The OECD has completed a two-day public consultation on transfer pricing documentation and the issues to be addressed if country-by-country reporting of company data to tax administrations is to be implemented using a standard template as required under its Base Erosion and Profit Shifting (BEPS) action plan.
The meeting in Paris consider the topics raised in the OECD's Memorandum on Transfer Pricing Documentation and Country by Country Reporting and in its white paper the Transfer Pricing Aspects of Intangibles which were issued for discussion in July. The focus was on information companies should be required to supply and the mechanisms that should be developed for reporting and sharing country-by-country data.
Information reporting approaches under discussion included requiring reporting of net income before tax for each legal entity in a multinational enterprise group, with numbers to be drawn from individual entities' financial statements; basing income reported on taxable income as reflected on tax returns filed in a jurisdiction; requiring a segregation of consolidated multinational enterprise group income among countries calculated by reference to accounting segment reporting rules; or reporting data taken from the company's internal consolidating income statements relating to each company's contribution to consolidated income after eliminations.
On the issue of reporting taxes, the approaches under consideration included whether taxes should be reported on a cash or accrual basis; whether tax reporting be limited to national-level income taxes; and whether reporting of taxes other than income taxes should be required.
The conference also looked at whether the country-by-country reporting template should include data on measures of economic activity other than income and taxes, such as revenues by location of customers; tangible assets by location; employment rates; research expenditures; marketing expenditures; location of intangibles by country; and location of senior management.
Possible approaches for making the reporting information available included parent companies completing the template in their home jurisdiction and then sharing it with other countries under treaty exchange of information mechanisms, including potentially automatic exchange; and making the template available as part of the global master file to every country in which a multinational has an affiliate subject to tax.
Will Morris, the chair of the BIAC tax Committee which is the voice of business for the OECD, told delegates from more than 35 countries that: 'Our principal concern is to design something that provides you with information in a form that is both useful and novel for you, without finding ourselves burdened with yet another requirement for extensive gathering of information.'
On the issue of transfer pricing documentation, Morris said that there was 'clear agreement that a huge amount of unnecessary work goes on in this area' but said he was concerned that this could continue unless the template can be standardised so that it suits most countries' requirements and reduces the need for local country variations. He identified this, and the question of accounting for residuals in relation to intangibles, as two key issues still to be resolved.
Following the meeting, the OECD announced that its working party will be finalising its revised guidance on intangibles and transfer pricing to meet the September 2014 deadline of the BEPS Action Plan.
