Proposed new guidelines: Transfer pricing documentation & Country by Country reporting (BEPS Action 13) Jeroen Geevers & Jack Favre ITS / Transfer pricing EY Rotterdam May, 2014
Changing information to be included in TP documentation BEPS action point 13: proposed changes to Chapter V of the OECD TP Guidelines - Transfer pricing documentation New: country-by-country reporting (CBCR) Report income, economic activity and taxes paid among countries Proposed changes: TP documentation (similar to EUJTPF documentation) Master File (information about the global operations) Local Files (information relevant to each country) Page 1
1300+ pages of public comments on discussion draft - key trends: The CBCR template should not be included in the Master File (different objectives) CBCR template should not be inappropriately used by tax authorities while assessing a transfer pricing analysis There has to be a good balance between the usefulness for tax administrations of the data provided and the increase of the compliance burden on the taxpayer Sharing information that is relevant to some countries only should be done under tax information exchange procedures so as to safeguard confidentiality and to prevent fishing expeditions Information should only be delivered to the headquarters tax authority and fall under the confidentiality protection of the parent jurisdiction Page 2
What information should be provided? Aggregated entity information Revenues Profit before tax Tax: paid and accrued (including withholding taxes) Number of FTE employees Capital and accumulated earnings Tangible Assets List of entities with business activity per entity Partnerships Trusts Branches and Permanent Establishments (pure tax PEs) Dual resident companies Removed compared to initial draft: place of effective management, total WHT paid, total employee expense, royalties / interest / service fees paid and received Page 3
How tax authorities will see the company EBT / Rev EBT / Rev Average* Income (EBT) per Employee Total Tax / Income (EBT) Total Tax / Income (EBT) Average* ES GR AU FI KR FR DK CZ NO IT SI DE PT GB HU LV SE NL RU RO TH HR RS BE Income (EBT) per Employee ES AU FI GR FR DK KR CZ SI LV PT IT RU NO DE GB HU RO SE RS HR NL BE Average* FR IT PT CZ DK GB TH DE HR RU RO SI SE LV AU BE NL HU KR ES RS GR NO FI Page 4
CBCR typical observations Identify outliers: high income entities, low income entities Potential inconsistencies in TP policy Transfer pricing adjustments: booked properly? Substance aligned with profit allocation? Functional substance versus profit / loss allocation across countries; reward allocated to: Services PE s (in various locations) Asset owning entities (e.g. vessels, equipment, etc.) Personnel entities Operating entities (regional) Headquarters / corporate services Page 5
Many items of CBCR still unclear next public consultation May 19 The process for delivery to tax authorities of the CBCR template and the transfer pricing master file The language to be used and the translation requirements How to split consolidated accounts by country? How to obtain the required information from non controlled entity (but considered part of the group for CBCR purposes) Reconciliation required? E.g. to consolidated, statutory or audited accounts, or to tax returns Same accounting standards used? Same accounting periods? Which currency should be used? Timing of CBCR template may not match the availability of accounts Definitions of terms used in the CBCR template Page 6
TP doc: Master File showing the big picture Legal entity chart (to be presented by division, country, function?) global scope Supply chain mapping related to material products and services Materiality level not defined yet Functional analysis describing value contributions by individual entities IP mapping; list of material intangibles and ownership What is definition of IP? Where are development, enhancement, maintenance and protection done? Treasury mapping; description of group financing, incl. important arrangements with unrelated lenders + transfer pricing policies Other: e.g. description of business restructuring and intangible transfers Page 7
TP doc: Local File - detailed local info pack Identify material inter-company transactions between a local entity and related parties, and transactional reporting / inter-company payments (e.g. services, royalties, interest) Overview of local organization Management structure of the local entities (linked to legal entity chart) Local organizational chart Description of individuals to whom local management reports, and where they are located Indication of business restructurings or intangibles transfers related to the local entity Further common elements of TP analysis, such as functional analysis, TP methodology, comparable search methodology, and financial information Page 8
Putting it together Tax Authorities will likely look at combined info: The CBCR (with functions per entity) Legal Entity Chart Mappings (with functional analysis): Supply Chain, IP, Treasury APA s, Rulings, Other info Page 9
