The Organization for Economic Cooperation and Development will begin its Nov. 12-13 consultation on transfer pricing matters with a discussion of country-by-country reporting. Action 13 of the OECD’s plan to combat base erosion and profit shifting—which mirrors recommendations from the OECD's white paper on documentation—envisions a requirement for taxpayers to “provide all relevant governments with the needed information on their global allocation of the income, economic activity and taxes paid among countries according to a global template.”
As reported by staff writer Alex M. Parker in the Oct. 31 issue of Transfer Pricing Report, practitioners are concerned that this “deceptively simple” provision heralds an implicit shift from an arm's-length to a formulary approach.
The OECD Nov. 12 plans to tackle four questions that come up in implementing country-by-country reporting:
On the last point, the OECD listed considerations such as uncooperative governments, incomplete treaty information exchange obligations and the need to protect confidential taxpayer information.
The OECD’s documentation white paper calls for reporting in five categories: group structure, nature of the business, intangibles, financial activities, and financial and tax positions. Under the plan, businesses would be required to report on their profit drivers, related-party service arrangements and all business restructurings in the past five years, as well as list all applicable unilateral, bilateral or multilateral advance pricing agreements, among other requirements. Companies also would be required to create a geographic layout of their structures, including numbers of employees and profits by country.
While the information that would be sought under country-by-country reporting is not intended to be used as evidence of transfer pricing violations, critics are skeptical that the documentation would have such a limited role in enforcement actions.
Says former Treasury official David Ernick, now with PricewaterhouseCoopers: “The concern that I think exists is, it would just be too great a temptation.”
Aydin Hayri of Deloitte agreed: “It's giving everyone a fishing rod and saying, ‘Go fishing.' ”
Country-by-country reporting will be one of the issues addressed at Bloomberg BNA and Baker & McKenzie’s second annual Global Transfer Pricing Conference in Paris March 31-April 1. To see the current agenda and to register, visit http://www.bna.com/agenda-m17179870460/
Molly Moses, Managing Editor, Transfer Pricing Report
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