Practical Toolkit to Support the Successful Implementation by Developing Countries of Effective Transfer Pricing Documentation Requirements

The Platform for

Collaboration on Tax

Practical Toolkit to Support the Successful

Implementation by Developing Countries of

Effective Transfer Pricing Documentation

Requirements

International Monetary Fund (IMF)

Organisation for Economic Co-operation and Development (OECD)

United Nations (UN)

World Bank Group (WBG)

This document has been prepared in the framework of the Platform for Collaboration on Tax (PCT)

under the responsibility of the Secretariats and Staff of the four organizations. The work of the PCT

Secretariat is generously supported by the Governments of Japan, Luxembourg, the Netherlands, Norway,

Switzerland, and the United Kingdom. This report should not be regarded as the officially endorsed views

of those organizations, their member countries, or the donors of the PCT Secretariat.

The toolkit has benefited from comments submitted during the period of public review in September–

November 2019. The PCT partners wish to express their gratitude for all submissions received.

 

 
CONTENTS 
 
ACRONYMS ......................................................................................................................................................................... 5 
EXECUTIVE SUMMARY .................................................................................................................................................... 6 
PART I. INTRODUCTION ................................................................................................................................................. 8 
1  Introduction: Why a toolkit on implementing Transfer Pricing documentation? ................. 8 
2  Structure of this Toolkit ............................................................................................................................... 9 
3  Scope .................................................................................................................................................................. 9 
4  Context and background of transfer pricing documentation requirements ........................ 12 
5  Objectives of transfer pricing documentation requirements ...................................................... 13 
6  Policy principles ............................................................................................................................................ 14 
Ensuring international consistency .................................................................................................................. 15 
PART II. OPTIONS FOR COUNTRIES TO IMPLEMENT TRANSFER PRICING DOCUMENTATION ....... 16 
1  Regulatory framework ................................................................................................................................ 16 
1.1 General considerations .............................................................................................................................. 16 
1.2 Burden of proof ............................................................................................................................................ 17 
2  Confidentiality ............................................................................................................................................... 19 
3  Timing Issues ................................................................................................................................................. 20 
4  Penalties and compliance incentives .................................................................................................... 21 
5  Accessing documents held outside the jurisdiction ....................................................................... 24 
6  Simplification and exemptions. .............................................................................................................. 26 
PART III. SPECIFIC DOCUMENTATION ELEMENTS .............................................................................................. 28 
1  Introduction.................................................................................................................................................... 28 
2  Transfer pricing returns ............................................................................................................................. 28 
2.1 Functions of transfer pricing returns ................................................................................................... 28 
2.2 Format and content .................................................................................................................................... 29 
2.3 Submission mechanism ............................................................................................................................ 30 
2.4 Regulatory framework ............................................................................................................................... 31 
2.5 Timing issues ................................................................................................................................................. 33 
2.6 Enforcement .................................................................................................................................................. 34 
2.7 Confidentiality............................................................................................................................................... 36 
2.8 Simplification and exemptions ............................................................................................................... 36 
3  Transfer pricing studies ............................................................................................................................. 38 

 
3 
 
3.3.1 Functions of transfer pricing studies ................................................................................................... 38 
3.3.2 Format and content .................................................................................................................................... 40 
3.3.3 Regulatory framework ............................................................................................................................... 46 
3.3.4 Timing issues ................................................................................................................................................. 46 
3.3.5 Enforcement .................................................................................................................................................. 49 
3.3.6 Confidentiality............................................................................................................................................... 52 
3.3.7 Simplification and exemptions ............................................................................................................... 52 
3.4  Country by Country Reporting ............................................................................................................... 58 
3.4.1 Introduction ................................................................................................................................................... 58 
3.4.2 Filing mechanism ......................................................................................................................................... 69 
3.4.3 Format and Content ................................................................................................................................... 71 
3.4.4 Legislative and regulatory framework ................................................................................................. 72 
3.4.5 Enforcement .................................................................................................................................................. 75 
3.4.6 Practical issues on the implementation of CbC Reporting ......................................................... 77 
3.5  Other information gathering mechanisms (Transfer pricing  questionnaires and  ad  hoc 
information requests) ................................................................................................................................................ 82 
3.5.1 Functions of transfer pricing questionnaires and ad hoc information requests ................. 83 
3.5.2 Format and content .................................................................................................................................... 83 
3.5.3 Regulatory framework ............................................................................................................................... 83 
3.5.4 Timing issues ................................................................................................................................................. 83 
3.5.5 Enforcement .................................................................................................................................................. 83 
3.5.6 Confidentiality............................................................................................................................................... 84 
PART IV. CONCLUSIONS ............................................................................................................................................... 85 
Annex 1 ............................................................................................................................................................................... 86 
Sample primary legislation to implement transfer pricing documentation requirements ........ 86 
Annex 2 ............................................................................................................................................................................... 94 
Illustrative examples – Countries’ transfer pricing documentation rules ......................................... 94 
Annex 3 ............................................................................................................................................................................... 97 
Illustrative examples - Transfer pricing annual returns ........................................................................... 97 
India Form No. 3ECB ............................................................................................................................................. 98 
Annex 4 ............................................................................................................................................................................ 100 
Master file content (from Annex I to Chapter V of the OECD Transfer Pricing Guidelines) ... 100 
Local file content (from Annex II to Chapter V of the OECD Transfer Pricing Guidelines) ..... 102 
Annex 5 ............................................................................................................................................................................ 104 

 
4 
 
Belgium: Transfer pricing documentation package ............................................................................... 104 
Annex 6 ............................................................................................................................................................................ 106 
Master file and local file - Filing obligations in selected countries ................................................. 106 
Annex 7 ............................................................................................................................................................................ 109 
Example - Exemptions regimes (transfer pricing studies) ................................................................... 109 
Annex 8 ............................................................................................................................................................................ 110 
CbC Report template (from Annex III to Chapter V of the OECD Transfer Pricing Guidelines)
 .................................................................................................................................................................................... 110 
Template for the Country-by-Country Report – General instructions ............................................ 112 
References ....................................................................................................................................................................... 117 

ACRONYMS

APA Advance Pricing Arrangement

BEPS Base Erosion and Profit Shifting

CAA Competent Authority Agreement

CbC Country-by-Country

CRS Common Reporting Standard or Standard for Automatic Exchange of Financial

Account Information in Tax Matters

CTS Common Transmission System

DTC Double Tax Convention

DWG Development Working Group of the G20

EOI Exchange of Information

EU The European Union

GAAP Generally Accepted Accounting Principles

Global Forum Global Forum on Transparency and Exchange of Information for Tax Purposes

IMF International Monetary Fund

MAP Mutual Agreement Procedure

MAP APA Advance Pricing Arrangement under the Mutual Agreement Procedure

MNE Multinational Enterprise

MTC Model Tax Convention

OECD Organisation for Economic Co-operation and Development

QCAA Qualifying CAA

SME Small and Medium Enterprises

SPE Surrogate Parent Entity

TIEA Tax Information Exchange Agreement

UN United Nations

UPE Ultimate Parent Entity

WBG World Bank Group

EXECUTIVE SUMMARY

Transfer pricing rules apply to taxpayers that conduct transactions with associated parties.

In most countries, they require the taxable profit of such taxpayers to be computed in

accordance with the arm’s length principle – that is, on the assumption that the price and other

conditions of the transactions are the same as those that would be expected had the transaction

been between unrelated parties.

In establishing the prices and other conditions for transactions between associated

enterprises and assessing whether such prices and conditions are consistent with the “arm’s

length principle”, it is necessary for enterprises and tax administrations to conduct what is

often called a ‘transfer pricing analysis’. This analysis requires taxpayers or tax administrations

to identify and understand the key features of a transaction between related parties, and analyze

the functions performed, risks assumed and assets used by those parties in order to determine and

apply the most appropriate transfer pricing method. The application of the transfer pricing method

normally relies on information from external and internal sources to find one or more comparable

uncontrolled transactions or, in the application of a profit split method, to determine the value of

the contribution of the respective parties.

In some cases, this analysis involves a complex

examination of a large amount of information. This Toolkit concerns the measures that tax

administrations use to require taxpayers to document all stages of their transfer pricing analysis. It

has a specific emphasis on developing countries.

Robust transfer pricing documentation rules are a prerequisite for the effective

implementation of transfer pricing rules. The requirement to prepare, keep or submit

information enhances compliance and enables tax administrations to access the information

necessary to enforce their transfer pricing regulations. The access to such information also allows

tax administrations to focus their efforts and to deploy their limited resources on taxpayers and

transactions that pose the greatest risk of base erosion and profit shifting and should reduce any

unnecessary taxpayer compliance costs, including those which arise from unfocused or misdirected

audits. However, comprehensive documentation can be costly for the taxpayer, and finding the

right balance between the tax authorities’ needs and avoiding excessive and unnecessary

compliance costs is not always an easy task.

The outcome of Action 13 of the OECD/G20 BEPS initiative outlined a standardized approach

to transfer pricing documentation aimed at balancing compliance imperatives with

compliance costs. The approach consists of three elements: a master file, containing information

on the overall multinational enterprise (MNE) group; a local file, containing specific information on

the local enterprise; and a Country-by-Country (CbC) Report, which describes the high-level

financial and economic position of the MNE group. This Toolkit takes the view that all three

elements are potentially beneficial for developing countries and focuses on the issues related to

the implementation of each of them. It should be noted that CbC reporting is one of the four BEPS

The process of the comparability analysis has been described in the Toolkit “Addressing Difficulties in Assessing

Comparable Data for Transfer Pricing Analysis”, http://www.oecd.org/tax/toolkit-on-comparability-and-mineral-

pricing.pdf. See also Section 3.5 of the UN Practical Manual on Transfer Pricing for Developing Countries (2017).

minimum standards, and that members of the OECD’s Inclusive Framework

commit to its

implementation, and to take part in the Inclusive Framework’s peer review process.

This Toolkit also describes additional approaches to documentation, including information

required in or to be filed along with the tax return (such as transfer pricing return schedules), and

other measures such as questionnaires.

In response to the call of G20 Leaders in November 2015, the OECD and G20 members established an Inclusive

Framework which allows interested countries and jurisdictions to work on an equal footing with OECD and G20

members on the implementation of the OECD/ G20 BEPS Package.

Membership of the Inclusive Framework builds on the existing OECD Committee on Fiscal Affairs, to include

interested countries and jurisdictions that commit to the comprehensive BEPS package and its consistent

implementation. They participate in the decision-making plenary body, as well as all of the technical working groups.

As of October 2020 there are over 135 members and 14 observer organisations. See the list of members and

observers of the Inclusive Framework at https://www.oecd.org/tax/beps/

PART I. INTRODUCTION

1.1 Introduction: Why a toolkit on implementing Transfer Pricing

documentation?

The relevance of transfer pricing to developing countries, together with the challenges faced

by low-capacity or inexperienced tax administrations, has been high on the regional and

global tax agenda in the last several years. The OECD/G20 Base Erosion and Profit Shifting (BEPS)

initiative brought the issue to the fore, and served to highlight the relevance to, and challenges

faced by, developing countries, which were specifically discussed in a two-part report to the G20

Development Working Group: ‘The Impact of BEPS on Low Income Countries’ (July and August

2014).

This is being followed up with a number of Toolkits developed by International

Organizations,

which are intended to support developing countries implement those anti-BEPS

measures that have most relevance to them.

Research using firm-level information and selected country experiences suggest that the

introduction of effective documentation obligations is a critical component of compliance

management strategies to address transfer mispricing. Since 1994 the number of countries

with transfer pricing documentation requirements has increased more than tenfold (see Figure 1

below), and this has been linked to a reduction in observable indicators of profit shifting,

possibly

related to better-targeted enforcement activities and self-compliance induced by the obligations

to revisit the related party dealings more systematically.

Figure 1 : Timeline of Effective Transfer Pricing Documentation Rules by number of

countries 1994–2014

OECD (2014), Two-part report to G20 Development Working Group on the impact of BEPS in Low Income

Countries 2014, OECD Publishing, Paris. //www.oecd.org/tax/tax-global/report-to-g20-dwg-on-the-impact-of-

beps-in-low-income-countries.pdf

IMF, OECD, UN, WBG

Cooper, Joel, Randall Fox, Jan Loeprick, and Komal Mohindra. 2016. Transfer Pricing and Developing Economies:

A Handbook for Policy Makers and Practitioners. Directions in Development. Washington, DC: World Bank.

doi:10.1596/978-1-4648- 0969-9. License: Creative Commons Attribution CC BY 3.0 IGO p.7; and Beer and Loeprick,

2015. ‘Profit Shifting Drivers of Transfer (Mis)Pricing and the Potential of Countermeasures’. International Tax and

Public Finance 22 (3): 426-51

100

1994-1997 1998-2000 2001-2002 2003-2004 2005-2007 2007-2011 2011-2014

Source: World Bank (2016), based on Oosterhoff, 2008 and PwC, 2014.

1.2 Structure of this Toolkit

This toolkit is intended to provide an analysis of policy options and a “source book” of

guidance and examples to assist low capacity countries in implementing efficient and

effective transfer pricing documentation regimes. Key points from these sources are

reproduced, for ease of reference.

This first part of the Toolkit provides information on the background, context and objectives of

transfer pricing documentation regimes. Part II then discusses a number of general policy options

and legislative approaches relevant to all types of documentation requirements.

Part III focuses more specifically on each kind of documentation in turn and examines the specific

policy choices that are relevant to each, as well as providing a number of examples of country

practices. This format inevitably involves some repetition; however, a reader interested in

implementing a particular type of documentation requirement can find all of the relevant

information in a single section.

The final part sets out a number of conclusions.

1.3 Scope

For the purposes of this Toolkit, the term ‘transfer pricing documentation’ comprises the

following:

1. Group level documentation. This category includes documents such as the master file and the

Country-by-Country (CbC) Report described in Action 13 of the OECD/G20 BEPS initiative (“BEPS

Action 13 Report”). Note that while there is a high degree of standardization of the CbC Report (as

it applies globally), countries have taken a variety of approaches on the implementation of the

master file.

2. Entity level documentation, generally comprising one or more of the following:

• The local file or similar (e.g. transfer pricing study), providing details of a local taxpayer’s

intragroup transactions, and a description of the transfer pricing analyses giving rise to the

selected method and comparables;

• A transfer pricing specific return or schedule, separate from the income tax return, that may

be required to be lodged periodically with the tax administration;

• Any schedule to the tax return i.e. one or more transfer pricing specific questions included

on a tax return or a schedule to the tax return; and

• Questionnaires issued by the tax authority on a regular or ad-hoc basis.

It should be noted that the term ‘transfer pricing documentation’ does not include business

documents or records such as invoices, contracts, communications etc., which might be used to

support or substantiate amounts of assessable income or deductible expenses. Typically, however,

tax administrations require taxpayers to keep this type of information and to submit specified items

during an audit. Legislation may stipulate the records that taxpayers are required to keep, and the

length of time they should be kept. For completeness and comparison purposes, this type of record

keeping requirement is briefly discussed at various points in this Toolkit.

Table 1 : Type and scope of transfer pricing documentation

Type of

Documentation

Group or local

entity

documentation

Entity submitting

document

Required by

legislation, and

enforced by

penalties

BEPS

minimum

standard

Transfer pricing

returns or

schedules

Local

Local taxpayer

Yes (where

applicable)

Local file

Local

Local taxpayer

Generally, yes

Master file

Group

Local taxpayer

Generally, yes

CbC Reports

Group

Depends on domestic

legal obligations. The

Action 13 standard

generally requires that

the report is submitted

by the ultimate parent

entity, or specified

surrogate entity, to that

entity’s tax jurisdiction.

In exceptional

circumstances it may be

required to be

submitted by the local

taxpayer.

Yes

Questionnaires

Local

Local entity

Generally, no,

but depends on

how framed

Further

information,

data and

documents

Local

Local entity

Generally, yes

The following table summarizes the different practices of a number of countries:

Table 2 : Country practices on transfer pricing documentation requirements

Local file or

similar

transfer

pricing

study

Master

file

CbC

Report

Transfer

pricing

return

Questions

in Tax

Returns

Questionnaires

or ad-hoc

requests

Argentina

Australia

Austria

Canada

Colombia

Czech Republic

Dominican Republic

Finland

Georgia

Latvia

Liberia

Lithuania

Mexico

Netherlands

Nigeria

Peru

Spain

Slovak Republic

Turkey

United States

Uruguay

Vietnam

The preparation of transfer pricing documentation is not compulsory, but taxpayers are recommended to do so

(with details of comparables and transfer pricing polices) to defend their position and to mitigate any administrative

penalties that may apply in the event the tax authority amends an assessment. Australia has an International

Dealings Schedule which includes questions on transfer pricing. It is not exclusively a transfer pricing return, but it

is a compulsory disclosure form that must be filed with the tax return. Questionnaires or other ad hoc requests for

information may arise during the course of an examination.

Canada has legislation in place for something similar to the local file – it is referred to as “contemporaneous

documentation” and it has been in place since 1999 (see Annex 2). With respect to the master file, Canada can

request a master file from a Canadian taxpayer based on certain provisions in their law.

3/ The master file and the local file constitute compulsory returns, which must be submitted electronically annually.

The general documentation requirements under United State law are not legally mandated, but as a practical

matter are voluntarily followed by taxpayers in the vast majority of cases because voluntary compliance is a

prerequisite for penalty protection.

It can be seen that there is no single approach to transfer pricing documentation

requirements, or combination of approaches, that is universally adopted. Furthermore, other

than for CbC reporting (which is a BEPS minimum standard) there is no internationally agreed form

and format of documentation. The OECD Transfer Pricing Guidelines,

the UN Practical Manual on

Transfer Pricing for Developing Countries

(UN Transfer Pricing Manual) and the World Bank

Transfer Pricing Handbook for Policy Makers and Practitioners

provide guidance at the level of

general principles, including specifying the types of information to be included in the

documentation, but do not attempt to prescribe documentation requirements in detail. Rather than

reproducing such guidance, this toolkit aims to help translate those principles into practically

administrable transfer pricing documentation regimes. See Part III.

1.4 Context and background of transfer pricing documentation

requirements

Guidance on transfer pricing documentation was first included in the OECD Transfer Pricing

Guidelines in 1995, following the introduction of documentation requirements in the United

States one year earlier. Since then, an increasing number of countries have adopted documentation

requirements (see Figure 1, above).

The proliferation of individual country documentation regimes resulted in a wide range of

differing requirements around the world, contributing to an increased compliance burden

for multinational enterprises. In response to this, a number of initiatives to coordinate country

transfer pricing documentation requirements have been undertaken, for instance by the Pacific

Association of Tax Administrators

in 2003, within the European Union

in 2006, and finally as part

of the OECD/G20 BEPS project in 2015.

The BEPS Action 13 Report required the development of transfer pricing documentation

rules that enhanced transparency for tax administrations while taking into consideration the

compliance costs for business.

As a result, a three-tiered, standardized approach, comprising a

local file, master file and, for large MNEs with world-wide group turnover of EUR 750 million or

See OECD (2017), “Documentation”, Chapter V in OECD Transfer Pricing Guidelines for Multinational Enterprises

and Tax Administrations 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/tpg-2017-en.

See UN (2017), “Documentation”, Section C.2 in Practical Manual on Transfer Pricing for Developing Countries

2017, UN Publishing, New York, http://www.un.org/esa/ffd/wp-content/uploads/2017/04/Manual-TP-2017.pdf.

Cooper, Joel, Randall Fox, Jan Loeprick, and Komal Mohindra. 2016

The Pacific Association of Tax Administrators (Australia, Canada, Japan and the United States) released

documentation principles to assist taxpayers in creating one set of documentation which would satisfy the

requirements of each of the PATA member countries. While application of the PATA requirements was voluntary

for taxpayers, the package included an exhaustive list of documents which was more comprehensive than the

requirements of any one of the member countries.

The EU Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the European Union,

agreed by the Council of the EU in June 2006, consisted of a common master file relevant to all EU group members

of a multinational enterprise (and had to be provided to all relevant EU member states), as well as standardised

country-specific documentation. Application of the Code of Conduct was optional for taxpayers.

See OECD (2013), “Action 13” in Action Plan on Base Erosion and Profit Shifting 2013, OECD Publishing, Paris, p.

23, http://dx.doi.org/10.1787/9789264202719-en

more, the CbC Report was developed and then incorporated into the OECD Transfer Pricing

Guidelines. A similar approach is taken in the UN Transfer Pricing Manual.

As has been noted above, only the CbC Report is a BEPS minimum standard. The BEPS Action 13

Report acknowledges that the specific content of the CbC Report template was the subject of

compromise by participating countries and its implementation will be reviewed no later than the

end of 2020.

As part of this review, aspects related to the scope and content of the CbC Report

may be modified.

The outcomes of the 2020 review are expected to be released in 2021.

1.5 Objectives of transfer pricing documentation requirements

Fundamentally, transfer pricing documentation enables taxpayers to demonstrate their

compliance (or attempt of compliance) with transfer pricing rules.

The BEPS Action 13 Report identifies three main objectives of transfer pricing

documentation requirements:

→ To ensure that taxpayers give appropriate consideration to transfer pricing requirements in

establishing prices and other conditions for transactions between associated enterprises and in

reporting the income derived from such transactions in their tax returns.

→ To provide tax administrations with the information necessary to conduct an informed transfer

pricing risk assessment and selection of cases for audit.

→ To provide tax administrations with information necessary to conduct a transfer pricing audit of

entities subject to tax in their jurisdiction.

As part of the process of complying with reporting obligations, taxpayers may also be

incentivized to focus attention on their transfer pricing arrangements and their compliance

with transfer pricing rules. Through preparation of transfer pricing documentation taxpayers can

place themselves in a better position to defend their transfer pricing policies in the event of an

audit by the tax authorities.

For tax administrations, requirements for contemporaneous transfer pricing documentation will

help to ensure the integrity of the taxpayer’s position.

In summary, requiring enterprises to document their transfer pricing positions could be

expected to enhance compliance.

OECD (2015), Transfer Pricing Documentation and Country-by-Country Reporting, Action 13 - 2015 Final Report,

OECD/G20 Base Erosion and Profit Shifting Project, OECD publishing, Paris, p.10,

http://dx.doi.org/10.1787/9789264241480-en;

In February 2020 the Inclusive Framework released the public consultation document: Review of Country-by-

Country Reporting. The document requested comments on all aspects of the BEPS Action 13 report, but specifically

invited comments on a number of questions concerning the scope and content of the CbC Reports. See at

https://www.oecd.org/tax/beps/public-consultation-document-review-country-by-country-reporting-beps-

action-13-march-2020.pdf

OECD (2017), Paragraph 5.7 in OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax

Administrations 2017, OECD Publishing, Paris.

While various types of documentation may serve a number of purposes, they generally

provide different types of information which can be particularly useful for different

purposes, for example:

→ For risk assessment purposes: Transfer pricing return schedules, CbC Reports and

questionnaires are primarily relevant for risk assessment purposes.

These tools can be

used in identifying taxpayers or transactions to be audited, or which may warrant further

investigation. They also provide auditors with early-stage indications of potential audit

issues.

→ For audit purposes: information contained in the local and the master files are a critical

source of information for tax auditors during an audit. They contain detailed information

needed by tax administrations to effectively verify whether the country’s transfer pricing

laws, including the arm’s length principle, are being complied with.

→ To encourage voluntary compliance: As noted above, all types of transfer pricing

documentation discussed in this Toolkit can also be expected to focus taxpayers’ attention

on their compliance responsibilities and thus enhance voluntary compliance.

1.6 Policy principles

Country requirements on the preparation and maintenance of transfer pricing

documentation should aim at the following objectives:

→ To be clear enough to provide some certainty to a taxpayer on how to demonstrate to the

tax administration that its transfer pricing is consistent with the country’s transfer pricing

rules.;

→ To provide the tax administration with the information they need in conducting risk

assessments, planning and conducting audits and testing the validity and reliability of the

transfer prices established by taxpayers;

and

→ To be balanced, so that reporting obligations fulfil tax administrations’ need for information

to be able to enforce the transfer pricing rules and at the same time avoid the imposition

of excessive documentation requirements on taxpayers. It is important that the costs to a

taxpayer of complying with these requirements are not disproportionately high relative to

the size and complexity of the controlled transactions in point, and the tax at risk. For this

reason, countries often provide exemptions or simplified documentation requirements for

smaller and low risk taxpayers or transactions.

Under the minimum standard in BEPS Action 13 Report, the CbC Report may be used only for risk assessment

purposes and for collection of data for statistical analyses.

Formal transfer pricing documentation may be supplemented by additional information requests made during

the course of an audit.

Ensuring international consistency

Both the OECD Transfer Pricing Guidelines and the UN Transfer Pricing Manual recognize

the advantages of consistent documentation rules to minimize transfer pricing compliance

burdens on taxpayers. International consistency and alignment of the content and format of

required documentation, for example, reduces the compliance costs of MNEs. This is particularly

relevant for the group level documentation referred to above. A standardized framework also

facilitates the sharing of experiences and good practices and it might also help to ease MAP APAs

and MAPs negotiations between countries.

As noted in the UN Transfer Pricing Manual, when considering the implementation of the BEPS

Action 13 documentation approach in developing economies, almost all MNE groups will likely be

required by at least one tax administration to prepare a master file; and MNE groups exceeding

the EUR 750 million annual global turnover threshold will also need to prepare a CbC Report.

