole, with potentially comparable entities outside the group, or with industry averages. Some of the most important ratios the Handbook urges tax administrations to focus on include:
This is troubling since a ratio is just a formula, and a “ratio analysis” for assessing transfer pricing risk is simply another version of a transfer pricing system based on “formulary apportionment” - the idea of using simple quotients to determine transfer pricing risk, and that there should be some sort of fixed relation between any two data points, is antithetical to the facts and circumstances analysis required in a transfer pricing system based on the arm's-length principle, which examines the compensation unrelated parties would require for functions performed, assets used, and risks assumed.
None of the data points provided by CbC reports are good proxies for determining how much economic and taxable income is generated within a jurisdiction. The mere number of employees, without any focus on what their activities are, is not a good substitute for a detailed analysis of functions performed. The book value of tangible assets gives a distorted picture of what price those assets would command in the open market among independent buyers and sellers, and intangible assets are nowhere to be found on the CbC report. Same with risks, which are conspicuously absent from the CbC report.
29 December 2017
With the 31 December 2017 deadline for submission of CbC reports nearing, a number of countries have provided …
more time for companies as, for example:
Others have made late clarifications as, for example:
1 December 2017
With only a month to go before first CbC reporting, it is worth noting a number of countries have published …
final rules or procedures in recent weeks, including
6 July 2017
The following extract from the BEPS Inclusive Framework's first progress report …
to the G20 ahead of a meeting on 7-8 July 2017 (that report was also included in the OECD’s July 2017 report to the G20) provides a good overview of the reviews of minimum standards, including country-by-country reporting within Action 13, as seen at the date of the report.
1 July 2017
Cyprus has now implemented CbCR and has specifically provided …
for supporting documentation to be maintained – see our Tax Insight of 26 June 2017
21 June 2017
We’ve seen more CbCR updates published in our April to June Insights from our Transfer Pricing network…
including, for example, reporting requirements for Romania, Italy and Mexico
9 June 2017
A number of countries have been working towards providing more time for the necessary procedures to be in place, e.g. …
in relation to exchange agreements being in place with other territories like the US - See further our Tax Insight of 6 June 2017 on Brazil
Notification of the reporting entity, as with Portugal – see our Tax Flash of 30 May 2017
7 February 2017
In a Tax Policy Bulletin, we discuss the terms of reference and methodology for reviews of a country’s implementation of CbCR …
covering the legal and administrative framework put in place by a jurisdiction to implement the CbC reporting standard.
This peer review exercise is separate from the 2020 review and evaluates whether the jurisdiction should modify the CbC reporting standard.
Each country in the Inclusive Framework will be included each year, but the review will cover only an implementation progress report when reporting has not yet been feasible. Any non-member ‘jurisdiction relevant to the work’ or ‘jurisdiction of relevance’ will also undergo a yearly peer review.
Each annual review will consider the development of the process as it takes shape, i.e., in a staged manner. The first review, for 1 January to 31 December 2016, will look at the framework and confidentiality (referring to the Global Forum on Tax Transparency and Exchange of Information). The second review, for 1 January to 31 December 2017, will look at the reports being received. And the third review, for 1 January to 31 December 2018, will be able to focus on the exchange.
The peer reviewers also will seek information for purposes of monitoring the implementation of the other transfer pricing documentation set out in the Action 13 Report. These include the Master File and Local File or equivalent. This is not part of the minimum standard and will not be considered in the peer review on CbC reporting.
1 February 2017
The OECD has published documents detailing the processes for review of countries’ implementation of the compulsory spontaneous exchange of information amongst tax authorities of CbC reports …
to be carried out as a peer review by the other members of the Inclusive Framework on BEPS, the 100 or more countries that have committed to implement the standard.
The timing of when they are required to implement it, depends on how they made the commitment. The annual reviews take this into account.
31 January 2017
This month alone, we’ve published Insights from our Transfer Pricing network on CbCR rules for Luxembourg, Brazil, Chile and Canada along with …
other developments in the transfer pricing rules for Panama and Peru.
These follow CbCR and transfer pricing documentation changes that we highlighted for Belgium and France just before the end of 2016.
