Allocation of income post-beps EMA Tax Summit London, September 2016
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With you today John Neighbour Deputy Global Lead Global Transfer Pricing Services Montserrat Trapé Viladomat EMEA Lead Global Transfer Pricing Services Gianni De Robertis Italian Lead, KPMG in Italy Global Transfer Pricing Services 3
Agenda 1 Introduction 2 Reviewing current transfer pricing policy 3 Documentation and disputes 4 Future environment 5 Conclusions 4
Introduction 5
Balancing 3 pillars substance is fundamental Coherence Hybrid Mismatch Arrangements (2) CFC Rules (3) Interest Deductions (4) Harmful Tax Practices (5) Substance Preventing Tax Treaty Abuse (6) Avoidance of PE Status (7) TP Aspects of Intangibles (8) TP/Risks and Capital (9) TP/High Risks Transactions (10) Digital Economy (1) Multilateral Instrument (15) Transparency and Certainty Measuring BEPS (11) Disclosure Rules (12) TP Documentation (13) Dispute Resolution (14) Requiring a fundamental assessment of existing practices, sustainability and defence, and planning for feasible alternatives Source: OECD, BEPS Webcast - Launch of the 2015 Final Reports, 5 October 2015 6
Reviewing current transfer pricing policy 7
What has changed post-beps? Three key changes are: 01 Tax authorities want to look at the big picture of the whole value chain of a business, not a one sided transaction. 02 Delineation of transactions based on people substance/ functions and not on contracts. 03 The change to a more subjective transfer pricing approach could lead to an increase in disputes and a misuse of profit splits. 8
Documentation and disputes 9
Action 13: Objectives and approach The OECD has developed a three-tiered approach for documentation Objectives Approach Aid tax authorities perform a risk assessment Country by Country Report () Have taxpayers set prices in line with the arm s-length principle Master File (MF) Information for tax authority audit Local File (LF) Source: OECD 10
Action 13 country implementation Canada Draft legislation United States Mexico /MF/LF Peru Chile Bermuda /MF/LF Intentions /MF/LF Intentions Belgium Ireland Intentions Implemented Draft bills/public discussion draft Intention to Implement /MF/LF United Kingdom Luxembourg Draft legislation France Jersey Denmark Netherlands Uruguay /MF/LF /MF/LF Intentions Portugal Final Spain Nigeria /MF Draft legislation /MF/LF MF/LF Intention Intentions Norway Draft Switzerland Italy South Africa Draft Draft MF/LF Intention Poland Sweden /MF/LF Draft Legislation /MF/LF MF/LF Intention Israel MF/LF Intention Germany /MF Draft /LF Draft Source: KPMG International member firms Liechtenstein LF Intention Czech Republic Draft Malaysia Austria Finland /MF/LF Draft Legislation India MF Intention /MF/LF Intentions MF/LF Intention Final China /MF/LF Draft Legislation /MF/LF Romania Intention MF/LF Draft / MF /LF Australia Slovenia Draft Legislation /MF/LF New Zealand MF/LF Final /MF/LF Intentions Singapore Russia Draft Korea Japan Draft Taiwan Draft legislation MF Intention /MF/LF MF/LF Final /MF/LF Intentions Indonesia /MF/LF Intentions 11
Action 14 Dispute resolution The measures developed under Action 14 of the BEPS Action Plan aim to strengthen the effectiveness and efficiency of the MAP process. They aim to minimise the risks of uncertainty and unintended double taxation by ensuring the consistent and proper implementation of tax treaties, including the effective and timely resolution of disputes regarding their interpretation or application through the mutual agreement procedure. 12
Future environment 13
The road ahead You are here Certainty? Action 4 Technical aspects of group wide ratio rule; special rules for banks and insurers; transfer pricing of financial transactions (2016 and 2017) Action 5 Framework to engage non- OECD countries; revisions to criteria for harmful regimes; ongoing monitoring Action 7 Attribution of profit to PE s paper to be finalised Actions 8-10 Profit split paper to be finalised Action 14 Framework to monitor compliance with minimum standard; mandatory binding arbitration provision Action 15 The multilateral instrument is to be delivered by the end of 2016 Implementation Monitoring of country implementation framework for continuing work to include developing countries EU Accounting Directive & EU State Aid Rules Source: OECD 14
Conclusions 15
Key messages 01 Do you have an existing TP policy covering the transaction? YES 02 Are you satisfied your TP policy remains arm s length post- BEPS? YES 03 Risk assess / review documentation NO NO Consider Consider Design TP model Review TP model APA to achieve certainty Preparing robust BEPS documentation Consider wider stakeholders 16
Questions 17
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Fragmentation and controversy Tax in a post-beps world
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