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September 2015
Manual for Transfer Pricing Documentationand Country-by-Country Reporting
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3
Contents
1. Introduction 4
2. Background 5
3. Master file and local file 7 3.1. Introduction 7 3.2. The master file 7 3.3. The local file 9 3.4. Practical issues 10
4. Country-by-Country Reporting 12 4.1. Introduction 12 4.2. Threshold to file the CbC Report 12 4.3. What needs to be filed? 12 4.4. Who needs to file ? 13 4.5. Which sources of data can be used? 13 4.6. In what currency should the CbC Report be filed? 14 4.7. How will the CbC Reports be shared between tax administrations? 14 4.8. What happens if an MNE does not fully or timely file the CbC Report? 14 4.9. Practical issues 14
5. CbC Report - Developing an action plan 16 Annex I 18A model template for the Country-by-Country Report
Annex II 20Comparative Table - the Guidance and EU Code of Conduct on Transfer Pricing Documentation (EU TPD)
4 5
1. Introduction
In various deliverables that have been issued by
the Organization for Economic Co-operation and
Development (OECD), new guidance has been given in
relation to transfer pricing documentation requirements
and a newly introduced concept of Country-by-Country
(CbC) Reporting in the context of Action 13 of the OECD/
G20 Base Erosion and Profit Shifting (BEPS) project.
The new requirements will impose significant new burdens
on multinational enterprises (MNEs) in preparing the
required documentation and in dealing with audits from
tax administrations after reviewing the documentation.
In a new Bill that was released on 15 September 2015
(Dutch Bill), the Dutch Government implemented the
new transfer pricing documentation requirements and
CbC Reporting obligations based on the guidance that
was issued by the OECD.
This manual describes the contents of the new transfer
pricing documentation requirements (in the form of a
master file, local file and CbC Report) that have been
adopted by the OECD and it provides a step-plan on how
to implement the CbC Reporting obligations. Moreover,
this manual outlines the more important practical and
implementation issues that MNEs will face as well as
some potential solutions to those issues. This manual
further elaborates on the contents of the Dutch Bill.
5
2. Background
In September 2014, the OECD published the final
version of a new Chapter V of the OECD Transfer
Pricing Guidelines (OECD Guidelines), i.e. Guidance on
Transfer Pricing Documentation and Country-by-Country
Reporting (Chapter V of the OECD Guidelines).
Chapter V of the OECD Guidelines provides substantially
revised transfer pricing documentation requirements (i.e.
blueprints of a global master file and local file) and a
common template for CbC Reporting.
In February 2015, the OECD released the Guidance on
the Implementation of Transfer Pricing Documentation
and Country-by-Country Reporting (Guidance), which
primarily relates to the implementation of CbC Reporting.
In June 2015, the OECD released a package for
implementing CbC Reporting in accordance with the
Guidance (CbC Reporting Implementation Package),
that consists of model legislation and three model
Competent Authority Agreements that could be used to
facilitate the implementation of the CbC Reporting and
the automatic exchange of information between tax
administrations.
In the Guidance and CbC Reporting Implementation
Package, certain practical aspects have been clarified.
While issuing the CbC Reporting requirements and by
taking into account the public comments, the OECD
has tried to limit the compliance burden for MNEs
by e.g. arranging that (i) MNEs have been given the
flexibility to use a wide variety of organized sources
of financial information, (ii) MNEs are not obliged to
disclose information for each entity operating in a country
separately, (iii) MNEs are not obliged to reconcile the
revenue, profit, and tax reporting in the template to the
consolidated financials and (iv) MNEs are not required to
make adjustments for differences in accounting principles
applied in different tax jurisdictions.
However, the CbC Reporting requirements still pose
significant challenges for MNEs since the contents of
Chapter V of the OECD Guidelines, the Guidance and
the CbC Reporting Implementation Package leave room
for many interpretations and many questions remain to
be answered.
Many countries consider the OECD Guidelines as “soft
law” and a revision of Chapter V of the OECD Guidelines
often does not have a direct effect.
Some countries are already introducing revised transfer
pricing documentation requirements and CbC Reporting
in hard law, such as the Netherlands, United Kingdom,
Spain, United States, Australia and Poland. Continuous
activity is expected from many other countries that are
now evaluating how to adapt their legislation to the new
requirements.
6 7
The scheduled effective date of new legislation that
introduces CbC Reporting and/or new transfer pricing
documentation requirements is 1 January 2016.
Following the work of the EU Joint Transfer Pricing
Forum (EU JTPF) in 2006 (EU Code of Conduct on
Transfer Pricing Documentation), many companies have
already spontaneously adopted the concept of the master
file and local file as proposed at the time. However,
significant differences can be noted among the EU JTPF
Code of Conduct on Transfer Pricing Documentation
requirements and the contents of the new Chapter V of
the OECD Guidelines (see Annex II).