Consequently, requiring these documents to be delivered to the local tax administration in a

developing country in a standard format should not impose disproportionate compliance burden

on a MNE group.

UN (2017), “Implementation of Global Documentation Standards in Developing Countries”, Paragraph C.2.2. 2.2

in Practical Manual on Transfer Pricing for Developing Countries 2017, UN Publishing, New York.

PART II. OPTIONS FOR COUNTRIES TO IMPLEMENT

TRANSFER PRICING DOCUMENTATION

This section discusses various policy considerations and options relevant to designing a

regime for transfer pricing documentation. These include:

1. The regulatory framework, through a combination of primary legislation, secondary

legislation and guidance;

2. Confidentiality of taxpayers’ documentation and information;

3. Timing issues concerning when documentation must be in place and when it is required to

be submitted to the tax administration;

4. Enforcement, including penalties and measures to assist and promote voluntary

compliance;

5. Dealing with access to information outside the jurisdiction; and

6. Simplification and exemptions.

These are discussed in turn below.

2.1 Regulatory framework

2.1.1 General considerations

Developing a transfer pricing documentation regime raises a number of questions, which

concern not only the type and combination of documentation requirements to be introduced but

also the type and level of legal instruments introducing such requirements. The balance between

primary and secondary legislation varies between countries. For example, some countries include

detailed specifications on, for example, the format and content of documentation in their primary

law. Others include only a general provision in primary law and detailed specifications in secondary

law or regulations.

The choice of regulatory approach refers to the different levels of law that will apply in

practice to institute a legal obligation. These are:

• Primary law, consisting of statutes or legislation;

• Secondary law, consisting of regulations and procedures, executive orders and presidential

decrees, common law/case law, codes of conduct and policies;

• Supplementary guidance or statutory documents, including administrative procedures

such as ‘practice notes’ issued by the tax administration or Ministry of Finance;

Each of these elements fits into, or interacts with, the domestic legal system in different ways

depending on the country.

The starting point for all forms of transfer pricing documentation is a provision in the

primary law (e.g. tax code, tax statute or tax law), which may or may not be specific to transfer

pricing, and which is usually supplemented in secondary regulations.

In addition, countries often supplement these with administrative guidance. While such

guidance is not normally binding on taxpayers, it is in practice generally considered binding on the

tax administration. This means that care needs to be taken to ensure that guidance accords with

primary and secondary law, and government policy.

Countries follow different approaches when drafting legislation for transfer pricing

documentation requirements. Some countries adopt very brief language setting out the basic

principles in primary law and then elaborate those principles in secondary law and/or

supplementary guidance. In such cases, the primary legislation is typically intended to legislate

core taxpayer obligations and tax administration powers, which the secondary legislation builds on

with more comprehensive and detailed rules. Other countries have more extensive language in the

primary law leaving only few specific aspects for secondary law. In all cases, the primary law would

normally have a provision allowing the government, ministry or tax administration to introduce

and amend secondary law.

An advantage of establishing general principles in the primary law and more detailed specific

rules in subrogated or secondary law is the flexibility for future updates. Primary law usually

tends to be less flexible than secondary law and the process for its amendment requires more time

and approval steps from different government branches. By contrast, amendments to secondary

laws are usually primarily approved at government, ministry or tax administration level, and thus

offers greater flexibility.

It should be noted that the ability to receive CbC Reports filed with other tax jurisdictions

requires exchange of information instruments (e.g. treaties or membership of a multilateral

agreement), together with appropriate competent authority agreements, to be in place. (This is

discussed further in Section 3.4 below.)

2.1.2 Burden of proof

An important consideration for developing countries when devising transfer pricing regimes

is to define who bears the burden of proof. That is, who (either the taxpayer or the tax

administration) has to prove that the pricing is in accordance with the arm’s length principle.

Primary Legislation

Type: Laws (e.g. Corporate

Income Tax Act, Income Tax

Act, Tax Statute, Tax

Collection and Administration

Law)

Objective: establish the general

rules

Secondary Legislation

Types: Regulations and

Decrees

Objective: provide rules for the

implemetation and

interpretation of the tax

acts/laws

Supplementary Guidance

Type: Administrative

Procedures: Rulings, circulars,

instructions.

Objective: produce more

detailed rules for the

implementation and

interpretation of the primary

and secondary legislations

It is not always straightforward to determine how the burden of proof operates in different

jurisdictions and legal systems. It is often the case that when there is a self-assessment or similar

system requiring taxpayers to comply with the arm’s length principle, the burden of proof, in this

case that the measure of profit filed in a tax return accords with the arm’s length principle, is placed

on the taxpayer. In such cases, there should be a general provision requiring the taxpayer to keep

documentation to that effect in support of the tax return, and one of the purposes of such

documentation is to provide the taxpayer with the means of demonstrating that, in the taxpayer’s

opinion, it has made a correct return and fulfilled that burden. If the tax administration then

chooses to audit the tax return, in many instances, the burden of proof in relation to any adjustment

to profit is shifted to the tax administration. If the transfer pricing documentation fails to meet the

legal requirements, however, the tax administration may contend that the initial burden of proof

remains with the taxpayer. An example of an option to legislate this approach is illustrated in the

sample legislation at Annex 1.

In some countries however, the transfer pricing rules may be interpreted to allow the tax

administration to adjust taxable profit if needed to enforce the arm’s length principle, but

not to require the taxpayer to return an arm’s length measure of taxable profit

. In such cases, the

burden of proof lies with the tax administration and general documentation requirements within

the tax code may not apply to transfer pricing.

Where the tax administration holds the burden of proof and there are no, or only very

limited, requirements for taxpayers to provide transfer pricing documentation, a perverse

incentive can be created whereby taxpayers are effectively encouraged not to provide information

that would be needed by the tax administration to undertake and support a transfer pricing analysis

that could result in amendments to the taxpayer’s returns. In such cases, it is essential that adequate

penalty-backed information powers are in place to allow the tax administration to conduct a

comprehensive and effective audit.

According to country practices, the burden of proof:

• Could be defined in the law: this is generally contained in the primary law and applicable

in the ordinary course of the tax administration examination process, i.e. the provision is

not necessarily exclusive to transfer pricing. The stipulated burden of proof could be placed

on the taxpayer, the tax administration or split between them (See example on Spain

below).

• Could be placed on taxpayers, through the specific documentation requirements. It is

generally the case that when domestic legislation requires taxpayers to prepare, maintain

and/ or submit transfer pricing documentation the burden of proof lies with the taxpayer

(e.g. Argentina and Mexico).

Where the burden of proof lies with the taxpayer, it is helpful for countries to provide

guidance on how taxpayers should satisfy this requirement.

This is, the law may not be self-executing and while it may provide the tax administration with the power to make

an adjustment, it may not technically require anything of the taxpayer.

Box 1 : Example of countries’ provisions on the burden of proof

In Spain,

the tax law provides that:

1. In tax proceedings, the constituent facts of a right must be proved by the party seeking

to exercise that right.

2. The taxpayers will fulfil their duty of proof if they provide specific evidence to the tax

administration.

More specifically, specific transfer pricing provisions in Spain’s tax law states

that, in order to

justify that controlled transactions are valued according to the arm´s length principle, associated

entities should maintain at the disposal of the Tax Administration the transfer pricing

documentation. So, the burden of proof in relation to transfer pricing transactions is placed

primarily on taxpayers. However, if the Tax Administration disagrees with the valuation derived

from the documentation included in the tax return, the Tax Administration must prove its position.

2.2 Confidentiality

In most countries, taxpayer-specific information provided to the tax administration must,

by law, be kept confidential except where specifically provided for (e.g. specific disclosures,

disclosures to a court of law).

Confidentiality of taxpayer information is a fundamental tenet of most tax systems.

Confidentiality is likely to be a particularly important issue in relation to transfer pricing

documentation which may contain commercially sensitive material. In order to have confidence in

their tax system and comply with their obligations under the law, taxpayers need to have

confidence that such commercially sensitive information is not disclosed inappropriately. Ensuring

confidentiality of sensitive taxpayer information requires a legal framework as well as systems and

procedures to ensure that the legal framework is respected in practice and that there is no

unauthorized disclosure of information.

Confidentiality requirements would apply to transfer pricing documentation in the same way

that they apply to other information provided by a taxpayer to the tax administration, and

taxpayers should be assured that the information presented in transfer pricing documentation will

remain confidential, except as may be provided for by law. Further, confidentiality requirements

specified in BEPS Action 13 Report relating to CbC Reports form an element of the BEPS minimum

“Ley 58/2003 General Tributaria” [General Tax Law], Article 105. At: https://www.boe.es/buscar/act.php?id=BOE-

A-2003-23186

“Ley 27/2014, de 27 de noviembre, del Impuesto sobre Sociedades” [Corporate Income Tax Law], Article 18.3. At:

https://www.boe.es/buscar/act.php?id=BOE-A-2014-12328

OECD (2012), Keeping It Safe: The OECD Guide on the Protection of Confidentiality of Information Exchanged for

Tax Purposes, OECD, Paris. http://www.oecd.org/ctp/exchange-of-tax-information/keeping-it-safe.htm

standards, which are subject to peer review under the BEPS Inclusive Framework process. (This is

discussed further in Section 3.4 below).

Section D.8 of the BEPS Action 13 Report encourages tax administrations to take all

reasonable steps to ensure that there is no public disclosure of confidential information

(trade secrets, scientific secrets, etc.) and other commercially sensitive information that will be part

of transfer pricing documentation. A relatively small number of countries including Australia

Finland, Norway and Sweden provide for public disclosure of certain tax return data in relation to

(large) corporations. In most cases, only high-level tax data is made available, e.g. total taxable

income and taxes paid, rather than detailed disclosures or breakdowns of income and expenses.

Many civil society organizations (NGOs) and political observers have called for public disclosure of

CbC Reports. The issue of public disclosure was addressed, and broadly rejected, in the final report

of BEPS Action 13.

The European Commission’s current proposal for a directive on corporate tax transparency, if

agreed, would require MNE groups to publish a yearly report on profits and tax paid in each country

where they are active in a business register.

2.3 Timing Issues

A number of timing issues arise in the context of transfer pricing documentation regimes:

• When the taxpayer is required to have specified information in place;

• When the taxpayer is required to submit specified information to the tax administration;

• The length of time that records need to be kept.

Country information requirements - and associated penalty provisions - need to be tailored

to domestic rules concerning time limits for, for example, conducting an audit. Some countries

may have less time to review transfer pricing documentation, perform risk assessment and

complete an audit and, therefore, would need information to be provided within a shorter

timeframe.

Timing and submission requirements may vary depending on the type of documentation,

reflecting their different purposes. For instance, high level information for risk assessment would

be most useful if filed regularly; other, more detailed information may be best kept by the taxpayer

and made available on request. Typical scenarios are summarized below. The next section discusses

in more detail these options for each type of transfer pricing documentation, i.e. master file, local

file, CbC Report, transfer pricing returns and transfer pricing questionnaires.

Australia requires the disclosure of total income, taxable income and income tax payable amounts for large

corporate entities that meet the eligibility criteria. This requirement is enshrined in legislation.

This proposal (commonly known as Public country-by-country reporting), should be distinguished from the

existing and adopted Council Directive (EU) 2016/881 that requires the MNEs with more than EUR 750 million

consolidated group revenue per fiscal year that are either established or with a permanent establishment in any of

the EU Member States to file a CbC Report to the tax authorities of a given Member State.

Table 3 : Timing and submission of transfer pricing documentation

Type of

Documentation

When taxpayer is

required to have in

place

When the tax

administration may

request

When taxpayer is

required to submit to

the tax administration

Transfer

pricing annual

returns or

schedules

Normally by time of

filing annual tax

returns.

N/A – normally

required by specified

filing date.

Normally required to be

submitted with, or as part

of, the annual tax return.

Local file

Either

contemporaneous to

the transaction or

time of filing return

or combination.

At any time after filing

tax return, typically

during an audit. In

some cases, the local

file must be submitted

annually to the tax

administration.

Within a specified time

following request, or in

some cases, submitted

with, or as part of, the

annual tax return.

Master file

Either

contemporaneous to

the transaction or

time of filing or

combination

At any time after filing

tax return, typically

during an audit. In

some cases, the master

file must be submitted

annually to the tax

administration.

Within a specified time

following request, or in

some cases, submitted

with, or as part of, the

annual tax return.

CbC Reports

By filing date.

N/A – normally

required by a specified

filing date.

Normally specified filing

date.

Questionnaires

N/A

At any time after filing

tax return, typically

during an audit.

As requested by the tax

administration or at a

time agreed upon with

the taxpayer. (Such

requirements are often

informal).

Further

information,

data and

documents

Depends on

legislation relating to

information powers.

Normally at any time

during the course of an

audit.

Within a specified time

following request.

some countries allow local subsidiary entities to lodge the master file in line with the fiscal year of their foreign

parent / filing entity of the group. See discussion in Section 3.3.

2.4 Penalties and compliance incentives

As transfer pricing documentation is vital for the enforcement of transfer pricing rules,

effective penalties are essential. Some penalties may be applied for failing to provide required

documentation, others may be tied to transfer pricing adjustments and, in other cases, failure to

fulfil documentation requirements may lead to a higher penalty in relation to a transfer pricing

adjustment. Generally, omissions and misinformation should be subject to penalties and the

penalty should be sufficient to dissuade taxpayers from not complying with their obligations.

A penalty should be proportionate to the gravity of the infringement, for instance, by taking into

account the level of culpability of the taxpayer and the level of harm, including tax lost, caused by

the non-compliance. Penalties should allow for mitigating circumstances.

A summary of approaches to penalties on transfer pricing documentation is shown in Table 4.

These are discussed further in Part III.

Penalties relating to transfer pricing documentation may rely on a specific regime or on

general documentation or record keeping rules that are not specific to transfer pricing. In

the latter case, the general rules are most likely to be found in the primary legislation, and then

elaborated for transfer pricing purposes in regulations or guidance.

Table 4 : Penalty and compliance incentive approaches

Type of

Documentation

Penalty conditions

Possible approaches to

penalty

Based on specific

or general penalty

provisions

Transfer

pricing annual

returns or

schedules

a) Failure to file a return

by a required date.

b) Submission of an

incomplete return.

c) Making an incorrect

return.

For a) and b) a penalty

may be determined

according to the delay in

filing a complete return,

computed by reference

to a sum per day

between a) the due date

and b) the submission of

a complete return.

For c) a penalty may be

based on a fixed sum,

and/or the amount of

any subsequent

adjustment to taxable

income or tax payable.

In cases where the

transfer pricing

return is part of the

annual tax return,

the penalty may be

linked to that in

place for failure to

file a return or a

complete return, or

for filing an

incorrect return.

In other cases, a

specific penalty

may be required.

For further discussion on policy design of penalties see Waerzeggers, Christophe, Cory Hillier, and Irving Aw,

2019, “Designing Interest and Tax Penalty Regimes”, Tax Law IMF Technical Note 1/2019, IMF Legal Department

Transfer

pricing studies

(master file or

local file)

a) Failure to maintain

adequate documentation

at a specified date.

b) Failure to submit

adequate documentation

upon request or by a

specified date.

c) Submission of incorrect

documentation.

Penalties may be:

i. a fixed sum

ii. based on any

subsequent adjustment

to taxable income

iii. based on any

subsequent adjustment

to tax payable.

Alternatively, for b) the

penalty may be

determined according to

the delay in making a

complete submission,

computed by reference

to a sum per day

between a) the due date

for submission and b) the

submission of a complete

transfer pricing study.

The penalty may be

based on either a

general penalty

regime, or specific

penalty provisions

contained in the

transfer pricing

rules.

CbC Reports

a) Penalty for failure to

submit a complete CbC

Report by a specified

date.

b) Penalty for making an

incorrect CbC Report.

For a) penalty may be

determined according to

the delay in making a

complete submission,

computed by reference

to a sum per day

between (i) the due date

for submission and (ii)

the submission of a

complete CbC Report.

For b) a penalty may be

based on a fixed sum,

and/or on the value of

the consolidated MNE

revenue.

In both cases, the

penalty may be

based on either a

general penalty

regime, or specific

penalty provisions

contained in the

transfer pricing

rules.

Questionnaires

In most cases, a questionnaire will be non-statutory, and thus may not be

subject to penalties. Some questionnaires will be purely of an advisory nature

and/or used for risk assessment. However, a failure to comply with valid

requests for information during an audit may impact on penalties which are

applied to transfer pricing adjustments, which may take account of, for

example, whether the taxpayer will be regarded as having co-operated or

obstructed the tax administration, or whether the taxpayer’s position is

assessed as being ‘reasonably arguable’.

Further

information,

data and

documents

a) Penalty for failure to

submit complete

information by the due

date.

For a) a penalty may be

determined according to

the delay in making a

complete submission,

computed by reference

In both cases, the

penalty is most

likely to be based

on either a general

penalty regime, or

requested

during an audit

b) Penalty for supplying

incorrect information

to a sum per day

between (i) the due date

for submission and (ii)

the submission of

complete information as

requested.

For b) a penalty may be

based on a fixed sum,

and/or the amount of

any subsequent

adjustment to taxable

income or tax payable.

specific penalty

provisions

contained in the

transfer pricing

rules.

Relationship with burden of proof

Another way to encourage taxpayers to fulfil transfer pricing documentation requirements

is to design compliance incentives in the form of a shift in the burden of proof. In this case,

where the initial burden of proof lies with a taxpayer, it may be shifted to the tax administration if

the taxpayer complies with the transfer pricing documentation requirements. This approach, which

is illustrated in Paragraph 3 of the illustrative transfer pricing documentation legislation in Annex

1, is most appropriate in respect of contemporaneous transfer pricing studies such as a the local

and master file.

Likewise, where the initial burden of proof may be with the tax authorities, a failure to adhere to

transfer pricing documentation requirements may lead to shifting the burden of proof to the

taxpayer.

2.5 Accessing documents held outside the jurisdiction

Some countries report that MNE group subsidiaries or permanent establishments in their

jurisdiction sometimes contend that they do not have access to information held by the

group outside the jurisdiction. As a result, they argue that they are unable to make certain

information available to the tax administration. This issue will involve information held by foreign

parent, head office or sister companies. It should not affect information held by foreign subsidiaries

of a locally headquartered company – in such cases, the local company will normally have the

power to require its subsidiaries or branches to submit information and data to them.

This issue potentially affects the different categories of documentation to different extents.

1. Transfer pricing studies

and transfer pricing return schedules are required to be

submitted under domestic rules and, typically, penalties will apply for a failure to submit them.

Despite this, developing countries report that MNEs exceptionally contend that they do not have

access to sufficient information to be able to submit complete schedules or transfer pricing studies.

For those countries that adopt the BEPS Action 13 approach to transfer pricing documentation, the

The term transfer pricing study includes the ‘local file’ and the ‘master file’ described in the BEPS Action 13 Report.

issue is likely to affect the master file (which provides a global analysis, and will normally be

prepared by the ultimate parent entity (UPE)) more so than the local file (which provides an analysis

of intercompany transactions affecting the domestic taxpayer).

Such contentions should be resisted:

- The information required in these types of documentation is necessary in order to establish

that the price and other conditions of transactions within the scope of the transfer pricing

rules have been determined in accordance with the arm’s length principle. If the local entity

does not have access to this information, then it follows that said entity has not been able

to establish the arm’s length nature of transfer prices applied and thus that it has made a

correct tax return in accordance with the domestic rules.

- MNE groups are increasingly integrated organizations, with regional or global

management structures and supply chains. This means that it is increasingly unlikely that

local entities will be denied access to information concerning the wider operations.

It is important that penalties for failure to provide this information are sufficiently robust, and

effectively applied, to ensure that such information is submitted locally. An additional option may

be to apply measures such as those described in Section 3.3.5 (1), which involves shifting the

burden of proof to the taxpayer.

2. In the cases where CbC Reports are required to be filed locally, as described in Section

3.4.2, the local entity could contend that it does not have access to the report. Therefore, it

will be important that penalties for failure to provide the report are sufficiently robust and

effectively applied to ensure that they are submitted locally.

3. A request to foreign affiliates of the local taxpayer to return questionnaires will often

be informal and unenforceable in law. In such cases, there will be little scope for the tax

administration to enforce submission. In some countries, the law may provide that where a taxpayer

has not provided such information when requested, they cannot later rely on the same information

in a court of law. Where the tax administration is unable to compel a taxpayer to provide such

information, a request under exchange of information provisions may be possible. This will depend,

however, on whether the information requested falls within the scope of exchange of information

provisions.

4. Information required by auditors during the course of an audit may include

information that can legitimately be contended by the tax administration should be

available, or made available, to the local entity. However, there may also be information that is

Article 26.1 of the OECD Model Tax Convention on Income and on Capital as well as Article 26.1 of the UN Model

Double Taxation Convention between Developing and Developed Countries allow exchange of information that is

‘foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of

domestic laws concerning taxes of every kind…’

See also Chapter III, Section I, on Exchange of Information in OECD/Council of Europe (2011), The Multilateral

Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing,

Paris, https://doi.org/10.1787/9789264115606-en.

genuinely not available to a local entity – for example submissions made by a foreign related entity

to its tax administration. In such cases, exchange of information processes may be appropriate.

It is further noted that tax authorities should request only information that is relevant and

reasonable.

2.6 Simplification and exemptions.

The costs of compliance with transfer pricing rules can be very significant for taxpayers. It is

important that measures are taken to avoid unnecessary or disproportionally high compliance

costs when designing a transfer pricing documentation regime. This is recognized in the UN

Transfer Pricing Manual, in relation particularly for small and medium-sized enterprises (SMEs) that

engage in cross-border related transactions.

Many countries address this concern by simplifying

the transfer pricing documentation rules for smaller or lower risk taxpayers (e.g. entities with only

limited related party transactions). Alternatively, countries may exempt such taxpayers from the

documentation rules (but not transfer pricing rules). In such cases, the exemption would not cover

a requirement, under general information powers, to submit information about cross-border

transactions during the course of an audit. Approaches to this are summarized in the table below.

These are discussed further in Part III.

Table 5 : Simplification and exemptions

Type of Documentation

Possible simplification or exemption measures

Transfer pricing annual

returns or schedules

1. Exemption for smaller or low risk taxpayers

2. Simplified return schedule for smaller taxpayers

3. Exemptions from disclosure of transactions below a certain

value

Local file

1. Exemption for smaller or low risk taxpayers

2. Exemptions for taxpayers belonging to a group whose

consolidated turnover is less than a certain amount

3. Exemption for taxpayers within the scope of a safe harbour

or for transactions covered by an APA

4. Simplified documentation requirements for smaller

taxpayers

Master file

Exemption or simplification for taxpayers belonging to a group

whose consolidated turnover is less than a certain amount

CbC Reports

Exemption for MNE groups with a global consolidated revenue

of less than EUR 750 million

Again, the request must be within the scope of the exchange of information instrument. See Footnote 15, above.

See UN (2017), “Documentation”, Section C.2.4.4.1 in Practical Manual on Transfer Pricing for Developing

Countries 2017, UN Publishing, New York, http://www.un.org/esa/ffd/wp-content/uploads/2017/04/Manual-TP-

2017.pdf.

This criterion is specified in BEPS Action 13, and forms part of the minimum standards on BEPS Action 13.

Questionnaires

As these are generally non-statutory, tax administrations may

choose to issue these to the larger or higher risk taxpayers

only

Further information, data

and documents

Such information is requested by the tax administration during

an audit – statutory exemptions are therefore not relevant

These measures require the term ‘smaller taxpayer’ or ‘low risk taxpayer’ to be defined. There are

several possibilities:

- Existing definitions of small or medium enterprises. Where such a definition is used,

exemptions may be denied to taxpayers undertaking higher risk transactions – for example

a taxpayer that conducts one or more transactions with an entity in a low tax jurisdiction;

- By reference to the value of the related party transactions. This may be problematic if the

taxpayer undervalues related party transactions;

- By reference to the proportion of the value of related party transactions to third party non-

related transactions. This may be problematic if the taxpayer undervalues related party

transactions;

- By exemption for purely domestic transactions between local related entities, where both

parties to the transactions are subject to the same taxation regime and rate of taxation.

Countries need to tailor definitions of ‘smaller taxpayer’ or ‘low risk taxpayer’ to the context of their

specific markets.

Where feasible, regional alignment of simplifications and exemptions might be considered. Such

consistency would help to prevent harmful tax competition between countries.

PART III. SPECIFIC DOCUMENTATION ELEMENTS

3.1 Introduction

This part will look in more detail at each of the categories of transfer pricing documentation

discussed in Part II, i.e. transfer pricing returns, transfer pricing studies (including the master and

local files described in the BEPS Action 13 Report), CbC Reports and questionnaires. It provides

some examples of country approaches.

3.2 Transfer pricing returns

A transfer pricing return is a specified set of information concerning transfer pricing that

affected taxpayers must periodically submit to the tax administration, typically annually.

This information may be submitted with the annual income tax return, or in a schedule generally

lodged at the same time as the return. The taxpayer is required to disclose, in a standardized

format, information relating to its transactions with related parties. This is in addition to other

transfer pricing documentation requirements.

A transfer pricing return contains information on related-party transactions. This generally

includes, at minimum, a list of related party transactions and the countries in which the

counterparties are resident.

3.2.1 Functions of transfer pricing returns

The transfer pricing return serves several purposes, including:

1. Risk assessment and case selection. The information it provides can be used to:

‒ Identify and analyze risks at a macro level. For example, risks arising from a category of

transactions or by sector;

‒ Identify taxpayers that present a high risk to the revenue, including as a part of an audit

case-selection process;

‒ Identify specific transactions to be followed up in the context of an audit.

A transfer pricing return is very unlikely to provide sufficient information to conduct an audit

and to decide on the arm’s length nature of transactions. It is normally viewed as a tool for use

in the first step of an audit process – the selection of cases for audit, and identification of specific

issues to follow up in an audit.

The information provided in transfer pricing returns is usually in a tabular format consisting

mainly of quantitative information, which may make it suitable to be prepared in electronic

format. Where a tax administration has the resources, electronic submission using automated

processes enables analysis of mass information using techniques such as data mining and data

matching.

2. Transfer pricing returns can promote positive MNE behavioral changes and assist in

the creation of a compliance culture. The requirement to submit data as part of, or as a

supplement to, a tax return, is likely to raise awareness of the need to consider transfer pricing and

focus attention on the responsibility to comply with transfer pricing rules.

In the design of this type of form, care should be taken not to request information that

would be overly burdensome for taxpayers by requiring more information than is needed

for risk assessment purposes, or information already in the possession of the tax administration

by other means. Simplicity, non-duplication and standardization might usefully be the governing

principles of disclosure forms and specific transfer pricing returns.

If disclosure forms are to be used, tax authorities may want to consider the extent to which

these can follow a consistent regional format. A regional approach may have the potential to

be beneficial to both taxpayers and tax administrations. These include:

a. The capacity to improve investment climate. Taxpayer compliance costs will be reduced

if countries apply similar formats in their documentation requirements.

b. Prevention of ‘tax competition’. A non-aligned application of transfer pricing rules has

the potential to create tax competition between countries. For example, non-application,

or preferential application, of documentation rules, could create intended or unintended

incentives to inwards investment.

c. Alignment and co-operation between countries can also establish ‘best practice’

approaches and create opportunities for cooperation and mutual support in policy

development, legislation, administration and skills-building.

3.2.2 Format and content

The format and content of the transfer pricing return varies among countries. For simplicity,

these may be classified into two main types:

Disclosure by means of a specific standardized form that is not part of an annual tax return.

Examples of countries following this approach include: Argentina, Canada, Colombia, Dominican

Republic, Finland, Liberia, Mexico, Nigeria, and the United States.

Disclosures that form part of the annual tax return. In such cases, transfer pricing specific

questions are included on a tax return or a schedule to the return. For instance, Australia, Lithuania,

For example, transfer pricing audit programs in Colombia are designed using statistical, logarithmic and risk score

procedures to select the best possible audit cases, depending on risk assessment variables and tax evasion

hypotheses. Data from the transfer pricing return is entered into the DIAN database and, combined with information

in the Income Tax Return, is used to screen taxpayers for international audits.

Czech Republic, the Netherlands, Slovak Republic, and Spain require disclosure of transfer pricing

transactions in the tax return.

Box 2: Example - Requiring taxpayers to respond one or more transfer pricing specific

questions included on a tax return.

The Netherlands - The questions asked in a tax return can change year by year. Example

questions included in 2016 returns included whether a business restructuring occurred and

whether the entity falls within the scope of the requirement to prepare a local file (which in the

Netherlands is only required to MNE group with consolidated group revenue of at least EUR 50

million). There are also other questions which have a link to transfer pricing rather than being

transfer pricing specific questions (for example whether the entity is engaged in group financing

activities).

As a minimum, countries typically require taxpayers to report whether they have entered

into cross-border controlled transactions to provide identity information and country of

residence of the foreign related parties, the monetary amounts of the transactions and pricing

methodology applied. However, some countries request much more detailed information (e.g.

Mexico, Dominican Republic).

Information commonly requested in such returns include:

→ Identity information of the taxpayer

→ Identification of foreign related parties with which the resident taxpayer has transactions

→ Country of residence of the related parties

→ Nature of the transaction (e.g. provision of services, sale of goods, financial transactions

(i.e. loans, financial guarantees, hedging, etc.))

→ Monetary amount of the transaction

→ Arm’s length value of the transaction

→ Quantity of units covered by the transaction

→ Transfer pricing method used

→ Type of comparable used (external or internal)

→ Whether the application of the method results in any adjustment to taxable income (e.g.

year-end adjustment).

Disclosure of transactions subject to a safe harbor or an APA are also generally required.

Examples of country returns are provided in Annex 3.

3.2.3 Submission mechanism

Many tax administrations have made significant efforts and investment in automating filing

and management of tax returns and other taxpayer information; for example, through online

filing platforms. The advantage of the online filing of tax returns and other tax information is that

it allows tax administrations ready access to documentation for risk assessment and audit purposes

and reduces the number of documents required to be stored, maintained and secured. Digitalized

information can also be searched and accessed more effectively. Taxpayers also benefit from filing

and retaining tax documents more easily by using online filing platforms.

Some electronic formats that can be used include:

→ Electronic transmission format (e.g. XML Schemas, Web Services). The tax administration

develops and makes available to taxpayers the parameters and specifications for creating the file.

The relevant file should then be submitted electronically through Internet file transfer. A pre-

validator (i.e. an automated validation check) is provided in the format and contributes to verifying

the information prior to its submission. Electronic transmissions are recommended especially for big

files. Some countries that allow electronic transmission of transfer pricing returns are Australia,

Colombia and the Dominican Republic.

→ Web forms. Web forms or HTML forms on the tax administration web page allow taxpayers to enter

data that is sent to a server for processing. Forms can resemble paper or database forms where web

users fill out the forms using checkboxes or text fields. These forms are not recommended for high

volumes of data as it could be burdensome for taxpayers to fill in, for example, detailed information

on a significant number of transactions. Web forms may have validation checks included for accuracy

of information.

→ PDF fillable/saveable forms. Once completed the file in the form of a Portable Document Format

(PDF), the file can be submitted electronically to the tax administration. In particular, PDF fillable

forms may be suitable for small files. This type of format is easy to devise and use but has fewer in-

built mechanisms to detect errors. An example of a country that allows filing electronically transfer

pricing returns in PDF fillable forms is Canada.

To assist taxpayers and to ensure consistency and accuracy of the information provided, guidance

for completing the forms is generally provided by tax administrations.

3.2.4 Regulatory framework

The submission of a transfer pricing return is typically mandatory for affected taxpayers. The

scope, format and content of regulations vary from country to country. The most common practice

is to establish the general obligation in the primary law and provide more detailed, specific rules

through the secondary law or supplementary guidance.

Secondary law and supplementary guidance can be very detailed. For example, some

countries’ rules provide detailed specifications on, for example, the process of documentation

submissions, the forms to be completed, and required information technology systems and

formats. Examples of such rules are contained in the box below.

Canada’s instructions on how to prepare transfer pricing returns can be consulted here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/about-forms-publications.html#h1.

See also Section 2.1.1

Box 3 : Examples of rules on transfer pricing returns

1. Colombia – (unofficial English translation)

Extract from Primary law

Article 260-9. Duty to submit an Information Return.

Taxpayers of income tax and complementary taxes, bound to apply the rules governing the

transfer pricing system, whose gross assets on the last day of the taxation year or period are

equal to or greater than the equivalent of one hundred thousand (100,000) Tax Units (“TU”),

whose gross income for the respective year is equal to or greater than sixty-one thousand

(61,000) Tax Units, who enter into transactions with related parties pursuant to Articles 260-1

and 260-2 of this Statute shall annually submit an Information Return for the transactions carried

out with said related parties.

Extract from RESOLUTION NUMBER 000065 from 18 JUNE 2020

ARTICLE 3. Information to be provided by taxpayers obliged to file the Transfer Pricing

Information Return – Form 120.

Pursuant to Article 1 of Resolution 000019 of March 10, 2020, the information to be filed for the

2019 taxation year or part of the 2020 taxation year referred to in Sheet 2 of Form 120 "Transfer

Pricing Information Return", which must be filed in Form 1125, is the following:

Form 1125. Transactions with foreign related parties, located in free trade zones or with

persons, companies, entities or companies located, residing or domiciled in tax havens –

Transfer Pricing Return – Sheet 2.

• Type of document

• Tax identification number

• First surname

• Second surname

• First name

• Other names

• Company name

• Relationship

• Type of operation

• Country code

• City

• Nature of the transaction

• Amount of the transaction

• Cost/Expense deduction (from the tax return)

• Amount of principal

• Balance of principal

• Method used

• Profitability indicator of the transaction

• Unadjusted margin or price – (Positive or negative)

• Adjusted margin or price – (Positive or negative)

• Value of the comparable

• Global or segmented data

• Type of adjustment

• Type of range

• Positive/negative minimum value or lower limit

• Positive/negative median

• Positive/negative maximum value or upper limit

• Tested party

• Amount of primary adjustment

• Restructuring

• Cost-sharing agreements

2. India

Section 92E of the Income-tax Act, 1961 requires that every person who has entered into an

international transaction with an associated enterprise must obtain a report from an accountant

which must be furnished to the tax authorities before a specified date.

The report, which must be made in Form 3CEB, requires disclosure of information related to the

international transactions that the taxpayer has entered into with its associated enterprises. Form

3CEB requires comprehensive information that has some overlap with the requirements of a

local file. It requires details, for example, of the nature of the international transaction, the related

party’s name and location, amount involved, and the transfer pricing method adopted for

justifying the transfer price. Additional details can be submitted by way of annexes.

The report must be signed and verified by the accountant.

A description of the Section 92E requirement, and a copy of the Form 3CEB, may be found in

Annex 3.

3.2.5 Timing issues

Transfer pricing returns are usually a standardized form to be submitted to the tax

administration within a defined period of time. Where the transfer pricing return is part of a tax

return, the deadline for submission will correspond to that of the tax return itself. In cases where

the transfer pricing return does not constitute part of the tax return, the deadline could be different.

In fiscal year 2017, the 1 TU = COP 31.859 (EUR 11.20 approx.)

Table 6 : Country practices

Country

Filing date

Argentina

No later than six months after the year-end (the income tax return

is due five months after the year-end)

Canada

By the filing date for the annual tax return

Colombia

Filing dates are established annually by regulation. These dates fall

three or four months after the filing date of the Income Tax Return

Dominican Republic

No later than 180 days following the end of the fiscal year

Finland

By the filing date for the annual tax return

Liberia

By the filing date for the annual tax return

Lithuania

By the filing date for the annual tax return

Mexico

By the filing date for the annual tax return

Nigeria

At the time of filing the company’s annual returns. i.e. within 6

months of end of the company’s accounting year-end

Uruguay

No later than nine months after the end of the fiscal year (the

income tax return is due four months after the fiscal year end)

3.2.6 Enforcement

Penalties may result from failure to file returns at all, late filing (filing after the due date),

providing false information or omission of relevant information. These penalties could be

specific to the requirement or could be linked to a more general obligation in the law (e.g. non-

filing of tax returns i.e. when transfer pricing disclosure is contained or appended to the tax return).

The table below details some countries’ penalties practices for non-compliance with the obligation

to prepare specific transfer pricing returns.

Unlike the requirement to have contemporaneous transfer pricing documentation, or to file a

transfer pricing study, the filing of transfer pricing returns usually does not protect against transfer

pricing penalties, nor does it generally alter which party bears the burden of proof.

Table 7 : Country practices on penalties related to non-filing or late filing of transfer

pricing returns

Country

Penalties

Argentina

For non-filing or late filing of transfer pricing return, the taxpayer may be fined

ARS 10 000 (~ EUR 102) up to ARS 20 000 (~ EUR 210).

In addition to the penalties above, where the Federal Tax Authority has served a

demand to file the transfer pricing return, a penalty of ARS 45 000 (~ EUR 460) is

imposed, for each failure to comply. In the case of taxpayers with gross revenue

above ARS 10 million (~ EUR 10 244) after a third demand to file, an additional

penalty of up to ARS 450 000 (~ EUR 4 600) may be imposed.

Further, if an omission is detected, the taxpayer will fall within an increased category

of risk of being monitored.

Canada

Late Filing – A late filing penalty or multiple late filing penalties for more than one

T106 Slip may be assessed under subsection 162(7) of the Income Tax Act where

T106 documentation is filed after the due date. The penalty is equal to the greater

of CAD 100, and CAD 25 per day (~ EUR 65 and EUR 16 respectively) as long as the

failure to file continues, to a maximum of 100 days.

Failure to file – A failure to file penalty may be assessed under subsection 162(10)

of the Income Tax Act where reporting persons or partnerships knowingly, or under

circumstances amounting to gross negligence, fail to file or fail to comply with a

request by the Canada Revenue Agency (CRA) for T106 documentation. The

minimum penalty is CAD 500 (~ EUR 320) per month, to a maximum of CAD 12,000

(~ EUR 7 750) for each failure to comply. Where the CRA has served a demand to

file T106 documentation, the minimum penalty is CAD 1,000 (~ EUR 645) per

month, to a maximum of CAD 24,000 (~ EUR 15 500) for each failure to comply.

False statement or omission – A false statement or omissions penalty may be

assessed under subsection 163(2.4) of the Income Tax Act where information

provided on the T106 Summary or Slip is incomplete or incorrect, the penalty is

CAD 24 000 (~ EUR 15 500).

Colombia

Late filing — within five days after the deadline - 0.02% of the total value of the

transactions carried out with related parties, limited to 313 Tax Units (~EUR 3 030).

After five days – 0.1% of the total value of the transactions carried out with related

parties, for each month or part of the calendar month of delay in the presentation

of the Information Return, limited to 1 250 Tax Units (~EUR 12 100) per each month

or 15,000 Tax Units (~EUR 145 200) in total.

Incorrect information – 0.6% of the total value of the transactions carried out with

related parties, limited to 2 280 Tax Units (~EUR 22 070).

Exchange rate of reference as of November 30, 2020.

General Resolution 4717 and 3985 available at: http://biblioteca.afip.gob.ar/dcp/REAG01004717_2020_05_14

and http://biblioteca.afip.gob.ar/dcp/REAG01003985_2017_01_12

T106 E (10/2017). www.canada.ca/content/dam/cra-arc/migration/cra-arc/E/pbg/tf/t106/t106-fill-10-17e.pdf.

Omitted information (transactions) – 1.3% of the total value of the transactions

carried out with related parties, limited to 3 000 Tax Units (~EUR 29 040);

additionally, denial of deductions of cost and expenses related to omitted

operations may apply

Omitted information (related parties located in tax havens) – 2.6% of the total

value of the transactions carried out with related parties, limited to 6 000 Tax Units

(~EUR 58 080); additionally, denial of deductions of cost and expenses related to

omitted operations may apply.

Non-filing of transfer pricing return – 4% of the total value of the transactions

carried out with related parties, limited to 20 000 Tax Units (~EUR 193 060).

Mexico

Penalty for non-filing, late or incomplete filing - MXN 77 230 to MXN 154 460

(~ EUR 3 210 to ~ EUR 6 420).

Uruguay

Penalties for non-filing, late or incomplete filing – the penalties are graduated

depending of the gravity of the infringement. Fines range from ~ EUR 184 to

~ EUR 184 200.

3.2.7 Confidentiality

In common with other documentation requirements, information contained in a transfer pricing

return should be treated as confidential in the same way as information provided in a tax return.

3.2.8 Simplification and exemptions

In the first instance, transfer pricing returns will normally be required from any taxpayer

conducting any related party transaction that falls within the scope of local transfer pricing

rules. This means that taxpayers that are outside the scope of the general transfer pricing rules will

be exempted from the responsibility to file a transfer pricing return.

However, as noted in Part II, the requirement to compile the schedule may create

unnecessary or disproportionately high compliance costs for some taxpayers. For that reason,

some countries have introduced specific exemptions or simplifications for smaller taxpayers or less

material transactions.

Practices on exemptions from filing requirements vary among countries. It is the practice in

some countries to limit the obligation to prepare and file the transfer pricing return on the basis

of criteria such as the value of related party transactions not exceeding a certain amount; or based

on the size of the taxpayer. While in other countries, all taxpayers subject to transfer pricing rules

may be required to file the returns. Exemptions might not apply when taxpayers have conducted

transactions with related parties in jurisdictions considered to be tax havens or other low tax or

non-tax jurisdictions, or when those related parties benefit from a preferential regime.

These figures are updated annually.

Table 8 : Country practices on simplification and exemptions of transfer pricing returns

Country

Exemption from transfer pricing returns

Canada

Total amount of the controlled transactions does not exceed CAD 1 000 000

(~ EUR 646 000)

Colombia

Taxpayers whose gross equity on the final day of the fiscal year is below 100 000

TU, or whose gross revenue is less than 61 000 TU (~ EUR 590 048)

Dominican

Republic

No exemption applicable

Liberia

Simplified return for smaller taxpayers, defined legal or natural person carrying

on a trade or business with turnover of less than LRD3 000 000 (~ EUR 16 000)

per year.

Lithuania

Amount of each related party transaction or sum of all similar transactions is

below EUR 90 000.

Uruguay

Total amount of the controlled transactions carried out during the fiscal year

does not exceed 50 million indexed units (~ EUR 4.5 million)

Exchange rate of reference as of November 30, 2020.

Article 6.1. a) Liberia Transfer Pricing Regulations, 2016 and Section 200 c) of Liberia Revenue Code

3.3 Transfer pricing studies

In this context, transfer pricing studies refer to a set of documents and information that

affected taxpayers are required to prepare, keep and submit to the tax administration if and

when this is required. Although this category of documentation is typically referred to as ‘transfer

pricing documentation’, for the purposes of this Toolkit it is referred to as a ‘transfer pricing study’

in order to distinguish it from other categories of documentation. The term transfer pricing study

encompasses the ‘local file’ and the ‘master file’ described in the BEPS Action 13 Report.

The main features of transfer pricing studies are described below.

1. MNEs are normally required to develop a separate study for each of the entities within the

scope of transfer pricing rules in the jurisdictions in which the MNE group operates. However, there

may be elements of the transfer pricing studies that are common to more than one entity in an

MNE group, or indeed all of them;

2. They are normally drafted specifically for transfer pricing compliance purposes;

3. MNEs are typically (though not always) required to have the documentation in place before

they file the tax return, and then submit it to the tax administration on request; and

4. For larger MNE groups with multiple or multifaceted intra-group arrangements, transfer

pricing studies can be lengthy and complex. They can also be very expensive to produce – advisors

can charge fees running to hundreds of thousands of euros, or even millions of euros in the largest

of cases, for developing and drafting transfer pricing studies for a large MNE.

3.3.1 Functions of transfer pricing studies

From the taxpayer’s perspective, the primary function of a transfer pricing study is to

demonstrate compliance with the transfer pricing rules of the relevant jurisdiction(s). At a

minimum, the study should: identify and describe the relevant transactions; show how the most

appropriate transfer pricing method was selected; and describe how that method has been applied.

Transfer pricing studies can thus provide:

• evidence that the taxpayer has sought to comply with the transfer pricing rules. In some

jurisdictions, this is important, because it may also provide evidence to counter contentions

that a penalty should be applied in the event a transfer pricing audit results in an

adjustment (for example, because the tax authorities may seek to apply a different transfer

pricing method or question the validity of comparable(s) used);

• the tax administration with information to consider whether to initiate or continue an audit

on transfer pricing and, if so, which transactions to focus on;

• the tax administration with information and data relevant for an audit. The information

provided in transfer pricing studies, however, is rarely sufficient to conduct a complete

audit, and will nearly always need to be supplemented with additional information.

Transfer pricing documentation can also encourage taxpayers actively to consider the way in which

they determine and substantiate arm’s length transfer prices used for tax purposes.

Box 4 : How can a transfer pricing study be used in the audit process?

As mentioned above, transfer pricing studies can be lengthy and complex. Large, professionally

produced studies can be daunting to some auditors, who may be reluctant to challenge the

conclusions contained in a transfer pricing study, or even to request the submission of such a

study in the first place. However, a well-produced transfer pricing study typically contains

information and analysis that are vitally important for the auditor to understand, and where a

transfer pricing study is available, one of the key elements of an audit is to test the reliability of

the analyses and conclusions contained in the study.

a) Information and analyses contained in a transfer pricing study

A well-produced transfer pricing study should provide the auditor with:

- Details of the structure of the MNE’s business operations in which the taxpayer

participates, including a clear picture of the supply chain

- The main features of the industry or sector in which the MNE and taxpayer operates

- Details of the related party transactions undertaken by the taxpayer, including any

contractual arrangements

- An analysis of the functions carried out by the taxpayer and its associated parties, as well

as the assets used and risks assumed in relation to the intra-group transactions.

This information should assist the auditor in drawing up a picture of the business in which the

taxpayer participates, and, importantly, understanding the value drivers of that business. In

doing so, it should also allow the auditor to understand: the most important intangibles (where

relevant), and where in the business the return to such intangibles should lie; the most important

risks taken and where in the business the return to those risks should be recognized.

Furthermore, well-produced transfer pricing study should provide the auditor with:

- An analysis, employing the information above, resulting in the taxpayer’s conclusions on

the most appropriate transfer pricing method (and the appropriate tested party, where

relevant);

- An understanding of the application of that method, including, where relevant, the

identification and selection of reliable comparables.

This information is crucially important. It tells the auditor the taxpayer’s conclusions regarding

the application of the arm’s length principle; and how the taxpayer reached those conclusions.

An analysis and review of these conclusions is often the starting point for the transfer pricing

audit.

b) Auditing the reliability of the transfer pricing study.

One of the starting points in any transfer pricing audit will be to test the reliability of the

conclusions recorded in a transfer pricing study. There are many aspects to this (and a detailed

discussion is outside the scope of the Toolkit). However, the key audit issue will normally be to

test whether the facts on which the analysis is based align with the substance of the actual

3.3.2 Format and content

This section addresses the various approaches that countries take in specifying the format

and content of transfer pricing studies. There is a wide variety of approaches. All tax

administrations which oversee active transfer pricing regimes emphasize the importance of

obtaining transfer pricing studies as part of the fact-finding process. The extent to which specific

documentary requirements are spelled out in countries’ legislation varies significantly. Some

countries specify general criteria concerning the purpose and objectives of the transfer pricing

studies, without specifying particular documents or items of information. In such cases, taxpayers

may choose the format of the study and the specific documents they consider to be relevant. This

approach provides some flexibility and allows taxpayers to create and maintain only the

documentation they consider necessary. Some countries are more specific in their requirements,

detailing the documents and categories of information required. The latter approach has been

adopted for a ‘local file’ and a ‘master file’ described in BEPS Action 13 Report. A more detailed

approach increases certainty and helps to ensure that studies contain the information needed by

the tax administration to verify that the pricing of a transaction between associated enterprises is

consistent with the transfer pricing rules, but it can come with a higher overall compliance burden.

Box 5 : Country approaches to the format and content of the transfer pricing study

Specifying a detailed list of documents to be maintained

Ghana

“Except as otherwise provided in these Regulations, a person who enters into an arrangement with

another person with whom that person has a controlled relationship shall maintain

contemporaneous documentation of the arrangement engaged in by that person in each year of

assessment.

(2) A person shall file with the Commissioner-General not later than four months after the end of

each basis period, an electronic copy of the contemporaneous documentation regarding the

arrangements engaged in by that person.

(3) The documentation referred to in (2) shall include

See also in Annex 2 the transfer pricing studies requirement in Canada and Georgia.

transactions and in particular, the functions, assets (including intangibles) and risks related to

them. The selection of the most appropriate transfer pricing method, for example, will be made

based on assumptions in relation to the functions carried out by the taxpayer and its related

parties, the assets they use or contribute and the risks they assume. This should take account of

the key value drivers including valuable intangibles, and the economically significant risks in the

business. It is important to establish that the analyses and conclusions in the transfer pricing

study, in particular with regards to where value is created, align with the substance of the

business operations

a) a Master file; and

b) a Local file.

[A detailed list of the information that the local file and the master file should contain is provided

in the regulation.]

Nigeria

”A connected taxable person shall record, in writing or on any other electronic device or medium,

sufficient information or data with an analysis of such information and data to verify that the

pricing of controlled transactions is consistent with the arm‘s length principle and the connected

taxable person shall make such information available to the Service upon written request by the

Service”. [Regulation 16(1) of the Income Tax (Transfer Pricing) Regulations, 2018].

“For the purposes of regulation 16, a connected person shall maintain contemporaneous

documentation consistent with the provisions of the Schedule to these Regulations”. [Regulations

17 (1)]

[The referenced schedule requires a master file and a local file and provides a detailed list of

information these files should contain.]

Until recently, the OECD Transfer Pricing Guidelines simply described general principles and

addressed no more than a high-level overview of the information that needs to be included in a

transfer pricing study. More recently, however, the OECD Transfer Pricing Guidelines (through the

G20/OECD BEPS Action 13 Report) introduced a more detailed approach, consisting of a local file

and a master file (discussed below). A similar approach is suggested in the UN Transfer Pricing

Manual. The guidance provides a detailed list of information to be provided in each of these files.

This Toolkit recognizes the advantages of adopting a common approach to transfer pricing studies,

including:

1. Taxpayer compliance costs will be reduced if countries apply similar formats in their

documentation requirements, so that MNEs are able to provide similar information in the same

format, and (for the master file) the same document, in each of the countries in which they operate.

Taxpayers will also have more certainty about the expected content of the documentation

requested;

2. Tax administrations should expect better compliance with their local transfer pricing

documentation requirements as a result of greater standardization. The marginal cost of

See for further details Section 12 of the Transfer Pricing Regulations, 2020. L.I. 2412.

