1. finance
2. accounting and auditing
3. tax preparation and planning

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Transfer Pricing Workshop
Paul Reck
Gerard Feeney
Tadhg O’Connell
John Stewart
Austin McGlade
Antonio Pina
Liz Donoghue
March 2014
TOPIC 1
How to satisfy Irish transfer
pricing documentation
requirements including
implementation and monitoring
1
© 2010 Deloitte Development LLC. Private and confidential.
Contents
• Introduction
• Grandfathering of pre 1 July 2010 transactions
• SME considerations
• Reliance on counterparty documentation
• Preparing Irish transfer pricing documentation
• Issues to consider if preparing transfer pricing
reports for other jurisdictions
• True ups and year end adjustments
• VAT & Customs interaction with transfer pricing
• Policy implementation and technology solutions to
support monitoring of transfer pricing policies
Introduction
• Transfer pricing legislation introduced in Ireland with effect from 1 January
2011.
• Companies that are taxed at the 12½% corporation tax rate in Ireland within
scope. (Irish branches also within scope where they trade with other group
companies).
• Irish regime is aligned with the OECD Transfer Pricing Guidelines.
• Grandfathering of pre-existing arrangements before 1 July 2010 out of scope.
• Counterparty documentation may suffice provided it is current.
• Self-assessment: onus on taxpayer to demonstrate related party pricing is at
arm’s length.
Grandfathering of pre 1 July 2010
transactions
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© 2010 Deloitte Development LLC. Private and confidential.
Grandfathering of transactions
• Arrangements (written and unwritten) in place before 1 July 2010 specifically
fall outside the scope of Irish transfer pricing law.
• Effectively only means that the transaction(s) fall outside the documentation
requirements.
• Other tax provisions still applicable: eg. Section 81 TCA 1997 (“wholly and
exclusively”).
• Four years since companies undertook grandfathering exercise – how long can
an arrangement remain unchanged commercially?
Grandfathering of transactions
• Revenue Operational Manual 35A-01-01 issued in November 2012 on
grandfathering:
“Transactions (referred to in the legislation as arrangements) all the terms of
which were agreed before 1 July 2010 are not subject to the rules, and are
“grandfathered”. In deciding whether, in relation to an arrangement, the terms
were agreed before 1 July 2010 it should be established that –
(a) the relevant agreement envisaged the arrangement or transaction
concerned;
(b) the relevant agreement provides the price; and
(c) the relevant agreement is not merely an agreement for future agreements.”
Grandfathering of transactions
• Issues to consider when considering if existing arrangement still
“grandfathered”:
o
introduction of new products and services
o
amendment in pricing
o
renewal of agreement – automatic and optional renewal
o
assignment
• Transfer of trade in the course of a scheme of reconstruction / amalgamation
• How to demonstrate a tax inspector that existing arrangement still
grandfathered:
o
written legal agreement in place entered into before 1 July 2010
o
board minutes / e-mails where parties agree pricing
o
transfer pricing policy document
o
journal entries
SME exemption
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© 2010 Deloitte Development LLC. Private and confidential.
SME exemption
• Taxpayers that meet the SME exemption are outside the scope of the Irish
transfer pricing legislation.
• Consider other domestic provisions such as S81 TCA 1997.
• Certain thresholds to be met in order to fall within definition of SME exemption.
Headcount
< 250
And less than or equal to one of the
following limits:
Annual turnover
Balance sheet total
≤ €50m
≤ €43m
SME exemption
• Staff and financial data of connected and associated enterprises are included
in determining the limits.
• Definition of staff includes employees, owner managers, partners and
individuals seconded to work for a business.
• Irish Revenue interpret the definition of employees as not including contractors.
• Balance sheet total is gross rather than net asset value.
• Test is an annual test.
• UK companies relying on SME exemption - €/UK£ FX movements.
Counterparty documentation
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© 2010 Deloitte Development LLC. Private and confidential.
Reliance on counterparty documentation
• Irish transfer pricing regime allows counterparty documentation to satisfy the
Irish documentation requirement.
