OECD update - Transfer Pricing Documentation and Country-by-Country

As part of the Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan), the OECD has recently issued a discussion draft with updated guidance on the preparation of transfer pricing documentation, which includes country-by-country reporting requirements. A large number of proposed changes will challenge multinational organisations, including those with operations in the Channel Islands, to comply with the increased reporting obligations.

Some of the key aspects of the proposed guidance that'll affect Channel Islands businesses include:

• A two-tiered approach to transfer pricing documentation consisting of a "master file" giving details of the group's global business and a specific "local file" for each territory, with prescriptive lists of what information must be included, such as a description of the local management structure and details of who they report to.
• Title and main office location of the most highly compensated employees in each business line must be provided.
• Charts to be provided showing the supply chain for all material products and services supplied by the group.
• Details of any tax rulings and other tax or transfer pricing agreements with local tax authorities are to be included.
• Detailed country-by-country reporting template must be completed, giving various financial metrics for each entity in the group (this includes revenues, profits, cash taxes paid, employee costs, tangible assets and payments of interest, royalties and service fees to other group companies).
• Small and medium enterprises would be required to complete the country-by-country reporting template, although the draft recommends simplification measures for the transfer pricing documentation.

The updated guidance, which may soon be introduced in the legislation of the UK and other European countries, as well as other jurisdictions around the world, is expected to materially increase compliance burdens for multinational organisations and give tax authorities an unprecedented level of transparency into activity in other jurisdictions.  

More details can be found in the Tax Insights from Transfer Pricing bulletin, please download to continue, and in the OECD discussion draft which includes an example of the proposed country-by-country reporting template (please follow this link). 

The proposals are out for consultation until late February, and the OECD plans to finalise the guidance in May 2014.  Given the tight time frame in which to respond to these proposals, if you have any questions, please don't hesitate to contact Jameson Hyde using the contact details on this page or speak to your usual PwC contact.