See for further details Section 16 (1) and 17 of the Regulation 16(1) of the Income Tax (Transfer Pricing)

Regulations, 2018 and the Schedule to these Regulations. Available at:

https://www.firs.gov.ng/sites/Authoring/contentLibrary/a7b75064-cd91-4135-ae14-

b3b4b8662409Income%20Tax%20(Transfer%20Pricing)%20Regulations%202018.pdf

compliance with a country’s documentation rules will be reduced where these rules are aligned

across countries; and

3. Alignment and co-operation between countries can also help establish ‘best practice’

approaches and create opportunities for co-operation and mutual support in drafting and

implementing the rules and using the information contained in the documentation.

The box below describes the main features of the BEPS Action 13 Report approach to transfer

pricing studies (i.e. local file and master file). Detailed information may be found in the report and

Chapter V of the OECD Transfer Pricing Guidelines.

Box 6 : BEPS Action 13 approach to transfer pricing documentation

The recommended master and the local file contents laid out in Annex I and II of the BEPS Action

13 Report provide a platform on which taxpayers with material transfer pricing risks can

meaningfully describe their compliance with the arm’s length standard. They are aimed at

providing tax administrations with a picture of the business operations in organizational and

contractual terms, from the perspective of the local entity and the group as a whole. Together,

they would also aim to provide tax administrations with detailed information of the individual

intra-group transactions, the local taxpayer and the global transfer pricing policy of the group:

information needed as a basis for a well-informed transfer pricing audit.

The master file is aimed at providing a high-level overview in order to place the MNE group’s

transfer pricing practices in their global economic, legal, financial and tax context. That is, the

master file provides background and context to the more detailed information contained in the

local file.

Local file and master file – brief overview of content

Master file

In the master file the MNE should provide information on the overall MNE group describing the

nature of its global business operations, its overall transfer pricing policies, and information on

key value drivers, intangibles and the financing of the group. As part of the master file taxpayers

are also required to prepare other tax information, such as consolidated financial statements of

the MNE group, and provide information on key intra-group agreements. The information

required in the master file is broad in nature intended to provide tax administrations only with a

high-level overview of the MNE group’s transfer pricing practices in their global economic, legal,

financial and tax context.

See OECD (2017) OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, Chapter

V, Annexes I and II for a complete list of the documents specified to be contained in the master file and the local

file. See also UN (2017), Chapter on Documentation, in Practical Manual on Transfer Pricing for Developing

Countries 2017, UN Publishing, New York, http://www.un.org/esa/ffd/wp-content/uploads/2017/04/Manual-TP-

2017.pdf.

The OECD Transfer Pricing Guidelines recommend that a master file includes five categories of

information:

→ organizational structure;

→ description of the MNE’s business or businesses;

→ intangibles;

→ intercompany financial activities; and

→ financial and tax positions.

Local file

The local file requires detailed information relating to specific transactions taking place between

local country affiliate and associated enterprises, including information on the identity of related

parties, relevant financial information regarding those specific transactions, a comparability

analysis and the selection and application of the most appropriate transfer pricing method.

The information contained in this report should reflect the analysis, elements taken under

consideration and sources of information used by the taxpayer to substantiate their application

of the arm’s length principle.

The following categories of information are required in the local file:

→ Information on the local entity

→ Detailed information on each material category of controlled transactions in which the

entity is involved, including a functional analysis of each, an indication of the most

appropriate transfer pricing method (including which party is selected as the ‘tested

party’) and the application of that method.

→ Financial information

Some of the information to be provided in the local file might be also contained in the master

file. In those cases, the guidance in the BEPS Action 13 Report recommends that the taxpayer

should be allowed to cross reference to the information contained in the master file.

Filing requirements for the master and local files

At the time of drafting over 50 countries (including OECD and non-OECD economies) had

introduced or were in the process of introducing the master and local files documentation

structure based on the BEPS Action 13 proposal. BEPS Action 13 Report does not provide

specific guidance on all aspects of the local file and the master file approach, and there is thus

some variation in their implementation on issues such as deadlines for submission, penalties and

level of detail required.

OECD (2015), “Local File”, Paragraph 22 in Transfer Pricing Documentation and Country-by-Country Reporting,

Action 13 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project.

This section discusses some of these issues and evaluates the different approaches adopted by

different countries.

1. Master file by line of business: Under the recommendations of BEPS Action 13 Report,

MNEs should prepare a single file comprising information on the operations of the MNE group as

a whole. The master file may be presented by line of business where this is justified by the facts,

e.g. where the structure of the MNE group is such that some significant business lines operate

largely independently or were recently acquired. Notwithstanding this, the MNE’s affiliate local

taxpayer should make available the entire master file consisting of all business lines to assure that

a complete overview of the MNE group’s global business is provided.

Box 7 : Country Practices – the master file by line of business

In Finland, it is possible to file the master file for a line of business that the Finnish entity is part

of. The business line has to be independent enough from other business lines and a description

of centralized functions and transactions of the Group has to be also included.

2. To simplify administrative burden to domestic entities, Mexico offers the possibility

of lodging only one master file when several entities of the same MNE operate in the country.

This approach makes sense especially where all entities of the same group are dealt with by the

same office in the tax administration.

3. Some countries (e.g. Austria, China) require local taxpayers to file the master file,

even if the domestic entity falls within the exemption threshold which would otherwise

apply,

in cases where there is another entity of the MNE group that must prepare a master file

in a foreign jurisdiction. For China, the local MNE entity is required to file a master file if either: a)

the Chinese entity is part of a multinational group that files a master file; or b) related party

transactions exceed CNY 1 billion (~ EUR 125 million).

Form of documentation

Another issue to be evaluated is whether the maintenance of electronic files would fulfil

transfer pricing documentation requirements. In this respect, the OECD Transfer Pricing

Guidelines note that because the tax administration’s ultimate interest would be satisfied if the

necessary documents were submitted in a timely manner when requested in the course of an

examination, the way that the documentation is stored – whether in paper, electronic form, or any

other system – should be at the discretion of the taxpayer, provided that relevant information can

promptly be made available to the tax administration in the form specified by the local country

rules and practices. Countries might wish to ensure that their domestic rules do not prohibit them

See OECD (2017) OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, Chapter

V, Paragraph 20.

Some countries only require filing transfer pricing documentation when the transactions or the taxpayer’s

revenue exceed a certain amount. See Section 3.3.7

Exchange rate conversion at November 30, 2020.

from requiring documentation in written form when required (for example, as evidence in courts),

or restrict the use of other formats when appropriate.

Electronic submission of transfer pricing studies.

Transfer pricing studies usually require a significant amount of information and analysis

from a taxpayer. Moreover, as transfer pricing studies should be tailored to the specific business

operations of the MNE group, it may be difficult to fully standardise such studies so that they are

easily amenable to e-filing. Nevertheless, the advantages of having such information available in

electronic form mean that tax administrations may want to consider providing for electronic filing

of transfer pricing studies, bearing in mind the necessity to allow for flexibility in the form and

content of the information provided.

Some countries have tailored the local file and master file to allow electronic submission.

This approach facilitates the use of information contained therein for risk assessment purposes. For

example, Australia allows the local file and the master file to be submitted to the tax administration

electronically; an XML schema is available for this purpose together with associated validation rules.

Annexes such as contracts can also be provided in PDF format through the Australian Tax Office

online Portal. Peru also allows for electronic submission of the local file and master file.

Belgium has also structured its local file as an e-form file. The local form must be filed electronically

in XML format through a mandatory on-line filing tool. Annex 5 includes the templates of the local

form and the master file in Belgium.

Language

Generally, countries require transfer pricing studies to be prepared in the local language. As

a way to reduce compliance costs for taxpayers, however, countries can permit taxpayers to file

transfer pricing documentation in commonly used languages and make specific requests for the

translation of relevant documents as needed. Such an approach would also allow, for example, an

MNE to prepare a master file in one language for all jurisdictions in which it operates, together

with local files in the relevant local language. Similarly, some information such as contracts, the

functional analysis pertaining to the foreign affiliate (where relevant), or invoices, might only be

readily available in the foreign language, and tax administrations might, for example, require

translation only if and when they are required to be submitted.

Some options are available:

1. Many jurisdictions require translation to be performed by certified translators before

documentation can be considered as evidence in a court. One option for tax administrations is

generally to allow uncertified translation and to require an official translation only where it is

believed that the case is to be brought before a court. In such a case, it is advisable to request

translations as early as possible.

2. Jurisdictions requiring the master file in their local language might consider providing longer

deadlines, so taxpayers have enough time to prepare and translate the file.

3. Jurisdictions may also allow taxpayers to file transfer pricing studies in a commonly used

language. If so, the option to submit documentation in a foreign language should be

established (or at least not precluded) in domestic law.

(See Annex 6 for different countries’ practices)

3.3.3 Regulatory framework

This section discusses the various approaches that countries take in legislating rules on

transfer pricing studies.

Provisions (whether in primary or secondary legislation or in guidance) relating to transfer pricing

studies would normally contain at least the following items:

- A statement of the scope of the legislation, including any exemptions for, for example,

smaller taxpayers;

- A requirement to maintain documentation;

- A list of documents or information required to be included in the study; or general criteria

concerning the purpose and objectives of the documentation (i.e. what the study must

achieve);

- The time by which the study should be in place;

- The retention period of the documentation;

- The circumstances in which the study must be submitted to the tax administration;

- The time by which the study should be submitted to the tax administration;

- The form in which it should be provided (e.g. whether electronic filing is permitted or

required), and the language;

- Penalties for failure to maintain or submit complete documentation; or for providing

incorrect information.

See Annex 1, which provides an illustration of a possible approach to drafting primary legislation

requiring transfer pricing documentation consisting of the Master File, Local File and CbC Report.

3.3.4 Timing issues

When introducing the requirements for the submission and preparation of transfer pricing

studies countries should consider the following:

1. the fiscal period for which a new transfer pricing obligation will first be effective;

2. whether transfer pricing studies should be merely prepared, or also submitted to the tax

administration at a set time (for example with the tax return); and

3. when the transfer pricing studies should be prepared.

Guidance on these three questions and the approach taken by some countries is provided below.

Fiscal Year the transfer pricing study will be effective

When introducing a requirement for taxpayers to prepare transfer pricing studies for the

first-time, countries can consider allowing a reasonable amount of time to taxpayers to

prepare for new regulations. For instance, if the transfer pricing studies are required to be

prepared contemporaneously, taxpayers should be allowed a period before the reporting

obligation becomes effective.

Whether transfer pricing studies should be prepared and submitted to the tax

administration at a set time

The OECD Transfer Pricing Guidelines and the UN Transfer Pricing Manual do not prescribe

whether transfer pricing studies should automatically be submitted to tax administrations.

Current practices vary among countries.

In relation to local files and master files, the guidelines in BEPS Action 13 Report suggest that a

local file be finalized no later than the due date for the filing of the tax return. The master file should

be required by the tax return due date for the UPE of the MNE group. The rationale is that the

master file will most likely be prepared by the parent company.

Box 8 : Mismatches with different deadlines for lodging the master file

Mexico allows the domestic entity to lodge the master file in line with the fiscal year of the

foreign filing entity of the group preparing it.

Japan and Belgium require the master file to be submitted within one year of the last day

following the date when the UPE’s fiscal year ends; the local file must be made available at the

request of the tax administration

The most common practice is to require taxpayers to prepare and maintain transfer pricing

studies by the jurisdictions’ timeframes set out in the relevant regulation and make them

available on request from the tax administration. This is the approach followed by Austria,

China, Costa Rica, Dominican Republic, Finland, Germany, the Netherlands, Poland and Spain. In

contrast, some countries (e.g. Colombia, Mexico, and Peru) request the transfer pricing studies to

be submitted on a regular basis (e.g. annually) to tax administrations. Annex 6 provides some

further examples of country practices.

Each approach has its own advantages and disadvantages. It might be preferable to require

studies to be kept by taxpayers and be submitted on request (e.g. for conducting risk assessment

or evaluation, or where the taxpayers have been selected for audit). Such an approach should be

complemented by appropriate penalty or incentive regimes, as described in Section 3.3.5, to

encourage compliance. Allowing the tax administration to request the studies also on a random

basis could supplement the penalty / incentives regime in encouraging compliance.

Requiring taxpayers to submit transfer pricing studies annually has the advantage that the

tax administration will have documentation available when conducting risk assessment or

audits. The availability of such a source of information may also assist the tax administration in

undertaking broad (e.g. industry-wide), systematic risk assessment activities as well as in

Contemporaneous transfer pricing documentation generally implies that enterprises must determine their

transfer prices based on the relevant available information at the time the transaction has taken place.

monitoring tax compliance and broader economic and commercial trends. Another advantage of

this approach is that it may increase the compliance effect.

However, in many cases, tax administrations are not able to conduct comprehensive risk

assessment of all taxpayers each year and so require documentation to be submitted only on

request. In some countries, failure to consider, and act upon, contemporaneous information

submitted by a taxpayer may prohibit the authority from auditing or reopening the relevant period

at a later date, or at least provide implicit approval of the tax return as lodged. This would mean if

transfer pricing documentation for a tax period is submitted but not analyzed, the tax authority

may not be able to revisit that period at a later date, on the basis that it had implicitly agreed to

the tax position for the period and had all the information needed to do so. Further, as a purely

practical matter, the secure storage of large quantities of documentation will require resources on

the part of the tax administration.

When should the transfer pricing study be prepared?

Tax administrations typically require that transfer pricing studies be prepared on a

contemporaneous basis. This would mean that the documentation would be prepared at the time

of the transaction, or, in any event, no later than the time of completing and filing the tax return

for the fiscal year in which the transaction takes place. Other countries have opted to require

taxpayers to prepare documentation only in the event of an audit. For instance, Germany is a

country that requires TP documentation to be prepared once an audit is announced and

documentation is requested (can be done in one step/document).

Box 9 : Country example on preparation of a local file and master file

Mexico – the local file must be submitted by December 31 with regard to the information of

fiscal year ending December 31 of the prior year. Information in the local file must be

contemporaneous with the income tax return for the same period.

Frequency of documentation updates

In general, transfer pricing studies should be reviewed and updated annually by taxpayers

in order to determine whether the functional and economic analyses are still accurate, and to

confirm the validity of the applied transfer pricing methodology. The OECD Transfer Pricing

Guidelines recognize that in many situations, business descriptions, functional analyses and

descriptions of comparables may not change significantly from year to year. To simplify

compliance, tax administrations may allow taxpayers to update comparables searches for example,

once every three years rather than annually, provided the operating conditions (and functional

analysis) remain unchanged. It would normally be appropriate that financial data for the

comparables be updated every year to apply the arm’s length principle reliably.

Note that this does not apply to so-called extraordinary transactions, which need to be documented

contemporaneously. This includes, for example, transactions that arise under a business restructuring.

Retention period of documents

An issue to consider is the number of years records and information must be kept before

their final disposal. The BEPS Action 13 Report notes that taxpayers should not be obliged to retain

documents beyond a reasonable period consistent with the requirements of domestic law. The

Global Forum standards on EOI and the Financial Action Task Force recommend countries keep

documentation for a period of at least five years

. In many countries, the retention period is

aligned with the statute of limitations for transfer pricing adjustments. Additional consideration for

the retention period may be necessary or crucial both from a taxpayer and tax administration

perspective to take into account the time required for double taxation dispute resolution

mechanisms.

3.3.5 Enforcement

A number of countries have mechanisms in place to ensure taxpayers prepare their transfer pricing

studies. However, practices vary among countries.

1. Some countries establish a transfer pricing enforcement regime intended primarily

to reward timely and accurate preparation of transfer pricing documentation. Some examples

of incentives regimes include:

→ Penalty protection in case of a transfer pricing adjustment. Where the documentation

meets the requirements and is submitted in a timely fashion, the taxpayer could be

exempted from penalties or subject to a lower penalty rate if a transfer pricing adjustment

is ultimately made and sustained.

→ Shift in the burden of proof. This would occur if the taxpayer complies with

documentation requirements.

In the Netherlands, for example, it is established that if

transfer pricing documentation is inadequate, the burden of proof can shift back to the

taxpayer. (See also sample legislation at Annex 1)

2. Some countries apply general administrative penalties to enforce taxpayers’ submission

of transfer pricing study on request in the course of a tax audit.

3. Others apply specific transfer pricing penalties. Penalties might be in place for taxpayers

failing to prepare or submit transfer pricing studies, or for providing transfer pricing studies which

contain false or misleading information or relevant omissions. Such penalties could be applied in

addition to other sanctions applicable under the tax code. Monetary penalties are the most

common type of sanction. They could be based on fixed amounts, or on data from the previous

year’s tax return (gross taxable income, profit before tax, etc.) depending on the severity of the

infraction (e.g. recurrence; time elapsed after the due date, errors, omissions or non-filing), or be

linked to the amount of any transfer pricing adjustment that may be sustained following an audit.

See Exchange of Information on Request: Handbook for Peer Reviews 2016-2020. (OECD 2016) P. 32 and 170

See further discussion in Section 2.1.2

Box 10 : Country practices

Penalty protection in case of a transfer pricing adjustment – Australia

, Canada

, Mexico,

and the United States.

Shifting the burden of proof –Mexico, the Netherlands, Nigeria and the United Kingdom.

General Administrative penalties - Slovak Republic, Slovenia

Specific transfer pricing penalties - Dominican Republic, Mexico, Peru and Singapore.

Both the OECD Transfer Pricing Guidelines and the UN Transfer Pricing Manual note that it

would be unfair to impose significant penalties on taxpayers that have made reasonable

efforts in good faith to undertake a sound transfer pricing analysis, or to a taxpayer for failing to

submit data to which the MNE group did not have access at the time of the documentation

process.

Table 9 : Country practices on transfer pricing studies enforcement measures

Country

Description of the enforcement measure

Argentina

Local file: Transactions with related parties abroad are exempted if:

a) the total amount of transactions does not exceed

ARS 30 000 000 (~ EUR 303 120);

b) the local entity (i) is a member of an MNE group that is

obliged to present the CbC Report, or (ii) is obliged to

present the Master Report (equivalent to the master file in

Action 13) and the sum of related party transactions in the

fiscal period does not exceed ARS 3 000 000

(~ EUR 30 300), or each transaction does not exceed

ARS 300 000 (~ EUR 3 030).

Transactions with persons located in non-cooperating, low or no tax

jurisdictions are exempted, when the sum of these transactions in the

In Australia, a taxpayer cannot demonstrate that they have a ‘reasonably arguable position’ (RAP) in relation to

their transfer pricing (which consequently would provide for lower penalties in case of an adjustment) unless they

maintain adequate transfer pricing documentation. This RAP terminology is important from a penalties perspective.

Without a RAP, the entity is not able to argue for any remissions on the penalties that are applied on a transfer

pricing adjustment. Penalties can apply to the primary tax adjustment and also on interest due from back payments

of tax.

In Canada, a taxpayer might be subject to a transfer pricing penalty if they have not made reasonable efforts to

determine and use arm’s length transfer prices, as demonstrated in their contemporaneous documentation. If their

contemporaneous documentation is complete and accurate in all material respects, was prepared before the

documentation due date and was submitted within a specified period, there will not be a penalty.

Slovenia Transfer Pricing Country Profile in www.oecd.org/tax/transfer-pricing/transfer-pricing-country-profile-

slovenia.pdf.

See OECD Transfer Pricing Guidelines (2017) at paragraph 5.42 and the UN Practical Manual on Transfer Pricing

for Developing Countries (2017) at paragraph C.2.4.3.4.

Exchange rate of reference as of November 30, 2020.

fiscal period does not exceed ARS 3 000 000 (~ EUR 30 300), or each

transaction is below ARS 300 000 (~ EUR 3 030).

Master file: local entities are exempt if:

a) the total amount of the consolidated annual revenue of the

MNE group does not exceed ARS 2 000 000 000 (~ EUR

20 200 000) in the previous fiscal period; and

the total amount of related party transactions in the fiscal period

does not exceed ARS 3 000 000 (~ EUR 30 300) or each transaction

does not exceed ARS 300,000 (~ EUR 3 030).

Canada

Sub-Section 247(3) of the ITA provides for a transfer pricing penalty

when the net amount of transfer pricing adjustments exceeds specific

thresholds. The penalty is intended to be a compliance penalty

focusing on the efforts that a taxpayer makes to determine an arm’s

length price and not solely on the ultimate accuracy of the transfer

prices. Therefore, provided that a taxpayer makes reasonable efforts

to determine and use arm’s length prices or allocations, the transfer

pricing penalty does not apply. The provisions of subsection 247(4)

may deem that taxpayers have not made reasonable efforts to

determine and use arm’s length prices or allocations.

Mexico

Where an examination by the tax authority results in a tax shortfall, a

penalty of 55% to 75% of the shortfall is imposed. Where an

examination results in a tax adjustment but the taxpayer has

recorded a tax loss, a penalty of 30% to 40% of the adjustment loss

amount is imposed. However, in both cases, if the taxpayer has

prepared adequate transfer pricing documentation, the penalty may

be reduced by half.

Where the taxpayer fails to identify and report transactions with

related parties residing abroad, a penalty of MXN 1 550 to

MXN 4 670 (~ EUR 65 to EUR 200) is imposed for each transaction.

The public sector will not enter into contracts with taxpayers who fail

to submit a tax return.

Peru

Non-filing or late filing, incomplete or nonconforming

information – the penalty is a fine of 0.6% of the company’s net

income for the year prior to the due date of the obligation to file the

report. The penalty cannot be less than 10% of a Tax Unit or more

than 25 Tax Units (1 Tax Unit = ~ EUR 1 110 for 2020).

Where transfer pricing adjustments are made by the tax

administration following an audit, an amended return would be

required to correct the total income originally reported, and a penalty

may be assessed for a misstatement of such income, including a

corresponding interest amount (1% monthly). The penalty is

Canada Transfer Pricing Country Profile in www.oecd.org/tax/transfer-pricing/transfer-pricing-country-profile-

canada.pdf.

equivalent to 50% of the tax shortfall amount and can be reduced by

up to 95% if the taxpayer, in addition to the correction, complies with

the payment of the reduced fine.

The United States

Where a US taxpayer is examined by the IRS and a transfer pricing

adjustment is made that results in a tax assessment over a specific

threshold, the IRS may assert penalties. In order to avoid those

penalties, taxpayers can provide to the IRS upon request transfer

pricing documentation they prepared contemporaneous with their

tax return filing to demonstrate they had reasonable cause for their

pricing and they acted in good faith. The documentation required to

meet the penalty exception is specified in USA Treasury Regulations

section 1.6662-6(d).

Vietnam

The penalty regime applicable to transfer pricing offences is

referenced to the existing provisions on tax penalties, as specified in

the Law on Tax Administration. These penalties vary from 20% to

300% of the additional tax due and late interest payments.

3.3.6 Confidentiality

Transfer pricing studies submitted to a tax administration should be subject to the same level of

confidentiality as that applying to tax returns and to other tax information.

3.3.7 Simplification and exemptions

Both the UN Transfer Pricing Manual and the OECD Transfer Pricing Guidelines recommend

countries implementing transfer pricing studies rules establish some simplification measure

or objective materiality standard. Different approaches can be considered, for example:

→ ‘Prudent business manager’ test for comprehensiveness of transfer pricing documentation;

→ Exemptions or simplification options for small or low risk transactions, e.g.: transactions

below certain value threshold; or for purely domestic transactions

between local related

entities, where both parties to the transactions are subject to the same taxation regime and

rate of taxation;

→ Exemption regimes for small and medium enterprises; and

→ Reduced documentation requirements for transactions covered by APAs or safe harbours.

Simplification or exemptions regimes for small transactions are commonly used in respect

of the local file. In contrast, for the master file countries commonly define the exemption threshold

based on the size of the taxpayer or the MNE group to which taxpayer belongs.

Note that the scope of domestic transfer pricing rules varies. In some countries, only cross-border transactions

are within scope, meaning that such purely domestic transactions would, in any case, not be subject to transfer

pricing provisions

It is often the case that such exemptions do not apply when taxpayers conduct transactions with

associated enterprises located in low or no tax jurisdictions, or that benefit from preferential tax

regimes.

Some country practices are shown in Table 10 below.

Prudent business manager test

The ‘prudent business manager’ test requires that the larger or more complex (or more

uncertain) a transaction or group of transactions, the more comprehensive should be the

supporting documentation.

The guidance in the OECD/G20 BEPS Action 13 Report regarding the master file emphasises that

“in producing the master file, including lists of important agreements, intangibles and transactions,

taxpayers should use prudent business judgment in determining the appropriate level of detail for the

information supplied, keeping in mind the objective of the master file to provide tax administrations

a high-level overview of the MNE’s global operations and policies. … For purposes of producing the

master file, information is considered important if its omission would affect the reliability of the

transfer pricing outcomes.”

Simplification provisions for certain small or low risk transactions

Measures of materiality may be considered in relative terms (e.g. transactions not exceeding

a percentage of revenue or percentage of cost measure) or in absolute amount terms

(transactions not exceeding a certain fixed amount). Individual countries should establish their

own objective materiality standards for local file purposes based on local conditions.

Where the transfer pricing rules apply to all related party transactions, including those which are

purely domestic (e.g. between two related parties, both of which are resident in the same

jurisdiction), such purely domestic transactions may be regarded as low risk, particularly where

both related parties are subject to the same taxation regime and tax rates.

