BEPS Action 13 – Transfer Pricing Documentation

BEPS Action 13 “Transfer pricing documentation and Country-by-Country Report includes revised guidelines on transfer pricing documentation and Country-by-Country Reporting (CBCR). In particular, the Final Report on Action 13 proposes a three tiered documentation structure:

  • A master file containing high-level information regarding global business operations;
  • A local file specific to each country disclosing details of material related party transactions and
  • A CBCR.

The Final Report requires the master and local files to be delivered by multinational businesses to local tax authorities, whilst the CBCR is to be filed in the ultimate parent’s jurisdiction and shared via exchange of information protocols.

The Final Report sets out a substantial revision of transfer pricing documentation requirements. The guidance on transfer pricing documentation requires multinational enterprises (MNEs) to provide tax administrations with:

  • A “master file” to be available to all relevant tax administrations containing high-level information on their global business operations and transfer pricing policies;
  • A “local file” with detailed transactional transfer pricing documentation specific to each country, identifying material related-party transactions, the amounts involved in those transactions and the company’s analysis of the transfer pricing determinations they have made with regard to those transactions; and
  • A country-by-country (CbC) report in which large MNEs will provide annually and for each tax jurisdiction in which they do business the amount of revenue, profit before income tax and income tax paid and accrued and other indicators of economic activities. CbC reports should be filed in the ultimate parent entity’s jurisdiction and shared automatically through government-to-government exchange of information.

Australia’s response BEPS Action 13

The Australian Government have enacted laws that require CbC reporting and master and local file reporting. These laws apply from 1 January 2016. The Australian approach is broadly aligned with the G20/OECD approach.

In addition, Australia has signed the multilateral competent authority agreement for the automatic exchange of CbC reports.

The Australian Government has enacted Subdivision 815-E of the Income Tax Assessment Act 1997 (Cth) which requires MNEs, for income years starting on or after 1 January 2016, to provide annual statements to the Commissioner in accordance with the revised OECD transfer pricing documentation requirements.

Subdivision 815-E applies only to a “significant global entity” — a global parent entity or a member of a global group with annual global income of AU$1billion or more.

In December 2015, the ATO issued Law Companion Guideline LCG 2015/3 which describes how the Commissioner will apply Subdivision 815-E.

On 27 January 2016, Australian officials and those from 30 other countries signed the Multilateral Competent Authority Agreement (MCAA). The MCAA will facilitate the automatic exchange of country-by-country reporting and will enable the implementation of new transfer pricing reporting standards under BEPS Action 13.

Australia intends to start exchanging information from September 2018.

The ATO has released a high-level design for the local file. There are two “tiers” of local file. The amount of information required for a particular local file tier reflects an entity’s business operations, complexity and perceived level of risk.