Documentation and country-by-country reporting · Transfer pricing Documentation under BEPS Transfer Pricing Documentation Master File CBCR Template Local File 1 Local File 2 Local

Documentation and

country-by-country

reporting

Excelsior Hotel Gallia

Piazza Duca D'Aosta, 9 - Milan

April 29, 2015

1© 2015 Studio Associato - Consulenza legale e tributaria, an Italian professional partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative

("KPMG International"), a Swiss entity. All rights reserved.

Agenda

BEPS Action 13

■ Project roadmap

Transfer pricing Documentation under BEPS

■ Objectives and Approach

■ Master File and Local File

■ Country by Country

What's New?

■ Comparison with OECD/Italian TP Standards

Key consideration



Agenda

BEPS Action 13

■ Project roadmap





What's New?


Key consideration



BEPS Action 13

Project roadmap

January

2016

Be Prepared

to Produce

BEPS-ready

Documenta-

tion

Future

Review,

Update, and

Enhance as

Needed

- Reflect

business

evolution -

Experience

with tax

authorities

February

2015

Guidance

on the

Implementa-

tion of

Transfer

Pricing

Documenta-

tion and

Country-by-

Country

Reporting

July

2013

Release of

Action Plan

January

2014

Publishing

of a

discussion

draft

May

2014

Public

consultation

September

2014

Guidance on

TP

Documenta-

tion and

Country-by-

Country

Reporting



Agenda

BEPS Action 13

■ Project roadmap





What's New?


Key consideration




Objectives of Transfer Pricing Documentation

Objectives

1 Ensure taxpayer give proper consideration to transfer pricing requirements

2 Provide tax administrations with information to conduct risk assessment

3 Provide tax authorities with information to conduct transfer pricing audits

Three tier approach




Objectives and Approach

Master

file

Country

file

Country

file

Country

file

Country

files

CbC

Report

■ Standardized information relevant for all

group members

■ Details on the operations and transactions

relevant to that jurisdiction

■ Summary data by jurisdiction including

revenue, income, taxes, and indicators of

economic activity




Transfer Pricing Documentation

Master File

CBCR Template

Local

File 1

Local

File 2

Local

File 3

Local

File 4

Objective – “By requiring taxpayers to articulate convincing,

consistent, and cogent transfer pricing positions, transfer

pricing documentation can help to ensure that a culture of

compliance is created”

Solution - Three tier approach

Best practice

■ Timeline – Local file no later than due date of tax return;

CBCR template within one year of the end of the fiscal year

■ Materiality – Should be established by local jurisdictions

■ Frequency of updates – Searches every 3 years

■ Language – “Commonly used languages”

■ Penalties – Either direct or via penalty protection or shift in

burden of proof

■ Confidentiality

■ Local comparables

Still to come – Mechanism for sharing information

Revisited no later than 2020




Master File and Local File

High Level overview (group-wide or line of business basis) – and descriptions of:

■ The businesses including drivers of business profit, charts on supply chain (for five largest and/or 5% of turnover); a

list of intra-group services; functional analysis; any business restructurings

■ Intangibles including the group’s strategy for the development of intangibles, a list of material intangibles, a list of

agreements relating to intangibles, any transfers of intangibles and TP policies related to R&D and intangibles

■ Intercompany financial activity including how group is financed, identification of treasury companies, and TP polices relating

to financing

■ Financial and tax positions including unilateral APAs, and other tax rulings relating to the allocation of income

Master File

CBCR

1 2 3 4

For each jurisdiction

■ Description of the management structure, organisational chart, restructurings, key competitors

■ For each category of controlled transactions,

– description of material controlled transactions and list of associated enterprises

– copies of material intercompany agreements

– intercompany payments for each category by jurisdiction of counter-party

– detailed functional analysis including any changes to prior years (can be cross-referenced to Master File)

– most appropriate TP method & tested party

– list of comparables and assumptions made

– reasons for concluding transaction was conducted on arm’s length basis

– a summary of the financial information used in applying the TP methodology

– a copy of existing APAs and other tax rulings which are related to the controlled transactions

■ Financial information for local entities, including local financial accounts and linkages between info used for TP and financial

statements

Separate template – More on this later




Country by Country Reporting

Stated purpose of CbC

■ High level transfer pricing risk assessment

■ Evaluate other BEPS related risks

■ Economic and statistical analysis

NOT

■ Global formulary apportionment of income

How CbC reporting achieves this

■ Providing a global view of a multinationals value chain

■ Understanding of the “bigger picture”

■ Identifying if revenues and profits generated are

commensurate with substance

■ Identifying artificial shifting of substantial amounts of

income into tax-advantaged environments

■ Visibility of where groups are located in low tax

jurisdictions havens or have tax incentives

■ Greater transparency on the location of permanent

establishments and branches




Country by Country Reporting - What is required

■ Multinationals where the ultimate parent entity is resident in an

OECD or G20 country

■ Exemption for multinationals with consolidated group revenues

of less than €750m (or local equivalent) in the previous fiscal

year

■ All types of business structure will be within scope including for

example corporations, partnerships, investment trusts

■ Could be wider if non OECD/G20 countries decide to implement

similar requirements into local law

■ The first period in scope will be the accounting period beginning

on or after 1 January 2016

■ The report must be filed with the parent country tax authority

within 12 months of the year end

■ The first filings will therefore be 31 December 2017

■ Countries will need to implement the requirements into local

legislation

■ The OECD will be working on an implementation framework to

facilitate this – Further details expected (April 2015)

■ The ultimate parent company will be required to prepare a

country by country template for the entire in scope group for

certain financial and tax information shown on the next page

■ The basic scope is all entities included in the consolidated

group for financial reporting and there is no materiality level

■ This will need to be produced on an annual basis and submitted

within 12 months of the year end of the parent

■ Group reporting data or local GAAP information may be used

(*) Defining the reporting multi national may be complex depending on group structure

■ The report will be filed with the parent country tax authority

■ That tax authority will automatically share the report with

countries in which the group operates providing certain

conditions are met:

– Confidentiality: certain confidentiality protections in place

– Consistency: implementing filing requirement for resident

parent companies and not requiring more than is in the

OECD template

– Appropriate use: commitments to using this for assessing

high level transfer pricing risk and not for income allocation

on a formula basis. Commitment around competent authority

approach to counter formula apportionments

Who? When?

What? How?




Country by Country Reporting – Template – Page 1

CbyC Template – Page 1

Revenue

Tax

Jurisdiction

Unrelated

Party

Related

Party Total

Profit (loss)

before

income tax

Income tax

paid (on a

cash basis)

Income

tax

accrued

- current

year

Stated

Capital

Accumulated

Earnings

Number of

employees

Tangible

Assets

other than

Cash and

Cash

Equivalents

Country A

Country B

Not

resident in

any tax

jurisdiction




Country by Country Reporting – Template – Page 2

CbyC Template – Page 2

Activities

Tax

Jurisdiction

Constituent

entities

resident in

the tax

jurisdiction

Tax jurisdiction

of organisation

or incorporation

if different from

tax jurisdiction

of residence Re

se

arc

h &

de

ve

lop

me

nt

Ho

ldin

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r M

an

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ag

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tru

me

nts

Do

rma

nt

Oth

er

Country A Entity A Country B

Entity B

Country B Entity C

Entity D

PE 1



Agenda

BEPS Action 13

■ Project roadmap





What's New?


Key consideration



Group intangibles (per

Chapter VI )

Description of Group

business(es)

Group financial

activities

Group’s financial

and tax positions

Global Transfer Pricing Documentation – What’s New?

Master file – BEPS vs Italian TP standards

■ Key profit drivers

■ Supply chain of 5 largest

products/services by

turnover plus those > 5% of

group turnover (chart/

diagram)

■ Description of group services

(other than R&D), including

activities of principal service-

providing locations and

transfer pricing policies for

any cost allocations

■ Main geographic markets

■ Brief FAR analyses of

principal activities of group

entities

■ Description of key business

restructuring (acquisitions

and divestitures)

transactions

■ Group strategy for

development, ownership and

exploitation of IP, including

location of principal R&D

facilities/management

■ List of key intangibles along

with the entities having their

legal ownership

■ List of key intangible related

agreements, including cost

contribution arrangements,

R&D/license agreements

■ TP policies related to R&D/

Intangibles

■ Description of major group

transfers of IP (entities,

countries, compensation

involved)

■ Description of group

financing + key 3P financing

arrangements

■ Details of entities that may

be providing a central

financing function including

country of operation/

organisation

■ Description of TP policies

related to group financing

arrangements

■ Annual consolidated

financial statements

■ List and brief description of

any existing unilateral

APAs/other tax rulings

Organization Structure: Group legal and ownership structure along with geographical location of group entities

New New

New

New

New



Controlled transactionsLocal entity Financial information

Global Transfer Pricing Documentation – What’s New?

Local file – BEPS vs Italian TP standards

■ Local management

structure/org chart,

individuals to whom local

management reports and

country(ies) of their offices

■ Details of local business/

strategy including any

involvement in business

restructurings/intangibles

transfers in recent one

year, along with relevant

factors affecting local

operations

■ Key competitors

For each material category of controlled transactions:

■ Description of controlled transactions

■ Amount of intra-group payments/receipts broken down by jurisdiction

of foreign payor/recipient

■ Group entities involved and relationship amongst them

■ Copies of intercompany agreements

■ Detailed functional analysis of entities involved + any changes

compared to prior years

■ Most appropriate TP method applied, tested party selection and

reasons for same

■ Summary of assumptions involved and reasons for performing a

multi-year analysis, if relevant

■ List/description of comparable uncontrolled transactions (internal/

external) if any used; financials of independent entities involved if

any, and description of search methodology + sources used

■ Description of adjustments performed

■ Reasons for concluding arm's length basis

■ Any unilateral and bilateral/multilateral APAs or tax rulings not

involving local entity but related to controlled transaction

■ Annual local entity financial

accounts

■ Audited/unaudited statements

■ Information/allocation

schedules for tieing financial

data used in TP analysis to

annual financial statements

■ Summary of comparables'

financial data used in TP

analysis as well as source of

data

New

New

New

Based on the results of the comparison it is possible to assume that the Italian TP Doc already

covers the 70%-80% of the information required by the New Guidance



Agenda

BEPS Action 13

■ Project roadmap





What's New?


Key consideration



Key consideration

Reconsider your transfer pricing policies in light of BEPS developments

■ Understand data need

■ Map current status of documentation

■ Identify data source and define data gathering plan

Thank you

Contacts

Maria Eugenia Palombo

Associate Partner, Transfer Pricing

E: [email protected]

T: 06 8096 3505

mailto:[email protected]

The KPMG name, logo and "cutting through

complexity" are registered trademarks or trademarks

of KPMG International.

© 2015 Studio Associato - Consulenza legale e

tributaria, an Italian professional partnership and a

member firm of the KPMG network of independent

member firms affiliated with KPMG International

Cooperative ("KPMG International"), a Swiss entity. All

rights reserved.

Documents

Documentation and country-by-country reporting · Transfer pricing Documentation under BEPS Transfer Pricing Documentation Master File CBCR Template Local File 1 Local File 2 Local