In order to reduce compliance and administrative costs and better focus tax administration

resources, consideration may be given to simplifying or exempting low risk transactions from

certain documentation requirements. Where this is the case, the focus shifts from evaluating the

transactions themselves to considering the eligibility of the taxpayer for the simplification or

exemption.

Simplification or exemptions: SME taxpayers

Consideration can also be given to rules that exempt SMEs from documentation

requirements or that limit the extent of the documentation to be provided by such entities.

A simplification or exemption measure can be expressed in various forms. It can be defined taking

into account either the group level information or only information at the level of the local entity.

Some of these criteria include:

The risk to the revenue may be significantly higher where one of the related parties has tax attributes such as tax

losses.

→ Total turnover, revenue or gross operating income

→ Value of assets

→ Number of employees

→ A combination of the above.

There are limitations on using the indicators above. For instance, companies can outsource certain

services and use leased assets, while earning a significant amount of revenue. Therefore, countries

should weigh up these limitations and consider introducing additional factors such as amounts

paid for, and the nature of, independent contractors and other service providers, and the nature of

and amounts paid for leased fixed assets.

Where the country or the tax administration has defined criteria for SMEs, this could be used as

the parameter(s) to set the exemption threshold. See in Box 11: European Commission definition

of SMEs the European Commission definition of SMEs which has been adopted by some of the EU

members for setting the exemption threshold.

Box 11: European Commission definition of SMEs

The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises

which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50

million, and/or an annual balance sheet total not exceeding EUR 43 million.

Within the SME category, a small enterprise is defined as an enterprise which employs fewer than

50 persons and whose annual turnover and/or annual balance sheet total does not exceed

EUR 10 million.

Within the SME category, a microenterprise is defined as an enterprise which employs fewer than

10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2

million.

Reduced documentation requirements for transactions covered by Advance Pricing

Arrangements or safe harbors

Where an APA or safe harbor measure has been adopted there will be no need for a detailed

comparability study, although other information and documentation, specified in the APA or the

safe harbor rules, should be made available to the tax authorities. See for instance, the exemption

regime for transfer pricing studies in Singapore in Annex 7.

Article 2 of Annex to the Commission Recommendation of 6 May 2003 concerning the definition of micro, small

and medium-sized enterprises

Table 10 : Simplification or exemption measures for transfer pricing studies

Country

Threshold/exemptions

Austria

Any Constituent Entity of an MNE Group, whose revenues in the two

preceding fiscal years exceeded EUR 50 million must complete the regular

transfer pricing documentation requirements. Entities which do not meet this

threshold are exempt.

Colombia

Taxpayers do not need to comply with the transfer pricing documentation

requirements unless either: (a) gross equity on the last day of the fiscal year

or period equals at least 100 000 Taxable Units (~ EUR 824 000); or (b) gross

revenues of respective year equal at least 61 000 TU (~ EUR 502 640).

Additionally, to the said threshold, taxpayers will need to prepare and submit

the Local and Master files for transactions carried out with related parties,

when their annual cumulative amount exceeds the equivalent of 45 000 Tax

Units (~ EUR 436 000) for the reporting fiscal year.

If the transaction is carried out with companies located, residing or domiciled

in non-cooperating jurisdictions with low or no taxation or preferential tax

regimes, the Local and Master Files must be prepared and submitted when

their annual cumulative amount exceeds the equivalent to 10 000 Tax Units

(~ EUR 97 000) for the reporting fiscal year. Otherwise, no exemption applies.

Denmark

Small MNEs (less than 250 employees and with either an annual balance sheet

total of less than DKK 125 million (~ EUR 17 million) or annual revenue of

less than DKK 250 million (~ EUR 34 million) are only required to provide

partial documentation.

Finland

SMEs according to the recommendation of the European Commission (of 6

May 2003, 2003/361/EC)

are not required to prepare transfer pricing

documentation. In addition, if the total amount of the taxpayer’s arm’s length

transactions in relation to each of its related parties does not exceed

EUR 500 000, there is no requirement to submit a master file. In addition,

there are provisions providing for a local file with more limited content when

the taxpayer only has minor transactions with its related parties.

India

The Transfer Pricing Study Report – which mirrors the local file – is to be

maintained only by taxpayers who have entered into international

transactions exceeding INR 10 million (~ EUR 113 240).

Japan

Master file: It is only required for MNE Groups with a total consolidated

revenue in the preceding fiscal year of JPY 100 billion (~ EUR 803 million) or

more.

See also Annex 7 on Singapore’s exemption regime for transfer pricing studies.

Exchange rate of reference as of February 15, 2019.

See Box 11

Local file: controlled transactions

are exempted from the duty of

contemporaneous documentation if:

(1) the amount of the controlled transaction (total of receipts and

payments) in the previous business year (or the current business year if

there was no transaction in the previous year) was less than JPY 5 billion

(~ EUR 40.1 million); and

(2) the amount of the controlled transaction involving intangibles (total

of receipts and payments) in the previous business year (or the current

business year if there was no transaction in the previous year) was less

than JPY 300 million (~ EUR 2.4 million).

Lithuania

The master file must only be prepared by the Lithuanian entities and

permanent establishments of the foreign entities acting in Lithuania which

have turnover in the previous taxable year exceeding EUR 15 million.

The local file must be prepared by the Lithuanian entities and permanent

establishment of the foreign entities acting in Lithuania, which have turnover

in the previous taxable year exceeding EUR 3 million. This exemption is not

applied to financial undertakings, credit institutions and insurance companies

which are obliged to prepare the transfer pricing documentation despite the

size of their turnover.

Mexico

Taxpayers engaging in business activities whose income in the immediately

preceding fiscal year did not exceed MXN 13 000 000 (~ EUR 539 100) and

taxpayers whose income from the provision of professional services did not

exceed MXN 3 000 000 (~ EUR 124 400) shall not be bound to prepare

transfer pricing documentation, except those taxpayers:

• That enter into transactions with entities in low tax jurisdictions;

• Taxpayers that are contract or assignation holders in terms of the

Hydrocarbons Law.

Taxpayers that do not meet the following requirements are not bound to

prepare the Master File and Local file:

• Taxpayers that in the immediately preceding fiscal year reported in

their annual return revenue equal to or exceeding

MXN 708 898 920

(~ EUR 29 400);

• Companies included in the optional tax regime for groups;

• State owned companies; or

• Foreign resident legal entities with a permanent establishment in

Mexico.

Netherlands

A master file and a Local file must be prepared by MNE groups having total

consolidated group revenue of at least EUR 50 million in the fiscal year that

immediately preceded the year for which a tax return is being filed.

The exemption is determined by controlled transactions on the basis of an entity by entity. See article 66.4

paragraph 7 of the Act on Special Measures Concerning Taxation (Japanese text only) at: https://elaws.e-

gov.go.jp/document?lawid=332AC0000000026.

Figures are updated every year

Peru

Local file: Taxpayers whose accrued income does not exceed 2 300 Tax Units

(~EUR 2.6 million) and transactions subject to the transfer pricing rules are

below 100 Tax Units (~EUR 111 000) are exempted. Taxpayers with

transactions subject to the transfer pricing rules between 100 and 400 Tax

Units (~EUR 111 000 and EUR 444 000), are only required to prepare a

simplified local file.

Master file: Taxpayers whose accrued group income does not exceed 20 000

Tax Units (~EUR 22.2 million), and transactions subject to the transfer pricing

rules are below 400 Tax Units (~EUR 444 000) are exempted.

Spain

Exemptions to document controlled transactions apply to: (i) transactions

below EUR 250 000; (ii) transactions within entities which form part of a tax

consolidated regime, (iii) transactions under the tax regimes of temporarily

business unions and associations of economic interest; and (iv) the sale and

acquisition of securities through public offering.

Simplified transfer pricing study (local file) for medium (with income not

exceeding EUR 45 million a year) and small taxpayers (with income not

exceeding EUR 10 million a year) also apply.

Groups with income not exceeding EUR 45 million a year are exempted from

the master file.

Uruguay

When the aggregate transactions subject to transfer pricing rules, undertaken

during the fiscal year, do not exceed 50 million Indexed Units (~ EUR 4.5

million), taxpayers are exempt from submitting the transfer pricing study

See Article 16.3 of the Income Tax Regulations [“Reglamento de Impuesto a las Sociedades”].

https://www.boe.es/buscar/act.php?id=BOE-A-2015-7771

Notwithstanding, taxpayers must maintain documentation to support their transfer pricing determination and

must be provided to the tax authority at its request.

3.4 Country by Country Reporting

3.4.1 Introduction

Country by Country reporting was introduced as an outcome of Action 13 of the OECD/G20

BEPS initiative. Discussions on this subject, however, had been taking place for many years prior

to this.

In 2002/2003 civil society organizations started to argue for some form of public country-

by-country reporting in order to help address both tax avoidance/evasion and corruption. The

Extractive Industries Transparency Initiative (EITI), which requires disclosure of all payments made

by relevant listed mining and petroleum companies, was one concrete outcome of this process.

The concept was discussed widely from 2013 when country-by-country reporting for the banking

sector was introduced in the EU, and the topic was placed on the G20’s agenda.

From 2013 to

2015, the OECD, working under a mandate from the G20, developed a standard for the CbC Report

which was incorporated into the BEPS Action 13 Report.

Under the BEPS project the development of a template for CbC reporting was central. In the

19 July 2013 BEPS Action Plan, the OECD was directed to “develop rules regarding transfer pricing

documentation to enhance transparency for tax administration, taking into account the compliance

costs for business. The rules to be developed will include a requirement that MNE’s provide all

relevant governments with needed information on their global allocation of the income, economic

activity and taxes paid among countries according to a common template”.

In January 2014 the OECD launched a discussion draft proposing a two-tiered approach to

transfer pricing documentation comprising a local file and a master file. The latter included a

template of a CbC Report. The proposed template included certain information relating to the

global allocation of profits, the taxes paid, and certain indicators of the location of economic

activity (tangible assets, number of employees and total employee expense) among countries in

which the MNE group operates. It also required reporting of the capital and accumulated earnings

as well as aggregate amounts of certain categories of payments and receipts between associated

enterprises. One of the questions raised in the discussion draft was whether the CbC Report should

be part of the master file, or whether it should be a separate document.

Another question was on the most appropriate mechanism for making the CbC Reports

available to tax administrations. Three potential options were raised: (i) the direct filing of the

information by local MNE group members subject to tax in the jurisdiction; (ii) filing of information

in the parent company’s jurisdiction and the sharing of such information under treaty information

exchange provisions; or (iii) some combination of (i) and (ii).

In an analysis of different initiatives against corporate tax avoidance Ylönen M (2017) shows that discussions on

country-by-country reporting dates back to 1970. CbC reporting initiative had already been developed and

discussed in the 1970s by the United Nations Commission and Centre for Transnational Corporations. See, Ylönen

M 2017. Back from oblivion? The rise and fall of the early initiatives against corporate tax avoidance from the 1960s

to the 1980s", p49-50.

Meinzer, M 2017. Lobbyism in International Tax Policy: The Long and Arduous Path of Country-by-Country

Reporting. See also: Bennet et al Transparency in Reporting Financial Data by Multinational Corporations, Centre

for Business Taxation, Oxford University, June 2011

From the point of view of the business community, a significant amount of potentially

commercially confidential data would be made available in the CbC Reports and this data

would need to be safeguarded. In contrast, some NGOs supported public disclosure of the CbC

Reports. They did not see any justification for secrecy of aggregate information on items such as

employees, assets, profits and taxes by country. For them, the only valid reason for non-publication

was commercial confidentiality. Since the proposal was for a template which would be used

globally, many NGOs were of the view that public disclosure of CbC Reports would not affect the

competitive position of specific firms.

However, such views in favor of public disclosure were

broadly rejected and addressed in the BEPS Action 13 output.

Ultimately, confidentiality, which is also required under treaties and domestic law, was a

necessary part of the compromise reached by countries to implement the CbC Report as a

minimum standard under the BEPS project. Under the BEPS Action 13 minimum standard on

CbC reporting, only the UPE of an MNE is typically required to file a CbC Report to its local tax

administration, which is then obliged to provide the report to relevant tax administrations around

the world under exchange of information (EOI) instruments. Mechanisms are in place to help ensure

wide adoption and access to CbC Reports by relevant countries notwithstanding that such reports

would not be made public. The key features of CbC Reports are

- They provide valuable information to tax administrations – providing data on the

global operations of the large MNE groups operating in the local jurisdiction, including the

amount of revenue, profit before income tax, income tax paid, number of employees, stated

capital, retained earnings and tangible assets in each jurisdiction;

- CbC Reports are intended to assist tax administrations with their case selection and

risk assessment processes.

They do not provide sufficient information to make an

adjustment to profit solely on the information they contain;

- Only large MNEs groups, i.e. those with global consolidated revenue of EUR 750

million or more (or a local equivalent) are required to produce a CbC Report;

OECD (2014), “PUBLIC COMMENTS RECEIVED VOLUME I - Letters A to C Discussion Draft on Transfer Pricing

Documentation and CbC Reporting” OECD, Paris, www.oecd.org/ctp/transfer-pricing/volume1.pdf.

As has been noted elsewhere, all aspects of the CbC reporting standard are subject to review in the context of

the 2020 review of the standard. The outcomes of the 2020 review are expected to be released in 2021.

Countries such as Brazil, India, Mexico, the Netherlands, Spain and the UK have started to introduce CbC reports

information into their risk assessment models. For instance, the UK has fully incorporated CbC reporting within its

risk assessment process. The UK makes the CbC reports available to tax specialists so they can be reviewed as part

of annual risk reviews. In addition, risk analysis profiles are conducted on CbC reports to identify possible risks. The

resulting CbC reports are subject to further analysis and the UK will utilise other data it holds to ascertain if a risk

exists. The UK uses a number of risk profiles and continues to refine these to identify potential risks. The UK has a

training programme which all staff must complete before using a CbC report. CbC reports sent to case teams are

stored in limited access, secure folders.

Moreover, the OECD International Compliance Assurance Programme initiative uses also CbCR information to

assess risks of large MNE groups. More information on ICAP is available at: https://www.oecd.org/tax/forum-on-

tax-administration/international-compliance-assurance-programme.htm

- The CbC Report is potentially available to the tax administration in each tax

jurisdiction in which the MNE operates, whether the MNE operates through a local

subsidiary or a permanent establishment, either directly from the local taxpayer (and

subject to ‘local filing’ conditions

) or through exchange of information mechanisms;

- CbC reporting is one of the BEPS minimum standards, which means that members of

the OECD’s Inclusive Framework will be expected to adopt CbC reporting in accordance

with the stipulated standards, and commit to participate in the peer review process

to be

undertaken under the authority of the Inclusive Framework;

- CbC Reports contain confidential and potentially sensitive information. For this

reason, the minimum standard includes conditions regarding confidentiality;

- The OECD has produced substantial guidance on the implementation of CbC Report,

which is intended to result in consistent implementation internationally. Box 19 lists

the guidance provided by the OECD.

- Under the Inclusive Framework minimum standard, CbC Reports will normally be

filed by the UPE of each affected MNE group to the tax administration of the jurisdiction

in which that entity is resident. The Report will then be provided to the other tax

jurisdictions in which the MNE has a presence, through the exchange of information

mechanisms;

- In specified exceptional cases

the BEPS Action 13 Report provides for a back-up

mechanism whereby subsidiaries or permanent establishments may be required to

file the CbC Report directly with their local tax administration. This is known as ‘local

filing’.

3.4.1.1 Country by Country Reporting and developing countries

CbC Reports contain data that can assist in building a high-level picture of the global

operations of MNEs operating in their jurisdiction. Without the CbC Report, this information

would typically be very difficult to obtain directly from local MNE group entities.

CbC Reports can have relevance beyond transfer pricing and can assist tax administrations

to identify, at a high level, other risks relating to base erosion and profit shifting. For example,

a CbC Report may help to identify risks relating to permanent establishments or the location of a

The conditions in which local filing of a CbC Report are permitted (i.e. filing of the report by a constituent entity

of the MNE Group that is not the Ultimate Parent Entity) can be found in paragraphs 8(c) and 8 (d) of OECD (2017),

BEPS Action 13 on Country-by-Country Reporting – Peer Review Documents, OECD/G20 Base Erosion and Profit

Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-13-on-country-by-country-reporting-peer-

review-documents.pdf. See also Section 3.4.2, below.

The peer review process works through an evaluation made by ‘the peers’ (other jurisdictions of the Inclusive

Framework) through a monitoring process carried out by an ad-hoc group (the “CbC Reporting Group”) of the

framework put in place by a jurisdiction to implement the CbC reporting standard.

See Section 3.4.2, below.

company's tax residence. A CbC Report may also help to identify entities within the scope of

controlled foreign company rules or transactions within the scope of anti-avoidance measures

applying to low-taxed payments.

Countries that are not members of the Inclusive Framework will take a view on whether or

not to adopt CbC reporting, but it is likely to be beneficial to such countries. Countries that

are members of the Inclusive Framework are committed to adopt CbC reporting, although they

may temporarily ‘opt out’ of the BEPS Action 13 peer review, in limited circumstances. Such an ‘opt

out’ is available only for those countries that do not have any MNE groups headquartered in their

jurisdiction that would be subject to CbC reporting.

Choosing to ‘opt out’ also means that the

country will not be able to take advantage of exchange of information processes to receive CbC

Reports relating to resident subsidiaries or permanent establishments of the MNE groups

operating in its jurisdiction.

Alternatively, a country may opt to become a non-reciprocal jurisdiction, i.e. they would

collect, and exchange CbC Reports for affected MNE groups headquartered in their jurisdiction

with relevant other jurisdictions. They would not, however, receive CbC Reports from other

jurisdictions.

As described above, the primary mechanism by which many developing countries will be

able to access CbC Reports will be mainly though the exchange of information with the tax

jurisdiction of the UPE. There are, however, substantial prerequisites to such exchanges. These

are:

1. The country must have domestic legislation in place requiring any local UPE company

of an MNE group that meets the CbC Report size criterion to submit a CbC Report. This is the

case even if there are no such MNE groups headquartered in the country. This requirement reflects

the ‘principle of reciprocity’

in exchange of information, including the exchange of CbC Reports,

which means that countries will not exchange information with other jurisdictions unless the latter

is able to reciprocate.

It is recommended that countries base such domestic legislation on the model provided in

the BEPS Action 13 Report (which is discussed in detail below).

For the purpose of the peer review process, the terms of reference on CbC reporting notes that “… it is possible

that there are developing countries that do not have any MNE Groups headquartered in their jurisdiction that would

be subject to CbC reporting, and that are not yet ready to receive CbC Reports. In such cases, rather than find such

developing countries to have failed to implement CbC reporting, the peer review will instead require a certification

process whereby the jurisdiction could confirm that there are no MNE Groups within scope that are headquartered in

the country and documenting how that fact is known for the year in question.”

The commentary on Article 26 in the OECD Model Tax Convention on Income and on Capital concerning to the

principle of reciprocity in EOI procedures the following: “…It follows that a Contracting State cannot take advantage

of the information system of the other Contracting State if it is wider than its own system. Thus, a State may refuse to

provide information where the requesting State would be precluded by law from obtaining or providing the

information or where the requesting State’s administrative practices (e.g. failure to provide sufficient administrative

resources) result in a lack of reciprocity.”

2. Exchange of information mechanisms must be in place. These can be in the form of

membership of a multilateral exchange agreement (in most cases, the Multilateral Convention on

Mutual Administrative Assistance in Tax Matters); tax treaties incorporating exchange of

information provisions or specific tax information exchange agreements (TIEAs);

3. Protocols to allow for automatic exchange of CbC Reports under any such

agreements must be in place. These may take the form of:

- The Multilateral Competent Authority Agreement on the Exchange of Country-by-Country

Reports (‘CbC Report MCAA’), or

- Competent Authority Agreement on the Exchange of Country-by-Country Reports on the

basis of a Double Tax Convention (“DTC CAA”); or

- Competent Authority Agreement on the Exchange of Country-by-Country Reports on the

basis of a Tax Information Exchange Agreement (“TIEA CAA”).

4. Adoption of the CbC Report XML Schema. The format used for the exchange of

information between countries must comply with the OECD XML Schema and the information

provided must be in accordance with the OECD XML Schema User Guide.

5. To meet the ‘appropriate use’ condition i.e. that the information received is used only

for the purposes of assessing high-level transfer pricing and other BEPS-related risks, as well as for

economic and statistical analysis. (This is discussed in more detail below). Jurisdictions will not

exchange CbC Reports with countries which have not met the ‘appropriate use’ condition

(discussed below). This requires:

- domestic legislation or guidance containing the ‘appropriate use’ condition (This is

included in the model CbC Report legislation mentioned above);

- the introduction of safeguards to ensure that the ‘appropriate use’ criterion is implemented

in practice.

The provisions of the CbC MCAA and bilateral CAAs require a number of procedural steps in regard

to appropriate use, which are described in the box below. This appropriate use condition is subject

to a peer review.

Box 12 : OECD Guidance on the Appropriate Use of Information Contained in Country-

by-Country Reports (September 2017)

Paragraph 15

Under the recitals to the multilateral and model bilateral CAAs, jurisdictions indicate that they

have, or expect to have, in place by the time the first exchange of CbC Reports takes place,

appropriate safeguards to ensure that information received is used for the purposes of assessing

high-level transfer pricing risks and other BEPS-related risks, as well as for economic and

statistical analysis, where appropriate. Further, under paragraph 1(d) of Section 8 of the

multilateral CAA, a jurisdiction's competent authority must provide notification to the Co-

ordinating Body Secretariat "that it has in place the necessary legal framework and infrastructure

to ensure […] the appropriate use of the information in the CbC Reports". As such, tax authorities

will not exchange CbC Reports until this condition is met and, under the multilateral CAA, until

such notification has been provided. Similarly, under the Action 13 minimum standard, a

jurisdiction may not require a CbC Report to be submitted by an entity that is not the UPE of its

group (also referred to as local filing), unless that jurisdiction satisfies the appropriate use

condition and the other conditions for local filing in the Action 13 Report are met. Where a

jurisdiction imposes local filing in circumstances that are not permitted under the Action 13

Report, this will be identified during the jurisdiction's peer review evaluation. (emphasis added)

6. To meet the confidentiality condition, discussed in more detail below. This requires:

- the adoption of confidentiality conditions in domestic law (see Section 3.4.1.3 Further note

on appropriate use of CbC Report information);

- appropriate confidentiality conditions in international exchange of information

mechanisms;

- mechanisms to be in place to ensure that the conditions are met in practice.

Meeting the confidentiality and appropriate use conditions are prerequisites to receiving

and using CbC Reports. Jurisdictions may therefore want assurance that their exchange partners

meet these conditions.

The box below outlines the specific items under scrutiny in the peer review process:

At least equivalent to the protections that would apply if such information were delivered under the provisions

of the Multilateral Convention on Mutual Administrative Assistance in Tax matters, a Tax Information Exchange

Agreement or a tax treaty that meets the internationally agreed standard of information upon request. See

paragraph 57 of the BEPS Action 13 Final Report.

Box 13 : BEPS Action 13 on Country-by Country Reporting Peer Review Documents

OECD Feb 2017

Paragraph 11

With respect to confidentiality, jurisdictions should:

(a) Have international exchange of information mechanisms which provide that any information

received shall be treated as confidential and, unless otherwise agreed by the jurisdictions

concerned, may be disclosed only to persons or authorities (including courts and administrative

bodies) concerned with the assessment or collection of, the enforcement or prosecution in

respect of, or the determination of appeals in relation to, the taxes covered by the exchange of

information clause. Such persons or authorities should use the information only for such

purposes unless otherwise agreed between the parties and in accordance with their respective

laws;

(b) Have the necessary domestic rules or procedures to give effect to the restrictions contained

in the International Agreement and related Qualifying Competent Authority Agreement;

in CbC Reports which are received by way of local filing, which preserve the confidentiality of

the CbC Report to an extent at least equivalent to the protections that would apply if such

information were delivered to the country under the provisions of the Multilateral Convention

on Mutual Administrative Assistance in Tax Matters (OECD, 2011), a Tax Information Exchange

Agreement or a tax treaty that meets the internationally agreed standard of information upon

request as reviewed by the Global Forum;

(d) Have effective penalties for unauthorized disclosures or unauthorized use of confidential

information;

(e) Ensure confidentiality in practice, for instance having in place a review and supervision

mechanism to identify and resolve any breach of confidentiality;

(f) Respect the terms of the International Agreement and related Qualifying Competent

Authority Agreement, including the limitation on use of information received for taxable periods

covered by the agreement.

Many developing countries have legislation in place to ensure confidentiality of information

from taxpayers. As many developing countries are members of the Global Forum on Transparency

and Exchange of Information for Tax Purposes,

they would have undergone a review of their

domestic legislation and international agreements in order to verify whether they offer sufficient

As at October 2020, 125 jurisdictions have been assessed by the Global Forum on EOI upon request.

safeguards to preserve confidentiality.

Many of them were found to have sufficient safeguards in

place to ensure confidentiality and others have modified their legislation and introduced systems

and procedures to ensure confidentiality of documentation received on request from foreign

authorities. However, CbC reporting relies on automatic exchange of information, and few

developing countries have been reviewed in respect of the specific confidentiality aspects required

under this form of exchange of information. The confidentiality standard for the purpose of CbC

reporting requires countries taking some additional measures, such as protection of the

information systems.