The recommendations related to the master file and
the local file as laid down in Chapter V of the OECD
Guidelines introduce new requirements that will demand
a review and update of the existing current transfer
pricing documentation.
For the introduction of the CbC Reporting, a new process
of data gathering and information alignment across the
global group will be required. MNEs will need to make
significant efforts to comply with the new requirements.
7
3.1. Introduction
Chapter V of the OECD Guidelines provides a new
guidance on what information should be included in a
master file and local file.
The master file should provide a high-level overview
of the MNE group’s global business structure and its
transfer pricing policies.
The local file is meant to supplement the master file and
is intended to deliver a more detailed overview of the
specific intra-group transactions that are entered into by
a specific taxpayer and the reconciliation of the transfer
pricing policies with the actual result.
According to the OECD, the appropriateness of the details
of the master file and local file should be determined by
the taxpayers, bearing in mind its final goal, which is to
assist tax administrations in evaluating the presence of
significant transfer pricing risks, in a global context.
Paragraph 3.2. describes the information that should
according to the OECD be included in the master file.
Paragraph 3.3. describes the information that should
according to the OECD be included in the local file.
Paragraph 3.4. deals with certain practical aspects that
should be kept in mind while preparing the master file
and local file.
3.2. The master file
The master file shall require a “blue print” of the MNE
group, divided in five categories:
(i) the MNE group’s organisational structure
(ii) a description of the MNE business(es)
(iii) the MNE intangibles
(iv) the MNEs intercompany financial transactions
(v) the MNEs financial and tax position.
More specifically, the following information should be
included in the master file:
Organisational structure
• Chart illustrating the MNEs legal and ownership
structure and geographical location of operating
entities.
Description of MNEs business(es)
• General written description of the MNEs business
including:
- Important drivers of business profit;
- A description of the supply chain for the group’s
five largest products and/or service offerings by
turnover plus any other products and/or services
amounting to more than 5 percent of group
turnover. The required description could take the
form of a chart or a diagram;
- A list and brief description of important service
arrangements between members of the MNE
group, other than research and development
(R&D) services, including a description of the
capabilities of the principal locations providing
important services and transfer pricing policies for
allocating services costs and determining prices to
be paid for intra-group services;
3. Master file and local file
8
- A description of the main geographic markets for
the group’s products and services that are referred
to in the second bullet point above;
- A brief written functional analysis describing
the principal contributions to value creation by
individual entities within the group, i.e. key functions
performed, important risks assumed, and important
assets used;
- A description of important business restructuring
transactions, acquisitions and divestitures
occurring during the fiscal year.
MNEs intangibles (as defined in Chapter VI of these
Guidelines)
• A general description of the MNEs overall strategy
for the development, ownership and exploitation
of intangibles, including location of principal R&D
facilities and location of R&D management.
• A list of intangibles or groups of intangibles of the MNE
group that are important for transfer pricing purposes
and which entities legally own them.
• A list of important agreements among identified
associated enterprises related to intangibles, including
cost contribution arrangements, principal research
service agreements and license agreements.
• A general description of the group’s transfer pricing
policies related to R&D and intangibles.
• A general description of any important transfers of
interests in intangibles among associated enterprises
during the fiscal year concerned, including the entities,
countries, and compensation involved.
MNEs intercompany financial activities
• A general description of how the group is financed,
including important financing arrangements with
unrelated lenders.
• The identification of any members of the MNE group
that provide a central financing function for the group,
including the country under whose laws the entity is
organised and the place of effective management of
such entities.
- A general description of the MNEs general transfer
pricing policies related to financing arrangements
between associated enterprises
MNEs financial and tax positions
• The MNEs annual consolidated financial statement
for the fiscal year concerned if otherwise prepared for
financial reporting, regulatory, internal management,
tax or other purposes.
• A list and brief description of the MNE group’s existing
unilateral advance pricing agreements (APAs) and
other tax rulings relating to the allocation of income
among countries.
9
9
3.3. The local file
The objective of the local file is to assure that the MNE
has complied with the arm’s length principle in its material
transfer pricing positions affecting a specific jurisdiction.
The local file should provide information relating to
specific intercompany transactions entered into in a
specific country. Such information would include:
(i) relevant financial information regarding those
specific transactions,
(ii) a comparability analysis, and
(iii) the selection and application of the most appropriate
transfer pricing method.
The following information should be included in the
local file:
Local entity
• A description of the management structure of the local
entity, a local organisation chart, and a description of
the individuals to whom local management reports
and the country(ies) in which such individuals maintain
their principal offices.
• A detailed description of the business and business
strategy pursued by the local entity including an
indication whether the local entity has been involved
in or affected by business restructurings or intangibles
transfers in the present or immediately past year and
an explanation of those aspects of such transactions
affecting the local entity.
• Key competitors.
