OECD’s New Country-By-Country Transfer Pricing Reporting Template

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.