page 1 disclaimer ► this material has been prepared for general informational and educational...
TRANSCRIPT
Page 1
Disclaimer
► This material has been prepared for general informational and educational purposes only and is not intended, and should not be relied upon, as accounting, tax or other professional advice. Please refer to your advisors for specific advice.
► This presentation is © 2015 EYGM Limited. All Rights Reserved.
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of the member firms, of Ernst & Young Global Limited, each of which is a separate legal entity. Neither Ernst & Young Global Limited, a UK company limited by guarantee, nor EYGM Limited provide services to clients. For more information about our organization, please visit ey.com.
OECD BEPS project outcomes:Focus on Transfer Pricing related Actions
TEI Carolinas Chapter12 November 2015
OECD BEPS project outcomes: Focus on Transfer Pricing related Actions
Page 3
Karen KirwanEY International Tax Services—Transfer PricingWashington, DC
OECD BEPS project outcomes:Focus on Transfer Pricing related Actions
Page 4
Final BEPS reports
Minimum standards
► Action 5 – Harmful tax practices
► Action 6 – Treaty abuse► Action 13 – Country-by-
country reporting► Action 14 – Dispute
resolution
Reinforced standards
► OECD Transfer Pricing Guidelines► Actions 8-10 (transfer pricing)► Action 13 (transfer pricing
documentation)► OECD Model Tax Convention
► Action 2 (hybrid mismatch arrangements)
► Action 6 (treaty abuse)► Action 7 (permanent
establishment status)► Action 14 (dispute resolution)
Common approaches and best practices
► Action 2 – Hybrid mismatch arrangements
► Action 3 – Controlled foreign company (CFC) rules
► Action 4 – Interest deductions and other financial payments
► Action 12 – Mandatory disclosure rules
► On 5 October 2015, the OECD issued its final reports on the 15 focus areas identified in its Action Plan on Base Erosion and Profit Shifting (BEPS). These were discussed and endorsed at the G20 Finance Ministers' meeting on 8 October 2015.
► The recommendations range from new minimum standards to reinforced international standards to common approaches and best practices.
► The output also includes analytical reports on Action 1 (digital economy), Action 11 (economic analysis) and Action 15 (multilateral instrument)
Page 5
Further development
► Follow on work on several Actions► Framework for monitoring country implementation and
involvement of additional countries
Impact of BEPS final reports
Immediate impact
► Action 8 – Transfer pricing for intangibles
► Action 9 – Transfer pricing for risks and capital
► Action 10 – Transfer pricing for other high-risk transactions
► Action 13 – Transfer pricing documentation and country-by- country reporting
Treaty-based action
► Action 2– Hybrid mismatch arrangements
► Action 6 – Treaty abuse► Action 7 – Permanent
establishment status► Action 14 – Dispute resolution ► Action 15 - Multilateral
instrument
Legislative action
► Action 2 – Hybrid mismatch arrangements
► Action 3 – CFC rules► Action 4 – Interest
deductions and other financial payments
► Action 5 – Harmful tax practices
► The final reports on the 15 Actions differ in timing of impact and further steps are needed.
► Some measures may have (almost) immediate effect in a number of countries; others require treaty based action or legislative action by countries. The OECD also has announced plans for additional work on some Actions.
Page 6
Country-by-Country reportHigh level information about
MNC’s jurisdictional allocation of revenue, profit,
taxes, assets and employees to be shared
with all tax authorities where MNC has operations
Action 13: Country-by-Country reporting (CbC)Who, when, where, how and what?
► Multinational groups with consolidated revenue of € 750 million or more
► Fiscal years beginning on or after 1 January 2016, with first Country-by-Country (CbC) reports to be filed by 31 December 2017
► Filing with tax authority in parent country, to be shared with tax authorities in countries where group has entities or branches► Secondary reporting either
directly by each local entity or for group by ‘surrogate parent’ entity
Transparency
readiness
Master fileHigh level information
about MNC’s business, transfer pricing policies and
agreements with tax authorities in single
document available to all tax authorities where MNC
has operations
Local fileDetailed information about
MNC’s local business, including related party
payments and receipts for products, services,
royalties, interest, etc.
Page 7
CbC reporting templateTable 1 and Table 2
Tax jurisdiction
Revenues
Profit (loss) before
income tax
Cash Tax Paid (CIT and WHT)
Current year tax accrual
Stated capital
Accumu
lated earnings
Tangible assets other
than cash and cash
equivalents
Number of employeesUnrelated
partyRelated
partyTotal
1.
2.
3.
4.
5.
Tax jurisdiction
Constituent entities
resident in the tax
jurisdiction
Tax jurisdiction of organization
or incorporation if different from
tax jurisdiction of residence
Main business activity(ies)
R & D
Holding or managing
IP
Purchasing
or procurement
Mfg or
production
Sales, marketing or distri.