30 November 2016
The number of countries implementing CbCR and transfer pricing documentation requirements continues to grow and this month …
for example, we’ve published Insights on those and related developments for Mexico, Finland, Colombia, Costa Rica and Poland.
21 July 2016
The status of TP documentation and country-by-country reporting (CbCR) implementation is considered …
in our special Tax Insights from Transfer Pricing of 21 July 2016.
We bring you up-to-speed on the EU’s implementation, what the OECD reported in its International Tax Conference in Washington and on its subsequent guidance on voluntary reporting by parent company where its home jurisdiction has not implemented CbCR.
30 June 2016
On 29 June, the OECD issued specific guidance on country-by-country reporting …
which more specifically addresses how ultimate parent entities may voluntarily file CbC reports in their jurisdiction of residence to prevent local territories demanding ‘secondary’ reports from subsidiaries.
25 May 2016
The Council of the EU has adopted rules on the reporting by multinationals of specified tax-related information …
along with the exchange thereof between Member States.
The directive is said to build on the 2015 OECD BEPS recommendations by implementing Action 13 on country-by-country reporting.
25 April 2016
The number of countries adopting the CbCR standard continues to grow…
Mexico, France, UK, India, Canada, Portugal and Switzerland. The UK is another of those countries which have not at the same time seen the need to add further to TP documentation requirements in relation to the recommendations on master file/ local file.
24 March 2016
The OECD has today released its standardised electronic format for the exchange of Country-by-Country (CbC) Reports between jurisdictions …
This CbC XML Schema – as well as the related User Guide - explain the technical information required to be included in each data element to be reported - it's a kind of mark-up or coding in the same way that xml is a mark-up for the worldwide web. It also contains guidance on how to make corrections of data elements within a file.
While the CbC XML Schema has been primarily designed to be used for the automatic exchange of CbC Reports between Competent Authorities, the CbC XML Schema can also be relied upon by Reporting Entities for transmitting the CbC Report to their tax authorities, provided the use of the CbC XML Schema is mandated domestically.
8 February 2016
On 27 January, 31 countries signed the Multilateral Competent Authority Agreement (MCAA) with Senegal added a few days later, allowing …
automatic exchange of Country-by-Country (CbC) reports in a consistent and swift implementation of new transfer pricing reporting standards, while also safeguarding the confidentiality of such information
21 January 2016
The pace of take-up of the CbC recommendations is accelerating with those implementing or publishing draft proposals via legislation or regulations including …
the likes of Australia, Poland, Netherlands, Finland, South Korea and the US. But not all are at the same time adopting the master file/ local file proposals for TP documentation, the US being a specific example of this.
5 November 2015
Ireland one of the first ‘out of the blocks’ to introduce CbC draft legislation which …
includes reporting for Irish-parented multinational enterprises (Irish MNEs) with consolidated annualised group revenue of €750 million or more, with the first CbC report to be prepared for fiscal years beginning on or after 1 January 2016.
As noted in our Insight from Transfer Pricing of 5 November 2015, the legislation would require Irish MNEs to apply significant resources and forethought to meet the requirements on an accurate, timely and cost effective basis.
5 October 2015
The work on TP documentation and country-by-country (CbC) Reporting was started early on in the project and has been the subject of intense - and sometimes controversial – discussion, so…
not surprisingly there are no material additional issues emerging in the finalised package.
However, this is not to understate the significant obligations that are contained within these BEPS transparency requirements - and which will inevitably fall on taxpayers.
Further, given the required timescales involved (the CbC reporting requirements go live from 1 January 2016), this will be one of the earliest tasks that taxpayers will necessarily face in getting to grips with the BEPS package.
The relevant obligations will require a three-tiered approach to documentation, comprising:
The OECD has an agreed template for the CbC report and has introduced a new master file requirement and new standards for the local file.
Early experience has suggested that most taxpayers seeking to ensure they will comply with the rules on a timely basis are finding the systems tasks required to knit the relevant information together somewhat daunting. There have also been concerns about ensuring the continued confidentiality of commercially-sensitive information.
12 June 2015
The OECD has released a “Country-by-Country Reporting Implementation Package” which includes...
model legislation the OECD suggests could be used by countries to mandate filing of country-by-country reports (CbCRs). The model legislation does not attempt to address the filing of the so-called master file or local file reports.
