BEPS Country-by-Country Reporting Rules and New Documentation Requirements

Transcription

1 BEPS Country-by-Country Reporting Rules and New Documentation Requirements, EY LLP, Couzin Taylor LLP 67 th Annual Tax Conference 67e Conférence fiscale annuelle 2015 Agenda 1. The BEPS project: Action 13 in context 2. New transfer pricing documentation requirements 3. Implementation 4. Implications of Action 13 and increased transparency 5. Transparency readiness: Proactively dealing with Action What s next? 7. Conclusion 2

2 1. The BEPS project: Action 13 in context 3 Overview of BEPS action items Coherence Substance Transparency Action 2: Hybrid mismatch arrangements Action 6: Preventing tax treaty abuse Action 11: Methodologies and data analysis Action 3: CFC rules Action 4: Interest deduction Action 5: Harmful tax practices Action 7: Avoidance of PE status Action 8: TP aspects of intangibles Action 9: TP-risk and capital Action 10: High risk transactions Action 1: Digital economy Action 15: Multilateral instrument Action 12: Disclosure rules Action 13: TP documentation Action 14: Dispute resolutions 4

3 Tax administrations: Why need Action 13? Inadequate transfer pricing documentation No big picture view of MNE Enhancing transparency is an essential part of tackling the BEPS problem Reinforcing role of OECD Transfer Pricing Guideline 5 2. New transfer pricing documentation requirements 6

4 Master file The three-tiered approach High-level overview, blueprint 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 By line of business Local file Detailed information about the local business, including related party payments and receipts for products, services, royalties, interest, etc. Supplements the Master file CbC report High-level information about the jurisdictional allocation of profits, revenues, employees and assets Operational and tax footprint 7 Master file information requirements Organizational structure Business description Intangibles Structure chart: Legal ownership Geographic location Important drivers of business profit Supply chainof: Five largest products/ services by turnover Products/services generating more than 5% of sales Main geographic markets of above products List and brief description of important service arrangements Functional analysis of principal contributions to value creation by individual entities Business restructuring/ acquisitions/divestitures during fiscal year Overall strategy description List of important intangibles and legal owners List of important intangible agreements R&D and intangible transfer pricing policies Details of important transfers Intercompany financial activities Financing arrangements with related and unrelated lenders Identification of financing entities Details of financial transfer pricing policies Financial and tax positions Annual consolidated financial statements List and description of existing unilateral APAs and other tax rulings * New requirements compared to previous OECD Guidelines Chapter V. 8

5 Local file information requirements 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 Comparability and functional analysis Transfer pricing methods used Comparables and details of methodology Amounts of intra-group payments and receipts for controlled transactions (i.e., products, services, royalties, interest, etc.) Unilateral and bilateral/multilateral APAs and other tax rulings related to the controlled transactions Copies of all material intercompany agreements concluded by the local entity 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 * New requirements compared to previous OECD Guidelines Chapter V. 9 CbC report A groundbreaking template Scaled back compared to previous draft Level of information No longer part of Master file To be completed by Reporting Entity By tax jurisdiction Sources of information 10

6 CbC main reporting table Country aggregated data Tax Jurisdiction 1. 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 Tangible Assets other than Cash Number of and Cash Employees Equivalents Etc 11 CbC Table 2 Constituent Entity details Tax Jurisdiction Etc Constituent Entities resident in the Tax Jurisdiction Tax Jurisdiction of organization or incorporation if different from Tax Jurisdiction of Residence Research and Development Holding or Managing Intellectual Property Purchasing or Procurement Manufacturing or Production Sales, Marketing or Distribution Main business activity(ies) 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 1. Please specify the nature of the activity of the Constituent Entity in the Additional Information section. 12

