Chapter 5 of the “OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations” (the “Guidelines”) provides guidance for tax authorities on developing rules for transfer pricing documentation and guidance for multinational enterprises (MNEs) on the standard of transfer pricing documentation that would be most helpful for demonstrating that their controlled transactions are conducted on an arm’s length basis.
This article is my summary of the key elements of Chapter 5. It concludes with my thoughts on best practice regarding the UK and HMRC’s TP documentation requirements.
Source: OECD Press Release 21 December 2017
21/12/2017 – Today, a further important step was taken to implement Country-by-Country (CbC) Reporting in accordance with the BEPS Action 13 minimum standard, through activations of automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports (“the CbC MCAA”).
The automatic exchange of Country-by-Country Reports which is set to start in June 2018 will give tax administrations around the world access to key information on the annual income and profits, as well as the capital, employees and activities of Multinational Enterprise Groups that are active within their jurisdictions.
With more than six months before the first exchange deadline, there are now over 1400 automatic exchange relationships in place among jurisdictions committed to exchanging CbC Reports as of mid-2018, including those under EU Council Directive 2016/881/EU and bilateral competent authority agreements (including 31 with the United States).
The UK has an annual requirement (following BEPS13) for certain MNEs with consolidated group revenue of at least €750m to notify and electronically deliver to HMRC a report of revenue, pre-tax profit and taxes paid in each country in which they operate. Guidance on preparing and filing the reports has been published.
For groups planning to file a report with HMRC for the year ended 31 December 2016, the filing deadline is 31 December 2017 and notifications are also required for the year ending 31 December 2017 by 31 December 2017.
Your HMRC Customer Relationship Manager should be your first point of contact for any questions about notifications, the registration service, the reporting service or HMRC’s rules for completing the XML schema. If you don’t have a CRM, email email@example.com.
The ultimate group parent is primarily responsible for filing the report with HMRC although the UK entities are required to make a “local filing” where:
- the ultimate parent’s country of residence does not require it to file a CbC report,
- that country does not have specific exchange of information arrangements with the UK in respect of CbC reporting, or
- such arrangements do exist but are not operating effectively.
in which case the UK entity must request from its ultimate parent all the information it needs to complete a full CbC report and file it with HMRC unless another group member has filed the report with HMRC or where a report containing the necessary information has been filed in another country that has effective information exchange arrangements with the UK. If it does not receive the information in time, the UK entity must inform HMRC and must file a report in respect of the UK entities in the group only.
You must make your report using XML format and in the structure, called a schema, published by the OECD. You must follow HMRC’s rules to create a valid template as only reports in this approved format will be accepted for electronic filing.
In accordance with OECD guidance, UK partnerships that are parent entities of multinational groups must also file CbC reports (as well as other group entities that are required to file).
“OECD Forum on Tax Administration issues handbooks to address implementation and use of CbC reports”
Source: Deloitte Global Transfer Pricing Alert 2017-044, 18 October 2017
This is a useful Deloitte summary of two recent OECD handbooks –
Country-by-Country Reporting: Handbook on Effective Implementation and
Country-by- Country Reporting: Handbook on Effective Tax Risk Assessment.
These handbooks are meant to assist tax authorities to use the information received through the exchange of country-by- country information within their tax risk assessment framework.
Source: Deloitte Global Transfer Pricing Alert 2017-033
“The first country-by-country (CbC) reporting notifications required to be made to the UK tax authorities are due by 1 September 2017.
This deadline applies to all reporting periods that end on or before 1 September 2017.
After 1 September 2017, the standard UK notification date is the end of the CbC reporting period.
A few examples regarding the application of these rules follow.
Read the rest of this entry »