Strategizing Multinational Tax Risks

Jurisdictions are legislating global tax disclosure statements as a separate filing requirement or included with the respective local corporate income tax return.  Recent examples seem to highlight this new initiative, including France and Chile.  Examples of information requested include entities with legal ownership of IP, entities that have no assets or substance (i.e. holding companies), etc., irrespective of intercompany transactions with the local entity.

These new disclosures have added additional risks for operational compliance, as well as a need to centralize such information.  Some multinationals (MNEs) have placed this compliance responsibility with a local / regional team for efficiencies.  However, this new reporting trend will require closer coordination of headquarters that has relevant knowledge of the global ownership of IP and legal structures.

Answers to these dislosure questions will pose new audit risks as tax administrations will make further inquiries and/or initiate an audit to assess potentially high risk transactions. This emphasis will include a vigorous challenge to treaty based positions with holding companies, including any general anti-avoidance or anti-abuse rules within the treaty or domestic legislation.

Additionally, audit queries based upon global disclosures will require seamless coordination with headquarters or the individuals possessing this information.  Therefore, audit teams and ways of working will need to be strategized for information that is not generally retained by the local business team.

MNEs should monitor new disclosures and ensure there is an efficient governance process to accurately address the BEPS incentivized queries.  This may involve a shift in responsibilities within the transfer pricing documentation process.

The post BEPS era signifies a new way of thinking, including the respective documentation responsibilities and structure of an internal transfer pricing team.