2.1.6. Re-examining Transfer Pricing Documentation (Action 13) 59
Tax authorities lack information for identifying whether companies have engaged in transfer pricing and other practices that may result in the artificial shifting of profit. In order to enhance transparency for tax authorities, the OECD/G20 developed a three-tiered standardised approach to transfer pricing documentation. It consists in:
- a "master file" that will be available to all relevant tax administrations, and will provide high-level information on an MNE's global business operations and transfer pricing policies;
- a “local file” that is specific to each country and will provide detailed transactional transfer pricing documentation;
- a "Country-by-Country Report" that will provide on an annual basis and for each jurisdiction where the MNE operates the amount of revenue, profit before income tax and income tax paid and accrued. It will also include information on the number of employees, stated capital, retained earnings and tangible assets in each tax jurisdiction. Finally, it will identify per jurisdiction all active entities and their business activities. The country-by-country report would only be required from MNEs with annual consolidated group revenue equal to or exceeding EUR 750 million.
It is foreseen that the master file and the local file would be transmitted by the MNEs to local tax authorities. Country-by-Country reports should be communicated to the jurisdiction of tax residence of the parent company. The Country-by-Country reports would subsequently be shared between jurisdictions through automatic exchange of information.
The proposed approach should induce taxpayers to give consideration to transfer pricing, while providing tax authorities with relevant information for audit and risk assessment purposes.
It is worth noting that the Joint Transfer Pricing Forum developed in 2006 the EU Transfer Pricing Documentation ("EU-TPD"), which is broadly in line with the "master file" and "local file" approach developed under this action. The EU-TPD will be reviewed to take the conclusions of BEPS Project into account. 60
