Global Transfer Pricing & the OECD Arm’s Length Standard
The OECD released its Discussion Draft on Transfer Pricing Documentation and CbC (Country-by-Country) Reporting. What should tax executives know about this game-changing guidance?
The proposed rules, if implemented, will likely increase the cost of compliance for multinationals. However if you are willing and gain early insights on one of the most significant transfer pricing developments, you may be able to create value instead.
The Organization for Economic Cooperation and Development released on January 30 a discussion draft on transfer pricing documentation and country-by-country reporting as part of its work on base erosion and profit shifting (BEPS).
- Overview of the discussion draft, including the three objectives of requirements for transfer pricing documentation, with a focus on the country-by-country aspect.
- The proposed two-tier framework for documentation – a detailed review of the template.
- Practical implications of the guidance, including potential taxpayer opportunities, challenges, and additional tax exposure.
- Implementation considerations, including gathering country-by-country information and assessing potential risks.
Common template for the reporting to tax authorities
The discussion draft sets out revised guidelines on transfer pricing documentation requirements in the form of a new draft Chapter V of the OECD's transfer pricing guidelines, and includes a standard template for the reporting of comprehensive global information to tax authorities on a country-by-country (CbC) basis, focusing on the global distribution of income, economic activity, and taxes paid.
Consistency in documentation requirements
The discussion draft addresses Action 13 in the July 2013 BEPS Action Plan, which promised to "develop rules regarding transfer pricing documentation to enhance transparency for tax administration, taking into account the compliance costs for business." However, many of the proposed requirements need further refinement and balancing to achieve this goal.
Interestingly, the introduction to the discussion draft states that it does not reflect consensus views of either the OECD's Committee on Fiscal Affairs or Working Party 6 undertaking the work. Given the lack of consensus in the document, it is an open issue whether the OECD's recommendations will receive broad acceptance and be implemented by a sufficient number of G20 countries to increase consistency in documentation requirements.
Source: http://newsletters.usdbriefs.com/2014/Tax/ALS/140203_1.html
