COUNTRY BY COUNTRY REPORTING LOCAL FILE WEBINAR 16 November 2017 ZARA RITCHIE - BDO NATALYA MARENINA - BDO JOANNE TING THOMSON REUTERS

Transcription

1 COUNTRY BY COUNTRY REPORTING LOCAL FILE WEBINAR 16 November 2017 ZARA RITCHIE - BDO NATALYA MARENINA - BDO JOANNE TING THOMSON REUTERS

2 OUTLINE OF SESSION 1 Background and requirements for SGEs 2 Country by Country reporting Templates 3 Australian specific Local File 4 Case study 5 Transfer Pricing challenges 6 Questions 2

3 OUTLINE OF REQUIREMENTS FOR A SIGNIFICANT GLOBAL ENTITY (SGE)

4 BACKGROUND OECD framework OECD BEPS Action 13 on Transfer Pricing Documentation and Country-by- Country Reporting issued in 2015 An Australian entity that is a member of a group of entities (either the global parent entity or one of the other group members) Group is consolidated for accounting purposes and has annual global income AUD 1 billion or more 4

5 EXTRA COMPLIANCE REQUIREMENTS FOR SGES Country by Country Reporting Three Tiered Structure Master File - standardised information relevant for all MNE group members. Prepared globally and lodged locally Local File - containing information relevant to material transactions of the local taxpayer (different from Australian transfer pricing documentation). Prepared and lodged locally Country-by-Country Report - information relating to the global allocation of the MNE s income and taxes paid together with certain indicators of the location of economic activity within the MNE group. Prepared and lodged globally. Master File Local Files Country by Country Report 5

6 WHY DO SIGNIFICANT GLOBAL ENTITIES NEED TO COMPLY? Administrative penalties increased from 1 July 2017 Failure to lodge tax documents including CbC Reporting documents on time will attract maximum potential penalties ranging from AUD 105,000 to AUD 525,000 (depending on timing) Penalties applied to transfer pricing adjustments are doubled for SGEs and can exceed the relevant tax shortfall Particulars Scheme, Statement and unarguable positions Failure to lodge on time penalty Potential penalties Base penalty amount is determined by a % of shortfall amount, which depends upon the taxpayer behaviour, with maximum penalties of 75% for statement penalties and 50% for scheme penalties. Penalty % is also dependent on other circumstances (e.g. existence of Australian transfer pricing documentation and aggravating/mitigating circumstances). Penalties for failure to lodge - Base penalty amount determined as penalty units per period of 28 days (or part thereof) of late lodgement i.e. 1 penalty unit for small entities, 2 penalty units for medium entities and five penalty units for large entities 6

7 NEW DEVELOPMENTS FOR SGES Multinational Anti-avoidance Law (MAAL) Key Details: Applies on or after 1 January 2016 irrespective of when the scheme commenced Targets schemes that limit a taxable presence or permanent establishment (PE) in Australia: Target profit on sales activities occurring offshore where the activities of a related entity in Australia are integral to gathering those sales MAAL requires a principal purpose (not sole principal purpose) to either obtain an Australian tax benefit or reduce or defer foreign tax Where MAAL applies, the foreign entity will likely be deemed to have a notional PE in Australia Diverted Profits Tax (DPT) Key Details: Purpose of the DPT is to align tax paid with the economic substance and punish SGEs for diverting profits offshore Does not apply if one of these tests apply: AUD 25 million Income test; Sufficient foreign tax test (Relevant income recognised for foreign tax purposes is less than 24%) Sufficient economic substance test Applies to tax benefit for an income year that starts on or after 1 July The DPT can apply to a scheme entered into or commenced to be carried out before 1 July 2017 Punitive 40 per cent tax applied on profits that are found to have been diverted to low taxed countries Adopts the UK s pay now, argue later approach 7

8 NEW DEVELOPMENTS FOR SGES General Purpose Financial Statements Does the company fall within the following criteria? Australian resident or PE Not required by ASIC to prepare GPFS Required to lodge an income tax return If the answer to the above criteria is yes then the company needs to prepare GPFS and lodge with the income tax return. When does it come into effect? Income years commencing on or after 1 July 2016 How many GPFS need to be prepared? Consolidated statements that include an Australian subsidiary maybe be permissible Each entity not part of tax consolidated group must submit one GPFS Does GPFS need to be audited? GPFS does not need to be audited however practically auditing the GPFS provides evidence that the accounting standards have been applied What is the penalty for not complying? The penalty for non-compliance is the administrative penalty multiplied by a factor of 100 (i.e., maximum of $525,000 per document) 8

