Standardize Your Transfer Pricing Documentation System in light of OECD project on BEPS Action 13 report

Transcription

1 Standardize Your Transfer Pricing Documentation System in light of OECD project on BEPS Action 13 report 1 STANDARDIZED APPROACH In order to standardize, simplify and streamline multinational enterprises (MNEs) transfer pricing ( TP ) documentation and to improve global consistency, but still complying with local TP requirement, especially in the light of the OECD project on BEPS Action 13 report 1, TPA has designed this project to provide global TP documentation on a standardized approach through building up the following TP framework: Master File template Local File template Digital Benchmarking Archive Production Calendar The standardized TP documentation approach can be visualized as follows: Production Calendar Digital Benchmarking Archive Master file template Local file template 1 The OECD project on BEPS Action 13 report published on 5 October 2015 described a three-tiered approach to TP documentation, consisting master file, local file and CbC reporting.

2 This standardized approach will help MNE to create an easy framework to manage its global TP documentation and is flexible enough to include all local information requirement and considerably more time and cost-efficient in practice. The desire to standardize the TP documentation system is in particular for the following reasons: Limited consistency of format and content between TP reports analysing the same transaction. Updating the TP documentation for the subsequent years proved to be too extensive and thus too time-consuming. The local documentation is finalized too late for some countries with tight deadlines to prepare and/or submit documentation, creating potential penalties from certain tax authorities. 1.1 MASTER FILE TEMPLATE TPA will create a master file template to cover major intercompany ( IC ) transaction categories entered among MNE s group companies for specific fiscal year under review. Once the TP master file template is prepared, it generally satisfies 60% to 80% of the requirements of each of the tax authorities in the countries in which the MNE does business. It is important to note that the master file template will also be in compliance with the new TP master file standard set out in the OECD project on BEPS Action 13 report, and we also aim to align the master file template with the BEPS Action 8-10 report focusing on substance and value creation. The master file template mainly contains the following standardized individual sections: Executive summary Scope and Purposes Industry analysis Company analysis,, value chain description and source of financing the operations Brief description of functions, assets and risks ( FAR ) profile per major IC transaction types Transfer pricing policy and explicit listing of intangibles

3 Local File template 2 TPA will also develop a local file template in order to easily update or create the relevant country specific reports. If a particular country requires TP documentation prepared specifically in respect of a local entity, this can be done easily and cost effectively by utilizing the local file template as a base. The local file template contains place holders and standardized description to render it specific to the local entity in order to comply with local specific circumstances and requirements. Once the TP local file template is prepared, it generally satisfies 60% to 80% of the requirements of each of the tax authorities in the countries in which MNE does business. The local file template mainly contains the following individual sections for easy adaptation at local level: Executive summary (local specific) Scope and purposes (local specific) Industry analysis (local specific) Company analysis (local specific) Detailed FAR profile per major intercompany ( IC ) transaction types (standardized + local specific) Choice of method per major IC transaction types (standardized + IC transaction value) - Price setting - Price/profit checking Economic analysis per major IC transaction types (standardized economic analysis write-up with regional benchmarks) It is important to note that the local file template will also be in compliance with the new TP master file standard set out in the OECD project on BEPS Action 13 report, and we also aim to align the local file template with the BEPS Action 8-10 report focusing on substance and value creation. 1.2 DIGITAL BENCHMARKING ARCHIVE The benchmarking archive contains three regional benchmarking sets, which are prepared in the past 36 months by various external advisors including TPA located in the following regions: Americas Asia Pacific 2 It is important to note that this local file template is also in compliance with the new TP local file standard set out in the OECD project on BEPS Action 13 report.

