United States: Introduction To The New World Of Global Tax Planning

As all multinationals (MNEs) are discovering, domestic implementation of the recommendations set out in the BEPS (Base Erosion and Profit Shifting) final reports from 2015 have the potential to significantly impact effective tax rate planning. The immediate issue flows from the new country-by-country transfer pricing (TP) documentation regime (CbC). Many countries (including China, Japan, Italy, the United Kingdom and others) have implemented domestic legislation to be effective for 2016, and the United States has finalized regulations to be effective for 2017. A multilateral instrument relating to CbC, which is expected to impose the CbC requirements in all existing treaties (some 3,000), is well underway.

The critical consequence of the CbC regime, as well as many of the other BEPS initiatives, will be an inevitably heightened focus of tax authorities on testing locally reported TP results on a profit split basis. In our TP dispute resolution practice over the years (beginning long ago with the Japanese tax authority), we have found that such a focus does not, itself, provide any basis for concern. Indeed, many of our clients have developed means of testing reported TP results on such a basis (e.g., as elements of APA or Competent Authority processes), though typically these are not included in local documentation.

In the case of companies that have not developed profit split models, it may be a challenge to develop pertinent TP data (due to systems limitations, accounting differences, faulty assumptions, country-specific issues and so on). Our experience is that there are inevitably surprises when a robust system profit analysis is undertaken.

In our work with clients evaluating potential CbC implications, we have developed a checklist to facilitate the process of developing profit split models, which is set forth below. It reflects our overall approach to documentation, which is to develop a customized model for the unique circumstances of each client. This approach has evolved over time. The reference in the checklist to "building blocks" has to do with the material elements of the group's global effective tax rate plan.

Our experience to date in working with clients on CbC matters underscores the importance of developing a working group composed of those internal and external colleagues who can develop an efficient and effective policy for adapting to the new requirements. Within our approach, we have resources to provide as large or small a role as needed by the working group.

A discussion of the details of the CbC regime and associated planning considerations, and standard elements of complying with CbC documentation requirements, is beyond the scope of this article and will be taken up in a subsequent edition of this newsletter.

Checklist for Formulating a CbC Strategy

A. Formation of Working Group to Address the Following Matters

  • What is the role of attorney-client privilege in the process?
  • The working group could be composed of experts from:

    • Internal departments

      • Tax (domestic and international)
      • Transfer pricing (if separate)
      • Information technology
      • CFO (financial accounting)
      • Information technology
      • Supply chain
      • Legal
    • External international tax advisor
    • External transfer pricing advisor
    • Potential use of CbC software
    • Financial auditor (as appropriate in terms of independence and related matters)

B. Current Global Effective Tax Rate Planning

  • Refresh and confirm the building blocks of the existing ETR plan
  • Implementation mechanics
  • Structural (non- transfer pricing (TP)) aspects of the ETR plan
  • TP building blocks

    • Functional analysis
    • TP performed on a one-sided basis (e.g., CPM/TNMM)
    • Integration with non-TP building blocks
  • Allocation of taxable income by country
  • Formulation of global results on a system profit or profit split basis (a two-sided TP basis)

C. CbC Formulation for Global Documentation

[Note: If the group is not experienced with profit split TP methodologies, this will be an interesting experience; be patient]

  • Complete a draft of the documentation (local, master and CbC)
  • Evaluate local reports

    • From the standpoint of each local tax authority
    • From the standpoint of the home or other pertinent country tax authority
  • Prepare a risk assessment for each building block of the global ETR strategy
  • Prepare a synthesis of likely tax authority evaluations (which will be instructive in the process of re-evaluating the ETR strategy), restructure as appropriate and prepare for controversy, as noted below.

D. Re-evaluate the Global ETR Plan

  • Revisit the building blocks of the ETR plan
    • Evaluate in view of the CbC analysis in B
  • Consider need to change the building blocks
  • Consider need to update the ETR plan
  • Consider restructuring options
  • Other conclusions

E. Impact of Potential Restructuring

  • Income tax
  • TP
  • Exit or restructuring taxes
  • Existing examinations or pending disputes
  • Consumption taxes
  • Financial accounting
  • Financial reporting

F. Preparing for Controversy

  • Categorize building blocks of existing global ETR plan
  • Model:

    • Risk of tax authority challenge (e.g., in cases where some of the building blocks are specifically mentioned in the BEPS final reports)
    • Potential impact on global ETR of successful challenge
    • Likelihood of successfully defending a challenge
    • Cost-benefit analysis of defending tax authority challenges
  • Decide (in conjunction with E above) which building blocks will be proactively amended
  • For those building blocks that the group decides will not be amended:

    • Proactively prepare responses to possible tax authority enquiries
    • Gather and organize existing data and other materials supporting group's position
  • As regards building blocks that the group will be amending, are currently under audit or are being challenged:

    • Articulate controversy positions in relation to each building block
    • Consider impact of restructuring on tax authority perception of existing building blocks

G. Agenda for Proceeding (including tax authority outreach)

  • An agenda can be composed reflecting the prior elements of the Checklist and the orientation of the working group

Introduction To The New World Of Global Tax Planning

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions