Global BEPS webcasts - KPMGManaging OECD BEPS Action 13 Conduct CbyC, Master and Local File...

Global BEPS

webcasts

Addressing the uncertainty ahead:

Recommendations for managing

disputes in the post BEPS world

Tuesday 10 November

9am EST/3pm CET

1© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to

obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Notice

The following information is not intended to be “written advice

concerning one or more Federal tax matters” subject to the

requirements of section 10.37(a)(2) of Treasury Department

Circular 230.

The information contained herein is of a general nature and

based on authorities that are subject to change. Applicability

of the information to specific situations should be determined

through consultation with your tax adviser.



Agenda and speakers

Economic overview and

transfer pricing

Transfer pricing Disputes PART 1 Disputes PART 2

32 54

Angela Wood Peter SteedsSteven Wrappe Francois Vincent

Introduction

1

Sharon Katz-Pearlman

Head of Global Tax

Dispute Resolution and

Controversy,

KPMG in the US

Principal, Global Transfer

Pricing Services,

KPMG in the US


Pricing Services

KPMG in the US

Asia Pacific Leader,

Global Tax Dispute

Resolution and Controversy,

KPMG in Australia

Associate Partner,

Special Advisor on TP

Policy and Dispute

Resolution, Global

Transfer Pricing Services,

KPMG in the UK

*FIDAL is an independent legal entity that is separate from KPMG International and KPMG member firms.



Notes on CPE and polling questions

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We encourage you to

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The first polling

question will appear on

your screen after this

introduction, and the

remaining questions will

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through the

presentation.

As mentioned, in order

to receive the CPE

credit, we require that

those participants take

part in at least 5 of the

6 polling questions and

participate in at least 50

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You may submit

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Polling

Questions QuestionsYour

feedback



Polling question 1

?

Increase Decrease Don’t know

D

As a result of the final BEPS recommendations,

what do you anticipate will happen to the overall

rate of disputes over the next three years?

A C

Stay the same

B

BEPS overview and

transfer pricing

Steven WrappePrincipal, Global Transfer Pricing Services,

KPMG in the US



Base Erosion and Profit Shifting (BEPS)

15 Item Action Plan

1 Challenges of a Digital Economy

2 Hybrid mismatch arrangements

3 Strengthen CFC rules

4 Limit base erosion via interest deductions and other financial payments

5 Counter harmful tax practices taking into account transparency and substance

6 Prevent treaty abuse

7Prevent artificial avoidance of

Permanent Establishment (PE) status

8Assure transfer pricing outcomes are in line with value creation – intangibles

9Assure transfer pricing outcomes are in line with value creation – risks and capital

10Assure transfer pricing outcomes are in line with value creation – high risk transactions

11Establish methodologies to collect and analyze data on BEPS

12Require disclosure of aggressive tax planning arrangements

13 Re-examine transfer pricing documentation

14Make dispute resolution mechanisms more effective

15 Multilateral Instruments

C

C

C

C

S

S

S

S

T

T

T

T

S

C Coherence S Substance T TransparencyReleases Out#



Action 13 Objectives and Approach

Objectives Approach

Master File

Appropriate Consideration

in Setting Prices

■ Contemporaneous

■ Penalty

Local File

Provide Information

Needed to Audit

Risk Assessment

Country by Country

(CbyC)



Country by Country (CbyC) Template

CbyC Template – Page 1*

Revenue

CountryRelated

party

Unrelated

partyTotal

Profit (loss)

before income

tax

Income tax

paid (on cash

basis)

Income tax

accrued –

current year

Stated

capital

Accumulated

earnings

Number of

employees

Tangible assets

other than cash

and cash

equivalents

Country A X X X X X X X X X X

Country B X X X X X X X X X X

CbyC Template – Page 2* (onwards)