4 Europe In case there may be a need to compile country specific benchmarks in which case this would also be prepared separately and included in the local TP documentation. TPA will synchronize all existing benchmarks collected in standardized format and perform a gap analysis in order to identify any additional benchmarks may be required. 1.3 PRODUCTION CALENDAR Due to the burdensome local TP documentation requirements, MNEs may struggle with tight deadlines for the completion of the TP documentation. We suggest MNE to use TPA s proprietary Production Calendar, which is an internal tool that can help to monitor and manage the schedule with respect to preparation, filing or submitting TP documentation and TP forms 3 for each country within the MNE group that meet the local TP documentation threshold. 2 TP SOFTWARE As an alternative to the traditional way for creating and updating TP documentation, and based on our years experience working on various TP projects, and our comparison of various automated solutions 4, we recommend MNE to consider using one of our TP software developed as an automated solution for TP documentation purposes. TPA s software solution can help MNE efficiently collect data and create/update OECD compliant TP documentation, including global master file and local country documentation in the most cost effective and time efficient manner. The automated solutions are secure webbased application that can help MNE manage worldwide TP documentation through a single documentation platform which would allow MNE group companies to upload and access documents anywhere in the world. The most important functionality is that our TP software is not only follow the same standardized documentation approach as we indicated above, but makes the whole process of preparing masterfile and local files automated. The documentation process through TP-Genie can also be visualized as follows: 3 Certain tax authorities require MNE to supplement the tax return by completing a form that provides additional information on transfer pricing. Including information on whether they have entered into cross-border controlled transactions, and if so, they must provide certain additional information such as identity of the foreign related parties, the amounts of the transactions, pricing methodology applied and whether the taxpayer has produced contemporaneous transfer pricing documentation to support transfer prices. 4 Please refer to Appendix for TPA s brochure on TP software solutions.

5 TPA s software solution helps to create a single documentation platform that allow various group companies within a MNE group to communicate with each other through central control and monitoring. TPA s software solutions are proofed to be the most suitable automation solutions for MNE s global TP documentation process by providing the following key functionalities: 1 TP system design and planning Draws inter-company relationships (design) Links TP specialists recommendations to financials (test) 2 TP report writing Generates standardized TP documents, graphics, tables, etc. Generates CbC reports 3 Audit process Streamlines tax audit process Records and maintains a log of all TP activities and calculations 4 Data collection, retrieval & conversion Collects data in the right format Allows for standardized reporting across jurisdictions 5 Workflow management Embeds workflows into an IT platform Enables automation of tax/ TP processes 6 Repository for documents Contains streamlined and structured TP related information Automates documentation management

6 It should be mentioned that TPA s software solutions allow MNE to use it on as a standalone platform, it does not result changes/integration with other software or IT system the MNE already has. Therefore, the MNE s tax team can use TPA s software solutions quite independently without seeking internal buy-in from its IT department. Subject to your approval, TPA can schedule a live demo session, which is free of charge, to showcase our automated solutions for TP documentation compliance purposes. APPENDIX - BEST IN CLASS TP SOFTWARE SOLUTIONS

7 Are you in control? Best in class TP software solutions www.

8 1 What is your ambition TP ORGANIZATIONAL BEST PRACTICES TP OPERATIONAL BEST PRACTICES RATIONALIZATION OF TP PRODUCTION CYCLES TARGET Key inputs Organization to run TP compliance cycle Organization to perform risk management Organization to perform proper communication to stakeholders Four layered approach to TP outputs: 1. Masterfile 2. Local files 3. TP forms 4. CbC reporting Creation of four production calendars to run defined TP outputs Centralization of operations: o Delegate TP production cycle to Shared Service Centre o Apply ISO standards Automation of TP workflows through inhouse/ external software applications To make TP compliance cycle 50% more efficient 2 Types of software applications FUNCTIONALITY DESCRIPTION 1. TP system design and planning Draws inter-company relationships (design) Links TP specialists recommendations to financials (test) 2. TP capacity planning Assists in planning your insourcing/outsourcing capacity 3. Benchmarking Automates comparable company searches 4. Consultancy Acts as a Google for transfer pricing 5. TP report writing Generates standard TP documents, graphics, tables, etc. Generates CbC reports 6. Audit process Streamlines tax audit process Records and maintains a log of all TP simulations and calculations 7. Tax provisioning Assists in reporting current and deferred income taxes Runs global tax provision calculations 8. Data collection, retrieval & conversion Collects data in the right format Allows for standardized reporting across jurisdictions 9. Workflow management Embeds workflows into an IT platform Enables automation of tax/tp processes 10. Repository for documents Contains streamlined and structured TP related information Automates document management Before selecting your best in class software solution, the following questions should be considered: What are the requirements of your business as displayed under question 1 above? Taking these requirements into consideration, which functionalities will bring you the highest benefits? Depending on business configurations and requirements identified, the use of internal versus external software applications will vary considerably from one organization to the next. www.

