Transfer Pricing and OECD BEPS Action 13
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Disclaimer
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Disclaimer
► This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances
► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.
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Background
► What does BEPS stand for?► Base Erosion and Profit Shifting
► Who is the OECD ?► OECD (Organization for Economic Cooperation and Development)► The OECD is a forum where the governments of 34 democracies with market
economies work with each other, as well as with more than 70 non-member economies to promote economic growth, prosperity, and sustainable development.
► What is the objective of BEPS and other transparency and tax avoidance provisions?► The OECD, the EU and other countries are concerned about aggressive tax
planning:► The issue is political: governments are facing budget shortfalls and they, along
with others (e.g., the media) are questioning whether multinational companies pay their ‘fair share’ of taxes.
► The OECD created action plan that resulted in recommendations (Action items) to address the aggressive planning.
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BackgroundGlobal transparency proposals and activity
BEPS• 15 Actions• OECD+G20
Anti-Tax Avoidance (ATA)• 6 Directives• EU/EEA
EU State Aid• Multiple investigations• Many taxpayer
adverse rulings
Interrelated efforts to address perceived abuses by MNC and erode local tax basesMany actions implemented with immediate effect
Regional or Local Country Initiatives Inspired by BEPS• Australia publishes taxes 2014 paid for top +1000 companies• UK Anti-hybrid rules and Tax Strategy Disclosure (2017 implementation)• EU proposed disclosures on taxes paid, business activities by country and in “tax havens”
OECD EU EU
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Country-by-Country report
High level information about MNC’s jurisdictional
allocation of revenue, profit, taxes, assets and employees
to be shared with all tax authorities where MNC has
operations
Impacts: new tax reporting requirements under Action Item 13► CbCR: Final US regulations issued on
June 29, 2016 apply to FY commencing June 30, 2016.
► CbCR: Reporting threshold of $850 million and greater in global revenue.
► CbCR: consistent approach to data requirements and definitions where adopted.
► Master file and local file requirements for calendar 2016 in approximately 50 countries: UK, France, Germany, Italy, China, India, Korea and Mexico to name a few.
► Greater engagement of non-tax functions (finance, legal, HR, investor relations) to support tax with these new requirements.
Themes across companies
► Should I file voluntarily with the IRS for 2016?
► What resources do I need to address CbC reporting
► Engaging with stakeholders outside of tax – if the data becomes public
Master fileHigh level information about MNC’s business, transfer pricing policies
and agreements with tax authorities in single
document available to all tax authorities where MNC
has operations
Local fileDetailed information about
MNC’s local business, including related party
payments and receipts for products, services,
royalties, interest, etc.
Tax authorities will have access to your global tax footprint via CbCR data, master file and the local file
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Organizational structure Business description Intangibles
Intercompany financial activities
Financial and tax positions
Structure chart:► Legal ownership► Geographic
location
Important drivers of business profit
Overall strategy description
Financing arrangements for (related and unrelated) lenders
Annual consolidated financial statements
New information with more invasive disclosures
Supply chain of:► Five largest products/services
by turnover► Products/services generating more than 5%
of sales
List of important intangibles and legal owners
Identification of financing entities
List and description of existing unilateral advance pricing agreements (APAs) and other tax rulings
Align to CbCR & local file
Main geographic markets of above products
List of important intangible agreements
Details of financial transfer pricing policies
US does not require,but…
List and brief description of important service arrangements
R&D and intangible transfer pricingpolicies
Is now a requirement in many countries to be compliant
Functional analysis of principal contributions to value creation by individual entities
Details of important transfers
Business restructuring/ acquisitions/ divestitures during fiscal year
Master file – information required
Master file
Local file
CbC report
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Local file – information required
Local entity Controlled transactions Financial information► Management structure► Local organization chart► Details on individuals to whom
local management reports
► Description of material controlled transactions and context in which they take place
► Identification of associated enterprises party to controlled transactions and relationship
► Functional analysis► Transfer pricing methods used► Comparables and details of methodology
► Local entity financial statements► Reconciliation to show how financial data
used in applying the transfer pricing method ties to the financial statements
► Summary of relevant financial data for comparables and sources from which data was obtained
Description of business and business strategy pursued
Amounts of intra-group payments and receipts for controlled transactions (products, services, royalties, interest, etc.)
► R&D and intangible transfer pricing policies
► Details of important transfers
Details of business restructurings and/or intangible transfers
Unilateral and bilateral/multilateral APAs and other tax rulings related to the controlled transactions
► Companies historically prepare LF► Consider how LF story ties to CbCR data
Key competitors Master file
Local file
CbC report
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Country-by-country report – information required
Tax jurisdiction
RevenuesProfit (loss)
beforeincome tax
Cash tax paid (CIT and WHT)
Current year tax accrual
Statedcapital
Accumulated earnings
Tangible assets other than
cash and cash equivalents
Number of employees
Unrelated party
Relatedparty Total
1.