Activities

Country

Constituent

entities

resident in

country

Country of

organization or

incorporation if

different from

country of

residence

R&

D

Ho

ldin

g o

r m

an

ag

ing

IP

Pu

rch

asin

g &

pro

cu

rem

en

t

Man

ufa

ctu

rin

g &

pro

du

cti

on

Sale

s,

mark

eti

ng

&

dis

trib

uti

on

Ad

min

istr

ati

ve,

man

ag

em

en

t &

su

pp

ort

serv

ices

Pro

vis

ion

of

serv

ices t

o

un

rela

ted

pa

rtie

s

Inte

rnal g

rou

p f

ina

nce

Reg

ula

ted

fin

an

cia

l

serv

ices

Ins

ura

nc

e

Ho

ldin

g s

ha

res o

r o

the

r

eq

uit

y i

ns

tru

men

ts

Do

rman

t

Oth

er

Country A Entity A Country B √ √

Entity B √ √ √

*Information obtained from Annex III to Chapter V of OECD/G20 Base Erosion and Profit Shifting Project: Guidance on Transfer Pricing Documentation and Country-by Country Reporting



OECD Guidance on CbyC Template Implementation (February/June 2015)

On 6 February 2015, the

OECD published guidance on

the implementation of CbyC

reporting. Some of the key

information that Multinational

Entities (MNEs) should be

aware of includes:

On 6 February 2015, the

OECD published guidance on

the implementation of CbyC

reporting, which was followed

up with the implementation

package on 8 June 2015.

Some of the key information

that Multi national entities

(MNEs) should be aware of:

MNEs with consolidated group revenue in the preceding fiscal year of 750 million Euros or more

Which MNEs are required to file a CbyC report?

File for the fiscal years beginning on or after 1 January 2016

MNEs will be allowed one year from the fiscal year end to file the CbyC report

Timing of CbyC report

File CbyC report in the country of the ultimate parent of the MNE; That country will exchange

this information on an automatic basis with jurisdictions in which the MNE operates and that

meet the necessary conditions described in guidance

Where ultimate parent entity is not i) required to file a CbyC report; or the parent jurisdiction’s

government has ii) not signed relevant information exchange agreements; or iii) systematically

failed/suspended its agreement to exchange information, MNE can appoint a “surrogate

parent entity”

Where filed and mechanisms for exchange

Tax authorities to share CbyC report with other tax authorities within 18 months of the end of the

fiscal year for the first year and within 15 months of the end of the fiscal year for subsequent periods

When exchanged



Managing OECD BEPS Action 13

Conduct

CbyC, Master

and Local File

Readiness

and Risk

Assessment

Set

documentation

strategy and

CbyC

approach

Process

design,

roll-out and

review

Be prepared to

produce

BEPS-ready

documentation

Review,

enhance,

update as

needed



Polling question 2

?

Increase Decrease Don’t know

D

What do you anticipate will happen to your own

company’s rate of disputes?

A C

Stay the same

B

Transfer Pricing

Francois VincentPrincipal, Global Transfer Pricing

Services

KPMG in the US



Transfer Pricing (TP)-Related BEPS Action Items

Actions 8, 9 and 10

dealing with aligning TP

outcomes with value

creation as it relates,

more specifically, to

transaction involving

intangibles, the

contractual allocation of

risks, and other high-risk

transactions such a the

ones that might be

subject to

recharacterization and

management fees.

Action 13 dealing with

revisiting TP

documentation, and the

creation of the Country

by Country reporting

(CbyCR).

The obvious

TP-related

BEPS Action

items are:

Action 7 –

attribution of profits

to PEs

Action 14 –

improving dispute

resolution

mechanism; and

Action 15 –

multilateral

instrument

But also,

less

apparent

and almost

forgotten as

TP Action

items:



Selected Substantive Changes in OECD TP Guidelines (BEPS 8-9-10)

Delineation of actual transactions

Written contracts are the starting point; actual conduct to be used to contradict or supplement contracts

Synergistic benefits to be allocated on a pro-rata basis

Cash-boxes entitled to risk-free returns

Risk analysis

“Risk management” and financial capacity to assume risks

“Recognition” of accurately delineated transactions (or “don’t judge a book by its cover”)

Really about allowing recharacterization to occur more easily

The one guaranteed exception to recharacterization: where ALL economically relevant characteristics are the SAME

as those under which the tested transaction occurs

Criteria of enterprises behaving in a commercially rational manner thereby preventing determination of a price

Group synergies

and the need for deliberate concerted group actions producing a material, clearly identifiable structural advantage.