• Care to be taken if availing of a related party’s documentation:
o
last update of counterparty documentation
o
translation required
o
sufficient detail in relation to the Irish company’s activities included
o
transaction at arm’s length from foreign affiliate’s perspective but
not necessarily for the Irish company
Preparing Irish transfer pricing
documentation
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© 2010 Deloitte Development LLC. Private and confidential.
Preparing Irish transfer pricing documentation
Approach to
Transfer Pricing
Documents
Functional
Analysis
Economic analysis
Local country
involvement
Deliverable
Relative cost
Level of comfort
Level 1
Level 2
Level 3
Separate country Transfer
Pricing documentation
Centrally-prepared Masterfile
Local country rules
Centrally-prepared Masterfile
OECD Guidelines
Local functional analysis
Local or regional functional
analysis
Local or regional functional
analysis
Local comparability analysis
Local or regional comparability
analysis
Local or regional comparability
analysis
Locally-performed analysis that
leverages centrally- prepared
core information
Local participation in fact
gathering and review
Restricted local involvement
Locally-prepared
documentation report
(incorporating centrally
prepared core elements)
Centrally-prepared masterfile &
separate country file including
review by local affiliate
Centrally-prepared, OECDbased documentation report
with restricted local review
High
Medium
Low
Penalty-resistant
Penalty-resistant
Customisation needed in the
event of a tax audit
Preparing Irish transfer pricing documentation
Identify transactions
Scoping and
planning
Risk rating
Prepare documentation
Project
execution
Functional analysis
Economic analysis
Monitoring
and
adjustment
Execute transfer pricing policy
strategy
Identify enhancements and
improvements
Preparing Irish transfer pricing documentation – process
Functional
analysis
Benchmarking
Establish the functions
undertaken, risks assumed,
assets employed and capital
committed by each business
entity, and the relative
importance of each.
Select comparables
(internal or through
databases)
2
Gather
Background
Information
Gathering of qualitative
and quantitative data
3
Documentation
1
4
Record each stage of
the process to form a
defence document in
support of future tax
filings.
Preparing Irish transfer pricing documentation –
functional analysis
• Documentation of the transactions, functions and risks of the entities involved
• Functional analysis impacts:
o
choice of transfer pricing method
o
choice of comparables chosen
o
audit issues
• Identification of key personnel in organisation to interview.
• Advance preparation – use of questionnaires (see attached IRS questionnaire
in pack).
• Ensure risks and assets (in particular intangibles) are covered.
Preparing Irish transfer pricing documentation –
economic analysis
• Determine appropriate transfer pricing method based on fact pattern in
functional analysis.
• Transfer pricing methods (see worked examples in your pack).
• Undertake benchmarking process – internal comparables or use of a third party
database.
• Determine any necessary adjustments to comparable data.
• Form conclusion from comparison of controlled and uncontrolled results.
Preparing Irish transfer pricing documentation –
documentation package contents
Issues to consider if preparing
transfer pricing reports for other
jurisdictions
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© 2010 Deloitte Development LLC. Private and confidential.
Preparing transfer pricing reports for other jurisdictions
Overview of differences in domestic laws
USA
• Does not follow OECD
Guidelines but own domestic
laws.
• 2 categories of documentation
needed – principal and
secondary documentation.
• Local comparables preferred.
China
• Documentation must be in Chinese.
• Certain thresholds apply before
documentation is required.
• Loss making companies, no matter
the size, must prepare documentation.
• Local comparables preferred but may
accept foreign (Asian) comparables.
UK
• SME exemption applies but not
for transactions to a nonqualifying territory.
• Preference for UK comparables
but Pan-European accepted.
Some local issues
to watch out for!
• Follows OECD principles but
with enhanced local
documentation requirements.
• Italian masterfile required in
certain cases.
• Must include details of all I/C
transactions even if not
material.
• Required to sign every page
and store on CD.
