H.J.E. Wenckebachweg 210 . 1096 AS Amsterdam . The Netherlands . +31 (0)20 462 3530 tpa-global.com
Standardize Your Transfer Pricing
Documentation System in light of OECD
project on BEPS Action 13 report
1
S
TANDARDIZED APPROACHIn 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:
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.
Production Calendar
Master file template
Local file template Digital
Benchmarking Archive
H.J.E. Wenckebachweg 210 . 1096 AS Amsterdam . The Netherlands . +31 (0)20 462 3530 tpa-global.com 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 M
ASTERF
ILE TEMPLATETPA 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
H.J.E. Wenckebachweg 210 . 1096 AS Amsterdam . The Netherlands . +31 (0)20 462 3530 tpa-global.com Local File template2
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 D
IGITALB
ENCHMARKING ARCHIVEThe 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
H.J.E. Wenckebachweg 210 . 1096 AS Amsterdam . The Netherlands . +31 (0)20 462 3530 tpa-global.com • 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 P
RODUCTIONC
ALENDARDue 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 forms3 for each country within the MNE group that meet the local TP documentation threshold.
2
TP
SOFTWAREAs 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 solutions4, 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 web-based 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.
H.J.E. Wenckebachweg 210 . 1096 AS Amsterdam . The Netherlands . +31 (0)20 462 3530 tpa-global.com 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
H.J.E. Wenckebachweg 210 . 1096 AS Amsterdam . The Netherlands . +31 (0)20 462 3530 tpa-global.com 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.
Are you “in control”?
Best in class
TP software solutions
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.tpa-global.com
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• 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 in-house/ external software applications To make TP compliance cycle 50% more efficient
TARGET
Ke y i nput s TP ORGANIZATIONAL BESTTPA 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.
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.tpa-global.com
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• 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 in-house trainings, roll-out CbC instructions manual, etc.)
DIAGNOSTICS As-is
analysis Planning & scoping
1-2 months Up to 3 months Up to 2 months
DESIGN Detailed
design Build
IMPLEMENTATION Test Deploy Support
TARGET
Key ac tiv iti es To streamline and automate CbC reporting compliance cycle• Broad geographical coverage: 60+ countries.
• Wide range of professional capabilities: 450 tax/TP + 450 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.
Igor Peters
Partner
Transfer Pricing Associates [email protected]
+31 (0)20 894 2556
Transfer Pricing for Hyperion TPH
www.transferpricingforhyperion.com Tax Technologies, Inc.Tax Series
www.taxtechnologies.com
Intra Pricing Solutions TP Genie
www.intrapricing.com
Uwe Kaestner TP-EXPERTISE FinAppSuite www.tp-expertise.com www.tpa-global.com TM ALDER&SOUND [X]VIEW www.aldersound.fi/xview
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Raymund GerarduCCO and Managing Partner Transfer Pricing Associates [email protected]
+31 (0)20 894 2557
Steef Huibregtse
CEO and Managing Partner Transfer Pricing Associates [email protected]
+31 (0)20 462 3530
Igne Valutyte
Associate
Transfer Pricing Associates [email protected]
+31 (0)20 262 2987
Avisha Sood
Junior Associate Transfer Pricing Associates
[email protected] +31 (0)20 218 2234
Core team:
TPA Global brings TP software solutions in close cooperation with its trusted members and alliance partners:
Contact us now to streamline and automate your TP compliance cycle!
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