Selected Substantive Changes in OECD TP Guidelines (BEPS 8-9-10) cont’d

Definition of “intangible”

capable of being owned OR controlled… vs. legal or contractual protection is not a necessary condition for characterization

as an intangible

DEPME functions

Importance of DEPME functions for entitlement to returns on intangibles

Know-how and trade secrets

Recognition of know-how and trade secrets as intangibles

Business valuation

measures of goodwill “do not, as a general rule, correspond to the arm’s length price…” but “valuation techniques may be

used by taxpayers and tax administrations as a part of one of the five OECD transfer pricing methods”

Rules of thumb

cannot be used to evidence that a price or apportionment is arm’s length



Selected Substantive Changes in OECD TP Guidelines (BEPS 8-9-10) cont’d

Comparable Uncontrolled Price (CUP) and profit split methods

Most likely to prove useful in transactions involving intangibles; however, comparability criteria to be met for application of

CUP makes it unlikely to be applicable (even if restraint encouraged in rejecting potential comparables) (transactional

profit-splits discussion draft to be released and public consultation to be held in May 2016)

Price paid during arm’s length acquisition

Recognition that price paid during arm’s length acquisition represents a useful comparable for TP purposes, “even where

the intangibles are acquired indirectly through an acquisition of shares or where the price paid to the third party for shares

or assets exceeds the book value of the acquired assets”

Projections

Prepared for non-tax business planning purposes are more reliable than projections prepared exclusively for tax purposes,

or exclusively for purposes of a transfer pricing analysis

Hard to Value Intangibles (HTVI) and ex post analysis

(commensurate with income?) vs. exception where the tax authority is able to confirm the reliability of the information on

which ex ante pricing has been based:

APAs as antidote to ex post analysis

The 5-years/20 percent rule exemption



Selected Potential Sources of TP Disputes as a Result of BEPS

Options Realistically Available (ORAs) to play an even greater role in TP analysis

Seconded employees and the transfer of know-how

Risk management and financial capacity to assume risk

Tax administrations should not accept especially low prices such as pricing at

marginal cost in a situation of underemployed production capacities

Blocked payments as a result of government policies to be treated as conditions

of the market

Identifying intangibles used or transferred with specificity

ORAs and non-recognition of the actual transaction

HTVI and the right for tax administrations to deem price adjustment clauses to

exist between the parties (vs. non-recognition of the transaction)

Ex post outcomes to be treated as presumptive evidence of the ex ante pricing

arrangement

Selected Potential

Sources of TP Disputes

as a Result of BEPS



Polling question 3

?

Transfer Pricing Intellectual

PropertyOther

D

Which of the following areas do you expect the

most disputes to occur in as a result of the final

BEPS recommendations?

A C

Economic

Substance

B

Disputes

Angela WoodAsia Pacific Leader, Global Tax Dispute Resolution

and Controversy,

KPMG in Australia



A perfect storm for global controversy in transfer pricing

Media pressureTax is a front-page issue

Cross-border information sharing Increase flow between revenue authorities

BEPS Actionsfor Transfer Pricing, Documentation and Intangibles recommendations are significant

Public scrutiny Social media

Ongoing global internet commentary

Political agendasGovernment inquiries heightening focus on corporates’ tax practices

Changes in domestic legislationCountries jumping ahead of BEPS agenda

Source: KPMG International, 2015



Make dispute resolutions mechanisms more effective

Publication of guidelines for taxpayers;