• No obligation to accept reports
in a foreign language
• Benchmarking needed
annually for large companies
• Must declare availability of
documentation in tax return for
penalty protection.
Spain
Germany
• Documentation must be in
German but approval can be
obtained to prepare in English.
• Tighter independence criteria –
25%.
• Tax authorities require use of
the interquartile range.
• Special rules on business
restructuring.
Italy
France
• Tax authorities can request
documentation in French.
• Contemporaneous requirement.
• Additional documentation to be
provided within 6 months of tax return.
• Pan-European comparables acceptable
if include meaningful subset of local
companies.
• Bad faith penalties may preclude
access to MAP
• Definition of “associated
enterprise” is 5%.
• If documentation required for
evidence in courts, needs to be
translated into Spanish.
• In principle, Pan-European
comparables accepted, but if
results of local comparables
benefit STA, they may prefer
these.
• Transactions over a certain
threshold to be disclosed in tax
return.
• Bad faith penalties may
preclude access to MAP (eg. if
no documentation).
True ups and year end adjustments
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© 2010 Deloitte Development LLC. Private and confidential.
Why make post transaction transfer pricing adjustments?
•
•
Year end adjustments are being made with increasing frequency
o
results are not consistent with projections
o
new or overlooked transactions
o
late implementation of planned changes
Required for documentation
o
•
most countries require results to be within the range to avoid
documentation penalties
Exploring and making transfer pricing adjustments before year-end allows
greater flexibility:
o
reduce tax authority exposure to transfer pricing adjustments
o
monitor profits and losses arising across multiple jurisdictions reasonableness test
Timing of transfer pricing adjustments
Year end
Create transactions
Closing of
books
Make adjustments
and avoid book-tax
differences
Filing of
return
Make adjustments
after statutory
accounts finalised
Amend return
Aspects of year end adjustments
•
Size of adjustment – which point within the interquartile range to target?
•
Does the intercompany legal agreement allow for adjustments?
•
Acceptance under domestic law
•
Process of making adjustment:
o
booked in financial system (Period 13?)
o
issue invoice?
o
provisions
o
employee participation
o
VAT and customs implications
VAT and customs interaction with
transfer pricing
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VAT and customs interaction with transfer pricing
VAT
Contractual
agreement
Acceptance under
domestic law
Other items
Aspects of yearend adjustments
Documentation
Employee Participation
Customs
Inventory valuation
Impact on
Provisions
management accounts
© 2010 Deloitte Development LLC. Private and confidential.
VAT aspects of year end adjustments
• An increase / decrease in the transfer price of a transaction can result in
additional consideration or credit – direct link between the consideration and
the transaction to be established.
• VAT treatment follows the treatment applied to the original supply.
• Requirement to issue an invoice / credit note – time limits.
• Statistical reporting implications.
© 2010 Deloitte Development LLC. Private and confidential.
Customs issues relating to year end adjustments
• Transfer pricing rules for direct tax purposes and customs valuation rules based
on OECD guidelines but with some important differences.
• Direct tax authorities focus on the accuracy of a transfer price as reflected on a
tax return (aggregated income across the entire business).
• Customs authorities focus on the determination of the value of goods at the
time of entry into their customs territory (transaction-by-transaction and
product-by product).
© 2010 Deloitte Development LLC. Private and confidential.
Customs issues relating to year end adjustments
• Where a year end adjustment is linked to the importation of goods from a non
EU country, the following issues should be considered;
o Does the customs value change due to the year-end adjustment?.
o What is the appropriate rate of duty for the goods?
o If there is an increase does it give rise to a liability?
o If there is a decrease is it possible to get a of refund of customs duty
paid?
© 2010 Deloitte Development LLC. Private and confidential.
Customs issues relating to year end
The Link Between Transfer Pricing and Customs Valuation
2014 Country Guide
• Published by Deloitte’s global CGT practice.
• Updated annually.
• Provides information on how over 40 countries treat transfer prices and
adjustments from a Customs and VAT perspective.
• Link to download the latest version.