9 3 Country-by-Country reporting - A Project Charter TPA Global serves as a one-stop-shop for automating your TP workflows and is ready to assist you in TP software diagnostic, design and implementation stages. Please see below a visualized example of a Project charter to one of the four layers of documentation Country-by-Country (CbC) reporting automation. DIAGNOSTICS DESIGN IMPLEMENTATION As-is analysis Planning & scoping Detailed design Build Test Deploy Support Key activities Q&A on CbC reporting Discuss intercompany transactions & type of data required Assess Client IT landscape Perform stakeholders analysis & governance on collection of data points Create CbC roadmap detailing CbC automation phases and timelines Define the process of CbC reporting, including roles and responsibilities of various parties involved in creation and reporting Prepare CbC reporting instructions manual Integrate existing IT systems with the chosen TP software solution Create CbC report Apply financial ratio analysis on final CbC to capture major inconsistencies of CbC relevant data and/ or tax/ TP risk areas Identify and perform relevant technical improvements Prepare for the deployment of the automated CbC reporting (e.g., organize inhouse trainings, roll-out CbC instructions manual, etc.) TARGET To streamline and automate CbC reporting compliance cycle 1-2 months Up to 3 months Up to 2 months 4 What are your benefits You will be able to plan and optimize your tax/tp structures: Plan and manage your TP on a real time basis Run various what-if financial simulations and analysis for any tax/ TP scenario Perform before and after intercompany transactions impact analysis on your ETR Long-term succession planning of your in-house TP team Proactive management of your TP documentation production and submission calendars You will be able to mitigate your tax/tp risks: Better control over your TP processes Accurate data captured and reported in the required format Timely filing of TP documentation across all jurisdictions Automated CbC reporting and TP report writing facilities One central place to store TP information Effective audit trail You will be able to save costs: More structured and efficient TP processes/in-house team A significant reduction of manual work intervention Less usage of external advisors www.

10 5 Why TPA Global Broad geographical coverage: 60+ countries. Wide range of professional capabilities: 450 tax/tp IT/implementation professionals. Long-standing and worldwide experience in organizational and operational transfer pricing best practices. An independent global coach to in-house tax/tp teams. Core team: Steef Huibregtse CEO and Managing Partner Transfer Pricing Associates s.huibregtse@ +31 (0) Raymund Gerardu CCO and Managing Partner Transfer Pricing Associates r.gerardu@ +31 (0) Igor Peters Partner Transfer Pricing Associates i.peters@ +31 (0) Igne Valutyte Associate Transfer Pricing Associates i.valutyte@ +31 (0) Avisha Sood Junior Associate Transfer Pricing Associates a.sood@ +31 (0) TPA Global brings TP software solutions in close cooperation with its trusted members and alliance partners: TM Transfer Pricing for Hyperion TPH Tax Technologies, Inc. Tax Series Intra Pricing Solutions TP Genie ALDER&SOUND [X]VIEW Uwe Kaestner TP-EXPERTISE FinAppSuite RoyaltyStat Online TP Solutions edgarstat Transfer pricing analytics Contact us now to streamline and automate your TP compliance cycle! Copyright 2015 TPT BV www.