BEPS Action 13: Re-examine Transfer Pricing Documentation


In 2013, the OECD and G20 countries developed a 15-point Action Plan to address Base Erosion and Profit Shifting (”BEPS”). One of these actions was related to the transfer pricing documentation (”BEPS Action 13: Re-examine Transfer Pricing Documentation”). The final outcome of the guidance on transfer pricing documentation (”Action 13: 2015 Final Report - Transfer Pricing Documentation and Country-by-Country Reporting”) was presented by the Director of the OECD Centre for Tax Policy and Administration on 5th of October 2015. Now the so-called OECD Master file concept is increasingly being implemented in national legislation – partly even retrospectively from January 1, 2016.


Objectives of the new documentation requirements

The aim of the OECD/G20 in the development of a new transfer pricing documentation was1:
  • to ensure that taxpayers give appropriate consideration to transfer pricing requirements in establishing prices and other conditions for transactions between associated enterprises and in reporting the income derived from such transactions in their tax returns;
  • to provide tax administrations with the information necessary to conduct an informed transfer pricing risk assessment; and
  • to provide tax administrations with useful information to employ in conducting an appropriately thorough audit of the transfer pricing practices of entities subject to tax in their jurisdiction, although it may be necessary to supplement the documentation with additional information as the audit progresses”.

To achieve the objectives, not only the country delegates participated in the discussion of this Action Plan, but also business representatives, trade unions, civil society organizations and academics have been involved in the process, providing more than 3,500 pages of comments on the discussion drafts and participating in 5 public consultations.


Transfer Pricing Documentation and Country-by-Country Reporting

To be able to reach the above mentioned aims, the countries should adopt a standardized approach to transfer pricing documentation that includes the three-tiered structure that encompasses a Master file, a Local file and a Country-by-Country Report (“CbC Reporting”).




Figure 1: Three-tiered approach

First, the guidance on transfer pricing documentation requires multinational enterprises (MNEs) to provide tax administrations with high-level information regarding their global business operations and transfer pricing policies in a ”Master file” that is to be available to all relevant tax administrations.
Secondly, it requires that detailed transactional transfer pricing documentation is provided in a ”Local file” specific to each country, identifying material related party transactions, the amounts involved in those transactions and the company’s analysis of the transfer pricing determinations they have made with regard to those transactions and a comparability analysis.
Thirdly, the newly introduced Country-by-Country Report is a tool intended to allow tax administrations to perform high-level transfer pricing risk assessments, or to evaluate other BEPS-related risks. The Country-by-Country Reporting template will require multinational enterprises to provide annually and for each jurisdiction in which they do business, aggregated information relating to the global allocation of the multinational enterprises income and taxes paid, together with certain indicators of the location of economic activity within the multinational enterprises groups, as well as information about which entities do business in a particular jurisdiction and the business activities each entity is engaged in. Insofar, Country-by-Country Reporting will provide a clear overview of where profits, sales, employees and assets are located and where taxes are paid and accrued.
According to the final version of BEPS Action 13 there would be an exemption from the general filing requirement for multinational enterprises groups with annual consolidated group revenues in the immediately preceding fiscal year of less than EUR 750 million or a near equivalent amount in domestic currency as of January 2015. It is believed by the OECD/G20 that a threshold of EUR 750 million will exclude approximately 85 to 95 percent of multinational enterprises groups (mid-sized groups) from the requirement to file the Country-by-Country Report, but the rest of multinational enterprises groups which will file the Country-by-Country Report will cover approximately 90 percent of corporate revenues, which should represent an appropriate balancing of reporting burden and benefit to tax administrations.
On 22 March 2016 the OECD published an electronical standard template for the exchange of the CbC Reporting between the tax administrations to enable a prompt and comprehensive implementation of the CbC Reporting. Moreover, in order to establish a basis for a transnational exchange of sensible company-related data between the tax authorities, 44 countries have signed the so-called Multilateral Competent Authority Agreement (MCAA) up to 30 June 2016. Furthermore on 29 June 2016 the OECD released  guidelines for implementing CbC Reporting to mitigate arising scope for interpretation. The development shows in which pace the international community creates an increasing transparency by a bilateral and automatically exchange of CbC Reporting. Therewith they generate an information base for the implementation of risk assessments concerning BEPS of individual MNEs.


Compliance issues such as timing, materiality, penalties etc.

