Update on BEPS from the OECD – a transfer pricing perspective

No new taxesOn the 26th of May, the OECD hosted a live webcast to provide us with an update on the BEPS Project and its 15 Action Points. You can find the archived webcast here and even better you can download the slides if need be.

Arguably only 5 of the 15 Action Points actually related to transfer pricing and only the following 2 Action Points: TP Aspects of Intangibles (Action 8) and TP Documentation (Action 13) are going to be presented to the G20 in September. This obviously means that these 2 Action Points are prioritised from a transfer pricing perspective.

In short there was a lot of public interest and 462 comments were received. I thought the following points were interesting as they are from developing countries such as South Africa. Please note the list is derived from the OECD Live Webcast slides:

  • “Excessive payments to foreign affiliated companies in respect of interest, service charges, management and technical fees and royalties;
  • Supply chain restructuring that contractually reallocates risks, and associated profit, to affiliated companies in low tax jurisdictions;
  • Significant difficulties in obtaining the information needed to assess and address BEPS issues, and to apply their transfer pricing rules;
  • Use of techniques to obtain unintended treaty benefits;
  • Wasteful tax incentives designed to attract investment; and
  • Techniques used to avoid tax paid when assets situated in developing countries sold.”

The webcast does go into more detail on the different Action Points but I thought I provide the summary from the OECD slides on the 2 transfer pricing Action Points mentioned above for the guys who do not have time to watch the full webcast.

Transfer Pricing Aspects of Intangibles 

Status

  • “Agreement within WP6 on the revised text of Chapter I and Chapter VI;
  • Chapter VI: up-to-date approach to identifying intangibles and how arm’s length considerations should be determined; and
  • The strong interaction between Section B and the work on risk, re-characterisation, capital and the related special measures is recognised in the paper.”

Next steps:

  • “Formal approval by WP6 and approval by CFA; and
  • Work on risk, re-characterisation, capital and the related special measures will be addressed by WP6 with priority.
    • This work stream together with the work on Intangibles will provide guidance on the most challenging TP issues, including excessive capitalisation, low functionality and mere contractual assumption of risk, and will develop approaches to deal with hard to value intangibles
    • The public release of a full draft report on these issues is expected in December 2014″

Transfer Pricing Documentation and CBC Reporting

Status

  •  “Consensus in WP6 that the new approach will greatly improve the access for governments to relevant information for transfer pricing purposes;
  • Agreement on a three tier approach (CbC template, Masterfile and Local File);
  • As these are new tools, experience needs to be developed to assess the effectiveness and efficiency of the tools. WP6 is uniformly of the view that a monitoring mechanism is needed to assess whether the focus of the mechanism can or should be improved in the future;
  • There is also broad recognition within WP6 that a structured and careful implementation is necessary to guarantee:
    • consistency in the approaches by governments
    • that the relevant information is available to governments for which it is relevant on a timely basis
    • that commercially sensitive information is treated confidentially
    • that the costs for both taxpayers and tax administrations are balanced
    • to secure that the information is used as intended
  • WP6 will finalise the document shortly. After that it will be sent to CFA for formal approval”

There has been quite some reaction to BEPS and how it is going to work. But I am quite excited about the new BEPS stuff and believe it will be beneficial to all countries involved.

As always let me know your thoughts!

What are your thoughts?

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