The implementation package also includes three model competent authority agreements that could be used by each country, depending on whether it intends to effect exchange of CbCRs through the “Multilateral Convention on Mutual Administrative Assistance in Tax Matters,” the exchange of information article of a bilateral tax convention, or a bilateral tax information exchange agreement.
Neither the model legislation nor any of the model competent authority agreements contains additional guidance regarding the particular data that multinational enterprises (MNEs) need to provide in the CbCRs.
Rather, the model legislation merely sets forth a general description of that data and provides that it should be provided in a form identical to, and applying the definitions and instructions contained in, the “standard template” set out either in the OECD Transfer Pricing Guidelines, the final report on BEPS Action 13, or an appendix to the legislation, once adopted. Presumably, the “standard template” referred to can be expected to look like the CbCR template set forth in the OECD’s first report on Action 13 released on 16 September 2014. In this regard, however, the introduction to the implementation package indicates that, as a next step, an “XML Schema” and “related User Guide” will be developed with a view to accommodating the electronic exchange of the CbCRs. Additional guidance on the CbCR data requirements may emerge once this schema and user guide are issued.
Helpfully, the model legislation and model competent authority agreements also reveal the OECD members’ current thinking on, among other things:
6 February 2015
A country-by-country implementation package published by the OECD will require...
multinationals with a turnover above EUR 750 million in their countries of residence to start using the reporting template for fiscal years beginning on or after 1 January 2016 so that tax administrations will begin exchanging the first country-by-country reports in 2017.
Countries have agreed and emphasised the need to protect tax information confidentiality.
Jurisdictions should require CbC reporting from ultimate parent entities of MNE groups resident in their country and exchange this information on an automatic basis with the relevant jurisdictions in which the MNE group operates but there is a secondary mechanism through local filing or by moving the obligation for requiring the filing of the CbC Reports and automatically exchanging these reports to the next tier parent country.
24 September 2014
The proposals now agreed by the G20 on the transfer pricing documentation master file and local file are broadly in line with what has already been announced while on country-by-country reporting...
The report now confirms that the data points that will be required to be reported for each country will be the following:
The clear implication is that the template is designed to highlight those low-tax jurisdictions where a significant amount of income is allocated without some “proportionate” presence of employees. What this means in practice is that, there will be pressure to assure that profit allocations to a particular jurisdiction are supported by the location in that State of sufficient appropriately qualified employees who are able to make a “substantial contribution” to the creation and development of intangibles. Concerns regarding confidentiality of this data and the potential for adjustments by tax administrations based on a formulary apportionment approach leading to many more transfer pricing controversies, have already been noted.
The OECD has also noted that some countries (for example Brazil, China, India, and other emerging economies) would like to add further data points to the template regarding interest, royalty and related party service fees. Those data points will not be included in the template in this report, but the compromise is that the OECD has agreed that they will review the implementation of this new reporting and, before 2020 at the latest, decide whether there should be reporting of additional or different data.
The OECD does not yet have absolute consensus on the arrangements for the sharing of master file and CbC information although they are seeking to finalise those arrangements by January 2015, including confidentiality issues with indications that information will only be exchanged pursuant to treaty or tax information exchange agreement provisions.
26 May 2014
The OECD’s webcast today suggested that Working Party WP6 was keen to provide a strong reminder that...
country-by-country (CbC) information is to be reported to tax authorities at a very high level and for risk assessment only. This is a quantitative exercise and not a qualitative one- so, for example, information on intangibles - which often not valued – would be required only in the master and local files as it was too much of a burden to require it compared to the benefit for risk assessment purposes.
The three-tier approach would need structured and careful implementation. The WP expects to deliver an implementation 'tool' in January 2015, setting out how sharing of the master file and CbC template would take place.
There would be a need too for an ongoing monitoring mechanism to assess implementation.
19 May 2014
The OECD public consultation on the discussion draft on transfer pricing documentation and country-by-country reporting...
added very little to the analysis of the responses and the interim announcement of changes that would be made.
It was confirmed that there were ongoing difficulties in agreeing the methodology for sharing the information and that this would be held over from the September 2014 deliverable.
