In 2013 the Organization for Economic Co-operation and Development (OECD) published an Action Plan designed to fight against a key priority of Governments around the globe: Base Erosion and Profit Shifting (BEPS). In this context, the OECD and member countries of the G-20 released a 15-point Action Plan to be adopted by 2015 that aims to ensure that profit are taxed where the economic activities are performed and where value is created.
As a continuation of their plan against the BEPS, 44 countries have adopted the first set of seven deliverables described in the Action Plan due in 2014. These reports were published on last September.
Concretely, the first seven elements of the Action Plan are focused on helping countries to:
- Ensure the coherence of corporate income taxation at the international level, through new model tax and treaty provisions to neutralize hybrid mismatch arrangements (Action 2).
- Realign taxation and relevant substance to restore the intended benefits of international standards and to prevent the abuse of tax treaties (Action 6).
- Assure that transfer pricing outcomes are in line with value creation, through actions to address transfer pricing issues in the key area of intangibles (Action 8).
- Improve transparency for tax administrations and increase certainty and predictability for taxpayers through improved transfer pricing documentation and a template for country-by-country reporting (Action 13).
- Address the challenges of the digital economy (Action 1).
- Facilitate swift implementation of the BEPS actions through a report on the feasibility of developing a multilateral instrument to amend bilateral tax treaties (Action 15).
- Counter harmful tax practices (Action 5).
Paying attention on the transfer pricing matter, important changes on the “Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations” published on July, 2010 (TP Guidelines) have been released, regarding the transfer pricing documentation (Action 13) and the intangibles (Action 8) issues.
With respect to the modifications of the TP documentation chapter (Chapter V of the TP Guidelines), the OECD intends to enhance the transparency for tax administrations as essential part of tackling the BEPS problem. In addition to the known reports “master file” and “local file”, the Multinational Enterprises may carry out the “country-by-country” new report in order to provide tax administrations annually with certain financial information (i.e. income, earnings, taxes paid and certain measures of economic activity) of all the countries in which they operate. With all of this information, tax administrations can undertake a deep analysis for assessing the transfer pricing risks. Likewise, it is highlighted the need to create a compliance culture (through the request of the TP documentation) by which taxpayers reach consistent transfer pricing positions considering contemporaneous comparable data. Indeed, tax payers may analyze the controlled transactions at the moment they took place or, in any event, no later than the time of completing and filing the tax return of the fiscal year in which the transactions took place.
Regarding the intangibles, the modifications of the TP Guidelines (Chapters I, II and VI) were performed to clarify the definition of intangibles under these Guidelines and provide supplemental guidance for determining arm´s length conditions for involving intangibles. However, because of the strong interactions between the work on ownership of intangibles (Action 8) and other areas to be addressed by BEPS works, this revision of intangibles will be completed with the reports to be published by 2015, in the completion of the adopted Action Plan.