The OECD has issued the “White Paper on Transfer Pricing Documentation” outlining ideas for new global standards for the annual transfer pricing documentation exercise required by more than 60 countries. 

While this is only a scoping paper that is not self-implementing, given the momentum behind the BEPS Action Plan and its tight deadline, multinationals may face increasing documentation requirements as soon as next year.

Issued just two weeks after the OECD released the “Action Plan on Base Erosion and Profit Shifting,” the White Paper is part of the larger BEPS Action Plan initiative to reduce what the OECD deems to be “double non-taxation” – corporate income that is untaxed by any country – that has led to political outcries in Europe, the US and emerging markets. 

The main thrust of the White Paper is to increase the visibility of a multinational’s transfer pricing and tax positions to all relevant tax authorities around the world, enabling tax authorities to more easily identify those transactions that require greater scrutiny.  The White Paper recommendations would place increased burdens on taxpayers, making the transfer pricing documentation process both more expensive and time consuming. While the OECD recommendations are not binding on member (or non-member) countries, the recommendations will likely serve as a blueprint for countries to adopt local rules via legislation or regulations implementing the recommended changes to transfer pricing documentation.


The White Paper notes that transfer pricing documentation requirements have been around for nearly 20 years, being first introduced in the US in 1994.  Since then, numerous countries have implemented transfer pricing documentation requirements, often with differing requirements, creating a labyrinth of annual filing requirements often costing companies several hundred thousand dollars a year to produce. 

The White Paper lists several shortcomings of the current global documentation standards, most notably:

  • Documentation requirements vary widely by country
  • Countries have differing deadlines for documentation disclosure
  • Country documentation requirements have different purposes, ranging from identifying potential audit issues to obtaining complete information to performing a thorough review of a multinational’s transfer pricing policies
  • Various initiatives to harmonize documentation standards, by the OECD, EU and others, have been largely ineffective and
  • One-sided analysis of the controlled transaction is common.

The last point is particularly important, because it ties into a major theme of the BEPS Action Plan: to give tax authorities stronger tools so that they may ensure that corporate income is subject to taxation based on the economic activities that give rise to that income, thereby reducing “double non-taxation.” 

What the White Paper recommends

Building on the BEPS Action Plan, the White Paper recommends that documentation should identify:

  • transactions with, and income allocated to, related parties in low tax jurisdictions

  • transfers of intangibles to related parties

  • business restructurings

  • types of payments that might erode the tax base, including interest payments and royaltiesyear-on-year loss-making.

The key conclusion of the White Paper is that “It seems possible for businesses to provide without undue burden individual country data  …with a general sense as to how their global income is allocated and where pressure points in the transfer pricing arrangements might lie.”

With that in mind, the White Paper recommends that the OECD working group develop a two-tiered approach by the BEPS Action Plan deadline of September 2014.  In particular, the White Paper suggests a global documentation package, or”‘master file,” accessible to tax authorities in every jurisdiction where a multinational does business. 

This master file would include:

  • Overview of the multinational

  • Description of each of the business units

  • Ownership, exploitation and development and tax policies of all intangibles, including principal facilities and management

  • Intercompany financing arrangements and

  • Financial and tax positions, including a schedule showing employee counts in each country.

This master file would be supplemented with local files, similar in nature to existing transfer pricing documentation standards. The local file would list and describe each related party transaction relevant to a particular country and its conformity with the arm’s length standard.

In preparing the White Paper, the OECD Secretariat conducted a few interviews with multinationals to identify key taxpayer issues with documentation.  Notably, several taxpayer issues that would have reduced the compliance burden, including greater use of regional rather than country-specific comparables and relaxing the need for local translation, were rejected.  In addition, the White Paper does not address several other important issues, among them materiality thresholds, timing standards and the role of penalties. 

Multinationals will have additional opportunities to comment at a public consultation to be held in Paris in November of this year.