Every multinational is subject to transfer pricing documentation. Lately the BESPS project run by the OECD/G20 has resulted in a further increase of the compliance burden of multinationals.
The approach chosen by the OECD / G20 forces multinationals to focus more on the production and disclosure of documents like the Master File, the Local Files and the country-by-country reports. The goal of the OECD / G20 is to create a level playing field for the tax authorities around the world.
The data points to be disclosed by multinationals clearly helps tax authorities to get a much better picture of a multinational’s operating model. In addition, they get a better view how profit margins are distributed over the different countries (legal entities) as well as the functions performed in these countries. As such one could argue that tax authorities now should have the complete picture of a multinational creating the opportunity for them to have a better information position to start challenging any position taken by multinationals. Certain tax authorities have even gone a couple of distinct steps further in defining additional requirements beyond what the OECD/G20 has suggested (i.e., China, Australia, Poland, etc., etc.).
What does this now mean for multinationals? How should they deal with the current compliance requirements? It is/was not unusual for multinationals to prepare local files in the relevant countries with some form of oversight/control by the central tax team. Very often this is driven by the need for resources that have to prepare a vast number of files.
Is the aforementioned approach of preparing local files still a recommendable approach? As we know now, the local files have to describe the local management roles and responsibilities. These have to line up with the description of the value chain and the roles/functions described in table 2 of the country-by-country report. The controller’s department typically prepares the latter centrally with some oversight from the central tax department. It thus becomes a challenge for the central tax department to ensure an alignment of the three reports filed with the tax authorities (i.e., the Master File, the Local File and the Country-by-Country Report).
The multinational’s tax department is strongly advised to adapt urgently to this new reality. All this should result in a new approach toward documentation. It is no longer simply compliance but it should be treated as an integral part of any multinational’s tax risk management approach!
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Is there a more efficient way to get a grip on the tasks at hand? Can the tax department get more control and thus better manage risks without having to add more resources or even while reducing resources?
We help you to define the required processes and the relevant people’s roles and responsibilities. Based on a re-set of your current Transfer Pricing Compliance Framework, you will be in a position to focus your efforts and allocate appropriate resources. At the same time you will be in a position to deliver, a robust and globally consistent documentation.
Having fixed your global Transfer Pricing Compliance Framework, you will also be in a position to decide whether to out-source, co-source or fully in-source your documentation processes.
TPA Global will work alongside in developing the right approach and will be flexible in providing you the necessary support (i.e., our “hand-in-glove” approach). With the support of our technology solutions, we will work with you to build a process that allows central control, has the ability to minimise the risk of inconsistency and last but not least allows doing this in a cost efficient manner.
TPA Global provides solutions in the area of BEPS, Value Chain Analysis for multinationals along with variety of tax, business and educational technologies. Let us show you how to improve your operations and move from “staying out of trouble” to “being in control”.