7. To meet the consistency condition, discussed in detail below (see 3.4.1.4 Further note on the

Consistency condition).

These seven prerequisites to obtaining CbC Reports can be challenging for many developing

countries, which may not yet have the requisite exchange mechanisms in place. Even where they

are in place, some developing countries will face delays in entering into the necessary protocols

for the exchange of CbC Reports, and establishing the processes for ensuring consistency,

appropriate use and confidentiality in practice.

These factors may cause obstacles or delays for developing countries in receiving CbC

Reports. To address this, developing countries may consider giving some priority to putting in

place the relevant exchange of information mechanisms. The first step for many countries will

be signing the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

Requiring local filing under the ‘systemic failure’ condition (discussed below) could also help

countries to avoid obstacles or delays in receiving CbC Reports in cases where a jurisdiction fails

to exchange CbC Reports without adequate justification.

The BEPS Action 13 minimum standard

provides that local filing of the CbC Report may be

accepted in three specific circumstances, so long as a jurisdiction also meets conditions on

confidentiality, consistency and appropriate use of CbC reporting data. Some countries have

introduced a local filing obligation that is wider than that envisaged under BEPS Action 13, for at

least a transitional period until they are able to put in place the frameworks required to receive

CbC Reports from partner tax administrations. This would require local subsidiaries and permanent

establishments of MNEs that meet the CbC Report criteria to file CbC Reports directly with the local

tax administration. Such an option poses significant risks, including possibly in terms of investment

climate. This requirement will also negatively impact on any review of the jurisdiction’s compliance

This refers to the Peer Review process for EOI on request. This review consists of a review of the legal framework

(Phase I) and the practical application of the Standards (Phase II).

For the peer review purposes, the review relies on the confidentiality preliminary assessments carried out by the

Global Forum for the purpose of Common Reporting Standard.

By joining the Multilateral Convention, countries can access to a large exchange network. For information on how

to join see: A Toolkit for Becoming a Party to the Convention on Mutual Administrative Assistance in Tax Matters,

at https://www.oecd.org/tax/transparency/documents/MAAC-toolkit_en.pdf

Action 13 restricts ‘local filing’ by entities other than an ultimate parent entity to very specific circumstances. See

Box 15 on Description of the main provisions of the CbC Report model legislation.

with the BEPS Action 13 minimum standard. Countries covered by the Action 13 peer review that

introduced a filing requirement wider than provided by the BEPS minimum standard have received

recommendations to address this during their peer review by the Inclusive Framework and a

number have since introduced changes or address these recommendations.

3.4.1.2 Further Note on Confidentiality Condition

The report on BEPS Action 13 makes it clear that CbC Reports must be subject to

confidentiality safeguards at least equivalent to those contained in an exchange of information

instrument that meets the internationally agreed standard reviewed by the Global Forum on

Transparency and Exchange of Information for Tax Purposes:

“Jurisdictions should have in place and enforce legal protections of the confidentiality of the reported

information. Such protections would preserve the confidentiality of the Country-by-Country Report

to an extent at least equivalent to the protections that would apply if such information were delivered

to the country under the provisions of the Multilateral Convention on Mutual Administrative

Assistance in Tax Matters, a Tax Information Exchange Agreement (TIEA) or a tax treaty that meets

the internationally agreed standard of information upon request as reviewed by the Global Forum on

Transparency and Exchange of Information for Tax Purposes. Such protections include limitation of

the use of information, rules on the persons to whom the information may be disclosed, ordre public,

etc.”

Accordingly, information obtained through CbC Reports may only be disclosed to and used

by courts, administrative bodies and others involved in and for the purposes of assessment,

collection, or administration, enforcement or prosecution, or determination of appeals

concerning the taxes covered by the agreement. With very limited exceptions, tax

administrations cannot disclose exchanged information to persons or agencies not authorized

under the information exchange agreement or use such information for non-tax purposes.

In addition to the protections afforded by the confidentiality provisions of information

exchange instruments, confidentiality of CbC Report should be guaranteed in domestic laws.

Countries implementing CbC Reports should ensure confidentiality provisions in their domestic

laws equivalent to the international standard under an international agreement. Civil liability and

criminal penalties should be also in force for unauthorized disclosure of taxpayer data.

To ensure the protection of confidential information, countries will therefore need:

→ Protection in EOI mechanisms;

→ Robust domestic rules and procedures ensuring confidentiality in practice;

→ Effective penalties for unauthorized use or disclosure;

→ Procedures to address efficiently any confidentiality issues that may arise;

BEPS Action 13, Paragraph 57.

→ Information security management systems (i.e. monitoring of systems; application of

sanctions in case of unauthorized disclosures, etc.)

3.4.1.3 Further note on appropriate use of CbC Report information

The Final Report on BEPS Action 13 makes it clear that CbC Reports must be used only for

specific purposes, which constitute the condition on ‘appropriate use’.

“Jurisdictions should use appropriately the information in the Country-by-Country Report template

in accordance with paragraph 25. In particular, jurisdictions will commit to use the Country-by-

Country Report for assessing high-level transfer pricing risk. Jurisdictions may also use the Country-

by-Country Report for assessing other BEPS related risks. Jurisdictions should not propose adjustments

to the income of any taxpayer on the basis of an income allocation formula based on the data from

the Country-by-Country Report. They will further commit that if such adjustments based on Country-

by-Country Report data are made by the local tax administration of the jurisdiction, the jurisdiction’s

competent authority will promptly concede the adjustment in any relevant competent authority

proceeding. This does not imply, however, that jurisdictions would be prevented from using the

Country-by-Country Report data as a basis for making further enquiries into the MNE’s transfer

pricing arrangements or into other tax matters in the course of a tax audit”.

“… the information in the Country-by-Country Report should not be used as a substitute for a detailed

transfer pricing analysis of individual transactions and prices based on a full functional analysis and

a full comparability analysis. The information in the Country-by- Country Report on its own does not

constitute conclusive evidence that transfer prices are or are not appropriate. It should not be used

by tax administrations to propose transfer pricing adjustments based on a global formulary

apportionment of income.”

Guidance on ‘appropriate use’ is provided in the OECD publication: Country-by-Country

Reporting: Handbook on Effective Implementation

. The Report contains useful guidance on

the meaning of appropriate use, the consequences of non-compliance with the appropriate use

condition and approaches to ensure appropriate use (e.g. measures to restrict the access to CbC

Reports and measures to ensure that appropriate use is adequately evidenced). As a checklist, a

jurisdiction should be able to answer “yes” to six basic questions or should expect to be able to do

so before the first exchange of CbC Reports takes place as described in the box below.

BEPS Action 13, Paragraph 59.

Ibid, Paragraph 25.

See annex of the handbook.

Box 14 : Questionnaire on appropriate use of CbC Reports

(OECD Guidance on appropriate use)

1. Do the multilateral and/or bilateral competent authority agreements concerning CbC

Reporting signed by your jurisdiction include the appropriate use of information contained in

CbC Reports, as a condition of obtaining and using CbC Reports?

2. Does your tax authority have a clear written policy in place governing the use of CbC Reports,

including guidance on appropriate use?

3. Is this policy effectively communicated to all staff likely to have access to CbC Reports in the

course of their work?

4. Is the use of CbC Reports controlled or monitored to ensure appropriate use, which may

include: (i) imposing restrictions on access to CbC Reports, and/or (ii) ensuring that appropriate

use is adequately evidenced?

5. Is guidance or training provided to appropriate tax authority staff in your jurisdiction that

clearly sets out their commitments:

(i) to notify the Co-ordinating Body Secretariat (for exchanges pursuant to the multilateral CAA) or

other competent authority (for exchanges pursuant to the model bilateral CAAs) immediately of

any cases of non-compliance with the appropriate use condition; and

(ii) to promptly concede any competent authority proceeding that involves a tax adjustment using

an income allocation formula based on CbC Report information?

6. Are there measures in place to ensure controls are reviewed and updated as required, and the

outcomes of these reviews documented?

3.4.1.4 Further note on the Consistency condition

The Final Report on BEPS Action 13 makes it clear that domestic CbC reporting regimes must

be implemented in accordance with the internationally agreed standards.

“Jurisdictions should use their best efforts to adopt a legal requirement that MNE groups’ ultimate

parent entities resident in their jurisdiction prepare and file the Country-by-Country Report, unless

exempted as set out in paragraph 52. Jurisdictions should utilize the standard template contained in

Annex III of Chapter V of these Guidelines. Stated otherwise, under this condition no jurisdiction will

require that the Country-by-Country Report contain either additional information not contained in

Annex III, nor will it fail to require reporting of information included in Annex III.”

Consistency thus focuses on:

1. Implementing the CbC Report with a consistent format following the standard

template designed for these purposes and contained in the BEPS Action 13 Report. To avoid

unnecessary compliance burdens on taxpayers and to provide for efficiencies in analyzing the CbC

Reports, it is essential that countries follow closely the template as laid out in Annex III of BEPS

Action 13 Report. (See in Annex 8).

Ibid. Paragraph 58.

2. Requiring that MNE groups’ UPEs resident in their jurisdiction prepare and file the

CbC Report. A basic feature of the CbC Report is that it is generally filed only in the UPE’s country

of residence.

3.4.2 Filing mechanism

A CbC Report should be filed by UPE of the MNE in its jurisdiction of tax residence. This will

generally be the entity at the top of the ownership chain that is required to prepare consolidated

financial statements in its jurisdiction of residence, or would be required, if its equity interests were

traded on a public securities exchange in that jurisdiction.

Action 13 thus restricts ‘local filing’ by entities other than an UPE to very specific

circumstances, i.e. surrogate entity filing and constituent entity filing (also known as local filing).

There is no obligation under the minimum standard for a jurisdiction to introduce any of these

mechanisms. However, if a jurisdiction allows local filing (under the specific circumstances

described in Action 13 Report) or surrogate entity filing, the other required elements of the

minimum standard (e.g. the content of the report) should be applied to those reports in the same

way as to CbC Reports filed by UPEs resident in that jurisdiction. See Box 15 for further discussion

on surrogate and local filing, including the three circumstances under which local filing can be

invoked.

OECD (2017), Country-by-Country Reporting: Handbook on Effective Implementation, OECD, Paris: p16.

www.oecd.org/tax/beps/country-by-country-reporting-handbook-on-effective-implementation.pdf.

Figure 2 : Local filing of CbC Reports

This diagram

illustrates the circumstances under which a local filing requirement would be

consistent with the minimum standard. It assumes that the constituent entity is a resident of the

local jurisdiction while the UPE is a resident of another jurisdiction and that there is an international

agreement which permits automatic exchange of information to which the residence jurisdiction

and the local jurisdiction are parties.

Ibid. p21.

3.4.3 Format and Content

The BEPS Action 13 minimum standard requires the CbC Report to include aggregate

jurisdiction-wide tax information in three standard tables (see Annex 8) consisting of:

→ Information on the allocation of income, taxes and business activities by tax jurisdiction

(Table 1 of the Template);

→ A list of all constituent entities of the MNE group by tax jurisdiction (Table 2 of the

Template); and

→ Any further brief information or explanations that might be considered necessary or that

would facilitate the understanding of the compulsory information provided in the CbC

Report (Table 3 of the Template).

Table 1 of the template provides an overview of the MNE group’s allocation of income, taxes and

business activities, aggregated by tax jurisdiction. The information required consists of:

→ Revenues, broken down between unrelated and non-related parties

→ Profit (Loss) before Income Tax

→ Income Tax Paid (on Cash Basis)

→ Income Tax Accrued – Current year

→ Stated Capital

→ Accumulated Earnings

→ Number of Employees

→ Tangible assets other than Cash and Cash Equivalents

Table 2 requires information to be provided by tax jurisdiction and consists of:

→ The list of Constituent Entities Resident in each Tax Jurisdiction

→ The Tax Jurisdiction of Organization or Incorporation if Different from Tax Jurisdiction of

Residence

→ The main Business Activity(ies): for the purpose of determining the nature of the main

business activity(ies) carried out by the Constituent Entity in the relevant tax jurisdiction

Table 2, contains a predetermined list of economic activities, which includes, among other

the following activities: research and development; purchasing or procurement;

manufacturing; sales, marketing or distribution; administrative, management or support

services; provision of services to unrelated parties; financing; insurance; Holding Shares or

Other Equity instruments; Dormant; and other (which nature should be specified in Table

3 of the template).

All the terms listed above and contained in the CbC Report template are defined in Action 13 report

and additional guidance issued by OECD.

3.4.4 Legislative and regulatory framework

3.4.4.1 Introduction

The BEPS Action 13 Report includes model legislation available to jurisdictions to use when

developing their own domestic rules.

Jurisdictions can adapt this as needed, and supplement if

required with secondary legislation or supplementary guidance. The model addresses the

‘consistency’ issues mentioned above and includes provisions on confidentiality and appropriate

use.

This Toolkit suggests that developing countries base their domestic legislation as far as

possible on the ’model’, to achieve consistency and certainty of approach. Building on the

model legislation will also help countries meet the terms of reference of the peer review process.

The model legislation does not include a provision on penalties. It is thus up to countries to

supplement the legislation to include enforcement measures in line with domestic policies.

3.4.4.2 The use of primary legislation, secondary legislation and guidance

Guidance on implementation of CbC Reports is still being developed. Taking into account that

the guidance in the report is currently being revised in the context of the 2020 review of the

standard and the outcomes of the 2020 review are expected to be released in 2021, developing

countries can consider regulating through the primary legislation the high-level principles, leaving

scope to enable the subsequent introduction of the more detailed reporting requirements through

subsidiary legislation/regulations or guidance. This is to ensure greater flexibility when making any

subsequent amendments. Cross-referencing the OECD guidance in domestic guidance is a solution

adopted by some countries to help ensure consistency and to maintain up-to-date information for

taxpayers.

OECD (2018), Guidance on Country-by-Country Reporting: BEPS Action 13, OECD, Paris.

http://www.oecd.org/tax/beps/guidance-on-country-by-country-reporting-beps-action-13.htm

BEPS Action 13. p39.

3.4.4.3 Interpreting the model legislation

Box 15 : Description of the main provisions of the CbC Report model legislation

Article 1 – Definitions

Article 1 of the model legislation sets out a list of defined terms which should be contained in

the CbC reporting legislation such as: the definition of an MNE group, and which MNE groups

are subject to CbC Reporting; the definition of a reporting entity; the definition of a reporting

fiscal year. Additionally, if not regulated elsewhere, the definition of Consolidated Financial

Statements, should be also considered.

Further clarifications on these definitions have been provided in the OECD Guidance on the

Implementation of CbC reporting which is regularly updated.

Article 2 – Filing obligation

Paragraph 1 is about who must file the CbC Report. According to the BEPS Action 13

minimum standard, CbC Reports should be required only by MNE groups with annual total

consolidated group revenues of EUR 750 million or a near equivalent in domestic currency as of

January 2015, as reflected in their Consolidated Financial Statements for the preceding fiscal

year.

In principle, the filing obligation falls on the UPE. However, it is possible for an MNE group under

certain conditions to appoint a different reporting entity to file the CbC Report on behalf of the

MNE group.

This entity is known as the Surrogate Parent Entity.

The determination as to whether an MNE Group must file a CbC Report should generally be

made based on the accounting principles used by the UPE of the group. However, if the MNE

group is not listed on a public securities exchange, it may choose to apply either its domestic

accounting principles (local Generally Accepted Accounting Principles (GAAP)) or International

Financial Reporting Standards (IFRS).

For further guidance on the definitions of ‘Consolidated Financial Statements’ and the

term ‘revenues’, countries might want to refer to the guidance prepared and updated

regularly by the OECD.

OECD Guidance on the Implementation of Country-by-Country Reporting

http://www.oecd.org/tax/beps/guidance-on-the-implementation-of-country-by-

country-reporting-beps-action-13.htm

Paragraph 2 sets out provisions which would require local filing of CbC Reports in

particular circumstances. These provisions are not part of BEPS Action 13 minimum standard

and are therefore optional: it is up to each country to decide whether or not to introduce this

secondary, back-up mechanism in its domestic legal framework. Local filing refers to a situation

BEPS Action 13, Article 2.3 of the Model Legislation. P.41.

OECD, (2018), Guidance on the implementation of Country-by-Country Reporting - BEPS Action 13, OECD, Paris,

p20. www.oecd.org/tax/guidance-on-the-implementation-of-country-by-country-reporting-beps-action-13.pdf.

where a constituent entity of an MNE group (e.g. a local subsidiary) which is neither the UPE nor

the group’s nominated surrogate parent entity is required to file the CbC Report directly with its

local tax administration. The limited circumstances where the local filing is permitted under the

Action 13 minimum standard are where:

→ the UPE of the MNE group is not obligated to file a CbC Report in its jurisdiction of tax

residence; or

→ the jurisdiction in which the UPE is resident for tax purposes has a current International

Agreement to which the local jurisdiction is a party but does not have a Qualifying

Competent Authority Agreement in effect to which the local jurisdiction is a party by the

time for filing the CbC Report for the Reporting Fiscal Year; or,

→ there has been a Systemic Failure of the jurisdiction of tax residence of the UPE and the

local MNE affiliate taxpayer has been notified of this failure by its tax administration.

Under the BEPS minimum standard, local filing cannot be applied in any other

circumstance: in particular, it is noteworthy that with respect to the second condition mentioned

above, local filing cannot be applied in the absence of an International Agreement.

The term “Systemic Failure” with respect to a jurisdiction, means that a jurisdiction has a

qualifying competent authority agreement in effect, but has suspended automatic exchange (for

reasons other than those that are in accordance with the terms of that Agreement) or otherwise

persistently failed to automatically provide to a treaty partner relevant CbC Reports in its

possession.

Article 3 – Notification

The notification requirements impose an obligation on local MNE affiliates to provide advise

their tax administration as to:

→ whether it is the UPE or the group’s nominated surrogate parent entity of an MNE group

that is required to file a CbC Report, and

→ where the local entity will not itself be responsible for filing the CbC Report, the identity

and tax residence of the entity filing the CbC Report on behalf of its MNE group (i.e.

typically its UPE).

This provision also does not form part of the minimum standard. It is an optional requirement

whose purpose is to assist a jurisdiction in applying its domestic rules and anticipating the

number of CbC Reports it will receive locally as well as from other jurisdictions through automatic

exchange of information.

Article 4 – Country-by-Country Report

This Article describes the content of CbC Reports. It expressly provides that CbC Reports should

be filed in a form identical to the standard template set out at Annex III of the BEPS Action 13

Report, applying the definitions and instructions contained in that Report.

Article 5 – Time for filing

The BEPS Action 13 Report requires the CbC Report to be submitted within twelve months after

the last day of the reporting fiscal year of the MNE group.

This extended period recognizes that in some instances final statutory financial statements and

other financial information that may be relevant for the CbC Report may not be finalised until

after the due date for tax returns in some countries.

Article 6 – Use and Confidentiality of CbC Report information

This Article defines two of the conditions underpinning the obtaining and the use of the Country-

by-Country Report: confidentiality and appropriate use.

Article 7 – Penalties

Jurisdictions' domestic laws will normally impose penalties where entities do not comply with

filing requirements. The model legislation does not include provisions regarding penalties for

failure to comply with filing requirements, recognizing that jurisdictions might choose to apply

their transfer pricing documentation penalty regime to the requirement to file the CbC Report.

Penalties should be applied by the tax authority of the reporting entity, which could be the

jurisdiction of the UPE, jurisdiction of another entity of the group appointed by the UPE (under

surrogate filing) or the jurisdiction of the local jurisdiction (in the case of local filing).

Article 8 – Effective Date

Defines the date when legislation will be effective.

3.4.5 Enforcement

To ensure compliance with the obligation to file CbC Reports countries might want to consider

introducing penalties in respect of:

→ failure by a resident UPE of large MNE group (or other local entity required to file locally)

to file a complete CbC Report to the local tax administration;

→ late filing of CbC Report; and

→ filing of an incorrect CbC Report.

The tax administration of the entity obliged to file a CbC Report is responsible for levying

penalties in respect of CbC reporting, i.e. the tax administration of the UPE, the tax administration

A majority of jurisdictions allow 12 months from the reporting year-end to file the CbC Report, with legislation

providing language consistent with the proposal of Article 5 of the model legislation contained in the Action 13

Report.

BEPS Action 13, Paragraph 31.

of the surrogate parent entity or the local tax administration in case of local filing, as relevant. Note

that in addition to penalties which may apply in relation to the CbC Report itself, in some

jurisdictions there may be requirements for local constituent entities of an MNE group to notify

their tax administration of the identity of the group reporting entity, i.e. the entity within the MNE

group that is obliged to file the CbC Report. In such cases, penalties might also apply to the local

taxpayer in case of failure of notification

One option is to impose a penalty according to the delay in making a complete submission,

computed, for example, by reference to a sum per day for the period between the due date for

submission and the submission of a completed CbC Report. A second option is to provide for a

penalty based on a fixed sum, or an amount based on the size of the MNE group (e.g. as measured

by its global consolidated turnover).

Many countries will vary the amount of the penalty to take account of the level of culpability.

For example, a simple arithmetical error may attract a smaller penalty than a deliberate attempt to

misstate figures. Some countries may deem the submission of a willfully incorrect CbC Report as a

matter of criminal law.

Penalty provisions may be specific to CbC Report or based on existing general penalties for

failure to file a return or for making an incorrect return. Section 6 of the sample legislation in

Annex 1 includes provisions on penalties for non-compliance with CbC Reports.

Belgium is one of the countries which has a notification obligation concerning CbC reporting. This is mandatory

for all Belgian constituent entities of an MNE group which have to submit a CbC Report. These Belgian constituent

entities have to inform the Belgian tax administration at the very latest on the last day of the reporting fiscal year

of the multinational group if they are the ultimate parent entity, the surrogate parent entity or the Belgian

constituent entity as described in Article 321/2, § 2 BITC, or, if they are none of those, they have to indicate the

identity of the reporting entity. See Annex 5 on the Belgium transfer pricing documentation package.

Box 16: Country Practices - CbC Reporting’ penalties for non-compliance

Extract from Nigeria’s (CbC Reporting) Regulations

“11. [Late filing] Where a Reporting Entity fails to file the Country-by-Country Report to the

Service on or before the date specified in regulation 9 of these Regulations, the Service shall

impose an administrative penalty of NGN 10 000 000 in the first instance and NGN 1 000 000

for every month in which the default continues.

12. [Filing and incorrect or false CbC Report] Where a Reporting Entity files an incorrect or false

Country-by-Country Report, the Service shall impose an administrative penalty of

NGN 10 000 000.

13. [Failure to provide notification] Where a Constituent Entity of an MNE Group that is resident

for tax purposes in Nigeria fails to provide the notification specified under regulations 6 of these

Regulations, the Service shall impose an administrative penalty of NGN 5 000 000 in the first

instance and NGN 10 000 for every day in which the default continues.”

3.4.6 Practical issues on the implementation of CbC Reporting

CbC Reports received by a tax administration from an UPE or an MNE group’s nominated

surrogate entity (if applicable) should be exchanged with tax administrations in other

jurisdictions where the MNE group has either resident entities or permanent establishments. For

this process to be effective, two main issues may present practical challenges for developing

countries. These are (i) having the technology to allow electronic filing of the reports, and (ii) the

technology for exchanging the reports with treaty partners.

3.4.6.1 Electronic filing of the CbC Report

Since jurisdictions need to exchange CbC Reports in an agreed XML format (see below), it is

advisable that the same format be required of taxpayers for filing purposes. This is to avoid

the tax administration having to convert the data into a different format, which can be very

resource-consuming.

There is no obligation under the Action 13 minimum standard for MNE groups to submit a

CbC Report using the OECD XML schema (CbC XML Schema), and therefore, many jurisdictions

have provided flexibility as to the format in which a CbC Report may be submitted. However, the

Multilateral Competent Authority Agreement on the Exchange of CbC Reports includes a

commitment for competent authorities to use the CbC XML Schema to transmit CbC Reports to

other jurisdictions. Therefore, if an MNE group is allowed to submit its CbC Report in an alternative

format (e.g. using Excel), the tax administration/competent authority in the jurisdiction is, in effect,

committed to converting the CbC Reports into the CbC XML Schema format itself.

Income Tax (Country-by-Country Reporting) Regulations, 2018. Available at:

https://www.firs.gov.ng/sites/Authoring/contentLibrary/d9dae9a0-3d22-48fa-bdec-

34e59d7a001bOfficial%20Gazette%20of%20Income%20Tax%20CbC%20Regulations%202018.pdf

While it is possible to convert alternative formats into XML, there can be technical challenges

to doing so in practice. Moreover, there are validation checks built into the CbC XML schema to

ensure that all required fields are completed and that the correct formatting is used. These

validation checks do not exist in other formats, so there is also the risk that the CbC Reports

received in other formats may be incomplete or incorrectly formatted.

Filing formats of CbC Reports vary across jurisdictions. While some countries require all CbC

Reports to be submitted in XML (either OECD CbC XML schema or self-developed domestic

reporting XML format),

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other countries allow filing in other forms. A few examples are listed

below:

Box 17 : Filing formats of CbC Reports

Only XML: UK, Australia, Cayman Islands

XML or Comma Separated Value (CSV) file:

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Japan

XML but allow submission of a paper return containing the CbC Report form: US, Canada

3.4.6.2 Sharing and receiving CbC Reports

The exchange of CbC Reports is governed by international agreements, i.e. bilateral double

tax conventions, TIEAs or the Convention on Mutual Administrative Assistance in Tax Matters. In

contrast to certain other types of tax information, CbC Reports must be exchanged automatically

rather than spontaneously or on request.