2.
3.
4.
5.
Tax jurisdiction
Constituent entities
resident in the tax
jurisdiction
Tax jurisdiction of organization
or incorporation
if different from tax
jurisdiction of residence
Main business activity(ies)
R&
D
Hol
ding
or
man
agin
g IP
Purc
hasi
ng o
r pr
ocur
emen
t
Mfg
or p
rodu
ctio
n
Sale
s, m
arke
ting
or d
istr
i.
Adm
in.,
mgm
t or
supp
ort s
ervi
ces
Prov
isio
n of
se
rvic
es to
un
rela
ted
part
ies
Inte
rnal
grou
p fin
ance
Reg
ulat
ed
finan
cial
ser
vice
s
Insu
ranc
e
Hol
ding
sha
res
or
othe
r equ
ity
inst
rum
ents
Dor
man
t
Oth
er
1.
2.
3.
4.
5.
Table 1:
Table 2:
Country-by-country reporting template
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CbCR timelines and due dates
► Requirements in non-US jurisdictions could:► Cause official notifications by December 2016 (NL and Lux)► Cause a US Parent HQ to file in calendar 2017 for the CY
covering 2016.
► Some countries are imposing punitive measures to ensure compliance (e.g., criminal liability (NL), and loss of government contracts (MX)).
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CbC reporting readinessIs your company where it wants to be?
► Perform an initial dry run and assess current state of CbC profile
► Identify issues that would be raised by tax authorities
► Analyze master and local file gaps
► Recommend and plan structural remediation
► Finalize a plan for first-year implementation and how it will impact follow-on year implementations
► Incorporate CbC forms into filing calendars
► Set up data extraction and year one compliance process
► Configure audit trail functionality
► Design and implement technology tool or utilize a third-party provider
► Implement and/or enhance technology tools
► Establish data governance► Automate data extraction
and mapping ► Improve process and tools
for data analytics► Improve process for report
generation and filing
► Understand the rules and application to your company
► Align on policy decisions► Identify both financial and
nonfinancial information sources
► Identify stakeholders and operating model
► Connect to master and local files and determine gaps
2. Assess risks and
opportunities
3. Prepare for and conduct
year one reporting
4. Sustain future
compliance
1. Getting started
Key
act
iviti
esK
ey o
utco
mes
► Source data and policy decisions
► Assessment and communication plans
► Risk assessment and remediation plan
► Implementation plan(s)
► Integrated calendar► CbC form and filing with
tax authority(ies)► Action plans for changes to
transfer pricing and legal structure
► Sustainable process and tools
► Automated reporting and analytics
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How companies are responding to Action 13
► Communications:► Prepare executive level briefing► Engage foreign operations leadership► Request review by stakeholders in legal and shareholder relations functions
► Align key stakeholders► Increasingly important that tax, legal, treasury and business are aligned with regard to decision
making► CbC reporting:
► Understand US and foreign rules and application to your Company► Consider voluntary filing for calendar 2016 to address OUS ‘secondary’ reporting requirements► Analyze CbC report data and options for remediation► Determine strategy and work plan for CbC reporting compliance
► Master/local file:► Map timeline and identify when the Master File needs to be ready► Engage with non-tax sources to gather enhanced business data required
► Supply Chain mapping► Intangibles strategy and footprint
► Multiple new countries are enacting local file requirements – impacts on budgets and need for centralized oversight
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Jeffrey VelekePittsburghITS – Transfer PricingTel: 412-644-0418EYCOMM: 5858353E-mail: [email protected]
►Jeff Veleke is an Executive Director with E&Y’s Transfer Pricing Group in Pittsburgh.
►Experience includes the preparation of transfer pricing documentation for international and state and local tax purposes, economic and financial studies for tax planning and other corporate planning purposes, and assisting companies with setting up their supply chain in a tax effective manner.
► Over 19 years of economic and financial consulting experience with companies in a variety of industries.
► Prior to joining E&Y, Jeff worked for one of the current Big 4 Firms in both Pittsburgh and Dallas.
►Jeff received his MBA in Finance from Southern Methodist University and his undergraduate degree in Engineering from University of Wisconsin. Jeff has earned the designations of Chartered Financial Analyst (CFA), Accredited Senior Appraiser (ASA) of the American Society of Appraisers, and Registered Professional Engineer (inactive).