Commitment to resolution of MAP cases within 24 months;

Competent Authorities adopting a collective approach (via FTA MAP

Forum, sharing information and transparency particularly in regard to

positions on MAP arbitration)

Adopting consistent MAP approaches to earlier years where the facts

and issues are the same;

Preventing double taxation and providing for corresponding

adjustments;

Suspending collection procedures pending outcome of MAP case

Commitment to mandatory

binding MAP arbitration

(not all jurisdictions)

To improve the effectiveness of Mutual Agreement Procedure (MAP) in resolving treaty-related disputes

Objective


Achieved by….

Implementation of a Minimum Standard, Best

Practices and a Framework for Compliance designed

to promote the use of MAP in transfer pricing cases:

Making dispute resolution mechanisms more effective (BEPS Action 14) – Highlights



Taxpayer ability to influence

mandatory arbitration

outcomes

Uncertainty:

process and timing.

Transparency and consistency

of outcomes

Practical

implications/

risks


Interaction with domestic

legislative changes and

dispute processes

Effectiveness in

avoiding double taxation

Not all countries will adopt

mandatory arbitration.

Implications of BEPS dispute resolution recommendations



Legal and corporate

documents.

Price negotiations

Channel profits

Staff recollections.

Correspondence and

advice.

Evidence to supplement

TP compliance

documentation.

Substance

vs Form

What have the parties

actually agreed?

On what basis was it

agreed?

How is it implemented in

practice?

Applying the law

to the facts

Facts and evidence


How does this

evidence sit with the

domestic transfer

pricing legislative

provisions relevant to

the dispute?

Objective

Assessment of

Evidence

Contemporaneous

To be supplemented by

expert opinion evidence?

What inferences can be

drawn from this

evidence?

What evidence is

available to support

position?

The centerpiece of multi-jurisdictional tax disputes



1

Objectively assess

dealings at time

entered into and

perceived tax risks that

may arise.

Track information

available in each

jurisdiction – know

what might be shared

between revenue

authorities.

Assess

relationships with

revenue authorities

– proactively

engage and

identify points of

influence.

Review internal

resourcing –

proliferation of

in-house global

tax controversy

roles.

Adopt

technological

solutions to

track/monitor tax

disputes

globally.

2 3 4 5

Top tips to stay ahead of the changing global tax disputes landscape



Polling question 4

?

Transfer Pricing Intellectual

PropertyOther

D

Which of these areas would you like more

guidance on from the OECD concerning BEPS

and disputes?

A C

Economic

Substance

B

Disputes

Peter SteedsAssociate Partner,

Special Advisor on TP Policy and Dispute Resolution,

Global Transfer Pricing Services,

KPMG in the UK



Action 14

Work handed over to Forum of Tax Administrations (FTA)

Strategic Plan published 2014 1

Brings officials operationally responsible for MAP together to improve process

Success of peer review process critically important

Needs to also change mindsets and cultures within administrations

What happens now?

Limited resources in tax administrations in the face of ever increasing numbers of

disputes

Changing the mindset to move from adversarial winning or losing to reaching a

resolution that relieves double taxation in accordance with the treaty

Providing universal access to the process requires domestic rules and practices

to change

Rate of progress – time line for Action 14 is out of step with other BEPS changes

Arbitration – currently struggles to work, needs a step change improvement

Reasons to be cheerful

1 http://www.oecd.org/tax/forum-on-tax-administration/map-strategic-plan.pdf



EU and UK issues impacting dispute resolution

EU Transparency directive compels Member States to exchange

information on all rulings including APAs with effect from 1 January

2017. Retrospective to 2010.

Unclear interaction of UK’s Diverted Profits Tax (DPT) with APAs.

Can you get certainty on both DPT and corporation tax in respect of

covered transactions?

HMRC moving away from unilateral APAs: emerging bilateral

programs with Switzerland, Italy and others.