Controlled transactions
For each material category of controlled transactions
in which the entity is involved, provide the following
information:
• A description of the material controlled transactions
(e.g. procurement of manufacturing services, purchase
of goods, provision of services, loans, financial and
performance guarantees, licences of intangibles, etc.)
and the context in which such transactions take place.
• The amount of intra-group payments and receipts for
each category of controlled transactions involving the
local entity (i.e. payments and receipts for products,
services, royalties, interest, etc.) broken down by tax
jurisdiction of the foreign payor or recipient.
• An identification of associated enterprises involved
in each category of controlled transactions, and the
relationship amongst them.
• Copies of all material intercompany agreements
concluded by the local entity.
• A detailed comparability and functional analysis of
the taxpayer and relevant associated enterprises with
respect to each documented category of controlled
transactions, including any changes compared to prior
years.1
• An indication of the most appropriate transfer pricing
method with regard to the category of transaction and
the reasons for selecting that method.
• An indication of which associated enterprise is
selected as the tested party, if applicable, and an
explanation of the reasons for this selection.
• A summary of the important assumptions made in
applying the transfer pricing methodology.
• If relevant, an explanation of the reasons for
performing a multi-year analysis.
1 To the extent this functional analysis duplicates information in the
master file, a cross-reference to the master file is sufficient.
10
• A list and description of selected comparable
uncontrolled transactions (internal or external), if
any, and information on relevant financial indicators
for independent enterprises relied on in the transfer
pricing analysis, including a description of the
comparable search methodology and the source of
such information.
• A description of any comparability adjustments
performed, and an indication of whether adjustments
have been made to the results of the tested party, the
comparable uncontrolled transactions, or both.
• A description of the reasons for concluding that
relevant transactions were priced on an arm’s length
basis based on the application of the selected transfer
pricing method.
• A summary of financial information used in applying
the transfer pricing methodology.
• A copy of existing unilateral and bilateral/multilateral
APAs and other tax rulings to which the local tax
jurisdiction is not a party and which are related to
controlled transactions described above.
Financial information
• Annual local entity financial accounts for the fiscal year
concerned. If audited statements exist they should be
supplied and if not, existing unaudited statements
should be supplied.
• Information and allocation schedules showing how
the financial data used in applying the transfer pricing
method may be tied to the annual financial statements.
• Summary schedules of relevant financial data for
comparables used in the analysis and the sources
from which that data was obtained.
3.4. Practical issues
In this paragraph, we will elaborate on the practical
issues that should be kept in mind while preparing the
master file and local file.
Consistency in transfer pricing documentation
Chapter V of the OECD Guidelines requires MNEs
to prepare a consistent story in all relevant countries,
all years and all media. In order to prepare for the
new transfer pricing documentation requirements, we
recommend gathering information from a variety of
sources, such as tax returns, existing transfer pricing
documentation, APAs, tax positions taken in the financial
statements and publicly available information (i.e. via
internet) that has not been prepared for tax purposes
(e.g. job applications that are posted on the internet).
While gathering and reviewing this information, it should
be assessed how the various tax administrations may
view this information when considered in conjunction with
the information presented in the CbC Report.
Master file and local file in accordance with templates
Many MNEs currently have transfer pricing documentation
that has both elements of a master file and local file.
It is crucial that the currently existing transfer pricing
documentation is updated along the lines of the required
information that has been described in paragraph 3.2.
and 3.3.
11
11
No threshold for master file and local file
Contrary to the guidance that has been given on CbC
Reporting, no specific threshold has been provided for
the preparation of a master file and local file. This implies
that the preparation of a master file and local file could
also be obligatory for MNEs that have consolidated
revenues of less than EUR 750 million. However,
domestic legislation can provide exemptions for small
and median sized MNEs (SMEs). Domestic thresholds
will differ among countries. In the Dutch Bill, the Dutch
government proposed to make it obligatory for an entity
to prepare a master file and local file if that entity belongs
to a group that has consolidated revenues of more than
EUR 50 million.
Timing and potential penalties
Practices regarding the timing of the documentation
differ among countries. In combination with the fact
that it is indicated that penalties are a frequently used
tool to ensure efficient operation of transfer pricing
documentation requirements, this leads to the necessity
of reviewing the various timing requirements in the various
countries. According to the Dutch Bill, the master file and
local file should be available in the administration of the
tax payer by the due date of the tax return. If the master
file and local file are not included in the administration,
the previously existing penalty regime applies for not
meeting the administration requirements.
Annual update of financial information comparables
from database searches
Many MNEs use database searches that are 3-5 years
old. In Chapter V of the OECD Guidelines, it is now
indicated that, as long as the operating conditions remain
the same, the selection of comparable companies only
should take place every three years. The financial
information of those comparables should be updated
annually, however. In practice, this may require a yearly
update of the benchmark study.
Language
The language in which transfer pricing documentation
should be submitted is a matter of local laws. While
countries are encouraged by the OECD to permit filing
of documentation in commonly used languages, some
countries have already indicated that they will require
translation into local language. According to the Dutch
Bill, the master file and local file can be prepared in both
Dutch and English.
Reconciliation with financial statements
It is required to show how the financial data used in
applying the transfer pricing method is reconciled to the
annual financial statements. It is crucial to prepare this
reconciliation prior to finalizing the financial statements.
1312
4.1. Introduction
Chapter V of the OECD Guidelines provides for a detailed
description what items should be reported in the newly
developed rules on CbC Reporting. The Guidance and the
CbC Reporting Implementation Package provide further
practical guidance for countries on how to implement
the CbC Reporting requirements. We address the main
aspects of CbC Reporting in the next subparagraphs.
4.2. Threshold to file the CbC Report
MNEs with an annual consolidated group revenue in the
immediately preceding fiscal year of less than EUR 750
million should not be required to file the CbC Report in
any country. This threshold is intended to be reviewed
in 2020.
The threshold that is described in Chapter V OECD
Guidelines relates to “revenues” and not to “turnover”.
In Chapter V OECD Guidelines, the “revenues” that
need to be reported per country include more items
than “turnover” (e.g. amounts received due to sale of
inventory, or due to sale of properties) and this should
be kept in mind while determining whether an MNE is
obliged to file a CbC Report.
4.3. What needs to be filed?
In the CbC Report, MNEs should report revenue, profit
before income tax, income paid and accrued, total
employment, capital, retained earnings, and tangibles
assets per tax jurisdiction. It is not required to specify this
information per Constituent Entity.
A Constituent Entity is defined as any separate business
unit (company, corporation, trust, partnership, etc.) that is
included in the consolidated group for reporting purposes.
Entities excluded from financial statements only on
size and materiality grounds should also be included.
The term Constituent Entity also includes a permanent
establishment of an entity of an MNE provided such
permanent establishment prepares a separate income
statement for regulatory, financial, internal management
or tax purposes.
It is further required to provide a list of all the Constituent
Entities, their activities and their country of incorporation
if this is different from their tax residency.
A detailed overview of the template and information that
is required with a more detailed description of the items
has been attached as Annex I.
4. Country-by-Country Reporting
13
4.4. Who needs to file ?
Based on the CbC Reporting Implementation Package,
countries should implement legislation under which the
MNEs Ultimate Parent Entity is responsible for filing the
CbC Report annually in its home jurisdiction. This has
also been adopted in the Dutch Bill.
The Ultimate Parent Entity is a Constituent Entity of an
MNE Group that meets the following criteria:
(i) its owns directly or indirectly a sufficient interest
in one or more other Constituent Entities of such
MNE Group such that it is required to prepare
Consolidated Financial Statements (in which
the assets, liabilities, income, expenses and
cash flows of the Ultimate Parent Entity and the
Constituent Entities are presented as those of a
single economic entity) under accounting principles
generally applied in its jurisdiction of tax residence,
or would be so required if its equity interests
were traded on a public securities exchange in its
jurisdiction of tax residence; and
(ii) there is no other Constituent Entity of such MNE
Group that owns directly or indirectly an interest
described in subsection (i) above in the first
mentioned Constituent Entity. (accordantly with the
CbC Reporting Implementation Package)
In case of failure of filing, in case the Ultimate Parent
Entity is not obliged to file the CbC Report in its home
jurisdiction, or in cases where the CbC Report is
effectively not shared by the tax administration of the
MNEs Ultimate Parent Company, each Constituent
Entity shall be obliged to file the CbC Report, unless if
a qualifying replacement (Surrogate Parent Entity) has
been appointed by the MNE group as a sole substitute
for the Ultimate Parent Entity.
The CbC report shall be filed no later than 12 months after
the last day of the year (consolidated reporting period for
financial statement purposes) to which the CbC Report
relates. In practice, this implies that for:
(i) MNEs with a fiscal year beginning on or after 1
January 2016, the CbC Report should be filed by
31 December 2017;
(ii) MNEs with a fiscal year ending on a date other
than 31 December, the CbC Report should be filed
in the year 2018, i.e. 12 months after the end of the
MNEs relevant fiscal year.
4.5. Which sources of data can be used?
An MNE may choose to use data from its consolidation
package, from separate entity statutory financial
statements, regulatory financial statements, or internal
management accounts or a mix of these sources as long
as the MNE does this consistently throughout the years.
It is not necessary to reconcile the revenue, profit and
tax reporting in the template to the consolidated financial
statements.
An MNE should, however, provide a brief description of
the sources of data that are used in preparing the CbC
Report. If a change is made in the source of data, the
reasons therefore should be explained in the ‘Additional
Information’ section of the templates.
No adjustments need to be made for differences in
accounting principles that are applied between tax
jurisdictions.
