On 5 October 2015 the OECD/G20 presented 15 action plans (Action Plans) of the Base Erosion and Profit Shifting project (BEPS Project). The Action Plans create a coordinated international approach to reform the international tax system to ensure that profits of multinational enterprises (MNE) are taxed where economic activity takes place and value is created. Below you will find a short and clear Q&A on BEPS Project Action Plan 13 ‘Transfer Pricing Documentation and Country-by-Country Reporting’ (Action Plan 13).
Action Plan 13 aims to increase transparency for tax administrations through a three-tiered approach for transfer pricing documentation. This approach consists of which:
- Country-by-Country Reporting (CBCR)
In the CBCR, MNE are required to annually provide certain (financial) information for each country in which they do business. This information, to be listed per country, consists among others of the amount of revenues, profit before income tax and income tax paid and accrued, number of employees.
On 27 January 2016, 31 countries singed a multilateral competent authority agreement (MCAA) for the automatic exchange of CBCR. Click here for further information.
- Master File
High-level information regarding the MNE global business operations and transfer pricing policies that is to be made available to all relevant tax administrations.
- Local File
Detailed transactional transfer pricing documentation needs to be provided to the specific country, identifying material related party transactions, the amounts involved in those transactions, and most notably a reconciliation between the transfer pricing policy and the local entities financial statements.
The above is expected to result in increased compliance burden for MNE, more questions during audits and increased risk of double taxation. To prepare for this, MNE regularly approach Loyens & Loeff to develop action plans and build strategies. Together with us, MNE will be more efficient, accurate, and prepared for discussions and audits. Click here for further information on our approach.
Countries associated with the BEPS Project agreed to include the three-tiered approach into their domestic legislation. The following countries have introduced and/or are in the process of introducing (part of) the new transfer pricing documentation requirements (including the countries that have signed the MCAA):
Click on a country name above, or on any of the 'balloons' below for further information.
Action Plan 13 suggests to MNE with a consolidated group revenue of at least EUR 750 million to be in the scope of the new CBCR requirements.
- Master File / Local File
Action Plan 13 suggests to countries to determine their own thresholds for Master File / Local File requirements. Currently available thresholds are based on (i) consolidated group revenue, (ii) taxpayer revenue or costs or (iii) transactional volume (see countries in list above).
According to Action Plan 13, CBCR needs to contain information for financial years starting on or after 1 January 2016 and needs to be filed by 31 December 2017 or later. Taxpayers will need to include the Master and Local File in their administration before the due date of the filing of the 2016 corporate income tax return (generally mid 2017). Please note that country legislation can deviates from the OECD standards (see e.g. US proposals).