The BEPS project is the beginning, but is the end in sight?

Transcription

1 The BEPS project is the beginning, but is the end in sight?

2 Panel Moderator Panel Michael Hewson Annet Oguttu Oliver Wehnert Ryaad Owodally Africa Transfer Pricing Leader EY Africa Professor of Tax Law UNISA Transfer Pricing Leader EY Europe, Middle East, India and Africa (EMEIA) Tax Partner EY Mauritius Page 2

3 Agenda What will be the impact of the BEPS project? How has it impacted different parts of the world? How is it being regarded in Africa? Transfer pricing action points Illustrative example What is an appropriate response to these BEPS developments? Questions Page 3

4 What will be the impact of the BEPS project? Main themes of the Organization for Economic Co-operation and Development (OECD) BEPS project: consistency, substance and transparency Action points 2, 3, 4, 6, 7 Action points 1, 8, 9, 10, 13 Action plan on Base Erosion and Profit Shifting (BEPS) Action points 5, 11, 12, 14, 15 Page 4

5 How has it impacted different parts of the world? Countries that have proposed or implemented BEPS-style legislation Page 5

6 How is it being regarded in Africa? 32 African countries have participated both directly and indirectly in the BEPS process. Lot s of talk, but is there any action? 17 July November December December January February July 2015 Davis Tax Committee initiated SARS treasury presentation to Parliament on TP Discussion draft work on Action 8, 9 and 10 (risk, recharacterisation and special measures Davis Tax Committee releases First Interim Report on BEPS Mbeki Report on the High Level Panel on Illicit Financial Flows OECD releases guidance report on implementation of CbCR African tax authorities meet to address BEPS Page 6

7 How is it being regarded in Africa? (cont.) Page 7

8 TP-related action points likely to have an important impact in Africa Action 7 prevent the artificial avoidance of permanent establishment status Action 8 consider transfer pricing for intangibles Action 9 consider transfer pricing for risk and capital Action 10 consider transfer pricing for other high risk transactions Action 13 re-examine transfer pricing documentation Page 8

9 BEPS action 7 Preventing the artificial avoidance of PE status Discussion draft issued 31 Oct 2014 sets out options for changing the PE definition How will this impact different activities and what will be the impact on supply chains across Africa? Distribution Construction Insurance Page 9

10 BEPS actions 8-10 Co A Co B Company A performs contract R&D work and is responsible for overseeing the strategic decision making and development of the IP Company B was set up to own the IP and assumes the associated risks How should Co A be compensated? Page 10

11 BEPS action 13: 3 Levels of documentation Masterfile High level information about the MNE s business, transfer pricing policies and agreements with tax authorities in a single document available to all tax authorities where the MNE has operations. Local file Detailed information about the local business including related party payments and receipts for products, services, royalties, interest and other CbC report High level information about the jurisdictional allocation of profits, revenues, employees and assets. What is your strategy and approach to respect to transfer pricing documentation in Africa? Page 11

12 Illustrative example Page 12

13 Illustrative example CbCR Information request (1) Table 1: Overview of allocation of income, taxes and business activities by tax jurisdiction Name of the MNE group Fiscal year concerned Tax jurisdiction Unrelated party Revenues Related party Total Profit (loss) before income tax Income tax paid (on cash basis) Income tax accrued current year Stated capital Accumulated earnings No. of employees Tangible assets other than cash and cash equivalents Page 13

14 Illustrative example CbCR Information request (2) Table 2: List of all the constituent entities of the MNE group included in each aggregation per tax jurisdiction Name of the MNE group Fiscal year concerned Tax jurisdiction Constituent entities resident in the tax jurisdiction Tax jurisdiction of organization or incorporation if different from tax jurisdiction of residence Research and development Holding of managing intellectual property Purchasing or procurement Manufacturing or production Main business activity(ies) Sales, marketing or distribution Administrative, management or support services Provision of services to unrelated parties Internal group finance Regulated financial services Insurance Holding shares or other equity instruments Dormant Other [1] Please specify the nature of the activity of the Constituent Entity in the Additional Information section Table 3: Additional information Name of the MNE group: Fiscal year concerned: Please include any further brief information or explanation you consider necessary or that would facilitate the understanding of the compulsory information provided in the country-by-country report. Page 14 Africa Tax Conference Africa Tax 2015 Conference 2015

15 Illustrative example Master file - information to be provided 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 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 Advanced Pricing Agreements (APA s) and other tax rulings Main geographic markets of products listed above List of important intangible agreements Details of financial transfer pricing policies List and brief description of important service arrangements R&D and intangible transfer pricing policies Functional analysis of principal contributions to value creation by individual entities Business restructuring/ acquisitions/divestitures during fiscal year Details of important transfers What does this graph suggest about the consistency of the pricing policy being applied? Page 15

16 Illustrative example Local file-information to be provided Local entity Controlled transactions Financial information Management structure Local organization chart Details on individuals to whom local management reports Description of business and business strategy pursued Details of business restructurings and/or intangible transfers Key competitors 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 Amounts of intragroup payments and receipts for controlled transactions (products, services, royalties and interest) Unilateral and bilateral/multilateral APAs and other tax rulings related to the controlled transactions 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 R&D and intangible transfer pricing policies Details of important transfers What does this graph suggest about the consistency of the pricing policy being applied? Page 16

17 Illustrative example CbCR Output (1) EBT / headcount Who might be interested in a graph like this? What could a graph like this suggest to other stakeholders? Income tax charge / EBT Page 17

18 Illustrative example CbCR Output (2) EBT / headcount What does this graph suggest about the consistency of the pricing policy being applied? Page 18

19 What is an appropriate response to these BEPS developments? Page 19

20 What is an appropriate response to these BEPS developments? Page 20

21 Questions Page 21

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