© 2010 Deloitte Development LLC. Private and confidential.
Policy implementation and technology
solutions to support monitoring of
transfer pricing policies
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© 2010 Deloitte Development LLC. Private and confidential.
From policy to practice – a holistic framework
Tax / Transfer Pricing:
• development of transfer pricing policies
• producing transfer pricing documentation
• defending policies against tax authority challenge
Interface:
• implementation
• data gathering
• monitoring
• identifying changes of fact
Accounting / Finance:
• production of management accounts for business
• legal entity reporting
Common problems with implementation and monitoring
• Intercompany legal agreements not completed / inadequate.
• Costs omitted and not recharged creating non deductible costs.
• Incorrect costs included.
• Flow through costs incorrectly allocated a mark-up.
• Anticipated results / budgets used to determine margins so inaccurate that even
true up gives non-arm's length results.
• Policies not aligned with accounting system and manual calculations required increased risk of human error, staff continuity and lack of audit trail.
• Business entities not aligned with recharges and refuse some element of
recharge.
Technology solutions options
Specialised
software
solutions
Technology solutions where following issues arise
• Significant number of intercompany transactions.
• History of year-end transfer pricing adjustments and/or difficult audits due to
transfer pricing issues.
• Manual/spreadsheet processes for calculating transfer pricing .
• Delays in the accounting close process due to intercompany accounting.
• Non-centralised accountability for transfer pricing .
TOPIC 2
Finance and treasury transfer pricing:
What you need to know
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© 2010 Deloitte Development LLC. Private and confidential.
Contents
• Introduction
• Loan pricing
• Provision of guarantees
• Cash pooling
Introduction
• Type of transactions to consider include:
o
Intercompany loans
o
Guarantees
o
Cash pooling
o
Long-term intercompany balances
o
Short term accounts receivable/payable – consistent with third-party credit
terms?
• Trading versus non-trading activities
o
Non-treasury companies can still provide interest free loans as not within the
scope of transfer pricing.
• Other pricing considerations
o
Section 247 loans – normal commercial rate of return
o
Requests from third parties for support for intercompany financial
arrangements e.g. banks, M&A, due diligence etc.
o
Robust grandfathering documentation?
Loan pricing
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Loan pricing - Introduction
• Applicable where a company is paying interest for which a trading deduction is
being sought or where interest is taxable as a trading receipt.
• Need to ensure that the interest received or paid is arm’s length.
• Ensure there sufficient documentation to support the arm’s length nature of the
interest rate.
• Normally considered on a transaction by transaction basis but large groups may
use a pooled approach to determining interest rates on intercompany
borrowings.
Loan pricing – Stages in a transfer pricing analysis
Loan pricing – Key terms of a loan agreement
•
Borrower / credit rating
•
Ranking / Structural Subordination
•
Loan Effective Date
•
Tenure / Term
•
Details on security or collateral attached, if any
•
Guarantees
•
Purpose
•
Features/options, if any (e.g., prepayment rights, etc.)
•
Currency
•
Type of loan (i.e., term loan, revolving facility, etc.)
•
Loan Amount
•
Interest rate (if any at this stage)
•
Principal Repayment (at maturity, amortising, etc.)
•
Interest Payments (monthly, quarterly, annually, at maturity, etc.)
Loan pricing – Synthetic credit rating tools
Moody’s RiskCalc
• Online tool which uses financial ratio analysis to generate a probability of default for the
borrower company over 1 and 5 years.
• Various models available for different jurisdictions.
Moody’s Rating Methodologies
• Methodology papers that explain how credit ratings are derived across different industries
by Moody’s.
• Provides ratios, benchmarks and weights.
• Uses qualitative as well as quantitative data.
Notching
• Assigning the subsidiary a credit rating based on the rating of the parent.
• This method is generally used if the subsidiary is a core or strategic component of the
parent’s business.