7 Additional information CbC Table 3 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 in the Country-by-Country Report. 13 CbC data definitions Group entities by country and business activity codes Revenue and pretax earnings Cash tax and current tax Stated capital and accumulated earnings Employee headcount and tangible assets Use of same data source year-to-year Reconciliation of CbCR to consolidated financial statement not required Use functional currency of the reporting entity Reporting made on tax jurisdiction by tax jurisdiction basis Revenue: includes sales of inventory and properties, services, royalties, interest and premiums, and any other amounts derived from transactions with related or unrelated parties Pre-tax earning: includes all extraordinary items Cash tax: includes withholding taxes paid by other entities with respect to payments to a Constituent Entity Current year tax (accrual basis): includes only current year operations, excludes deferred tax or provisions Stated capital and accumulated earnings: includes all Constituent Entities resident for tax purposes in the relevant jurisdiction PE to be reported by the legal entity of which it is a PE Tangible assets: net book value of tangible assets for all Constituent Entities resident for tax purposes in the relevant jurisdiction Employee headcount: full-time equivalent basis, for all Constituent Entities resident for tax purposes in the relevant jurisdiction Independent contractors participating in the ordinary operating activities of a Constituent Entity: can be reported as employees 14

8 Consistency of reporting OECD BEPS Action 13 CbC Report Local File Master File Other reporting Tax compliance Annual reports and MD&A Annual information forms SEC reporting Sustainability reporting Other public reporting Implementation 16

9 Implementation of Action 13 First CbC reporting requirement: Fiscal years beginning on or after 1 January 2016 One year from the close of the fiscal year to prepare and file the CbC Report MNEs required to file All MNE groups Exemption if annual consolidated group revenue in the immediately preceding fiscal year is less than 750 million Filed with tax authority in Parent country To be shared with tax authorities in countries where group has Constituent Entities Master file / Local file: Timing not specified in final report Filed with local tax authority through normal documentation procedures 17 Canadian developments 18

10 Rest of world developments United States Europe Asia Implications of Action 13 and increased transparency 20

11 Increased global tax controversy More, and more complex, controversy Increased risk of adjustment Greater focus on substance and alignment with business Great transfer pricing complexity More scrutiny of: IP ownership strategies and structures Financing structures 21 Other tax and operational implications Tax function Increased reporting Need for greater integration and alignment with business Increased centralization of transfer pricing and related documentation Need for additional resources? Tax planning Pressure on existing structures More substance-based going forward Business and operations Corporate reputation IT 22

12 5. Transparency readiness: Proactively dealing with Action Best practices CbC report risk assessment Transfer pricing documentation gap analysis and review of approach Review of international structures and transfer pricing policies Actively monitor the changing landscape Communicate with internal and external stakeholders Review IT and other processes for data gathering Consider broader proactive engagement with tax authorities Have a plan in place in the event of public disclosure 24

13 Key questions to consider Do you have accurate information on global operations? Headcount, revenues, profits by country Have you identified features listed as potentially indicative of transfer pricing risk? Significant transactions with a low-tax jurisdiction Transfers of IP to related parties Business restructurings Specific types of related-party payments Year-on-year loss making Poor or non-existent documentation Excessive debt Do you have amounts and supply chain charts for material transfer pricing transactions? What percent of transactions do you currently cover in documentation? How does your global business footprint compare to your global tax footprint? Do you have aligned assets, functions and risks in your principal company? Is IP aligned with business substance? Do you have more than 50% of profits outside jurisdictions where revenue is earned? Do you earn consistent returns on similar transactions? How do the financials you used for a product or business unit analysis compare to the analyst reports being provided? Did you consider the full set of potentially comparable agreements in your analysis? Does industry analyst report support your transfer pricing practices? What s next? 26

14 OECD: What can we expect? XML schema for CbC template and related user guide Action 13 to be revisited in 2020 Continued domestic implementation by countries Implementation of arrangements for automatic exchanges of CbC reports under international agreements Continued pressure for public disclosure of tax information Conclusion Be proactive start now Think strategically Not just a compliance exercise How will the information / data be interpreted by tax authorities? Are positions supportable? Is remedial action required? Review readiness: Gap analyses Risk assessment Processes 28