2 April 2014
The second OECD BEPS update webcast provided confirmation of some of the changes to the country-by-country (CbC) and transfer pricing documentation proposals...
although the methodology for filing/sharing and the language for the master file and local file remain outstanding issues. In particular though:
24 February 2014
In our response to the 30 January 2014 Discussion Draft, as a general matter, PwC supports the OECD’s work on simplification of transfer pricing documentation and the goal of increased transparency but...
PwC does not consider that the approach proposed achieves the stated goals of balancing “the usefulness of the data to tax administrators for risk assessment and other purposes with any increased compliance burdens placed on taxpayers” nor of increased transparency of information relevant to transfer pricing risk assessment.
We recognise the legitimate desire of tax authorities in jurisdictions around the world to have access to relevant tax reporting information. Further, we support the simplification of reporting and recognise that the use of tailored standard forms and questionnaires across jurisdictions enables information to be gathered more efficiently.
We’re concerned though with the speed with which these proposals are being developed. We commend the OECD’s efforts to engage business input, but we are concerned that the timing of this proposal will not permit sufficient opportunity for input from, and consultation with, the business community to ensure that the guidance ultimately adopted can be successfully implemented in practice. The OECD has, itself, acknowledged that the compressed time frame has allowed for limited consideration of the issues to date. Perhaps, then, given the significant impact this guidance will have on all parties, the OECD could consider issuing another draft and holding another consultation or comment period.
Aside from the speed with which the project is progressing, we have two additional specific concerns in relation to the proposals. First, we are concerned that the proposed two-tiered approach to transfer pricing documentation will result in a significant implementation and compliance burden on taxpayers which is out of proportion to any benefits that may be secured from the process. Second, we have concerns relating to the treatment of what may often be proprietary and sensitive information.
For the above reasons, PwC requests the OECD to seek:
31 January 2014
Multinational enterprises (MNEs) would face materially increased compliance burdens as a result of the OECD’s proposals if they remain in their current form ...
after the brief consultation period allocated. A discussion draft released on 30 January 2014 poses a number of difficult questions, to be answered by 23 February 2014.
The discussion draft requires a mandated list of documents to be included in a transfer pricing documentation package. Overall, this could result in a very short period for business to adjust to life with increased reporting obligations, including country-by-country information. The OECD will need to carefully consider whether the reporting of tangible property, number of employees and payroll expense in practice might lead to adjustments more in line with a formulary apportionment type of transfer pricing system, along with all the potential for increased disputes and double taxation that entails.
The OECD’s strategic objectives of making transfer pricing documentation more efficient and better targeted should be supported. The approach, as originally developed, sought to streamline and rationalise information requirements to benefit both tax administrations (i.e. with better information) and tax payers (i.e. by delivering a more efficient process). However, based on the proposals in the current discussion draft, it’s not clear that these goals have been achieved as, overall, the package seems somewhat one-sided with little clear benefit to business.
It will, in particular, be important to ensure that the consultation process is pursued to deliver as much flexibility as possible. Securing the confidentiality of information will also need to be a major priority.
The OECD statement in the draft that it will be giving further consideration to whether information relevant to other (non-transfer pricing) aspects of tax administration and the BEPS Action Plan should also be included in the common template means that the documentation requirements may be expanded well beyond transfer pricing risk assessment purposes.
17 January 2014
A draft of the OECD’s recommendations on Action 13 is expected in February 2014 though there had been thoughts that it may be published to coincide with...
its first webcast to discuss BEPS progress on 23 January. The tentative timing of February was included in the OECD’s published calendar showing BEPS consultation stages taking place toward the end of 2013 and early in 2014. The date for the webcast was announced by the OECD on 13 January.
We expect the next public draft will be released in the first two weeks of February with three weeks for public comment prior to the Working Party 6 meeting in late March at which there is expected to be further opportunity for business to comment in person.
14 November 2013
At the public consultation on transfer pricing at the OECD on 11/12 November, Working Party 6 (WP6) sought to address the country-by-country reporting issues as well as wider issues surrounding the master/local file proposals...
The framework proposed by the OECD in the White Paper on transfer pricing documentation is a “two-tiered approach” which included the preparation of a detailed global master file, as well as country specific files. It is part of a risk assessment process but is increasingly becoming for multinationals a tool for avoiding penalties.