Loan pricing – Financial information required for credit
analysis
• Generally, historical financial data is preferred over projected financial data
Historical
•The actual financial statements for the
year in which the loan was taken out
•Latest full-year actual financial
statements
•Financial statements needed for a credit
rating analysis:
o
Aggregate financial statements of the
Borrower and its subsidiaries
o
Balance sheet
o
Income statement
Projected
•Projected financial statements may be
used if:
o
You are undertaking a planning study
o
Historical/actual financial data are not
available
o
The most recent financial statements do
not reflect “normal” or “reasonably
expected” business operations
o
In cases of mergers or acquisitions,
should consolidate financial statements
of the companies and reflect and other
structural changes
Loan pricing – Market data for analysis
Thomson Reuters’ DealScan
• DealScan is a database of historical funding deals executed on the global loan
markets
• It covers wide-ranging terms and conditions on over 220,000 loan and bond
transactions
Bloomberg Professional
• Bloomberg Professional is a large data stream program offering historic and
current market information across a number of different securities including
fixed income, equities, derivatives, commodities and foreign exchange
Loan pricing – Typical adjustments
• Seek to obtain a sample of loans and bonds with similar terms and conditions to
the tested loan but not always possible so adjustments are usually required in
order to improve comparability.
o
o
o
o
o
o
Maturity Adjustment
Credit Rating Adjustment
Fixed vs. Floating Rate Adjustment
Currency Adjustment
Country risk adjustments
Put/Call options
• Important to ensure that any adjustments can be defended and are applied
consistently.
• Tax authorities becoming more sophisticated with regards to the transfer pricing
aspects of intercompany financing.
Loan pricing – Documentation and ongoing monitoring
• Preparation of transfer pricing documentation report for presentation to tax
authority on request.
• Regular review of intercompany pricing arrangements
•
o
Ensure terms of the loan agreement are being followed
o
If the agreement contains an early repayment clause, would a third party have
exercised this clause and refinanced due to falling rates?
Potential advantages to refinancing loans, increase/ reduce interest to low/high
tax jurisdictions.
Financial guarantees
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Provision of guarantees - Introduction
•
A guarantee is a contract to assume economic liability if the guaranteed party
should default on their obligations.
•
A guarantee enables the guaranteed entity to borrow funds at lower interest
rates than it would have been able to borrow as a stand-alone enterprise.
•
To determine whether a guarantee has value, it must be shown that the standalone enterprise, in the absence of the guarantee, would have faced a higher
rate of interest or not been able to access funds in the absence of the
guarantee.
•
It is a contingent liability for the guarantor and the entity providing the guarantee
should be compensated for providing same even if the guarantee is not called
upon.
•
More focus from tax authorities on guarantees in recent years.
Provision of guarantees – Transfer pricing approaches
Yield approach - Determine a credit rating for the debtor on a stand-alone basis and
perform a loan pricing analysis to determine their borrowing rate. We then compare the
stand alone borrowing rate with the rate achieved with the guarantee. The interest saved by
the borrower is the maximum amount that they are willing to pay to obtain the guarantee.
Insurance approach – This gives the minimum fee that the guarantor would be willing to
accept for issuing a guarantee. It is comprised of the estimate probability of default
multiplied by the guarantor's required rate of return on the additional capital requirement
from providing the guarantee.
Credit default swaps (“CDS”) - A CDS is a contract that provides insurance against
the risk of a default by particular company. CDS transactions are similar to guarantees in
substance. Data on CDS are publically available and can be used as a benchmark for
intercompany guarantees.
CUP – Third party information may be available in relation to guarantees provided to the
borrower by third-party financial institutions.
Provision of guarantees – Passive association
•
GE Capital Canada Case – Court found that when estimating the credit rating of
a borrower, a third-party financial institution would take account of the fact that
the borrower was part of a larger group of companies. Even in the absence of
an implicit guarantee, the standalone credit rating of the borrower would be
uplifted by simply being a member of a group.
•
Implicit support – not widely endorsed in other jurisdictions as not strictly inline
with the arm’s length principle.