14 15
4.8. What happens if an MNE does not fully or timely file the CbC Report?
The model legislation does not include provisions
regarding penalties to be imposed in the event that
an MNE fails to comply with the CbC Reporting
requirements. The Dutch Bill proposes severe penalties
including imprisonment if the CbC Report is not filed.
This will be up to the jurisdictions while implementing
these requirements. It has neither been arranged how
interpretation differences between the taxpayer and the
tax administrations should be resolved.
4.9. Practical issues
In this paragraph, we will elaborate on certain practical
issues that should be kept in mind while preparing the
CbC Report.
Determine which source of data will be used
As described above, the OECD has indicated that an
MNE may choose to use data from its consolidation
package, from separate entity statutory financial
statements, regulatory financial statements, or internal
management accounts. It should be assessed upfront
which sources are mostly suited for this purpose and
what the advantages and disadvantages are of using a
specific source of data.
Prepare for reconciliation with filed corporate income
tax returns
Although Chapter V OECD Guidelines does not require
reconciliation, it can be expected that tax authorities will
require a reconciliation of the CbC Report with the locally
filed corporate income tax returns in order to order to
avoid surprises.
4.6. In what currency should the CbC Report be filed?
If statutory accounts are used as the basis for the
reporting, all amounts should be translated to the stated
functional currency of the MNE as a whole at the average
exchange rate.
4.7. How will the CbC Reports be shared between tax administrations?
The CbC Reporting Implementation Package provides
three models of Competent Authority Agreements
that can be used to facilitate the exchange of the CbC
Reports. These Competent Authority Agreements are
based on (i) the Multilateral Convention on Administrative
Tax Matters, (ii) bilateral tax conventions and (iii) Tax
Information Exchange Agreements.
Tax administrations are expected to automatically
exchange the CbC Reporting with jurisdictions that
have also implemented CbC Reporting requirements
and that have ascertained the confidentiality thereof
in their legislation. The explanatory notes to the Dutch
Bill indicate that the tax administration exchanges the
CbC Report on the basis of a multilateral or bilateral
agreement.
15
(i) Definitionofrevenues
In the clarification of the items that will have to be
reported in the CbC Report, it is noted that revenues
should include revenues from sale of inventory and
properties, services, royalties, interest, premiums
and any other amounts. Revenues should exclude
payments received from other Constituent Entities
that are treated as dividends in the payor’s tax
jurisdiction. The definition of “revenues” should not
be interpreted as “turnover” (as e.g. stated in the
statutory accounts).
Avoid inconsistencies
It is essential to align the information of the CbC Report
with the information disclosed in the master file and local
file. Moreover, the content of the CbC Report should
also be in line with other sources of information that are
available to tax authorities, such as the website, financial
statements, tax returns etc.
Prepare a narrative to explain inconsistencies
Where inconsistencies cannot be avoided, questions
can be expected. It could be considered to prepare an
explanation to these questions beforehand, or even
prepare a narrative and make this available to the tax
authorities.
Avoid misinterpretations
There are certain items that leave room for improved
understanding. These items are the following:
(i) Employeesandindependentcontractors
In the clarification of the items that should be
reported in the CbC Report in relation of the
number of employees that have to be reported it is
noted that, independent contractors participating in
the ordinary operating activities of the Constituent
Entities may be reported as employees.
(ii) Definition of income tax payable andwithholding
tax
In the clarification of the items that will have to be
reported in the CbC Report, it is noted that taxes
paid include withholding taxes paid by other entities
(associated and independent enterprises) with
respect to the payment to the Constituent Entity.
16 17
As part of the preparation, the MNE can consider
to perform a dry run with a limited number of “test”
countries. The outcome of the dry run will allow the
MNE to identify red flags, inconsistencies and potential
vulnerabilities. Subsequently, these can be corrected
and the transfer pricing policy can be amended where
deemed appropriate.
The objective of the CbC Reporting for MNEs is to
demonstrate a consistent global allocation of profits
and taxes aligned with the business activities of the
group.
According to the OECD recommendations, the first CbC
Reports should be filed by 31 December 2017. The
expected impact for MNEs is an increased compliance
burden, more questions during audits and potentially
risks of double taxation. To prepare for this, MNEs are
advised to develop an action plan and build a strategy.
With the right approach the MNE will be more efficient,
accurate, and prepared for discussions and audits.
An action plan could consist of preparation of resources,
collection of data, analysis of data and considering
strategic opportunities.
5. CbC Report - Developing an action plan
Step 1: Determine whether CbC Reporting obligation exists
Step 2: Preparation of resources
The MNE should make sure that sufficient
resources are available.