Admin., Mgmt
or suppor
t service
s
Provision of services
to unrelated
parties
Internal
group
finance
Regulated
financial
services
Insurance
Holding shares or other equity
instruments
Dorman
t
Other
1.
2.
3.
1.
2.
Table 1:
Table 2:
Page 8
CbC reporting Implementation status
China: Filing due with tax return on31 May
Spain’s group definition based on control
Does not include surrogate parent concept
Equity rather than stated capital and accumulated earnings
Non compliance is a criminal offense in the Netherlands
Mandatory for large UK parented groups only
Already implementedImplementation in progress
Status
Page 9
CbC reporting Implementation specifics
OECDUnited
KingdomSpain Poland Australia Denmark China Netherlands Mexico
Status Implementation packages released in February and June 2015 with model legislation and model competent authority agreements
Draft regulations published
Adopted implementing regulations on 11 July 2015
Draft regulations published
Implementing Bill produced and under review
Draft legislation published
Draft legislation published Draft legislation published
Draft legislation published
Who Ultimate Parents of group with revenue of EUR 750 million or greater
Threshold of £586 million (approximately EUR 790million)
Threshold of AUD 1 billion (approximately EUR 670 million)
Threshold of DKK 5.6 billion (approximately EUR 750 million)
Threshold of RMB 5 billion (approximately EUR 705 million)
Threshold of 12 billion pesos (approximately EUR 650 million)
When For fiscal years starting in 2016, with filing within 12 months from fiscal year end
To be filed together with the annual tax return (due 31 May). Possible to apply for an extension. Enforcement period not specified.
Secondary filing rule
1. Local filing or2. Filing by named
“Surrogate Parent” entity
Voluntary local filing
Local filing Not required Local filing Local filing No information yet
Penalties Left to countries Specific penalty for non compliance
General penalty for non compliance
Transfer pricing documentationpenalties
General penalty for non compliance
General penalty for non compliance
Criminal penalty for non compliance
General penalty for non compliance
Consistent with OECD recommendations
Page 10
Who is the reporting entity?
Ultimate Parent Surrogate Parent Any local entity
Group: Collection of two or more enterprises related through ownership or control such that it is required to prepare consolidated financial statements (or would be so required if publicly traded)
► Top entity► No other entity owns a
controlling interest
► If country of Ultimate Parent does not require CbC reporting for the Group, or
► Local country is not receiving CbC report from Ultimate Parent jurisdiction
► Unless the Group appoints Surrogate Parent, and
► Local country rules allow for Surrogate Parent
► If country of Surrogate Parent requires CbC reporting and local country has arrangement in place to receive such information from country of Surrogate Parent, and
► Country of Surrogate Parent and local country both have been informed
► Files CbC report with tax authority in each such local country under country’s rules
► Files CbC report with tax authority where it is resident
► Tax authority will share with other countries under information exchange relationships
► Files CbC report with tax authority where it is resident
► Tax authority will share with other countries under information exchange relationships
PRIMARY REPORTING
SECONDARY REPORTING
Page 11
Specific secondary reporting mechanism
UK subsidiaries of non-UK MNCs are not required to file a CbC report. They may do so voluntarily for instance to serve as a Surrogate Parent.
Spain and China: No Surrogate Parent provision in the legislation; only secondary filing mechanism is local filing
Follows OECD Local reporting entity filing No filing required No details yet Voluntary local filing
Page 12
CbC reporting methodology
► Develop a high level overview of IT landscape specifically for CbC reporting
► Identify challenges for the enterprise in the ‘real world’ for CbC reporting
► Identify early any system/data gaps
Phase 1b: Current state readiness
► Build overall CbC reporting data inventory
► Identify any gaps in controls and processes for future state CbC reporting
► Identify solutions to address data and process challenges
Phase 2:Data inventory
► Implement data/system solution within the current IT infrastructure
► Configure CbC reporting data repository
► Deliver CbC report, master and local file reports
Phase 3: Repository configuration
► To create an overall picture of the information to be submitted to the tax authorities
► To anticipate the questions/issues that could be raised
► To consider remediation needs
Phase 1a: CbC reporting
assessment tool
Pri
ori
ty f
ocu
sS
ust
ain
able
rep
ort
ing
Page 13
Profit per employee vs. Effective Tax Rate (ETR)
► Visualization of profit per employee vs. ETR by tax jurisdiction
► Ability to filter by business activity and division
Phase 1a: CbC reporting assessment toolSample reports
Page 14
Phase 1a: CbC reporting assessment toolSample reports
Related party revenue/Total revenue
Profit/Total revenue
Related party revenue
► Visualization of related party revenue vs. total revenue and profits vs. total revenue
Page 15
Phase 1b: Current state readinessHigh level data and technology readiness assessment
► Data readiness assessment► Review current IT landscape and identify potential data sources► Identify what data is present in the organization’s data warehouse► Benchmark the environment’s complexity to determine the most
appropriate solution for gathering, transforming and reporting on the CbC reporting data
► Tools and technology assessment► Understand existing technology environment for extracting and
gathering source data, analyzing and transforming data and consolidating and reporting for similar purposes
► Compare new requirements to current technology► Analyze and recommend alternatives or incremental approaches
for technology and reporting tools and processes
Page 16
Phase 2: Data inventoryMapping data points and requirements gathering
► Data inventory► Document and map data requirements to existing sources► Determine transformation necessary to reach fit-for-purpose
validated data► Establish the processes and resource requirement to
address data readiness gap► Define taxonomy to store unstructured data
► Requirements gathering► Gather and document requirements with respect to data
analysis capabilities, reporting capabilities and audit trail
Page 17
One challenge that many MNCs are facing is how to collect and collate the information required for the reports from their various systems across the globe. Some MNCs will be able to source data centrally from consolidating systems, while others may need to use local data sources.