Cash pooling
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Cash pooling - Introduction
•
MNCs increasingly establish cross-border cash pooling systems
•
Aggregating and offsetting cash-flows within one common cash pool
generates benefits
Improved liquidity management
o Interest savings through reduced borrowings or obtaining cheaper funds in the
market
o Transaction cost savings
o
Cash pooling
• A cash pool is a master account through which a group can coordinate group
liquidity
• The organiser of the master account is often called the cash pool header
(“CPH”) to distinguish it from pool participants
Cash Pool Header
CashInflow
Cash Providers = Creditors
CashOutflow
Cash Consumers = Debtors
TOPIC 3
Current hot topics
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© 2010 Deloitte Development LLC. Private and confidential.
Contents
• Transfer pricing compliance reviews
• Foreign tax authority audits
• Base erosion and profit shifting (“BEPS”)
Transfer pricing compliance reviews
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Transfer pricing compliance reviews by Irish Revenue
• The TPCR program allows authorised officers from the Irish Revenue to send
out notifications to selected taxpayers inviting them to self-review their transfer
pricing and report back to the Irish Revenue within three months.
• Letters issued under the TPCR have been for a specific accounting period.
• The report to be provided to the Irish Revenue based on this self-review will
address:
o
The group structure;
o
Details of transactions by type and associated companies involved;
o
Pricing and transfer pricing method for each transaction or group of transactions;
o
Functions, assets, and risks of the parties involved;
o
List of documentation available or reviewed by the taxpayer; and
o
The basis for establishing if the arm’s length standard has been satisfied.
• In most circumstances, an existing transfer pricing study should suffice.
• The TPCR process is not a formal tax audit
Foreign tax authority audits
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Tax Authority Audit Environment: Recent Survey
Foreign Tax Authority Audits
Country-specific positions / trends – Italy, Spain and France
Italy
Spain
France
Rise in number, complexity and aggressiveness of tax audits
(especially transfer pricing audits) conducted by the tax
authorities
X
X
X
Rise in bad faith penalties (France & Spain) and criminal
investigations (Italy)
X
X
X
Raids conducted by the tax authorities in order to collect
evidence without notice
X
X
X
X
X
(computerized
tax audits)
(computerized
tax audits)
X
Use of tools in tax audits
(public
databases for
transfer pricing
benchmarks)
Recommendation to criminally prosecute
X
Tax officers have received transfer pricing training and
special teams dedicated to cross-border transactions have
been created at the tax offices directorates of each region
and province
X
X
X
Spain
Statistics
Tax Periods
Tax Audits
Assessments Raised (€m)
Tax Crime Cases
2010
23,923
6,002
696
2011
24,199
5,510
909
2012
24,772
6,069
604
Tax Audit Procedure Framework
• Statute of limitation: 4 years from the filing of the relevant tax return
• Selection of taxpayers: General programs and yearly guidelines detailing the action priority areas
(transfer pricing , International Reorganizations)
• Spanish electronic notification system (NEO): The system obliges taxpayers to check an electronic
inbox at least every ten days. Where the taxpayer does not access the electronic inbox, the notification
is deemed to be validly made, and therefore, filing deadlines, appeals, etc. run from that date
• Notification to the taxpayer: Partial or general tax audit
• Tax audit term: Maximum 12 months from the notification. Can be extended up to a maximum 24
months in case of special complexity
• Termination: Different type of assessments (Agreement vs. Disagreement)
Italy - Statistics
Large
businesses
( > €100m)
Medium
businesses
( > €10m and
<€100m)
Small
businesses
( < €10m)
Tax
Periods
Tax Audits
Assessments Raised (€m)
Average
Settlement
2010
2,609
5,490
2,1
2011
2,763
5,532
2,0
Tax
Periods
Tax Audits
Assessments Raised (€m)
Average
Settlement
2010
15,524
6,300
0,405
2011
16,080
7,700
0,478
Tax
Periods
Tax Audits
Assessments Raised (€m)
Average
Settlement
2010
219,878
12,600
0,060
2011
178,273
13,600
0,076
Italy - Tax Audit Procedure Framework
• Statute of limitation: 4 calendar years from FY of filing of the relevant tax return (can be
doubled in case a criminal violation is “suspected” in one of the FY audited).
