On September 16, 2014, the OECD presented the first seven deliverables of the Action Plan on Base Erosion and Profit Shifting (BEPS). The main issue that BEPS tries to address is summarized by the Action Plan itself: “Taxation is at the core of countries’ sovereignty, but the interaction of domestic tax rules in some cases leads to gaps and frictions”. The BEPS project tries to address these gaps and frictions and therefore they have developed 15 action points. However, only a few of these action points are interesting from a transfer pricing perspective. For companies action point 13 is, from a practical point of the view, one the most important action point since this action point sees to the transfer pricing documentation requirements. This page provides for a short overview of the consequences of action point 13.
Transfer Pricing Documentation and Country-by-Country reporting
The BEPS action plan has resulted in a 3-tier approach for transfer pricing documentation. This 3-tier transfer pricing documentation will consist of the following:
- Master file, providing a high-level overview of the group business
- Local file, providing detailed information on specific group transactions
- Country-by-Country report, providing for aggregate, jurisdiction-wide information on global allocation of income, taxes paid and indicators of economic activity
Below is a table provided that gives a brief overview of what the transfer pricing documentation could look like. For a more detailed description of the what information needs to be provided per file, please select a header of the table.
|Organisational structure||Detailed description of the local entity||Revenues (related party / unrelated)|
|Description of MNE’s business||Detailed description of each controlled transaction the entity is involved in||Profit (loss) before income tax|
|MNE’s intangibles||Financial information||Income tax paid (cash basis) and accrued|
|MNE’s intercompany financial transactions||Stated capital and accumulated earnings|
|MNE’s financial and tax positions||Number of employees|
|Tangible assets other than cash / cash equivalents|
|Country of organization / incorporation (if it differs)|
|Main business activity|