Step 3: Collection of data
Selection of a CbC Reporting team, consisting of employees from
various departments: finance, tax, HR, business
Identify the existing data resources and determine the
most appropriate one
Involvement of the tax department from the beginning
Manage input from various jurisdictions
Upgrade of technology systems to more accurately capture the data
Manage input from different parts of the enterprise
(finance, tax, HR)
Data review across all countries to ensure consistency
Make judgements on definitions
17
Step 4: Analysis of data
Once all data have been collected, the CbC
Report can be prepared.
Step 5: Identify and respond to strategic opportunities
Although the CbC Reporting will increase the
MNEs compliance burden, it can also be used
as a means to identify opportunities and take
strategic decisions.Identify and solve difficulties, e.g.
currency issues, elimination & allocation of group corrections
Together with the master file and the local file, the CbC Report is a means to improve & manage
the group’s transfer pricing compliance and risks
Identify inconsistencies
Coordination between CbC Report, master file and local file
Changes to intercompany transactions and pricing can be
considered to improve and influence the alignment of profits to business
activities generating profits
If inconsistencies cannot be eliminated, decide whether a narrative should be prepared
upfront as explanation to the tax authorities
Coordination between CbC Report and other available
sources of information (website, tax return, accounts…)
Prepare to expected questions
18 19
Annex I A model template for the Country-by-Country Report
19
A model template for the Country-by-Country ReportTable 1. Overview of allocation of income, taxes and business activities by tax jurisdiction
Table 2. List of all the Constituent Entities of the MNE group included in each aggregation per tax jurisdiction
Name of the MNE Group:
Fiscal year concerned:
Tax Jurisdiction
ConstituentEntities resident in the
Tax Jurisdiction
Tax Jurisdiction of organisation or incorporation if different from
Tax Jurisdiction of Residence
Main business activity (ies)
Rese
arch
and
Dev
elop
men
t
Hold
ing
or M
anag
ing
inte
llect
ual p
rope
rty
Purc
hasi
ng o
r Pro
cure
men
t
Man
ufac
turin
g or
Pro
duct
ion
Sale
s, M
arke
ting
or
Dist
ribut
ion
Adm
inis
trativ
e, M
anag
emen
t or
Sup
port
Serv
ices
Prov
isio
n of
Ser
vices
to
unre
late
d pa
rties
Inte
rnal
Gro
up F
inan
ce
Regu
late
d Fi
nanc
ial
Serv
ices
Insu
ranc
e
Hold
ing
shar
es o
r oth
er
equi
ty in
stru
men
ts
Dorm
ant
Othe
r
1
2
3
1
2
3
Name of the MNE Group:
Fiscal year concerned:
TaxJurisdiction
Revenues Profit(Loss)Before
Income Tax
Income Tax Paid (on
cash basis)
Income Tax Accrued
- Current Year
Stated capital
Accu mulated earnings
Number of Employees
Tangible Assets other than Cash
and Cash Equivalents
UnrelatedParty
RelatedParty
Total
With regard to permanent establishments, accumu-lated earnings must be reported by the legal entity of which it is a permanent establishment.
Taxes actually paid during the relevant fiscal year. In-clude cash taxes paid by the Constituent Entity to the residence tax jurisdiction and to all other tax juris-dictions, withholding taxes paid by other entities (associated enterprises and independent enterprises) with respect to payments to the Constituent Entity.
With regard to permanent establishments, assets must be reported in the tax jurisdiction in which the permanent establishment is situated. Tangible assets for this purpose do not include cash or cash equivalents, intangibles, or financial assets.
All the tax jurisdictions in which Constituent Entities of the MNE group are resident for tax purposes. A separate line must be included for all Constituent Entities in the MNE group deemed by the Reporting MNE not to be resident in any tax jurisdiction.
The total number of employees on an FTE basis. It may be reported as of the year-end, on the basis of average employ-ment levels for the year, or on any other basis consistently applied across tax jurisdictions and from year to year. For this purpose, independent contractors participating in the ordinary operating activities of the Constituent Entity may be reported as employees.
The permanent establishment should be listed by reference to the tax jurisdiction in which it is situated. The legal entity of which it is a permanent establishment should be noted.
A Constituent Entity is defined as any separate business unit (company, corporation, trust, partnership, etc.) that is included in the consolidated group for reporting purposes. Entities ex-cluded from financial statements only on size and materiality grounds should also be included. The term Constituent Entity also includes a permanent establishment of an entity of an MNE provided such permanent establishment prepares a separate income statement for regulatory, financial, internal management or tax purposes. The name of the tax jurisdiction under whose laws the Constituent Entity of the MNE is organised or incorporated if it is different from the tax jurisdiction of residence.
The Reporting MNE should determine the nature of the main business activity(ies) carried out by the Constit-uent Entity in the relevant tax jurisdiction, by ticking one or more of the appropriate boxes.
Include revenues from sales of inventory and properties, services, royalties, interest, premiums and any other amounts. Exclude payments received from other Constituent Entities that are treated as dividends in the payer’s tax jurisdiction.
