On January 30, 2014, the Organization for Economic Cooperation
and Development (OECD) released a discussion draft for comment on
Action 13; the transfer pricing documentation prong of the Base
Erosion and Profit Shifting (BEPS) project, which includes
country-by-country reporting. As the Committee of Fiscal Affairs
believes it is essential to obtain input from stakeholders on this
Discussion Draft to advance work, MNP LLP and its international
affiliate firms (Praxity) put forth comments addressing specific
issues identified in the Discussion Draft.
Action 13 of the BEPS project grew out of the OECD project on
simplifying transfer pricing documentation that culminated in the
July 2013 white paper on transfer pricing documentation. As
transfer pricing has grown in importance over recent years, the
business community has been confronted with an immense
proliferation of documentation requirements that has resulted in a
large compliance burden.
The OECD would like to know how to use the current systems that
businesses use to record their income, taxes and economic
activities for different countries in order to feed this
information into a country-by-country reporting template. By
introducing a country-by-country reporting template, the OECD also
aims to streamline the transfer pricing documentation system and
lower compliance costs.
Three objectives for requiring transfer pricing documentation
are:
1. To provide tax administrations with the information necessary
to conduct an informed transfer pricing risk assessment.
2. To ensure that taxpayers give appropriate consideration to
transfer pricing requirements in establishing prices and other
conditions for transactions between associated enterprises and in
reporting the income derived from such transactions in their tax
returns.
3. To provide tax administrations with the information that they
require in order to conduct an appropriately thorough audit of the
transfer pricing practices of entities subject to tax in their
jurisdiction.
Each of these objectives should be considered in designing
appropriate transfer pricing documentation requirements. It is
important that tax administrations be able to access the
information they need to conduct a risk assessment. This will
enable tax administrations to make an informed decision to perform
an audit. Therefore, it is important that taxpayers be required to
carefully evaluate at or before the time of filing a tax return
their own compliance with the applicable transfer pricing rules.
Action 13 of the BEPS project requires gathering information
comprehensively and this may mean a heavier reporting burden for
corporations.
A public consultation event was held at the OECD in Paris at the
end of March 2014, with the aim to finalize this work in May 2014
by Working Party No. 6.
Click here if you would like to review Praxity's responses
to the OECD Discussion Draft. Stay tuned for further updates on
this issue.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
