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OECD Considers Implementation Issues for TP Documentation and Country-by-Country Reporting 

Global Tax Adviser


October 15, 2013


David Francescucci
Montreal, National Leader, Value Chain Management


The OECD released a memorandum on transfer pricing documentation and country-by-country reporting on October 3, 2013 in advance of its public consultation event on November 12-13, 2013 at the OECD Conference Centre in Paris. The five-page memorandum considers implementation issues related to Action 13 in the Action Plan on Base Erosion and Profit Shifting (BEPS) to develop requirements for taxpayers to report income, taxes paid and indicators of economic activity to governments according to a common template. It also addresses the balance that must be found between the usefulness of the data for tax administrators and the compliance burden placed on taxpayers. The issues discussed in the memorandum are intended to assist businesses in preparing for the consultation and to help to focus some of the discussions at the consultation.

The OECD issued its Action Plan on Base Erosion and Profit Shifting in July, 2013. Among other things, the Action Plan calls for the development of transfer pricing documentation rules that will enhance transparency for tax administration, and specifically lists work on intangibles as one of the BEPS actions. Specifically, Action 13 in the plan calls on the OECD to develop requirements for taxpayers to report income, taxes paid, and indicators of economic activity to government according to a common template. Later that month, the OECD released for discussion a white paper on transfer pricing documentation and a revised discussion draft on the transfer pricing aspects of intangibles.


Over the last 20 years, transfer pricing documentation requirements have rapidly spread around the world. The proliferation of transfer pricing documentation requirements, combined with a dramatic increase in the volume and complexity of international intra-group trade and the heightened scrutiny of transfer pricing issues by tax authorities, makes transfer pricing documentation one of the top tax compliance issues on the agendas of both tax authorities and businesses.


Reporting income earned in a country
The OECD's memorandum notes that important implementation issues must be addressed in developing a credible proposal regarding country-by-country reporting. The memorandum notes that a balance must be found between the usefulness of the data to tax administrators for risk assessment and other purposes and the burden placed on taxpayers to comply with the requirements. The memorandum considers what information should be required in a common template, and notes that approaches to reporting income earned in a country might include:


  • Reporting of net income before tax for each legal entity in a multinational group, with numbers to be drawn from individual entity statutory financial statements
  • Income reported on the template could be based on taxable income as reflected on tax returns filed in a jurisdiction
  • A segregation of consolidated multinational group income among countries calculated by reference to accounting segment reporting rules
  • Reporting of data taken from the company's internal consolidating income statements relating to each company's contribution to consolidated income after eliminations.


Taxes paid by country
The OECD report also notes several questions about taxes paid by country that need to be resolved, including:


  • Whether taxes should be reported on a cash or accrual basis.
  • Whether tax reporting should be limited to national level income taxes or whether reporting of income taxes paid to other levels of government (e.g., states, provinces, cantons, municipalities) is required. Further, If sub-national level taxes are reported, whether they should be segregated from national level income taxes.
  • Whether there is any reason to require reporting of taxes other than income taxes.


Measures of economic activity
The OECD notes that the consultation should consider whether a country-by-country reporting template should include data on measures of economic activity other than income and taxes, and whether such measures should be reported by the geographic location of the item, or by the place of organization or management of the employee, including:


  • Revenues by location of customers
  • Tangible assets by location
  • Employment, either by number of employees, total payroll or both
  • Research expenditures by company / country
  • Marketing expenditures by company / country
  • Location of intangibles by country
  • Location of senior management.


The OECD also notes it intends to discuss:


  • Whether this reporting will provide any meaningful guidance for risk assessment purposes about the location of real economic activity
  • Which currencies should be presented in the country-by-country template
  • Whether aggregate information on certain types of income and expense is readily available (e.g., related party royalties paid/received).


OECD on reporting and sharing country-by-country data
The OECD further says that it will consider any administrative mechanisms that should be developed so that information can be made available to relevant countries, including the following approaches:


  • Having the parent company complete the required template in its home jurisdiction (place of incorporation / place of management) and then share it with other countries under treaty exchange of information mechanisms, including potentially automatic exchange
  • Whether the information sharing system should be structured to exclude delivery of information to countries where adequate provisions do not exist to protect the confidentiality of competitively sensitive data and how this might be accomplished
  • Whether the template should be made available as part of the global master file to every country in which a multinational has an affiliate subject to tax and that local countries could modify their domestic documentation and reporting rules to require any local affiliate of a multinational group to deliver the template,


For more information, contact your KPMG adviser.








Information is current to October 15, 2013. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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