OECD - BEPS-related transfer pricing documentation, country-by-country reporting draft guidance 

January 30: The Organisation for Economic Co-operation and Development (OECD) today released an initial draft of revised guidance on transfer pricing documentation and country-by-country reporting pursuant to Action 13 under the Base Erosion and Profit Shifting (BEPS) Action Plan.

Read the initial draft [PDF 272 KB] of the revised guidance on transfer pricing documentation and country-by-country reporting.

Comments are requested by 23 February 2014, with a public consultation to follow in March 2014, with invited persons from among those who provide comments. An open discussion with all interested persons will take place at a future date.


The OECD’s initial draft of revised guidance on transfer pricing documentation and country-by-country reporting is in response to the July 2013 BEPS Action Plan and is proposed as a replacement of Chapter V of the OECD Transfer Pricing Guidelines.

The draft revised guidance envisions contemporaneous, enhanced, and standardized reporting requirements regarding multinational entities’ global allocation of income, economic activity, and payment of taxes for the countries in which they operate. According to the OECD, such reporting requirements would allow tax authorities to conduct better informed transfer pricing analyses.

In proposing this draft, the OECD set the following objectives:

  • Provide tax administrators with sufficient information to conduct an informed assessment of the taxpayer’s transfer pricing

  • Provide that taxpayers are giving “appropriate consideration to transfer pricing requirements in establishing prices and other conditions for transactions between associated enterprises” and in preparing their tax returns

  • Provide tax administrators with information they require to conduct a thorough transfer pricing audit in their jurisdiction

The OECD seeks comment as to whether there are other standard forms and questionnaires that need to be developed in accordance with BEPS Action 13 (Transfer Pricing Documentation).

Also, the OECD requests comments as to when it might be appropriate for tax authorities to share their risk assessment with taxpayers.

A two-tiered structure

The draft revision recommends the implementation of a two-tiered reporting regime that would present a comprehensive picture of the global operations of a multinational entity, as well the local operations of the taxpayer through the preparation of a master file and local file.

Under the OECD’s suggested approach, a single master file would be prepared for the multinational group. The substance of the master file would include:

  • The group’s organizational structure
  • A description of the group’s business, intangibles, intercompany financial activities, and financial and tax positions

Among the information to be reported under a description of the business would be the title and country of the principal officers of each of the 25 most highly compensated employees in the business line.

The OECD draft states that the section on the group’s financial and tax positions would include country-by-country reporting of information regarding the group’s global allocation of profits, taxes paid, and other indicators of the location of the group’s economic activity among countries in which the group operates. The OECD draft includes a detailed template and lists the following financial indicators to be reported for each entity organized in each country:

  • Place of effective management
  • Business activity
  • Revenue
  • Earnings before tax
  • Income taxes paid to country of organization
  • Income taxes paid to all other countries
  • Withholding taxes paid
  • Stated capital and accumulated earnings
  • Number of employees
  • Total employee expenses
  • Tangible assets
  • Intercompany payments of royalties, interest, and service fees

The local file, by contrast, would document the material transfer pricing positions of the local taxpayer with its foreign affiliates, with the goal of demonstrating the arm’s length nature of the those positions. The local file would contain the comparable analysis.

Compliance issues

  • Timing - The OECD recommends that countries implement a contemporaneous documentation requirement for both the master and local files. Pursuant to this guidance, multinational entities would be responsible for preparing the master file and the local file by the date of the filing of the tax return to the extent that the relevant country-by-country data is available. The documentation would also confirm the arm’s length nature of the transfer pricing position existing at the time of the filing of the tax return.

  • Materiality - The OECD draft recognizes the burden potentially imposed by compliance requirements and, as such, recommends the establishment of materiality thresholds that would allow for the documentation of the most important transfer pricing positions. The OECD draft states that such materality thresholds take into account factors such as the size and nature of the local economy, the group’s relative importance to the local economy, and the size and nature of the local operating entities, in addition to the overall size and nature of the group.

  • Document retention - The OECD draft suggests that documentation be retained for a “reasonable period of time” consistent with the requirements of domestic law at either the parent company or local entity level.

  • Frequency of updates - The OECD draft recommends reviewing the factual information in the master and local files on an annual basis, and updating when changes have taken place. To simplify compliance burdens, as long as the operating conditions are unchanged, comparable sets would be refreshed every three years, although the financial results for the comparables would be updated annually.

  • Language requirements - Recognizing the complication of having to translate documentation into local languages, the OECD recommends the preparation and submission of the master file in English and preparation of the local file and relevant parts of the master file into the local language.

  • Penalties - The OECD draft revision recognizes the general use of documentation-related penalties and notes the varied form of these penalty regimes. When a tax jurisdiction may choose to implement a penalty regime, the OECD calls for a “measured approach,” with leniency for taxpayers that demonstrate a good faith effort to produce reliable documentation or failed to submit data to which they did not have access.

  • Confidentiality - Recognizing the concern around disclosure of confidential information (e.g., trade secrets), the OECD calls on countries to make efforts to determine that confidentiality is maintained.

  • Benchmarking - In conducting benchmarking analyses, the OECD recommends the use of the “most reliable information.” The OECD draft is premised on a belief that the most reliable information requires multinational entities to use local comparables over regional comparables, when local comparables are reasonably available.

KPMG observation

  • The draft is quite comprehensive.

  • One favorable recommendation would allow companies with stable operating conditions to refresh their comparables sets only every three years. The draft would still require an annual updating of the comparable financials, but the three-year refresh recommendation could be an important step in controlling the costs of documentation.

  • Preparing documentation in multiple languages is very time consuming. The draft recommends that the master file would be prepared only in English. This will streamline the process.

  • The draft recommends that country-by-country reporting be provided as part of the master file document directly to each country, and requests comments as to whether this information instead would be filed by the parent company and then shared through the treaty network. The resolution of these alternatives will be a key to the practical implementation of country-by-country reporting.

For more information, contact a KPMG tax professional:

Brett Weaver

+1 206 913 6697

Manal Corwin

+1 202 533 3127

Sean Foley

+1 202 533 5588

Fred Gander

+44 20 7311 2046

Stephen Blough

+1 202 533 3108

Hank Gutman

+1 202 533 3044

Chandler Tipton

+1 601 714 7461

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