What can you do now? Consider proactive engagement with tax authorities, including bilateral APAs and other approaches to increased transparency and greater certainty Estimate information package to be submitted Heat map: consider how tax authorities are likely to analyze the information and assess implications - review key ratios and comparisons that tax authorities are likely to focus on Assess whether the transfer pricing processes are aligned with your business processes Map out your current transfer pricing governance processes Consider your current processes for global compliance and controversy management: How stable are your TP governance and monitoring processes? How robust and integrated are your current global controversy management processes? Consider future information gathering and presentation processes Page 10
Place image here. Refer to guidelines Mr. Jeroen Geevers Senior Manager Transfer Pricing Tel +31 88 40 78532 Mobile +31 6 290 844 85 Fax +31 88 40 78981 Email jeroen.geevers@nl.ey.com Background Jeroen is a senior manager with over 11 years of experience and practices in all fields of transfer pricing. Jeroen worked in New York during 2010. Jeroen is a member of the Netherlands Association of Tax Advisors and is part of the International Tax Services group. Jeroen has a Tax Law Decree at the University of Tilburg, has published multiple articles in the field of transfer pricing, and regularly speeches on public events. Skills Transfer pricing planning, and transfer pricing model designing Transfer pricing documentation, including benchmarking analysis Transfer pricing controversy / transfer pricing audit assistance Functional design analysis Conversion analysis, and business restructuring (Intangibles) valuation for transfer pricing Advance pricing agreement negotiation (including Greenfields) MAP negotiation Innovation box ruling negotiation Contractual relations reviewing and advising Horizontal monitoring transfer pricing Professional experience Jeroen has worked on transfer pricing studies for clients in various industries, including but not limited to Oil & Gas, high-tech, chemicals and plastics, energy and utilities, semiconductors, and general industries. Clients served are primarily multinational groups of Dutch and foreign origin. Key assignments comprise of: Transfer pricing design of royalty structures, including non-transactional principal models Numerous Advance Pricing Agreement negotiations, including bilateral Design of contract manufacturing (and tolling) models Design of limited risk distributor (and agent / commissionaire) models Numerous transfer pricing documentation projects Numerous benchmarking studies Intangibles valuation projects Exit tax valuation projects Numerous tax planning projects Multiple business restructuring projects, including conversion analysis Multiple Mutual Agreement Procedure negotiations Innovation box ruling negotiations Horizontal monitoring projects (transfer pricing related part) Page 12
Place image here. Refer to guidelines Mr. Jack Favre Senior Manager International tax services - Oil & Gas T: +31 (0)88 407 8877 M: +31 (0)6 2908 3442 F: +31(0)88 407 1005 E: jack.favre@nl.ey.com Background Jack is part of International Tax Services group and is a member of the industry specific Oil & Gas Group of EY. Jack graduated in Tax Law at the University of Leiden in 2004. Further Jack has an advanced LLM degree in international and European taxation from the International Tax Centre of the Leiden University. In 2006, he obtained additional training in US international taxation at the International Tax Centre of the Leiden University. Jack is a member of the Dutch Association of Tax advisors ( Nederlandse Orde van Belastingadviseurs ). Skills Jack has 8 years of experience in practicing in all fields of (inter) national corporate tax services, including tax planning and transfer pricing planning projects, with a focus on (re) structuring, reorganizations and mergers and acquisitions. His clients are both national and multinational groups of Dutch and foreign origin. Professional experience In the context of his expertise, Jack has been involved in various tax advisory and projects such as: New exploration & Production (E&P) investment projects including finance- and tax arrangements; (Cross) border merger and acquisitions, both (E&P) assets and share deals; (Inter) national group restructuring / reorganisation and supply chain optimizations; Consultation and implementation of (inter)national tax planning; Implementation of (group) financing and leasing arrangements; (Inter) national repatriation schemes. Besides the corporate income taxation Jack has great experience with international Oil & Gas regimes including the Dutch State Profit Share. He served his clients various deals as well as on day to day consequences and compliance matters. Besides this experiences, Jack has been involved in negotiating with the Dutch tax authorities on behalf of his clients in state tax audit procedures or to obtain advance tax rulings, advance pricing agreements. Page 13