The exchange will be done only with jurisdictions with a competent authority agreement in

place which “operationalizes” the exchange under the international agreement. To identify the

jurisdictions with which the CbC Report must be exchanged, the tax administration will rely on

Table 1 of the CbC Report for the list of jurisdictions where the MNE group has operations. Tax

administrations will then match this list against the jurisdictions with which it has a qualifying

competent authority agreement in effect.

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The OECD has developed an XML Schema for intergovernmental exchanges which countries

have agreed to use to exchange CbC Reports through a Common Transmission System. The

way this exchange takes place is described in the Handbook on Effective Implementation of

Country-by-Country Reporting prepared by the OECD. An extract of this is provided in the

following box.

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Although countries are free to determine the reporting format, based on their usual forms/practice etc. They all

need to exchange in the OECD CbC XML format.

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A Comma Separated Value (CSV) file allows data to be saved in a table structured format. The CSV file takes the

form of a text file containing information separated by commas, hence the name. CSV files can be used with any

spreadsheet program, such as Microsoft Excel, Open Office Calc, or Google Spreadsheets.

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The OECD maintains a database with all bilateral exchange relationships that are currently in place for the

automatic exchange of CbC Reports between tax authorities. See www.oecd.org/tax/beps/country-by-country-

exchange-relationships.htm

Box 18 : The common transmission system – Handbook on Effective Implementation of

Country-by-Country Reporting

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Except for the transmission of CbC Reports between members of the European Union through

the EU CCN, CbC Reports will be largely transmitted through the CTS. The CTS is an electronic

platform that facilitates the automatic exchange of information between countries, in particular

for information pursuant to the Common Reporting Standard, CbC Reports, and tax rulings. The

CTS will be operated by the OECD and will be available to participating jurisdictions for an annual

fee. The CTS will provide a secure and standardized platform for the automatic exchange of

information and relieve individual jurisdictions from the requirement to develop numerous

bilateral arrangements and systems.

A competent authority that will utilize the CTS must become familiar with the specific protocols

associated with sending and receiving CbC Reports through this platform. CTS users will be

provided with access to the CTS portal which will contain all relevant information for using the

CTS, as well as information on preparing and encrypting files to be transmitted.

The information contained in the CbC XML Schema must be prepared and encrypted prior to

transmission in accordance with the common file preparation and encryption approach agreed

to at the level of the OECD. In general terms, the encryption process for the CTS involves the

combination of private and public encryption/decryption keys. A competent authority’s public

encryption key is available to other competent authorities to allow them to authenticate and

encrypt files being sent to the competent authority. Each competent authority also maintains a

private key that allows it to decrypt files received through the CTS.

Under the CTS, alerts will be automatically generated regarding the status of the transmission

(uploaded, downloaded) and status messages are expected to be generated by the receiving

competent authority indicating whether the file received contains any of the agreed file or record

errors. File errors will generally entail the receiving competent authority is not in a position to

open the file and, therefore, a status message would normally be sent to the sending competent

authority with a view to receiving a new file.

Record level errors relate to key issues of data quality. Where record level errors are

communicated to the sending competent authority by the receiving competent authority it is

expected that the sending competent authority would take action to address any errors and

provide the receiving competent authority with new or amended information on a timely basis.

As part of its obligations to protect the confidentiality of the information contained in the CbC

Reports, the competent authorities should also take measures, where applicable:

• to ensure the confidentiality and the custody of any log-in identification, passwords, and

decryption keys used for the transmission of CbC Reports

• to protect any computers accessing the transmission system and ensure that only

designated personnel (personnel who work with CbC Reports in the course of their

duties) have access to the data

• to ensure that the CbC Reports received from other countries are securely stored while

in the custody of the competent authority and then securely transmitted or made

accessible to the tax authority’s risk assessment personnel.

For competent authorities receiving CbC Reports outside the CTS or CCN, the receiving

competent authority should put into place a system to notify the sending competent authority

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OECD (2017), Country-by-Country Reporting: Handbook on Effective Implementation, OECD, Paris (paragraphs

92-97) www.oecd.org/tax/beps/country-by-country-reporting-handbook-on-effective-implementation.pdf

of the delivery status of the CbC Reports, to verify that it is the correct recipient, and notify the

other competent authority if there are errors or problems with the quality of the data in the

reports.

3.4.6.3 Implementation tools

The box below summarizes the guidance and tools developed by the OECD to assist countries

implement CbC reporting requirements.

Box 19 : Implementation tools for CbC reporting

BEPS Action 13 Report

The BEPS Action 13 Report modifies Chapter V of the OECD Transfer Pricing Guidelines, which

provides guidance on transfer pricing documentation, including CbC reporting. The report

contains an implementation package in order to facilitate the consistent implementation of the

CbC reporting standard, consisting of:

→ model legislation which could be used by countries as the basis of domestic legislation

to require MNE groups to file CbC Reports and

→ three models of competent authority agreements may be used to facilitate the

implementation of the exchange of those reports among tax administrations.

Interpretation guidance for the implementation of CbC reporting

A number of questions have arisen after the publication of Action 13 Report concerning the

scope, content, filing and sharing mechanism of the CbC Reports. Guidance on interpretative

questions can be found in the document: “Guidance on the Implementation of CbC Reporting:

BEPS Action 13”. This guidance is regularly updated by the OECD

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and published on its website:

www.oecd.org/ctp/guidance-on-the-implementation-of-country-by-country-reporting-beps-

action-13.pdf.

Report on the appropriate use of the CbC Report

The guidance on the appropriate use of the information contained in CbC Reports includes

guidance on the meaning of "appropriate use", the consequences of non-compliance with the

appropriate use condition and approaches that may be used by tax administrations to ensure

the appropriate use of CbC Report information.

www.oecd.org/ctp/beps/beps-action-13-on-country-by-country-reporting-appropriate-use-

of-information-in-CbC-reports.pdf

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See CbC Report portal: http://www.oecd.org/tax/beps/country-by-country-reporting.htm#guidance.

Handbook on effective implementation of CbC Reporting

The Country-by-Country Reporting: Handbook on Effective Implementation is a practical guide

to the key elements that countries need to keep in mind when introducing CbC reporting,

including technical issues related to the filing, exchange and use of CbC Reports, as well as

practical matters that tax administrations will need to deal with.

www.oecd.org/tax/beps/country-by-country-reporting-handbook-on-effective-

implementation.pdf

XML Schema and User guide

To accommodate the electronic exchange of the CbC Reports a standardised electronic format

for the exchange of CbC Reports between jurisdictions (the CbC XML Schema), together with a

User Guide, have been developed and made available on the OECD website.

The CbC XML Schema User Guide further explains the information required to be included in

each data element to be reported. It also contains guidance on how to make corrections to data

elements within a file.

Both files are available here:

http://www.oecd.org/tax/automatic-exchange/about-automatic-exchange/country-by-

country-reporting-xml-schema-user-guide-for-tax-administrations-and-taxpayers.htm

Terms of Reference and methodology for the Peer Review process

The peer review evaluates the Inclusive Framework member’s implementation of the standard

against an agreed set of criteria. These criteria are set out in terms of reference, which include

each of the elements that a jurisdiction needs to demonstrate it has fulfilled in order to show

proper implementation of the standard.

The manner in which the peer review is undertaken is set out in an agreed methodology. The

methodology sets out the procedural mechanisms by which jurisdictions will complete the peer

review, including the process for collecting the relevant data, the preparation and approval of

reports, the outputs of the review and the follow up process.

The terms of reference and methodology are available here:

http://www.oecd.org/tax/beps/beps-action-13-on-country-by-country-reporting-peer-review-

documents.pdf

There are also some tools available to assist developing countries to assess whether their

legislation and administrative practice are compliant with the G20/OECD BEPS

confidentiality standards. These include the terms of reference on exchange of information which

set outs the minimum standard on confidentiality,

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and the Guide “Keeping It Safe”

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on the

protection of confidential information exchanged for tax purposes, which provides guidance on

the rules and practices that must be in place to ensure the confidentiality of tax information

exchanged under exchange of information instruments. Although these documents have been

prepared for the purpose of ensuring confidentiality of information received from EOI treaty

partners, the recommendations contained therein are best practices that will similarly apply for any

type of information received by whichever means.

3.5 Other information gathering mechanisms (Transfer pricing

questionnaires and ad hoc information requests)

Another information gathering mechanism, less commonly or systematically used by

countries, is targeted transfer pricing questionnaires.

In most cases, the completion of such questionnaires by local taxpayers is not mandatory. They can

be issued in the framework of:

1. the risk assessment of a specific taxpayer, in which case the transfer pricing questionnaire

is requested after an initial review of the taxpayer’s tax return by the tax administration; or,

2. a general compliance program or initiative which targets certain groups of taxpayers (e.g.

taxpayers operating in certain industries) and focused on particular areas of risk (e.g. financing or

business restructurings) as a means for selecting taxpayers for audits and/or to facilitate actual field

audits.

Requests for additional information may also be required to verify a taxpayer’s transfer

prices and accompanying analysis, for example, during an audit. As such requests will

necessarily need to be tailored to the particular circumstances of the case, and the type and range

of additional information required; it is beyond the scope of this toolkit to discuss their content.

Guidance on understanding the controlled transactions, together with the relevant contributions

of each associated enterprise (e.g. their functions, assets and risks) can be found in the OECD

Transfer Pricing Guidelines and the UN Transfer Pricing Manual. In addition, the Toolkit for

Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analyses contains

resources such as a sample Functional Analysis Questionnaire (at Appendix 1).

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See the Terms of Reference for Exchange of Information at: OECD (2016), Exchange of Information on Request:

Handbook for Peer Reviews 2016 – 2020, Third Edition. OECD, Paris. http://www.oecd.org/tax/transparency/global-

forum-handbook-2016.pdf and OECD (2018), Standard for Automatic Exchange of Financial Information in Tax

Matters - Implementation Handbook – Second Edition, OECD, Paris. http://www.oecd.org/tax/exchange-of-tax-

information/implementation-handbook-standard-for-automatic-exchange-offinancial-account-information-in-

tax-matters.htm

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OECD (2012), Keeping It Safe: The OECD Guide on the Protection of Confidentiality of Information Exchanged

for Tax Purposes, OECD, Paris. http://www.oecd.org/ctp/exchange-of-tax-information/keeping-it-safe.htm -

Available in English, French and Spanish.

3.5.1 Functions of transfer pricing questionnaires and ad hoc information requests

Transfer pricing questionnaires can fulfil different functions:

→ They could be used for conducting risk assessments and analyses at an industry or sectoral

level. In such cases the questionnaire will normally target certain groups of taxpayers and

will be focused on particular areas of risk as a means for selecting taxpayers for audits

and/or to facilitate actual field audits,

→ They can be required, either at the beginning or during the audit, to provide additional

information to tax auditors;

→ They can be required to determine whether the taxpayer has maintained adequate

documentation.

Ad hoc information requests are normally used to supplement existing information already

available to the tax administration during the course of an audit. Such information requests are

often requested to verify the taxpayer’s transfer pricing analysis, including the functional analysis

that underpins the determination of arm’s length transfer prices. Information and documentation

requests made in the context of an audit are typically issued under formal information powers,

specifying a deadline for submission, and backed by penalties for non-compliance.

3.5.2 Format and content

The questions to be formulated in transfer pricing questionnaires or ad hoc information requests

will depend on their purpose. They can include requests for financial data, other statistics (e.g.,

headcount by division), functional information, organizational set up, and explanations of

financial/economic performance. Questions can also be aimed at seeking further explanation on

the transfer pricing analysis, such as choice of method or assumptions built into an economic

analysis.

3.5.3 Regulatory framework

Transfer pricing questionnaires and ad hoc information requests are usually subject to existing

record keeping and information gathering rules.

3.5.4 Timing issues

Transfer pricing questionnaires can potentially be requested at any time, depending on their

purpose, as discussed above. For instance, audit questionnaires may be required from a category

of taxpayers as part of a risk assessment on a sectoral basis. Alternatively, they may be requested

of an individual taxpayer as part of, or after, an initial review of the taxpayer’s tax return.

Ad hoc information requests are typically requested during an audit.

3.5.5 Enforcement

Where the completion of a questionnaire is mandatory, penalties may apply for failure to

submit the questionnaire. In addition, a failure to comply with valid requests for information

during an audit may impact on penalties which are applied to transfer pricing adjustments. For

example, such failure may be regarded as ‘non-cooperation’.

In some other cases, a questionnaire will be non-statutory, and thus not subject to penalties.

However, failure to return a questionnaire used for risk assessment purposes may impact on the

level of perceived risk the taxpayer poses to the revenue.

The penalty regime which may apply to ad hoc information requests will depend on how

such requests are incorporated into the domestic law and supporting regulations. Most

commonly, a taxpayer’s response is normally required within a specified time period, and penalties

can apply if the taxpayer fails to meet this requirement. Responses to any ad hoc information

requests during an audit will often be relevant to penalties which may be applied to any audit

adjustment which ultimately ensues. For instance, a taxpayer that responds fully and within

reasonable time frames to such requests during an audit may be eligible for a lower rate of

penalties than a taxpayer that is less co-operative.

3.5.6 Confidentiality

Information provided to tax authorities in transfer pricing questionnaires or ad hoc information

requests should be subject to the same level of confidentiality as that applies to tax returns and to

other taxpayer information.

PART IV. CONCLUSIONS

Transfer pricing documentation is an integral component of the administration of any

transfer pricing regime. In particular, the adoption of transfer pricing studies (described in Section

3.3) can be expected to significantly enhance taxpayer compliance and audit effectiveness.

In addition, there are strong arguments for the adoption by developing countries of transfer

pricing returns or schedules (described in Section 3.2) and CbC Reports. It is recognized, however,

that the resource commitment to implement these measures may not reflect the immediate needs

and policy priorities of some low-capacity jurisdictions.

The Toolkit has illustrated that, with the exception of CbC reporting, there are marked

variations in country approaches to many aspects of transfer pricing documentation. These

include the form and content of legislation and regulations; the amount and type of guidance;

simplification for smaller taxpayers and low risk transactions; the content and format of transfer

pricing studies and return schedules; and penalties. Countries legitimately adopt approaches to

these issues that best suit their circumstances and policy preferences.

There are, however, benefits to both tax administrations and taxpayers if jurisdictions are

consistent in their approaches. Adopting similar requirements for transfer pricing studies and

transfer pricing returns, allowing taxpayers to file in the same format, or at least collect the same

information in a number of jurisdictions, can be expected to reduce taxpayer compliance costs and

improve compliance. The master file and local file developed under Action 13 of the BEPS initiative

provides a template to facilitate this. In particular, the marginal cost of filing a master file in

developing countries should be low, given that, for many MNEs, such a file would already exist

within the MNE group.

With respect to CbC reporting, international consistency is vital. Indeed, ‘consistency’ is an

element of the BEPS minimum standard. Members of the Inclusive Framework commit to adopting

the standard and to agree to be peer reviewed. There is still room for some variation, however,

with regards to the wording and form of implementing legislation and on administrative issues

such as penalties for non-filing.

CbC reporting can undoubtedly provide very valuable information to developing countries.

Section 3.4.1.1 above notes, however, that the mechanisms and conditions for access to CbC

Reports (in relation to subsidiaries and permanent establishments of foreign MNEs) may be

challenging for many developing countries. This might be addressed by prioritizing the requisite

international exchange mechanisms, with the support of regional and international organizations.

Developing countries and international and regional organizations should monitor the

effectiveness of CbC reporting with a view to inputting into any future review of the minimum

standard by the Inclusive Framework.

ANNEX 1

Sample primary legislation to implement transfer pricing documentation requirements

A sample set of provisions establishing a specific transfer pricing documentation regime is

set out below. These sample provisions are general in nature and in the form of simplified legal

provisions. Importantly, they do not take into account the individual circumstances of any particular

tax system. For example, many systems integrate their transfer pricing documentation and

adjustment penalties with their general administrative and criminal penalties. The ultimate legal

framework for a transfer pricing documentation regime in any given country would need to take

into account the existing framework, together with the specific legal tradition and system, of the

country concerned. Further, the more detailed requirements (e.g. format of required

documentation) need not be reflected in the overarching law but could form part of any underlying

regulations. The overarching legal framework may merely operate to support the obligation to

keep transfer pricing documentation. Penalty figures provided in this sample legislation are for

illustrative purposes.

1. Required documentation

(1) If the total value of controlled transactions to which a person is a party exceeds

[minimum threshold], that person must –

prepare, maintain, and, upon request by the Commissioner-General, make

available contemporaneous documentation comprising —

a master file as set out in paragraph 1 of Schedule 1;

(ii) a local file as set out in paragraph 2 of Schedule 1; and

submit, together with the person’s annual tax return, a Transfer Pricing

Annual Return Schedule in the format prescribed by the Commissioner-

General.

(2) A person must, in addition to the obligation under subsection (1), prepare and

submit a CbC Report in accordance with [Article 2 of the model legislation related

to Country-by-Country Reporting – see BEPS Action 13: 2015 Final Report].

(3) Contemporaneous documentation means documentation and information

prepared on or before the last day for the filing of the tax return for a tax year as

required by the tax law that is relied upon by the person in determining the amount

of revenue, gains, deductions, profits or losses arising in respect of controlled

transactions to which the taxpayer is a party in respect of that year.

(4) The documentation obligations of a person under this section are in addition to

any record-keeping obligations applicable to the person under the tax law.

2. Provision of documentation and CbC report

(1) A person must provide the documentation prepared under section 1(1)(a) to the

Commissioner-General within 30 days of a written request issued by the

Commissioner-General.

(2) A person must submit a CbC Report prepared under section 1(2) to the

Commissioner-General on or before the date specified in [Article 5 of the model

legislation related to Country-by-Country Reporting – see BEPS Action 13: 2015

Final Report].

3. Burden of proof

(1) Subject to subsection (2), the onus is on the taxpayer to prove, on the balance of

probabilities, that the determination of the amount of revenue, gains, deductions,

profits or losses arising in respect of controlled transactions to which the taxpayer

is a party is consistent with the arm’s length principle.

(2) Where the taxpayer has fully complied with a request received from the

Commissioner-General under section 2(1) and otherwise complies with all other

related requests in the course of any tax audit, the onus is on the Commissioner-

General to prove, on the balance of probabilities, that the determination of the

amount of revenue, gains, deductions, profits or losses arising in respect of

controlled transactions to which the taxpayer is a party is not consistent with the

arm’s length principle.

4. Power of Commissioner-General to request additional information

The obligation of a person to provide documentation under section 2 is established without

prejudice to the power of the Commissioner-General to request additional information that

is considered necessary in the course of a tax audit.

5. Penalty for failing to maintain documentation

(1) A person who fails to prepare and maintain documentation as required under

section 1(1)(a) is liable for a penalty not exceeding [2%] of the total value of

controlled transactions to which a person is a party and in respect of which the

required documentation has not been prepared and maintained.

(2) As an alternative to the imposition of a penalty under section 5(1), a person who

fails to prepare and maintain documentation as required under section 1(1)(a)

commits an offence and is liable on conviction to a fine not exceeding [$•].

6. Failure to submit documentation or CbC report

(1) A person who fails –

(a) to provide documentation to the Commissioner-General when requested

under section 2(1); or

(b) to submit a CbC Report or other document as required under a tax law,

is liable to pay —

(i) [$•] in relation to a failure referred to in subsection (1)(a);

(ii) [$•] in relation to a failure referred to in subsection (1)(b); and

(d) an additional penalty for each day that the failure continues of —

(i) [$•] in relation to a failure referred to in subsection (1)(a);

(ii) [$•] in relation to a failure referred to in subsection (1)(b).

(2) As an alternative to the imposition of a penalty under section 6(1), a person who

fails to provide documentation or submit a CbC Report or other document referred

to in subsection (1) commits an offence and is liable on conviction to a fine not

exceeding [$•].

7. Tax adjustment penalty

(1) This section applies where —

(a) a person makes a statement to a taxation officer that is incorrect or

inappropriate in a material particular with respect to the determination of

the amount of revenue, gains, deductions, profits or losses arising in

respect of controlled transactions to which the taxpayer is a party, or fails

to disclose in such statement made to a taxation officer any matter or thing

without which the statement is incorrect or inappropriate in a material

particular; and

(b) either:

(i) the tax liability of the person, or any other person, computed on the

basis of the statement is less than it would have been had the

statement not been incorrect or inappropriate (the difference being

referred to in this section as the “tax liability adjustment”); or

(ii) a tax loss of the person, or any other person, computed on the basis

of the statement is more than it would have been had the statement

not been incorrect or inappropriate (the difference being referred to

in this section as the “tax loss adjustment”).

(2) Subject to subsections (3), (4) and (5), a person to whom this section applies is liable

for a tax adjustment penalty equal to —

(a) when the statement or omission was made knowingly or recklessly, the

greater of —

(i) [4%] of the total value of controlled transactions to which the

person is a party and in respect of which the statement or omission

relates; and

(ii) either:

(A) [75%] of the tax liability adjustment; or

(B) [30%] of the tax loss adjustment.

(b) in any other case, the greater of —

(i) [3%] of the total value of controlled transactions to which the

person is a party and in respect of which the statement or omission

relates; and

(ii) either:

(A) [20%] of the tax liability adjustment.

(B) [8%] of the tax loss adjustment.

(3) The amount of a tax adjustment penalty imposed under subsection (2) on a person

is increased by —

(a) [200%] when —

(i) the person is a member of a MNE Group; and

(ii) the consolidated revenue of the MNE Group in the preceding

financial year is at least [EUR 750 million or a near equivalent

amount in domestic currency of adopting country];

(b) irrespective of whether paragraph (a) applies —

(i) [10%] when this is the second application of this section to the

person; or

(ii) [25%] when this is the third or a subsequent application of this

section to the person.

(4) The amount of a tax adjustment penalty imposed under subsection (2) on a person

is reduced by —

(a) [20%] when the person voluntarily discloses to the Commissioner-General

the statement or omission to which this section applies before the earlier

of —

(i) discovery by the Commissioner-General of the tax liability or loss

adjustment; or

(ii) the commencement of a tax audit in respect of the person to whom

the statement relates;

(b) irrespective of whether paragraph (a) applies, [30%] when the person

has —

(i) prepared and maintained documentation as required under section

1(1)(a);

(ii) fully complied with any request received from the Commissioner-

General under section 2(1); and

(iii) otherwise complied with all other related requests in the course of

any tax audit.

(5) No tax adjustment penalty is payable under subsection (2) when the tax liability or

loss adjustment arose despite the taxpayer taking a reasonably arguable position

with respect to the determination of the amount of revenue, gains, deductions,

profits or losses arising in respect of controlled transactions to which the taxpayer

was a party being consistent with the arm’s length principle when lodging a self-

assessment return.

(6) For the purposes of this section:

“statement made to a taxation officer” includes a statement made, in writing or

orally, in any of the following circumstances —

(a) in a self-assessment return or other tax return, Transfer Pricing Annual

Return Schedule, CbC Report, or other document lodged under a tax law;

(b) in information provided or made available under a tax law;

tax law;

(d) in an answer to a question asked of a person by a taxation officer;

(e) in a statement to another person with the knowledge or reasonable

expectation that the statement would be passed on to a taxation officer.

a “reasonably arguable position” arises when it would be concluded in the

circumstances, having regard to the available information and relevant authorities

such as the tax law, a decision of a court or other authoritative guidance, that the

position taken with respect to the determination of the amount of revenue, gains,

deductions, profits or losses arising in respect of controlled transactions to which

the taxpayer was a party is about as likely to be consistent with the arm’s length

principle as inconsistent, or is more likely to be consistent than inconsistent with

that principle.

8. Incorrect disclosure penalty

(1) This section applies where —

(a) a person makes a statement to a taxation officer that is incorrect or

inappropriate in a material particular, or fails to disclose in a statement

made to a taxation officer any matter or thing without which the statement

is incorrect or inappropriate in a material particular; and

(b) there is no tax liability or loss adjustment in respect of the statement or

omission.

(2) Subject to subsections (3), (4) and (5), a person to whom this section applies is liable

for an incorrect disclosure penalty equal to —

(a) when the statement or omission was made knowingly or recklessly, the

greater of —

(i) in the case of a CbC Report:

(A) [1%] of the consolidated revenue of the MNE Group in the

preceding financial year; and

(B) [$•];

(ii) otherwise:

(A) [2%] of the total value of controlled transactions to which

a person is a party and in respect of which the statement

or omission relates; and

(B) [$•];

(b) in any other case, the greater of —

(i) in the case of a CbC Report:

(A) [0.5%] of the consolidated revenue of the MNE Group in

the preceding financial year; and

(B) [$•];

(ii) otherwise:

(A) [1%] of the total value of controlled transactions to

which a person is a party and in respect of which the

statement or omission relates; and

(B) [$•];

(3) The amount of an incorrect disclosure penalty imposed under subsection (2) on a

person is increased by —

(a) [200%] when —

(i) the person is a member of a MNE Group; and

(ii) the consolidated revenue of the MNE Group in the preceding

financial year is at least [EUR 750 million or a near equivalent

amount in domestic currency of the adopting country];

(b) irrespective of whether paragraph (a) applies —

(i) [10%] when this is the second application of this section to the

person; or

(ii) [25%] when this is the third or a subsequent application of this

section to the person.