EU and UK issues

impacting dispute

resolution



How to make it work for your business: Headlines

Don’t stumble

into a morass of

disputes

Develop a

strategic

approach

Assess the

risks and

opportunities

Make your

documentation

as robust as

possible

Engage

proactively

with tax

administrations



Recommended approach to Global Transfer Pricing Compliance

Do not wait until 2016 to respond

Identify transfer pricing risk based on simple application of country-by-country

factors

Review “hot spots” to evaluate the risk considering available substantive

arguments and procedural alternatives

Prioritize actions to facilitate global transfer pricing defense

Alternative responses:

do nothing

add factual support or economic analysis to transfer pricing documentation

prepare procedural analysis to be ready to vigorously pursue unilateral or

bilateral resolution

consider APA to address likely dispute with respect to specific transactions

consider “benchmark APA” in defense of similar transactions in other

countries

Consider whether changes should be made to existing transaction flow

Recommended approach

Prepare a Standardized Response to

Anticipated Inquiries– Demonstrate

preparedness to support and debate any

issue likely to be highlighted in initial inquiry.

Consider Benchmark APA for Systemic

Issues—Bilateral APA between two “leading

countries” to address transactions

representative of other transactions within

the related group. Taxpayer then attempts to

use information developed and outcome

reached to discourage unreasonable

exam positions by other countries on similar

transactions. For example, taxpayer

negotiates a bilateral US-Japan APA on

distribution return; despite geographic

differences, that APA may have relevance

with regard to related party distributor

returns in other countries regarding sales of

the same product.



In summary

The changing

environmentOpportunities Challenges

Dealing with

tax disputes

Greater

transparency,

uncertain new rules

Achieving bilateral

prospective

certainty

Prospect of more

audits, slow

implementation

Robust

documentation,

taking a strategic

view, proactively

engage



Polling question 5

?

Insufficient

internal

resources

and funding

to manage

the disputes

Neither Both

D

What do you feel will be your company’s greatest

concern when it comes to dispute resolution in

connection with the BEPS recommendations?

A C

Insufficient

government

resources

(Competent

Authority) to

handle the

disputes

B



Polling question 6

?

Very

concerned

Not

concernedDon’t know/unsure

D

How concerned are you about the possible

increase in disputes as a result of the BEPS

recommendations?

A C

Somewhat

concerned

B



Check out our other BEPS webcast material

www.kpmg.com/taxwebcasts

Visit

Global FS view on BEPS – Latest updates for banking institutions

Global FS view on BEPS – Latest updates for insurers

Global FS view on BEPS – Latest updates for investment

managers

Global view on BEPS – Exploring the latest updates and

implications for tax leaders

You can also view the

slides and playbacks of

our recent webcasts:

For country specific webcasts on BEPS – check with your

local KPMG member firm

http://www.kpmg.com/taxwebcasts



Thank you! Please contact us with any questions.

Economic overview and

transfer pricing

Transfer pricing Disputes PART 1 Disputes PART 2

32 54

Angela Wood Peter SteedsSteven Wrappe Francois Vincent

Introduction

1

Sharon Katz-Pearlman

Head of Global Tax

Dispute Resolution and

Controversy,

KPMG in the US

T: +1 212 872 6084

E: [email protected]


Pricing Services,

KPMG in the US

T:+1 408 367 4185



Pricing Services

KPMG in the US

T:+1 312 883 0653


Asia Pacific Leader,

Global Tax Dispute

Resolution and Controversy,

KPMG in Australia

Tel: +61 3 9288 6408


Associate Partner,

Special Advisor on TP

Policy and Dispute

Resolution, Global Transfer

Pricing Services,

KPMG in the UK

T: +44 20 73113449


*FIDAL is an independent legal entity that is separate from KPMG International and KPMG member firms.

mailto:[email protected]





FIDAL is an independent legal entity that is separate from KPMG International and KPMG member firms.

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are

affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG

International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any

member firm. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Although we Endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it

is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after

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