Data Processing Outputs
► (Sub) consolidated trial balances and cash flow statements
► Single or multiple ERP systems
► Supplemental data from other systems or manual input
► Exchange rate information
► Categorization
► Upload or extraction
► Mapping
► Cleansing
► Adjusting
► Scenario analysis
► Ratio calculations
► Assessment:
► Risk analysis
► Visualization
► Scenarios
► Reporting
► Real-time monitoring
► Customized reports
Phase 3: Repository configurationCbC reporting data collection
Page 18
Action 13: Master fileWho, when, where, how and what?
► All MNCs operating in countries that require master file above a certain threshold
► Not all countries require master file
► Some countries have (different) threshold amounts
► Possibly for financial years starting on or after 2016
► Filed with local tax authorities through normal transfer pricing documentation procedures
Country-by-Country reportHigh level information about
MNC’s jurisdictional allocation of revenue, profit,
taxes, assets and employees to be shared
with all tax authorities where MNC has operations
Transparency
readiness
Local fileDetailed information about
MNC’s local business, including related party
payments and receipts for products, services,
royalties, interest, etc.
Master fileHigh level information
about MNC’s business, transfer pricing policies and
agreements with tax authorities in single
document available to all tax authorities where MNC
has operations
Page 19
Master fileInformation required
Organization structure
Business description Intangibles Intercompany financial activities
Financial and tax positions
Structure chart: Important drivers of business profit
Overall strategy description
Financing arrangements for the group
Annual consolidated financial statements
► Legal ownership
► Geographic location
Supply chain of:► 5 largest products/services
by turnover► Products/services
generating more than 5% of turnover
List of important intangibles and legal owners
Identification of financing entities
List and description of existing unilateral Advance Pricing Agreements (APAs) and other tax rulings
Main geographic markets of above products
List of important intangible agreements
Details of financial transfer pricing policies
List and brief description of important service arrangements
R&D and intangible transfer pricing policies
Functional analysis of principal contributions to value creation by individual entities
Details of important transfers
Business restructuring/ acquisitions/ divestitures during fiscal year
Page 20
Master fileQuestions
► How different is it from current master file practice?► How many master files?
► Jurisdictional considerations► Different association thresholds► Different revenue thresholds
► Organizational considerations
► What is meant by operating entity?► Legal/constituent/dormant?► JV/ minority interests? ► Consistency with CbC reporting?
► Materiality?► Language?
Page 21
Master fileFlexible and scalable approach?The organizational set-up is often diverse and provides some complexity for the master file
Division A
Business unit 1
Sub-unit B
Sub-unit E
Micro division 1
Micro division 2
Sub-unit A
1 Division/group level
2
3
4
Business unit level
Sub-unit level
Micro division level
1
2
3
4
Division B
Micro division 4
Micro division 3
Business unit 2
Sub-unit C
Business unit 3
Micro division 5
Micro division 6
Micro division 8
Micro division 9
Micro division 7
Sub-unit D
Page 22
Master fileWhat level?Compliance with the Action 13 Master file requirements
MNC X
1.
Division
level
2.
Business unit level
4.
Micro division level
3.
Sub-unit level
►Master file can be prepared at a “divisional level”
►Master file can be prepared at a “business unit level”
►Master file can be prepared at a “sub-unit level”
►Master file can be prepared at a “micro division level”
# of Master files
2
3
5
9
1►Master file can be prepared at a
“company level”
Page 23
Action 13: Local fileWho, when, where, how and what?
