JPA Tax Club Lyon 07.01.2016

The (Anti-)BEPS-Initiative of the OECD -

Consequences of Action 13 on transfer

pricing documentation (chapter V)

Dr. iur. Klaus Fiebich

fk@fiebich.com

Tel.: +43 316 324453-11

Contents

• What is BEPS?

• Sources

• Implementation/Monitoring BEPS Package

• BEPS Action Plan (Actions 1-15)

• BEPS Action 13 – Guidance on transfer pricing

documentation and country-by-country reporting

1

What is BEPS?

• Project to reform the international tax system

• Launched by the OECD and G20 countries in 2013

• OECD

– International organisation of 34 countries

• G20 countries

– International forum for governments and bank governors from 20 majoreconomies (19 countries and EU)

• Background BEPS

– Globalisation opened opportunities for multinational enterprises togreatly reduce taxes

– Gaps in international standards (e.g. bilateral agreements)

– Leading to double non-taxation

2

What is BEPS?

• OECD definition of BEPS:

“Base Erosion and Profit Shifting (BEPS) refers to tax planningstrategies that exploit gaps and mismatches in tax rules to artificially shiftprofits to low or no-tax locations where there is little or no economicactivity, resulting in little or no overall corporate tax being paid”

• Revenue losses from BEPS estimated at USD 100-240 billion annually

• 15-point action plan adopted to address BEPS

• Final Reports published in October 2015

• Ensure that profits are taxed where economic activities take place andvalue is created

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Sources

• http://www.oecd.org/ctp/beps-about.htm

• BEPS - Frequently Asked Questions: http://www.oecd.org/ctp/beps-

frequentlyaskedquestions.htm

– In total 128 FAQs grouped as follows:

• A. BEPS PACKAGE

• B. ENGAGEMENT WITH DEVELOPING COUNTRIES

• C. ENGAGEMENT WITH STAKEHOLDERS

• D. BEPS IMPLEMENTATION PHASE

• E. BACKGROUND ON BEPS

• OECD (2014), Explanatory Statement, OECD/G20 Base Erosion and Profit Shifting

Project, OECD

• OECD (2015), Explanatory Statement, OECD/G20 Base Erosion and Profit Shifting

Project, OECD

• OECD (2014), Guidance on Transfer Pricing Documentation and Country-by-

Country Reporting, OECD/G20 Base Erosion and Profit Shifting Project, OECD

Publishing4

Implementation

• BEPS measures are not legally binding (soft law instruments)

• Actions are expected to be implemented by consenting countries

• Method of implementation depends on Action:

– some are immediately applicable, like revised guidance on transferpricing

– some require changes to bilateral tax treaties, intentionally (partly)overruled by “multilateral instrument” (-> Action 15)

– others require domestic law implementation, e.g. CbC reporting

• New framework for monitoring BEPS in 2016

• OECD and G20 will extend cooperation on BEPS until 2020 to completepending work and monitor measures

5

BEPS Action 1-3

• Action 1: Addressing the tax challenge of the digital economy

– identifies main difficulties that the digital economy poses for the

application of existing international tax rules

• Action 2: Neutralising the effects of hybrid mismatch arrangements

– through development of model treaty provisions and recommendations

regarding design of domestic rules

• Action 3: Designing effective controlled foreign company (CFC) rules

– rules for the allocation of profit of CFC to controlling company

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BEPS Action 4-7

• Action 4: Limiting Base Erosion Involving Interest Deductions andother financial payments

– approach based on best practises

• Action 5: Countering harmful tax practices more effectively, taking intoaccount transparency and substance

– focuses on improving transparency and compulsory spontaneousexchange on rulings

• Action 6: Preventing the granting of treaty benefits in inappropriatecircumstances

– focuses on preventing treaty abuse through design of domestic rules

• Action 7: Preventing the artificial avoidance of permanentestablishment status

– revision of the definition of permanent establishment to prevent artificialcircumvention

7

BEPS Action 8-10

• Action 8-10: Aligning transfer pricing outcomes with value creation

– transfer pricing outcomes should be in line with value creation relating tointangibles, risks, capital and high-risk transactions

• Action 11: Measuring and monitoring BEPS

– establishment of tools to monitor and measure implementation of BEPSpackage (cf. folio 5)

• Action 12: Mandatory disclosure rules

– for aggressive tax planning schemes

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BEPS Action 13 -15

• Action 13: Guidance on transfer pricing documentation and country-by-country reporting

– revision of Chapter V of OECD transfer pricing guidelines

– minimum standard for country-by-country reporting (templates)

– better transparency for tax administrations

– focus (tax-) audit resources where needed

• Action 14: Making dispute resolution mechanisms more effective

– solving treaty-related disputes under mutual agreement procedures

– arbitration for willing countries.

• Action 15: Developing a multilateral instrument to modify bilateral taxtreaties (cf. folio 5)

– will enable countries to implement treaty measures in 2016

– no need to negotiate large numbers of bilateral tax treaties

9

BEPS Action 13 - Transfer pricing documentation and

Reporting

• Three-tiered standardised approach:

– Master File

– Local File

– Country-by-Country Reporting

• Revised version of chapter V of the OECD Transfer Pricing Guidelines waspublished (draft)

• Should replace existing version in 2017

• First reports to tax authorities for years starting 01.01.2016

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Master File

• Overview of multinational enterprise's (MNEs) global businessoperations and transfer pricing policies

• Required information:

– a) the MNE group’s organisational structure;

– b) a description of the MNE’s business or businesses;

– c) the MNE’s intangibles;

– d) the MNE’s intercompany financial activities;

– (e) the MNE’s financial and tax positions.

• Will be delivered by MNEs directly to local tax administrations

– Deadline: filing of tax returns

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Local File

• Supplements master file

• More detailed information relating to specific intercompany transactions

• Focuses on transfer pricing analysis regarding transactions between localcountry affiliate and associated enterprises abroad

• Information includes relevant financial information, comparabilityanalysis, transfer pricing method (most appropriate one?)

• Showing compliance with arm’s length principle

• Will be delivered by MNEs directly to local tax administrations

– Deadline: filing of tax returns

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Country-by-Country (CbC)

Reporting• Only required by companies with annual consolidated group revenues

equal to or exceed € 750.000.000

• Overview of where profits, sales, employees and assets are located andtaxes are paid in form of three templates (models cf. pages 35-37 of OECDpublication: Guidance on Transfer Pricing Documentation)

• Filed in ultimate parent entity‘s jurisdiction, annually, for each jurisdiction inwhich they do business

• Shared automatically through government-to-government exchange ofinformation

• CbC Reports filed for fiscal years starting from January 1st, 2016,timeframe one year from close of fiscal year, first reports are due onDecember 31st, 2017

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Thank you for your attention!

This presentation was created solely for training purposes. We take no responsibility for any action

done or missed out of this presentation.

The explanations given are naturally of a general kind and can only give a survey over the legal

situation and knowledge at that point of time.

This is not meant to replace a professional consulting.