Moreover, the OECD/G20 provides some additional remarks on compliance issues that should be taken into consideration by tax authorities and taxpayers:
  • the compliance with the arm’s length principle should be based on contemporaneous information, i.e. before the pricing is established and/or at the time of the transaction and confirmed when filling the tax return;
  • for preparing the local file of a given fiscal year the same time frame should be observed than the one for filing the corresponding tax return and for the master file the due time for filling the tax return of the ultimate parent of the multinational enterprise group. The completion of the Country-by-Country Reporting may be extended to one year following the last day of the fiscal year of the ultimate parent;
  • the OECD/G20 fosters tax administrations to establish thresholds in order to avoid burdensome compliance documentation requirements for non-material businesses. As a consequence, the mid-sized multinational enterprises groups should take special care on the materiality thresholds established in the jurisdictions where they are active in order to determine which documentation, if any, should be prepared in each jurisdiction and at group level;
  • the transfer pricing documentation should be periodically reviewed (updates);
  • the arm’s length analysis supported by searches in databases should be updated every three years, whereas the financial data of the comparables should be updated annually (benchmarking);
  • the OECD/G20 encourages tax administrations to accept documentation in ”commonly used languages”;
    the existence of penalties, among other similar measures, stimulates the taxpayers to comply with the documentation requirements. However, no penalty should be imposed if the documentation required is not accessible for the taxpayer or the cost for obtaining it is disproportionate. On the other hand, the OECD/G20 stressed that the complying with the documentation requirements do not ensure that the intercompany transactions are at arm’s length;
  • the tax administration should assure the confidentiality of the information received.


Documentation requirements challenge mid-sized multinationals

Despite the fact, whether or not a mid-sized company practices BEPS, some critical issues to mid-sized multinational entities are forecasted in the course of the new guidance on transfer pricing documentation: 
  • the emergence of a new set of competing international standards and the replacement of the current framework by unilateral measures could generate a situation described as a global tax chaos marked by the massive re-emergence of double taxation;
  • the nature of the BEPS outputs do not have legal obligation. As it is known, they are soft legal instruments and are not legally binding. But, there is an expectation that they will be implemented into law accordingly by countries that are part of the consensus. To what extent the national implementations are comparable, will remain to be seen;
  • insofar, mid-sized multinational enterprises groups will have to comply on a local level with the new regulatory framework that is going to arise after the implementation of these measures by the respective governments. Against this background, mid-sized multinational enterprises groups need the insight of how BEPS affects them in the jurisdictions where they are active;
  • and, among other aspects, multinationals have to develop the expertise to respond properly to information requests issued by tax authorities concerning the transfer prices applied, particularly in respect to information with reference to other tax jurisdictions;
  • the interaction of the Master file, Local file and Country-by-Country Reporting requires a consistent transfer pricing position. Therefore, mid-sized multinational entities that have not implemented a harmonized transfer pricing approach within the group must standardize and specify their transfer price directives.

Impact of the OECD/G20 documentation guidelines

The new OECD/G20 documentation guidelines will provide tax administrations with a comprehensive big picture of the global business activities and where taxes are paid and accrued. The information puts tax authorities in the position to assess transfer pricing and other BEPS risks and to focus audit resources where they will be most effective.
Whereas, the three-tiered structure and the new documentation requirements constitute a substantial increase of tax reporting obligations. Many countries are now starting to change their laws to follow the implementations suggested in the results of the Action Plans.
In accordance with the OECD/G20 guideline a lot of countries have already started to balance their national documentation and reporting requirements with BEPS Action 13. During the year 2016 however, it is noticeable that countries just implement CbC Reporting in national legislation but continue to hold to their previous principles of documentation. Without a standardized implementation in national legislation companies will be confronted with documentation requirements that are inconsistent depending on local circumstances. Without a doubt, this does not reduce the preparation effort for companies.
The information in the Country-by-Country Report on its own does not constitute conclusive evidence that transfer prices are or are not appropriate. Nonetheless, the legitimate concern remains that tax administrations will use the Country-by-Country Reporting to propose adjustments on basis of a formula income allocation and not just for risk assessments.
The foreseen facilitation for mid-sized companies, e.g. no CbC Reporting had to be prepared, should basically be assessed as positive. Until now the concern that thresholds will be determined differently proved to be unjustified. As several countries introduced a compulsory preparation of CbC Reporting  on 1 January 2016 internationally represented companies will be obliged to prepare a CbC Reporting retrospectively for the financial year 2016 even though this is not required in the individual countries.


[1] Guidance on Transfer Pricing Documentation and Country-by-Country Reporting, October 2015, Page 12. 


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