23 September 2014

On 16 September 2014, the OECD released the final agreement on recommendations regarding the base erosion and profit shifting (BEPS).

Seven of the fifteen areas have been agreed by consensus on key measures to address BEPS by the OECD and G20 countries, together with a statement that explains their content and nature.

The new published reports on the BEPS Action Plan are dealing with the following:

  1. Digital economy
  2. Hybrid mismatches
  3. Harmful tax practices
  4. Tax treaty abuse
  5. Transfer Pricing documentation and country-by-country reporting
  6. Transfer pricing and intangibles
  7. Multilateral instruments

This news alert will focus on the transfer pricing aspects of documentation, country-by-country reporting and intangibles only.

Transfer pricing documentation and country-by-country reporting (CbCR)

The recommendations have adopted a 3-tiered approach on transfer pricing documentation:

  1. Master file – high level overview of the MNE group business
  2. Local file – detailed information on specific group transactions
  3. CbCR – aggregate, jurisdiction wide information on global allocation of income, taxes paid, indicators of economic activities

The CbCR file is to be reported for transfer pricing risk assessment and evaluating other BEPS-related risks. It should
not be used by tax administrations to propose transfer pricing adjustments based on a global formulary apportionment of income.

The content of the CbCR template is as follows:

By jurisdiction
  • Revenues (related and unrelated party)
  • Profit (loss) before income tax
  • Income tax paid (cash basis) and accrued
  • Stated capital and accumulated earnings
  • Number of employees
  • Tangible assets other than cash/cash equivalents
By constituent entity
  • Country of organisation/incorporation (if different)
  • Main business activities

Although the content of reports is finalised, implementation, filing and dissemination mechanisms for the 3-tiered requirements are to be addressed over coming months (early 2015). Main considerations about implementation cover confidentiality issues about exchange of information, timelines, consistency and appropriate usage. The OECD noted that certain countries (such as Brazil and China) in developing or emerging markets would like to add further data points to the template such as interest, royalty and related party service fees.

Transfer pricing documentation and intangibles

The published report on intangibles contains interim guidance on identifying intangibles and determining arm’s length conditions. The report covers:

  • Comparability in intangible transactions
  • TP methods and use of valuation techniques for intangibles transactions
  • Numerous examples

Legal ownership and contractual arrangements are the starting point for transfer pricing purposes. Nevertheless, parties contributing to the development, enhancement, maintenance, protection and exploitation of the intangible must be appropriately remunerated. This relates to both parties that are performing the respective functions, assets and risks as well as the parties who control such activities.

The guidance is interim as there will be a strong link to OECD activities on risk, recharacterisation, capital and possible measures. These action points will be covered in 2015.

The main guidance relates to:

  • Ownership of intangibles
  • Uncertainty of valuation at time of transaction
  • Use of unspecified methods
  • Profit split methods

As BEPS developments are moving fast, you are advised to start getting prepared for the additional compliance requirements and ensure that your transfer pricing model (transactions between and arm’s-length remuneration of group entities) is in line with your business model and new OECD principles.


Should you have any questions regarding this topic or require assistance, please feel free to contact the BDO Transfer Pricing Team: