The UK tax authority, HM Revenue & Customs (HMRC), will refer to the OECD base erosion and profit shifting (BEPS) report on BEPS Actions 8-10 in transfer pricing audits. Maura Parsons, HMRC deputy director and head of transfer pricing, has stated that HMRC will look to the 2015 BEPS reports in addition to the current OECD guidelines (although British law explicitly refers to the 2010 version on the transfer pricing guidelines).
Additionally, Sweden has taken a similar position and adopted the final OECD report in audits.
This line of reasoning is primarily based upon the premise / supposition that the new OECD guidelines are merely a clarification of existing rules, not requiring new legislation.
In addition to the inherent uncertainty of the new rules, UK, Sweden and other countries that will adopt this position introduce additional challenges into understanding the current law, requirements and grounds upon which appeals / court cases will be based. This is a new trend that promises to expand quickly into other countries, undermining the intent of transparency and consistency worldwide.
EY’s survey of nearly 100 jurisdictions provides timely insight into unilateral activities and required legislative efforts to implement OECD BEPS Actions 8-10, transfer pricing guidelines, and Action13, transfer pricing documentation / country-by-country (CbC) reporting.
A link to the survey is provided for reference:
OECD TP Guidelines:
7 countries (including the UK) to adopt the changes without need for legislative/administrative action
54 countries refer to OECD TP Guidelines by tax authorities/courts for interpretation, but are not binding
21 countries refer to OECD TP Guidelines in domestic legislation
TP Guidelines are meant to be an extension of the Commentary to the arm’s length principle in Article 9; if the revised Guidelines go beyond such rules a change in existing treaties will be required for implementation, although the multilateral instrument in development under Action 15 may remedy this
Tax authorities have used BEPS initiatives for leverage in Australia, Spain, Hungary, New Zealand, Finland, Indonesia, France and India
TP and CbC documentation may be provided as an exchange of information if they are “foreseeably relevant”
Legislative action will be required in most countries with current TP legislation to implement Master / Local File requirements
Most countries will require a change in law for CbC reporting; 38 countries are/will have such implementation legislation, 49 countries are not yet known, while only 11 countries are not expected to implement in the short/medium term
CbC information will be widely exchanged via exchange of information articles in double-tax treaties, tax information exchange agreements or Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (and the corresponding Multilateral Competent Authority Agreement)
The survey is a “must read” for interested parties that will be affected by OECD Actions 8-10 and 13; it magnifies the imperative of collecting such information timely and is not dependent on which countries adopt certain provisions the first year (as information will be exchanged quickly around the world regardless of which jurisdiction the parent entity resides in).
Cooperation between Member States, exemplified by EU Tax Transparency Package initiative (refer to 22 March 2015 post)
Full transparency cost/benefit assessment re: Country-by-Country reporting for public disclosure
New Action plan before summer (an issue that is fundamental to the EU) building on global developments
Assess relaunch of Common Consolidated Corporate tax base (CCCTB)
The European Commission is accelerating its efforts, resulting in a potentially different documentation framework than the OECD Guidelines may suggest and/or a basis that the rest of world will follow. The Commission has the necessary momentum and political cohesiveness to achieve its efforts for the EU, although with a possible demarcation with the rest of the world.
CbC reporting by MNE’s continues its actions on center stage as MNE’s should plan for (if they have not already) public disclosure of such reporting. Thereby, the topics of supplemental reporting (i.e. indirect tax contributions, etc.) become more important for senior leaders to consider. Finally, such disclosure warrants a seamless governance process and alignment for addressing future questions by interested parties.