9 COUNTRY BY COUNTRY REPORTING TEMPLATES

10 COUNTRY BY COUNTRY REPORT 10

11 COUNTRY BY COUNTRY REPORT 11

12 MASTER FILE Organizational Structure Description of MNE s business MNE s Intangibles MNE s intercompany financial activities MNE s financial and tax positions Chart describing MNE's legal and ownership structure Important drivers of business profit Supply chain Intra-group services Main Geographic markets Brief functional analysis Business restructures, acquisitions or divestures Overall strategy for the development, ownership and exploitation of intangibles Ownership list of intangibles Important agreements relating to intangibles (including CCA, principal research agreements and licence agreements) R&D intangibles Transfers of intangibles Financing of Group (including external loans) Financing members of MNE Group (including location) Transfer pricing policies relating to financial arrangements Consolidated financial statement Unilateral APAs and Tax Rulings relating to allocation of income globally 12

13 AUSTRALIAN LOCAL FILE DESIGN Long Form Local File consists of following three elements: Short Form Local File Local File Part A Local File Part B 13

14 SGE TRANSFER PRICING CYCLE GLOBAL ENTITY Exemption possible* LOCAL ENTITY MASTER FILE Given to Local Entity 12 Months after y/e PROVIDED BY LOCAL ENTITY 6.5 Months after y/e GPFS (with tax return) LOCAL FILE (OECD design) ATO 6.5 Months after y/e IDS (with tax return)** 12 Months after y/e LOCAL FILE (ATO design)** CbCR Exemption possible* FOREIGN TAX AUTHORITY * Need to apply to ATO for exemption (ideally before tax return due) ** Expected to be used for risk assessment by ATO Prepared before tax return due (for penalty mitigation) AUSTRALIAN TRANSFER PRICING DOCUMENTATION 14

15 AUSTRALIAN SPECIFIC LOCAL FILE

16 SHORT FORM LOCAL FILE V/S LONG FORM LOCAL FILE Do you have less than AUD 2 million of IRPDs? Do you satisfy de minimis rules for small taxpayers or materiality? Do you have transactions on the exception list? Derivative transactions Assignment license or other transactions involving IPs Transactions of a capital nature Or Or No No No Yes You must prepare Long Form Local File You are eligible for Short Form Local File 16

17 SHORT FORM LOCAL FILE Provide a description of the following in relation to the local entity Organisational structure Business description and strategy Recent business restructures Transfers of intangibles Key competitors 17

18 LOCAL FILE PARTS A & B (LONG FORM) Australian specific design Differs significantly from OECD standard Detail required much greater than for IDS Information is required on a transaction by transaction basis Legal agreements required Require disclosure regarding existence of contemporaneous transfer pricing documentation 18

19 CASE STUDY

20 LOCAL FILE - CASE STUDY Australian medical equipment distributor Purchased goods for distribution from India Co for USD (in AUD equivalent) 2,500,000 (10 transaction), Singapore Co for AUD 850,000 (3 transactions) plus AUD 500,000 TNMM used as pricing method for all transactions (Cost Plus by counter party) No written agreement but invoices with details of transactions available Part of Relevant Agreement Series Australian specific contemporaneous transfer pricing documentation prepared India Co has a private ruling for transaction 20

21 TRANSFER PRICING CHALLENGES

22 GLOBAL AND LOCAL MNE TRANSFER PRICING CHALLENGES To satisfy the new obligations (i.e. coordinating with international parties to obtain relevant information) Increased administrative expenses and resources employed Increased complexity New additional obligations Multiple datelines management Different years of applicability (i.e. different year ends of subsidiaries) Challenges encountered Effect of BEPS Higher Transparency (publicly available information) Different obligations between local jurisdictions Localising of centrally prepared documentation Higher risks of litigation Increased focus from tax authority 22

23 QUESTIONS

24 THANK-YOU! Contact Us Zara Ritchie Partner and Head of Global Transfer Pricing Services Melbourne Direct: Mobile: Natalya Marenina Principal, Transfer Pricing Sydney natalya.marenina@bdo.com.au Direct: Mobile:

25 DISCLAIMER This presentation has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The presentation cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO Australia Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this presentation or for any decision based on it. BDO refers to one or more of the independent member firms of BDO International Ltd, a UK company limited by guarantee. Each BDO member firm in Australia is a separate legal entity and has no liability for another entity s acts and omissions. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. BDO is the brand name for the BDO network and for each of the BDO member firms BDO Australia Ltd. All rights reserved. 25