The primary objective of BEPS in requiring reporting information on a country-by-country basis is to enhance transparency for tax administrations alone.
Balancing the compliance costs for business is critical in both cases.
Business generally wants a standardised approach, with better rather than just more information. So, the template information should focus on the “bigger picture” (using information which is readily available), the master file requirements should not be so onerous and materiality should be taken into account.
A modulated approach, where less information is provided to enable quick implementation of the BEPS-related element may need to be adopted in meeting the September 2014 deadline.
4 October 2013
The OECD’s memorandum of 3 October 2013 on transfer pricing documentation and country-by-country reporting as part of Action 13 forms...
another key part of the risk assessment process. The key themes of substance, transparency and risk are consistent with other recent OECD publications and areas of the BEPS Action Plan. Interestingly, the memorandum acknowledges that including information on other measures of economic activity may encourage “unwarranted reliance on formula-based income allocations”.
It may also result in taxing authorities asserting arguments based on abstract notions of comparability (consider gross marketing expenditures without an understanding of the industry or the expenditures relative to sales).
It also acknowledges, perhaps in response to comments received on the earlier OECD White Paper on Transfer Pricing Document that a key question yet to be answered is whether the required reporting of all these items of information will actually provide any relevant guidance for transfer pricing risk assessment.
Overall the Memorandum provides a clear indication of the type of information that is likely to be required in the coutry-by-country reporting template and raises key topics for discussion through the consultation process that should be considered as part of the broader BEPS landscape.
26 September 2013
In our response to the OECD’s consultation on its Draft Handbook on Transfer Pricing Risk Assessment, we noted the need for it to be...
consistent with conclusions resulting from the BEPS Action Plan. In particular, we related this to Section 2.2 of the Draft Handbook which is largely concerned with identifying related party payments that have the potential to shift income and erode the local tax base.
As currently drafted, paragraphs 147 and 148 of the Draft Handbook also state that businesses would welcome sharing risk assessment reports but stop short of recommending systematic sharing of reports in all circumstances. We strongly encourage a more definitive recommendation within the Draft Handbook for tax administrations to share risk assessment reports with taxpayers to encourage a principled, transparent process and ensure potential issues are addressed and resolved efficiently.
10 September 2013
It seems likely that the information to be stipulated by the OECD for these purposes will be somewhat rudimentary, involving the provision of...
data broken down by country on global income and taxes paid, according to a common template. For transfer pricing purposes, we believe it may be more useful if any requirements in that template were more narrowly focused on particular risks — particularly if it otherwise becomes an overly complex exercise to compile the data required.
We’re concerned that there is a great potential for this kind of information to be used inappropriately by tax authorities and/or become accessible by the public, where it could be misinterpreted or used anti-competitively.
We also believe that a surfeit of this type of basic information may not assist the process of resolving disputes. If any requirements are clearly targeted as a risk assessment tool rather than as an adjustment tool for field auditors, that should help address potential issues with the effective use of limited resources, a matter also clearly raised in the EU Joint TP Forum’s June 2013 Report on transfer pricing risk management.
19 July 2013
The Plan notes that asymmetries in information on TP between taxpayers and the tax administrations potentially enhance the opportunities for BEPS...
especially as a ‘big-picture’ view of the taxpayer’s global value chain is often not available. It is also noted the differences between countries and the requirements on TP documentation lead to significant costs for business. It is therefore proposed to re-examine TP documentation to ensure transparency for the tax administration, bearing in mind the costs for business. It is specifically noted that the rules to be developed will include a requirement that MNCs provide all relevant governments with needed information on their global allocation of the income, economic activity and taxes paid among countries according to a common template. The work is to be completed within one year.
Stef van Weeghel
Leader, Global Tax Policy & Administration Network
Tel: +31 (0) 88 792 6763
Deputy Leader, Global Tax Policy & Administration Network, PwC United States
Tel: +1 (202) 312 7662
Partner, Transfer Pricing and Tax Policy, PwC Global
Tel:  207 212 8830
EMEA Tax Policy Leader, PwC Netherlands
Tel: +31 88 792 3611