Global Tax Alert | 20 May 2014
OECD holds public consultation on transfer pricing documentation and CbC reporting
On 19 May 2014, the Organisation for Economic Co-operation and Development (OECD) held a public consultation on the transfer pricing documentation and country-by-country (CbC) reporting draft, which was released on 30 January 2014.1
The transfer pricing documentation and CbC reporting draft is the output with respect to Action 13 of the Base Erosion and Profit Shifting (BEPS) project2 which requires the development of improved transfer pricing documentation standards and a CbC reporting template. The draft is set to be completed by September 2014.
The agenda for the 19 May meeting was split into three sections: content of the CbC report, filing and sharing of that report, and content of the master and local files. It was noted that a new draft had been prepared following the comments submitted by business, which had been shared with a number of business commentators.
Representatives of the OECD working party explained that certain changes to the January 2014 template are under consideration, as already announced during the BEPS project update webcast on 2 April 2014.3 Some specific reporting items were discussed.
The OECD working party stressed that it is still discussing the best way for filing and sharing of the CbC report and has not reached any final conclusion. It wants to protect confidentiality but also wants to ensure that material can be delivered to all countries on a timely basis.
With respect to the master file, it was explained that the document should contain high level information. The purpose of the document is to provide more context to the transfer pricing documentation that will be included in the local files. The OECD announced that they will not develop a materiality concept for the local files, leaving this for individual countries to address.
Finally, a set of other topics (penalties, local comparables, language, time frame, implementation and simplification measures) was discussed. The working party indicated that these are all topics still under deliberation. The OECD Secretariat indicated that they also are close to issuing a discussion draft on the transfer pricing treatment of low value services.
On 30 January 2014, the OECD issued the Discussion Draft on Transfer Pricing Documentation and CbC reporting and invited the public to comment on the Discussion Draft before 23 February 2014.
During the BEPS project update webcast on 2 April 2014 (the Webcast), the OECD noted that it had received over 150 comment letters and announced a list of tentative decisions that had been made in relation to the CbC reporting template based on the comments submitted and informal consultation with stakeholders. Furthermore, the OECD listed a number of issues still under consideration, most notably the process for delivery of the CbC reporting template and transfer pricing master file to tax authorities and the language and translation requirements for these documents.
Content of the CbC reporting template
Representatives of the OECD working party explained that certain changes to the January 2014 draft template are being contemplated, as already announced during the Webcast. Some specific reporting items were discussed.
- • Removal of intercompany transactional data from the CbC reporting template (the last six columns of the draft template). These relate to intra-group transactions and the detail will be moved to the local file. There may still be one number for the value of intra-group transactions required. Also, the working party is still contemplating the possibility of including intercompany services as a data-point.
- • Sources of data. The proposal is to allow a degree of flexibility starting with either group accounting data or statutory accounts (effectively either a top down or bottom up approach), as long as applied consistently.
- • Tentatively, there will be no exceptions provided on a materiality basis. This means companies would have to report activities in all jurisdictions. No decision has been made yet as to the provision of an exception for SMEs (Small and Medium Enterprises) with respect to the CbC reporting template.
- • The reporting template will be populated based on aggregated country information, not on a separate entity basis. The only exception would be identification of business activity (which is to be designated through an expanded list of codes), which would be reported on an entity by entity basis.
Specific points raised and reviewed include:
- • Disclosure of share capital and accumulated earnings. Business commentators raised the question whether this was necessary to apply a current-year arm’s length analysis. The OECD Secretariat indicated that it would be very useful for tax authorities to have an overview of accumulated earnings per country.
- • Disclosure of tangible assets. The point was raised by business commentators that depreciation of tangible assets depended on accounting policies and could give a distorted view in any particular year and had limited application to a current-year arm’s length analysis.
- • Tax paid. Again the point made was that the position of cyclical business (with prior year losses) might be misunderstood and that tax balances might be more helpful.
Filing and sharing of the CbC reporting template
The OECD working party stressed that it is still discussing the best approach for filing and sharing of the CbC reporting template and has not yet reached any final conclusion. It wants to protect confidentiality but also wants to ensure that material can be delivered to all countries on a timely basis.
One approach would be to share the information under the application of an information exchange provision of a bilateral tax treaty or multilateral convention. Business commentators advocating this approach suggested that the use of the treaty /exchange agreement mechanism would provide safeguards on confidentiality and protect against the improper use of information. The template should be filed with the tax authorities of the parent company within one year of the end of fiscal year of the parent company. The OECD should be encouraging countries to enter into tax information exchange agreements.
The OECD Secretariat stressed that if this approach would be chosen, local countries could still choose to establish their own rules on disclosure.
The principal alternative to a treaty approach was full public disclosure. However, an alternative put forward was disclosure by the parent company to the local tax authorities. It was not made clear how the parent company would be able to ensure confidentiality was followed by the local tax authorities.
Although some of the NGOs present were of the view that the template should be made publically available, there were no indications that the OECD is planning to go in that direction.
Master file and local file
With respect to the master file, it was explained that the document should contain high level information. The purpose of the document is to provide more context to the transfer pricing documentation that will be included in the local files. However, there still is an extensive number of data points required in the draft. It was explained that the concepts of ”material” and ”significant” in the master file context should be seen as qualitative concepts, leaving it up to business to decide how to interpret these concepts in light of the purpose of the document.
As for the local files, the OECD announced that they will not include a materiality concept, leaving it for the individual countries to address.
Representatives of NGOs expressed the view that a project with such global reach should be dealt with by an organization or representatives with a global reach. It was stated that beside the members of the G20, no representatives of the developing countries were participating in the process. The OECD Secretariat explained that the OECD has liaised in various ways with developing countries such as regional consultations and the Forum on Tax Administration.
A set of other topics (penalties, use of local or regional comparables, language, timing issues, implementation and simplification measures) was discussed. The working party indicated that these are all topics still under deliberation. A significant part of the discussion was devoted to the question whether the local file should be prepared in a common language (English), or whether the starting point should be preparation of the local file in the local language. No clear conclusion was drawn during the meeting.
Business urged the OECD to make use of momentum to simplify the documentation requirements and focus more on value added documentation, e.g., by amending penalty regimes and incentives.
The OECD Secretariat indicated they are close to issuing a discussion draft on the transfer pricing treatment of low value services. Other simplification measures are scheduled as part of the 2015 transfer pricing work of the OECD.
1. See EY Global Tax Alert, OECD releases draft country-by-country reporting template for comment, issued on 30 January 2014.
2. See EY Global Tax Alert, OECD hosts second webcast update on BEPS project, issued on 2 April 2014.
3. See EY Global Tax Alert, OECD releases Action Plan on Base Erosion and Profit Shifting (BEPS), issued on 19 July 2013. More information on the BEPS project can be found on .
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Transfer Pricing, Rotterdam
- • Ronald van den Brekel
+31 88 407 9016
Ernst & Young LLP, Transfer Pricing, Washington, DC
- • Chris Faiferlick
+1 202 327 8071
Ernst & Young LLP, International Tax Services, Washington, DC
- • Barbara Angus
+1 202 327 5824
EYG no. CM4429