Include all extraordinary income and expense items.
Only operations in the cur-rent year and should not include deferred taxes or provisions for uncertain tax liabilities.
With regard to permanent establishments, must be reported by the legal entity of which it is a permanent establishment unless there is a defined capital require-ment in the permanent establishment tax juris diction for regulatory purposes.
20 21
Annex II Comparative Table - the Guidance and EU Code ofConduct on Transfer Pricing Documentation (EU TPD)
21
What should the Master File provide?
EU - TPD OECD - BEPS
• A “Blueprint” of the MNE group and its transfer
pricing system, relevant and available to all EU
MS concerned.
• A “blueprint” of the MNE group and relevant
information.
• An overview of the MNE group business.
• Possibility to use cross-reference to other
documents.
• Covers all group entities resident in the EU
including controlled transaction between
enterprises resident outside the EU.
• Information for the MNE as a whole.
• Possibility to produce more than one MF or to
exempt specific group members from the EU
TPD, in well justified cases.
• Organization of the information presented by line
of business is permitted where well justified, but
the entire MF should be available to each country.
22 23
Which information should be included in the Master File?
EU - TPD OECD - BEPS
• A general description of the MNE group’s
organisational, legal and operational structure
(including an organization chart, a list of group
members and a description of the participation of
the parent company in the subsidiaries);
• Chart illustrating the MNEs legal and ownership
structure and geographical location of operating
entities.
• A general description of the business and
business strategy, including changes in the
business strategy compared to the previous tax;
• The general identification of the associated
enterprises engaged in controlled transactions
involving enterprises in the EU; • A general
description of the controlled transactions involving
associated enterprises in the EU, i.e. a general
description of:
(i) flows of transactions (tangible and intangible
assets, services, financial),
(ii) invoice flows, and
(iii) amounts of transaction flows.
Description of MNEs business(es) including:
• Important drivers of business profit;
• A description of the supply chain for
the group’s five largest products and/or
service offerings by turnover plus any other
products and/or services amounting to more
than 5 percent of group turnover. The required
description could take the form of a chart or a
diagram;
• A list and brief description of important service
arrangements between members of the MNE
group, other than research and development
(R&D) services, including a description of the
capabilities of the principal locations providing
important services and transfer pricing policies for
allocating services costs and determining prices
to be paid for intra-group services;
• A description of the main geographic markets
for the group’s products and services that are
referred to in the second bullet point above.
• A general description of functions performed,
risks assumed and a description of changes in
functions and risks compared to the previous tax
year, e.g. change from a fully-fledged distributor
to a commissionaire.
• A brief written functional analysis describing
the principal contributions to value creation
by individual entities within the group, i.e. key
functions performed, important risks assumed,
and important assets used;
• A description of important business
restructuring transactions, acquisitions and
divestitures occurring during the fiscal year.
23
Which information should be included in the Master File?
EU - TPD OECD - BEPS
• The ownership of intangibles (patents, trade-
marks, brand names, know-how, etc.) and
royalties paid or received.
MNE’s intangibles:
• A general description of the MNEs overall
strategy for the development, ownership and
exploitation of intangibles, including location
of principal R&D facilities and location of R&D
management.
• A list of intangibles or groups of intangibles of the
MNE group that are important for transfer pricing
purposes and which entities legally own them.
• A list of cost contribution agreements, Advance
Pricing Agreements and rulings covering transfer
pricing.
• A list of important agreements among identified
associated enterprises related to intangibles,
including cost contribution arrangements,
principal research service agreements and licence
agreements.
• The MNE group’s inter-company transfer pricing
policy or a description of the group’s transfer
pricing system that explains the arm’s length
nature of the company’s transfer prices.
• A general description of the group’s transfer
pricing policies related to R&D and intangibles.
• A general description of any important
transfers of interests in intangibles among
associated enterprises during the fiscal year
concerned, including the entities, countries, and
compensation involved.
• The MNE group’s inter-company transfer pricing
policy or a description of the group’s transfer
pricing system that explains the arm’s length
nature of the company’s transfer prices.
MNE’s intercompany financial activities:
• A general description of how the group
is financed, including important financing
arrangements with unrelated lenders.
• The identification of any members of the MNE
group that provide a central financing function
for the group, including the country under whose
laws the entity is organised and the place of
effective management of such entities.
• A general description of the MNEs general
transfer pricing policies related to financing
arrangements between associated enterprises.
24 25
Which information should be included in the Master File?
EU - TPD OECD - BEPS
• A list of cost contribution agreements, Advance
Pricing Agreements and rulings covering transfer
pricing aspects as far as group members in the
EU are affected.
MNE’s financial and tax positions:
• The MNEs annual consolidated financial
statement for the fiscal year concerned if
otherwise prepared for financial reporting,
regulatory, internal management, tax or other
purposes.
