The OECD recently issued its Action Plan on Base Erosion and Profit Shifting (BEPS). 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.
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.
Transfer pricing documentation is a top tax compliance priority of both tax authorities and businesses given:
- The proliferation of diverse local transfer pricing documentation requirements
- The dramatic increase in the volume and complexity of international intra-group trade
- The heightened scrutiny of transfer pricing issues by tax authorities.
Transfer pricing documentation white paper
The OECD says that the white paper on transfer pricing documentation is intended to initiate an international discussion of making documentation requirements simpler and more straight-forward, while at the same time providing tax authorities with more focused and useful information for consideration in connection with transfer pricing risk assessment and transfer pricing audits.
The OECD's white paper:
- Surveys the current state of affairs regarding transfer pricing documentation
- Considers the purposes and objectives of transfer pricing documentation
- Includes suggestions as to how transfer pricing documentation rules might be modified to make transfer pricing compliance simpler and more straightforward, while also providing tax authorities with more focused and useful information for consideration in connection with transfer pricing risk assessment and transfer pricing audits
- Notes that clear and accurate understanding of transfer pricing risk features will often require more information of a "big picture" nature than is often obtained through existing individual country-focused documentation requirements
- Suggests a two tiered approach through which both the "big picture" information is made available for risk assessment purposes and detailed information on the related-party transactions can be required when the arm's length character of specific transactions needs to be assessed.
Transfer pricing aspects of intangibles
On the basis of comments from external stakeholders, the OECD Committee on Fiscal Affairs revised its original June 6, 2012 discussion draft on the transfer pricing aspects of intangibles. These changes include:
- A new section addressing features of the local market, location savings, assembled workforce and corporate synergies
- Explanatory changes to the definition of intangibles
- Revisions to adopt a more transactional approach while preserving a clear focus on the importance of functions performed, assets used and risks assumed
- A new section on transfer pricing aspects of the use of corporate names
- A reorganization of the supplementary guidance on methods and comparability analysis
- New and revised examples.
The OECD notes that some of the text and examples in the revised draft raise issues that the OECD intends to address through the Action Plan. Accordingly, this draft should be considered a work in progress, and it may be revised during the course of the work on BEPS.
The OECD is asking interested parties to submit written comments on these releases to the OECD by October 1, 2013 in advance of a planned public consultation on transfer pricing matters at the OECD Conference Centre in Paris in November 2013. The OECD also welcomes comments on the most appropriate means of implementing the transfer pricing documentation directives in its recent Action Plan on BEPS.
For details, see the white paper on transfer pricing documentation and a related press release, and the revised discussion draft on the transfer pricing aspects of intangibles and press release, available on the OECD site.
For more information, contact your KPMG adviser.
Information is current to August 16, 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