• Selection of taxpayers: General programs and yearly guidelines detailing the action
priority areas (transfer pricing , Black-list, Business Restructurings - BEPS, transfer of the
tax residence abroad, VAT)
• Notification to the taxpayer: With minimum notice (if any), 15 days max for both partial
and general tax audit. Tax audit scope usually extended during audit itself.
• Tax audit term: 30 working days of “physical presence” at the taxpayer’s premises” (in
practice, can last forever!). Can be extended up to a maximum of another 30 days in
cases of special complexity
• Termination: a Tax auditor’s report is issued to both the taxpayer and the tax office; the
latter, will have to make a decision on whether or not issuing a tax assessment notice
totally or partially consistent with the tax auditors’ findings.
• “Cooperative Compliance”: a pilot program of ex-ante tutorship has been introduced for a
selection of large taxpayers, to work “hand in hand” with the Tax Office in determining the
“correct” way of calculating the taxable income and avoid future tax assessments.
UK – HMRC Transfer Pricing Statistics
Year
2007/8
2008/9
2009/10
2010/11
2011/12
2012/13
Total amount
£519m
£1,595m
£1,039m
£436m
£1,095m
£504m
Large business service
£494m
£1,564m
£973m
£273m
£944m
£251m
£25m
£31m
£66m
£163m
£151m
£253m
Local compliance
Issues in tax audits
• Inappropriate benchmarking (comparables are scrutinised)
• Permanent establishment (“PE”)
• Exit charges and reorganisations involving the transfer of functions, business
units and intangibles
• Head Office Charges (“management fees”, shared service centres, etc.)
• Financial transactions (e.g., debt pricing)
• The payment of brand royalties / creation of local marketing intangibles
Base Erosion and Profit Shifting
(BEPS)
69
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OECD / G20 BEPS Project Organisational Structure
Action 13: Re-examine transfer pricing documentation
Action 13: Discussion draft proposals & two tier approach
Action 13: Country By Country Reporting Template
Action 13: Country By Country Reporting Template
Action 13: Country By Country Reporting Template
Action 13: Recent Survey
Action 13: Recent Survey
Action 8: Transfer Pricing Aspects of Intangibles
Last discussion
draft issued in
July 2013.
Final version
to issue in early
Summer
Legal
ownership
• Legal ownership is the starting point in determining
entitlement to intangible related returns.
• However, the location of important IP related functions is key.
• Legal ownership is separate to remuneration under the arm’s
length principle.
• Outsourcing of most or all important functions may impact
entitlement to intangible related returns.
Costs &
Risks
• Company should bear the costs incurred to develop, enhance,
maintain and protect the intangibles.
• Bearing these costs does not, in and of itself, create an
entitlement to intangible returns.
• Company should generally bear and control the risks of
development, enhancement, maintenance and protection
including:
o the risk of R&D or marketing activities;
o product obsolescence;
o infringement risk;
o product liability.
Key
Functions
• Company should, with its own employees, perform the
important functions related to the oversight of the
development, enhancement and maintenance of intangibles
including design, control over and decision making relating to
the following:
o research and marketing programmes;
o budgets;
o development programs;
o defence and protection of intangibles;
o ongoing quality control of all relevant functions.
Activities not undertaken by IP owner – a framework
BEPS – A Tax Executive’s Response
In this dynamic environment, a tax executive will need to respond by:
• Identifying those BEPS initiatives that may challenge important tax
benefits to the company in the short, medium, and long term
• Measuring the impact of proposed BEPS reforms
• Prioritising the action items based upon the OECD’s timing and the tax
benefit for those provisions that are most important to the company
• Communicating with key stakeholders in this process
• Developing restructuring options
• Consider accelerating planning underway
IDENTIFY
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