• A list and brief description of the MNE group’s
existing unilateral advance pricing agreements
(APAs) and other tax rulings relating to the
allocation of income among countries.
25
Which information should be included in the Local File?
EU - TPD OECD - BEPS
• A detailed description of the business and
business strategy, including changes in the
business strategy compared to the previous tax
year.
Local entity
• A description of the management structure of
the local entity, a local organisation chart, and
a description of the individuals to whom local
management reports and the country(ies) in
which such individuals maintain their principal
offices.
• A detailed description of the business and
business strategy pursued by the local entity
including an indication whether the local entity
has been involved in or affected by business
restructurings or intangibles transfers in
the present or immediately past year and an
explanation of those aspects of such transactions
affecting the local entity.
• Key competitors.
What should the Local File provide?
EU - TPD OECD - BEPS
• The content of the country-specific documentation
supplements the master file. Together the
two constitute the documentation file for the
relevant EU Member State. The country-specific
documentation would be available to those tax
administrations with a legitimate interest in the
appropriate tax treatment of the transactions
covered by the documentation.
• A high-level overview, with more detailed
information relating to specific intercompany
transactions. The information supplements the
master file and helps to meet the objective of
assuring that the taxpayer has complied with
the arm’s length principle in its material transfer
pricing positions affecting a specific jurisdiction.
Focus on information relevant to the transfer
pricing analysis related to transactions taking
place between a local country affiliate and
associated enterprises in different countries
and which are material in the context of the local
country’s tax system.
26 27
Which information should be included in the Local File?
EU - TPD OECD - BEPS
• Information, i.e. description and explanation, on
country-specific controlled transactions, including:
(i) flows of transactions (tangible and intangible
assets, services, financial), (ii) invoice flows,
and
(i) amounts of transaction flows.
Controlled transactions
For each material category of controlled
transactions in which the entity is involved:
• A description of the material controlled
transactions (e.g. procurement of manufacturing
services, purchase of goods, provision of
services, loans, financial and performance
guarantees, licenses of intangibles, etc.) and the
context in which such transactions take place.
• The amount of intra-group payments and receipts
for each category of controlled transactions
involving the local entity (i.e. payments and
receipts for products, services, royalties, interest,
etc.) broken down by tax jurisdiction of the foreign
payor or recipient.
• An identification of associated enterprises
involved in each category of controlled
transactions, and the relationship amongst them.
• A comparability analysis, i.e.:
(i) characteristics of property and services,
(ii) functional analysis (functions performed,
assets used, risks assumed),
(iii) contractual terms,
(iv) economic circumstances, and
(v) specific business strategies.
• Copies of all material inter-company
agreements concluded by the local entity.
• A detailed comparability and functional analysis
of the taxpayer and relevant associated
enterprises with respect to each documented
category of controlled transactions, including any
changescompared to prior years.
• An explanation of the selection and application of
the transfer pricing method(s), i.e. why a specific
transfer pricing method was selected and how it
was applied.
• An indication of the most appropriate transfer
pricing method with regard to the category of
transaction and the reasons for selecting that
method.
• An indication of which associated enterprise is
selected as the tested party, if applicable, and an
explanation of the reasons for this selection.
• A summary of the important assumptions made
in applying the transfer pricing methodology.
• If relevant, an explanation of the reasons for
performing a multi-year analysis.
27
Which information should be included in the Local File?
EU - TPD OECD - BEPS
• Relevant information on internal and/or external
comparables if available;
• A list and description of selected comparable
uncontrolled transactions (internal or external),
if any, and information on relevant financial
indicators for independent enterprises relied
on in the transfer pricing analysis, including
a description of the comparable search
methodology and the source of such information.
• A description of any comparability adjustments
performed, and an indication of whether
adjustments have been made to the results of
the tested party, the comparable uncontrolled
transactions, or both.
• A description of the reasons for concluding that
relevant transactions were priced on an arm’s
length basis based on the application of the
selected transfer pricing method.
• A summary of financial information used in
applying the transfer pricing methodology.
• A copy of existing unilateral and bilateral/
multilateral APAs and other tax rulings to which
the local tax jurisdiction is not a party and which
are related to controlled transactions described
above.
• A description of the implementation and
application of the group’s intercompany transfer
pricing policy.
Financial information
• Annual local entity financial accounts for
the fiscal year concerned. If audited statements
exist they should be supplied and if not, existing
unaudited statements should be supplied.
• Information and allocation schedules showing
how the financial data used in applying the
transfer pricing method may be tied to the
annual financial statements.
• Summary schedules of relevant financial data
for comparables used in the analysis and the
sources from which that data was obtained.
www.loyensloeff.com
Amsterdam
Arnhem
Brussels
Dubai
Hong Kong
London
Luxembourg
New York
Paris
Rotterdam
Singapore
Tokyo
Zurich