► All MNCs operating in jurisdictions that require local file (above local country threshold)
► Not all countries require local file
► Some have (different) threshold amounts
► Possibly for financial years starting on or after 2016
► Filed with local tax authorities
► Through normal transfer pricing documentation procedures
Country-by-Country reportHigh level information about
MNC’s jurisdictional allocation of revenue, profit,
taxes, assets and employees to be shared
with all tax authorities where MNC has operations
Transparency
readiness
Master fileHigh level information
about MNC’s business, transfer pricing policies and
agreements with tax authorities in single
document available to all tax authorities where MNC
has operations
Local fileDetailed information about
MNC’s local business, including related party
payments and receipts for products, services,
royalties, interest, etc.
Page 24
Local fileInformation required
Local entity Controlled transactions Financial Information
► Management structure
► Local organization chart
► Details on individuals to whom local management reports
► Description of material controlled transactions and context in which they take place.
► Identification of associated enterprises party to controlled transactions and relationship
► Functional analysis► Transfer pricing methods used► Comparables and details of methodology
Local entity financial statements
Description of business and business strategy pursued
Amounts of intra-group payments and receipts for controlled transactions (i.e. products, services, royalties, interest etc.)
Reconciliation to show how financial data used in applying the transfer pricing method ties to the financial statements
Details of business restructurings and/or intangible transfers
Unilateral and bilateral/multilateral APAs and other tax rulings related to the controlled transactions
Summary of relevant financial data for comparables and sources from which data was obtained
Key competitors R&D and intangible transfer pricing policies
Details of important transfers
Page 25
Local fileQuestions
► Materiality thresholds? ► Price setting or outcome testing?► Reconciliation with local financial reporting► What is meant by payment?► Are database searches updated on a regular basis?► What rulings and APAs are to be included?► How is the documentation process organized?
Page 26
Master/Local FileImplementation status
Spain: mandatory for groups larger than 45 million
Poland: master file mandatory for entities larger than 20 million euros, local file more than 10 million
Singapore and Greece already implemented documentation requirements similar to Action 13 master file and local file
Already implementedImplementation in progress
Status
Page 27
Action 13: Transparency readiness
► Companies need to be ready for increased transparency► Actively monitor the
changing landscape
► Assess readiness for new reporting
► Communicate with internal and external stakeholders
► Consider additional explanatory reporting
► Consider broader proactive engagement with tax authorities
Country-by-Country reportHigh level information about
MNC’s jurisdictional allocation of revenue, profit,
taxes, assets and employees to be shared
with all tax authorities where MNC has operations
Master fileHigh level information
about MNC’s business, transfer pricing policies and
agreements with tax authorities in single
document available to all tax authorities where MNC
has operations
Local fileDetailed information about
MNC’s local business, including related party
payments and receipts for products, services,
royalties, interest, etc.
Transparency
readiness
Page 28
Action 13: Looking ahead
► Consistency ► Master file; Local file; CbC report► Reconciliation with tax returns► Reconciliation with financial statements► Reconciliation with transfer pricing policy
► Management approach► Central or local► Involvement of other stakeholders
► Preparation for questions and controversy
Page 29
Action 8-10Intangibles/ Risk & Capital/ High Risk Transactions
► What is the relevance of OECD Transfer Pricing Guidelines in the countries where your company operates?► No relevance► Soft law► Reference to OECD guidelines
► When and how do revisions to these guidelines become effective in these countries?
What happened Questions to ask
► New versions of: ► Chapter VI of the OECD TP guidelines addressing
intangibles, including new guidance on the return to funding activities and on hard-to-value intangibles
► Chapter VIII of the OECD TP guidelines, covering cost contribution arrangements
► New guidance on:► Commodity transactions (additions to Chapter II of the
OECD TP Guidelines)► Low-value adding intragroup services (revisions to
chapter VII of the OECD TP Guidelines)
► Amended guidance on:► Identification of the actual transaction undertaken ► Control of a risk► When the actual transaction undertaken may be
disregarded for transfer pricing purposes
► Unchanged guidance (2014 Report on Intangibles) on comparability factors including:► Location savings, assembled workforce, and MNE
group synergies (additions to chapter I of the OECD TP Guidelines)
Page 30
Overview of countries with Actions 8-10 activity
Page 31
Resources
BEPS online: ey.com BEPS site
www.ey.com/tax
Action 13 material► Action 13 overview► Action 13 implementation survey► CbC reporting readiness
Overall BEPS assessment framework
Tax Alerts online: ey.com/taxalerts
Mobile devices: ey.com/TaxGuidesApp ey.com/EYInsights
Twitter: @EY_Tax