(4) The amount of an incorrect disclosure penalty imposed under subsection (2) on a

person is reduced by —

(a) [20%] when the person voluntarily discloses to the Commissioner-General

the statement or omission to which this section applies before the earlier

of —

(i) discovery by the Commissioner-General of the incorrect or

inappropriate statement; or

(ii) the commencement of a tax audit in respect of the person to whom

the statement relates;

(b) irrespective of whether paragraph (a) applies, [20%] when the person has

—

(i) prepared and maintained documentation as required under section

1(1)(a);

(ii) fully complied with any request received from the Commissioner-

General under section 2(1); and

(iii) otherwise complied with all other related requests in the course of

any tax audit.

(5) No incorrect disclosure penalty is payable under subsection (2) when the incorrect

or inappropriate statement arose despite the taxpayer taking reasonable care when

making the statement.

(6) Section 7(6) applies in determining whether a person has made a statement to a

taxation officer.

ANNEX 2

Illustrative examples – Countries’ transfer pricing documentation rules

1. Canada’s contemporaneous documentation requirements

Canada’s contemporaneous documentation requirements are outlined in sub-section 247(4) of

the ITA. It deems a taxpayer not to have made reasonable efforts to determine and use arm’s

length transfer prices or allocations unless the taxpayer has prepared or obtained records or

documents which provide a description that is complete and accurate in all material respects of

the items listed in subparagraphs 247(4)(a)(i) through (vi). Taxpayers are not obliged to file

contemporaneous documentation with their tax return.

Extract of Section 247(4) of the ITA

Contemporaneous documentation

(4) … a taxpayer or a partnership is deemed not to have made reasonable efforts to determine

and use arm’s length transfer prices or arm’s length allocations in respect of a transaction or not

to have participated in a transaction that is a qualifying cost contribution arrangement, unless

the taxpayer or the partnership, as the case may be,

a) makes or obtains, on or before the taxpayer’s or partnership’s documentation-due date

for the taxation year or fiscal period, as the case may be, in which the transaction is

entered into, records or documents that provide a description that is complete and

accurate in all material respects of

(i) the property or services to which the transaction relates,

(ii) the terms and conditions of the transaction and their relationship, if any, to the terms

and conditions of each other transaction entered into between the participants in

the transaction,

(iii) the identity of the participants in the transaction and their relationship to each other

at the time the transaction was entered into,

(iv) the functions performed, the property used or contributed, and the risks assumed,

in respect of the transaction, by the participants in the transaction,

(v) the data and methods considered, and the analysis performed to determine the

transfer prices or the allocations of profits or losses or contributions to costs, as the

case may be, in respect of the transaction, and

(vi) the assumptions, strategies and policies, if any, that influenced the determination of

the transfer prices or the allocations of profits or losses or contributions to costs, as

the case may be, in respect of the transaction;

b) for each subsequent taxation year or fiscal period, if any, in which the transaction

continues, makes or obtains, on or before the taxpayer’s or partnership’s

documentation-due date for that year or period, as the case may be, records or

documents that completely and accurately describe each material change in the year or

period to the matters referred to in any of subparagraphs 247(4)(a)(i) to 247(4)(a)(vi) in

respect of the transaction; and provides the records or documents described in

paragraphs 247(4)(a) and 247(4)(b) to the Minister within 3 months after service, made

personally or by registered or certified mail, of a written request therefor.

2. Georgia: transfer pricing studies legislation

General provisions on transfer pricing studies are outlined in Articles 127(6) and 129(3)) of the tax

law and more detailed guidance by Decree of the Finance Minister (Instructions on International

Transfer Pricing). The provisions in the law are more general. It contains a provision allowing for

future delegated legislation.

Primary legislation

Art 127 (6) on the application of Transfer Pricing explicitly provides that “Criterions that shall

be satisfied in order to deem value of operation subject to examination as market value for the

purpose of this chapter shall be determined by the Finance Minister;”

Art. 129(3) The methods of transfer pricing and their application, the assessment of comparability

of independent operation, the rule of making correction, the information that shall be submitted

to the tax authorities by the parties of operation, listing of documentation,… shall be determined

under order of Minister of Finance;

Secondary legislation

(Decree #423 of the Finance Minister, December 18, 2013)

Chapter IV

Transfer Pricing Documentation

Article 17 Transfer Pricing Documentation

1. For the purpose of Article 129(1) of the GTC, a request by the Revenue Service to provide

an explanation regarding the ground based on which it considers its profit consistent

with the market principle shall be considered satisfied where:

a. The Georgian enterprise has prepared transfer pricing documentation in

accordance with this article and

b. The documentation is provided to the Revenue Service within 30 calendar

days of receipt of the request in writing.

2. Transfer pricing documentation should contain:

a. an overview of the Georgian enterprises’ business operations, including an analysis

of the economic factors that affect the pricing of its products and services;

b. a description of the Georgian enterprises’ corporate organizational structure

covering all parties potentially relevant to the controlled transactions being

analyzed;

c. a description of the transaction being analyzed, including an analysis of the

comparability factors specified in Article 5 of these Instructions and details of the

group’s transfer pricing policy (where relevant);

d. a description of the transfer pricing method selected and an explanation of why

this method was selected (in accordance with Article 8 of these Instructions);

e. a comparability analysis, including: a description of the comparable uncontrolled

transactions that were utilized; explanation of the basis for the rejection of any

potential internal comparable uncontrolled transaction (where applicable); details

of the external comparables search process (where applicable); the assessment of

comparability of the controlled transactions and the comparable uncontrolled

transactions (with reference to the comparability factors specified in Article 5 of

these Instructions); and, a description of any comparability adjustments that were

made;

f. an explanation of any economic analysis and projections relied on in developing

the transfer pricing methodology;

g. details of any advance pricing agreements or advance decisions relevant to the

controlled transactions;

h. a conclusion as to compliance with the market principle, and where relevant, any

adjustments made by the Georgian enterprise to its transfer prices/ taxable income

for the relevant years in order to ensure compliance with the market principle; and

i. any other information that may have a material impact on the determination of the

Georgian enterprises’ compliance with the market principle with respect to the

controlled transactions.

3. Georgian enterprises with a turnover of less than 8 000 000 GEL during a tax year, will be

considered to satisfy the documentation requirements even where the external

comparable transactions identified in accordance with the analysis referred to in

paragraph 2 subparagraph “e” of this Article are only updated every third year, provided

there have been no material changes to the Georgian enterprises business, the business

operations of the comparables or to the relevant economic circumstances.

4. Transfer pricing documentation may be submitted in Georgian or English, however, at

the request of the Revenue Service translation of English documents into Georgian is

required at the expense of the Georgian enterprise.

5. Transfer pricing documentation may be submitted in either electronic or paper format

ANNEX 3

Illustrative examples - Transfer pricing annual returns

Country

Form name

Website

Canada

T106 Summary Form

Information Return of

Non-arm's Length

Transactions with Non-

residents

(English)

https://www.canada.ca/content/dam/cra-

arc/formspubs/pbg/t106/t106-10-17e.pdf

Part II - T106-1 Slip

Package

Reporting

person/partnership and

information sheet

(English)

https://www.canada.ca/content/dam/cra-

arc/formspubs/pbg/t106/pdf/t106-1-fill-

17e.pdf

T106 Summary Form

Information Return of

Non-arm's Length

Transactions with Non-

residents

(French)

https://www.canada.ca/content/dam/cra-

arc/formspubs/pbg/t106/t106-10-17f.pdf

Part II - T106-1 Slip

Package

Reporting

person/partnership and

information sheet

(French)

https://www.canada.ca/content/dam/cra-

arc/formspubs/pbg/t106/pdf/t106-1-

17f.pdf

Colombia

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Information transfer pricing

return (Form 120)

https://www.dian.gov.co/atencionciudadan

o/formulariosinstructivos/Formularios/202

0/Formulario_120_2020.pdf

Part II - Information transfer

pricing return (Form 120)

Format 1125

https://www.dian.gov.co/normatividad/No

rmatividad/Resoluci%C3%B3n%20000065

%20de%2018-06-2020.pdf

107

Only available in Spanish

India Form No. 3ECB

Report from an accountant to be furnished under Section 92E relating to international

transaction(s) and specified domestic transaction(s)

India requires certification from an independent third-party accountant on the veracity,

genuineness and appropriateness of the transfer price that has been set for transactions

between related parties.

Section 92E of the Income-tax Act, 1961 requires that every person who has entered into an

international transaction with an associated enterprise must obtain a report from an accountant

and furnish such report to the tax authorities before the due date.

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The report needs to be duly

signed and verified by the accountant. The accountant must be a chartered accountant as

defined in the Chartered Accountants Act or an auditor under the Companies Act.

Form 3CEB, published by the Indian Tax Department, requires the complete details of the

international transactions that the taxpayer has entered into with its associated enterprise. The

form provides a detailed transfer pricing report that partially mirrors the requirements of a local

file

109

and covers all the international transactions. It requires disclosure of the nature of the

international transaction, the related party’s name and location, amount involved, and the

transfer pricing method adopted for determining and/or justifying the transfer price. Additional

details can be submitted by way of annexes.

Certification by a qualified accountant provides an assurance to the Tax Administration that all

international transactions have been examined by a qualified person.

Form 3CEB is also used by the Tax Department as a risk-assessment tool. All information

provided in the Form is collected digitally and is used for risk-based selection of transfer pricing

audit cases. The Tax Department can readily combine this data with the information that is now

being received from CbC Reports for further analysis. The Department has only recently started

this process on a pilot basis and expects that this will translate into even better risk-based case

selections for detailed transfer pricing audits.

By completing the Form, taxpayers can discharge the initial burden of proof of having duly

complied with the rules and regulations governing transfer pricing. If the Tax Department

subsequently challenges the declared transfer price through an audit, it must carry out the

necessary analysis to arrive at what it considers to be the arm’s length price.

The Form also provides the legal grounds for imposition of a penalty for non-reporting, mis-

reporting or improper use of transfer pricing methods.

While the Indian regulations require all taxpayers having international transactions with related

entities to file Form 3CEB, it would equally be possible to explore the option of setting a

threshold on the value of the international transactions for certification requirements to apply.

108

India has domestic transfer pricing provisions as well. The Form captures domestic related party transactions as

well.

109

Although the underlying documentation and the transfer pricing study is not required to be submitted with

Form 3CEB, the same are required to be maintained by the taxpayer in accordance with the provisions of Section

92D of the Income Tax Act and must be provided if the taxpayer’s case is taken up for transfer pricing audit. The

Transfer Pricing Study Report – the second limb that mirrors the local file – is to be maintained only by those

taxpayers who have entered into international transactions exceeding INR 10 million (approximately EUR 120 700).

Such thresholds, however, could run the risk of under-reporting transactions to escape greater

scrutiny by an expert or the Tax Department. Countries should assess these risks against the

backdrop of costs involved while developing regulations in this regard.

Form 3CEB is available at: https://www.incometaxindia.gov.in/forms/income-

tax%20rules/103120000000009614.pdf

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ANNEX 4

Master file content (from Annex I to Chapter V of the OECD Transfer Pricing Guidelines)

The following information should be included in the master file:

Organizational structure

• Chart illustrating the MNE’s legal and ownership structure and geographical location of

operating entities.

Description of MNE business(es)

• General written description of the MNEs business including:

‒ Important drivers of business profit;

‒ A description of the supply chain for the group’s five largest products and/ or service

offerings by turnover plus any other products and/or services amounting to more

than 5 percent of group turnover. The required description could take the form of a

chart or a diagram;

‒ A list and brief description of important service arrangements between members of

the MNE group, other than research and development (R&D) services, including a

description of the capabilities of the principal locations providing important services

and transfer pricing policies for allocating services costs and determining prices to

be paid for intra-group services;

‒ A description of the main geographic markets for the group’s products and services

that are referred to in the second bullet point above;

‒ A brief written functional analysis describing the principal contributions to value

creation by individual entities within the group, i.e. key functions performed,

important risks assumed, and important assets used;

‒ A description of important business restructuring transactions, acquisitions and

divestitures occurring during the fiscal year.

MNE’s Intangibles (as defined in Chapter VI of these Guidelines)

• A general description of the MNE’s overall strategy for the development, ownership and

exploitation of intangibles, including location of principal R&D facilities and location of

R&D management.

• A list of intangibles or groups of intangibles of the MNE group that are important for

transfer pricing purposes and which entities legally own them.

• A list of important agreements among identified associated enterprises related to

intangibles, including cost contribution arrangements, principal research service

agreements and license agreements.

101

• A general description of the group’s transfer pricing policies related to R&D and

intangibles.

• A general description of any important transfers of interests in intangibles among

associated enterprises during the fiscal year concerned, including the entities, countries

and compensation involved.

MNE’s intercompany financial activities

• A general description of how the group is financed, including important financing

arrangements with unrelated lenders.

• The identification of any members of the MNE group that provide a central financing

function for the group, including the country under whose laws the entity is organized

and the place of effective management of such entities.

• A general description of the MNE’s general transfer pricing policies related to financing

arrangements between associated enterprises.

MNE’s financial and tax positions

• The MNE’s annual consolidated financial statement for the fiscal year concerned if

otherwise prepared for financial reporting, regulatory, internal management, tax or other

purposes.

• A list and brief description of the MNE group’s existing unilateral advance pricing

agreements.

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Local file content (from Annex II to Chapter V of the OECD Transfer Pricing Guidelines)

The following information should be included in the local file:

Local entity:

• A description of the management structure of the local entity, a local organization chart,

a description of the individuals to whom local management reports and the country(ies)

in which such individuals maintain their principal offices.

• A detailed description of the business and business strategy pursued by the local entity

including an indication whether the local entity has been involved in or affected by

business restructurings or intangibles transfers in the present or immediately past year

and an explanation of those aspects of such transactions affecting the local entity.

• Identification of the key competitors.

Controlled transactions

For each material category of controlled transactions in which the entity is involved, provide the

following information:

• A description of the material-controlled transactions (e.g. procurement of manufacturing

services, purchase of goods, provision of services, loans, financial and performance

guarantees, licenses of intangibles) and the context in which such transactions take

place.

• The amount of intra-group payments and receipts for each category of controlled

transactions involving the local entity (i.e. payments and receipts for products, services,

royalties, interest, etc.) broken down by tax jurisdiction of the foreign payor or recipient.

• An identification of associated enterprises involved in each category of controlled

transactions and the relationship amongst them.

• Copies of all material intercompany agreements concluded by the local entity.

• A detailed comparability and functional analysis of the taxpayer and relevant associated

enterprises with respect to each documented category of controlled transactions,

including any changes compared to prior years.

• An indication of the most appropriate transfer pricing method with regard to the

category of transaction and the reasons for selecting that method.

• An indication of which associated enterprise is selected as the tested party, if applicable,

and an explanation of the reasons for this selection.

• A summary of the important assumptions made in applying the transfer pricing

methodology.

• If relevant, an explanation of the reasons for performing a multi-year analysis.

• A list and description of selected comparable uncontrolled transactions (internal or

external), if any, and information on relevant financial indicators for independent

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enterprises relied on in the transfer pricing analysis, including a description of the

comparable search methodology and the source of such information.

• A description of any comparability adjustments performed, and an indication of whether

adjustments have been made to the results of the tested party, the comparable

uncontrolled transactions, or both.

• A description of the reasons for concluding that relevant transactions were priced on an

arm’s length basis based on the application of the selected transfer pricing method.

• A summary of financial information used in applying the transfer pricing methodology.

• A copy of existing unilateral and bilateral/multilateral APAs and other tax rulings to which

the local tax jurisdiction is not a party, and which are related to controlled transactions

described above.

Financial information

• Annual local entity financial accounts for the fiscal year concerned. If audited statements

exist, they should be supplied and if not, existing unaudited statements should be

supplied.

• Information and allocation schedules showing how the financial data used in applying

the transfer pricing method may be tied to the annual financial statements.

• Summary schedules of relevant financial data for comparables used in the analysis and

the sources from which that data was obtained.

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ANNEX 5

Belgium: Transfer pricing documentation package

Belgium’s transfer pricing documentation package contains a Notification Obligation concerning

the CbC Report, the CbC Report itself (where required), the Master File and the local version of

the Local File (local form). Documentation reporting requirements are laid out in the Belgian

Income Tax Code (BITC) (Article 321/1 to 321/7 BITC) as from 2016.

The Notification Obligation concerning CbC reporting is mandatory for all Belgian constituent

entities of a multinational group which have to submit a country-by-country report. These

Belgian constituent entities have to inform the Belgian tax administration by the last day of the

reporting fiscal year of the multinational group if they are the ultimate parent entity, the

surrogate parent entity or a Belgian constituent entity as described in Article 321/2, § 2 BITC.

Where they are not the reporting entity, the identity of the MNE group’s reporting entity must

be disclosed.

The obligation to file a local form and the master file is mandatory for Belgian entities of a

multinational group that exceed any one or more of the following criteria:

• operational and financial revenue of at least EUR 50 million (excluding non-recurring

revenue);

• balance sheet total of EUR 1 billion; or

• annual average number of employees of 100 full-time equivalents;

The local form contains three parts:

(1) a form compiling general company information with regard to the local entity (Part A of

the form);

(2) a detailed information form per material business unit within the local entity concerning

the transfer pricing analysis of the transactions (goods, services, financial and other)

between the local entity and the foreign entities of the MNE, in particular the relevant

financial information of these transactions, the comparability analysis and the selection

and application of the most appropriate transfer pricing method (Part B of the form).

This part contains mainly quantitative information; and

(3) an optional section (Part C of the form) that allows the entities concerned to upload

documents (pdf format) that would allow a better interpretation of the document. Such

information can consist of documents explaining the transfer pricing methodology,

framework agreements and contractual arrangements, transfer pricing studies,

management or organization structures.

The detailed information (Part B) should only be filled out for the business units within the local

entity which have realized intra-group cross-border transactions of more than EUR 1 million.

The Master File mirrors the template in Annex I to Chapter V of the OECD Transfer Pricing

Guidelines. The Master File may be submitted with the local form as annex(es)(in text-searchable

pdf format).

Filing requirements:

The documentation package must be updated and filed on a yearly basis. The filing of the local

form should be done no later than the filing of the tax return. For enterprises with financial years

105

ending on 31 December, this is usually around mid-October of the following year. The Master

File, however, should be filed within 12 months after the last day of the reporting period of the

group.

The filing of the Notification Obligation concerning CbCR, Master and Local file must be done

electronically using the XML format through a mandatory on-line filing tool (MyMinfin).

The Notification Obligation concerning CbCR, Master file and Local file forms are available in

English, French and Dutch and can be found at:

CbCR Notification – https://financien.belgium.be/sites/default/files/downloads/126-

notification-obligation-20170517.pdf

Local File - https://financien.belgium.be/sites/default/files/downloads/126-local-file-

20170517.pdf

Master File - https://financien.belgium.be/sites/default/files/downloads/126-master-file-

20170517.pdf

There is also a website available in Dutch and French with an overview of all the relevant

information about the Belgian transfer pricing documentation package:

https://financien.belgium.be/nl/ondernemingen/internationaal/verrekenprijzen-beps-13#q4

106

ANNEX 6

Master file and local file - Filing obligations in selected countries

Country

Master file/Local file filing deadline

Local language

requirement

Argentina

Master file: To be submitted within 12 months of

end of fiscal year.

Local file: To be submitted within 6 months of

end of fiscal year (3 months before Corporate Tax

Returns filing obligation)

Spanish

Australia

Master file: To be submitted within 12 months of

end of fiscal year.

Local file: compulsory filing requirement by

significant global entities within 12 months of

end of fiscal year

110

English

Austria

Master/Local file: To be submitted within 30

days upon request (can only be requested after

filing of the tax return).

German or English

Belgium

Master file: To be submitted within12 months of

end of fiscal year of the UPE of the MNE group;

Local file: to be submitted with income tax

return.

Dutch, English, French or

German

China

Master file: To be prepared within 12 months of

end of fiscal year of the UPE of the MNE group;

Local file: To be prepared by 30 June following

the tax year in question. Filing within 30 days

upon request.

Chinese

Colombia

Master/Local file: To be submitted within the

following fiscal year, three or four months after

the filing date of the Corporate Income Tax

Return.

Master file: Spanish or

English

Local file: Spanish

Denmark

Master/Local file: To be submitted within 60

days upon request.

Danish, Swedish,

Norwegian or English

Finland

Master/Local file: To be submitted within 60

days upon request (cannot be requested earlier

than 6 months from the end of the accounting

period).

Finnish, Swedish or

English

110

Only a “Short Form” is required where international related party dealings is below AUD 2 million or other

exclusions apply.

107

Japan

Master file: To be submitted within the year

following the fiscal year-end of the UPE of the

MNE group.

Local file: To be prepared by the time of

submission of the tax return and to be submitted

within 45 days upon request

Master file: Japanese or

English

Local file: Not specified

111

Latvia

Master/Local file: Depending on the amount of

the transactions and net revenue of the entity,

two approaches may apply:

To be submitted within 12 months after the end

of the relevant reporting year

112

; or.

To be prepared within 12 months after the end of

the relevant reporting year and to be submitted

within a month after receipt of the request

113

Master file: Latvian or

English

Local file: Latvian

Lithuania

Master/Local file: To be prepared by the

corporate tax return filing deadline. To be

submitted within 30 days upon request.

Lithuanian or English

Mexico

Master/Local file: To be submitted within 12

months of end of fiscal year.

Master file: Spanish

or English

Local file: Spanish

Nigeria

Master/Local file: To be submitted within 21

days upon request.

Master file: English

Local file: English

Peru

Master File: To be submitted in October (exact

deadlines depend on the tax ID number of the

company).

Local File: To be submitted in June each year

(depending on the tax ID number of each

company).

Spanish

111

Japanese translation may be required for master file provided in English and local file provided in foreign

language.

112

Master file to be submitted if at least one of the following conditions is present: a) amount of the controlled

transactions exceeds EUR 15 000 000 in the relevant reporting year, b) the net turnover of the taxpayer exceeds

EUR 50 000 000 in the relevant reporting year and the amount of the controlled transactions exceeds EUR 5 000

000 in the relevant reporting year.

Local file to be submitted if the amount of the controlled transactions exceeds EUR 5 000 000 in the relevant

reporting year.

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Master file to be submitted if the net turnover of the taxpayer does not exceed EUR 50 000 000 in the relevant

reporting year and the amount of the controlled transactions does not exceed EUR 15 000 000 but exceeds EUR 5

000 000 in the relevant reporting year.

Local file to be submitted if the amount of the controlled transactions exceeds EUR 250 000 but does not exceed

EUR 5 000 000 in the relevant reporting year.

108

Poland

Master/Local file: To be prepared by the

corporate tax return filing deadline

114

. To be

submitted within 7 days upon request.

Polish

Russia

Master/Local file: To be submitted within 3

months upon request (cannot be requested

earlier than 15 months after the end of the

income year.

Russian

Singapore

Master/Local file: To be prepared not later than

the filing due date of the tax return. To be

submitted within 30 days upon request.

English

Slovak

Republic

Master/Local file: To be submitted within 15

days upon request

Slovak (English, German

or French may also be

accepted on request)

Spain

Master/Local file: To be prepared by the

corporate tax return filing deadline. To be

submitted upon request.

Spanish or English

Sweden

Master file: To be prepared at the time of the

submission of the annual income tax return of

the group’s parent entity.

Local file: To be prepared at the time of the

submission of the annual income tax return.

Swedish, Danish,

Norwegian or English

The

Netherlands

Master/Local file: Must be included in the

taxpayer's records within the term set for

submission of the corporate income tax return.

Dutch or English

Turkey

Master File: To be prepared within 12 months of

end of fiscal year. To be submitted upon request.

Local File: To be prepared by the filling deadline

of the annual corporate income tax return. To be

submitted upon request.

Turkish

Vietnam

Master/Local file: To be prepared by the filing

date of the corporate income tax return (90 days

after fiscal year end). To be submitted within 15

days upon request.

Vietnamese

114

Taxpayers are obligated to make a statement on the preparation of their transfer pricing documentation to the

tax office.

109

ANNEX 7

Example - Exemptions regimes (transfer pricing studies)

Singapore exemption regime for transfer pricing studies (documentation)

Singapore does not require taxpayers to prepare transfer pricing documentation under the

following situations [Nonetheless, the usual business records for the transactions should still be

kept]:

a) Where the taxpayer transacts with a related party in Singapore and such local

transactions (excluding related party loans) are subject to the same Singapore tax rates

or exempt from tax for both parties;

b) Where a related domestic loan is provided between the taxpayer and a related party in

Singapore and the lender is not in the business of borrowing and lending money;

c) Where the taxpayer applies a 5% cost mark-up for routine services prescribed by the

Inland Revenue Authority of Singapore (IRAS) and such services are only provided to

related parties within the group;

d) Where the taxpayer applies the indicative margin prescribed by the IRAS for related party

loans not exceeding S$ 15 million;

e) Where the related party transactions are covered by an agreement under an APA. In such

a situation, the taxpayer will keep relevant documents for the purpose of preparing the

annual compliance report to demonstrate compliance with the terms of the agreement

and the critical assumptions remain valid; or

f) Where the value or amount of the related party transactions (excluding the value or

amount in sub-paragraphs (a) to (e)) disclosed in the current year’s financial accounts

does not exceed the thresholds shown in this Table:

Category of related party transactions

Threshold (S$) per

financial year

Purchase of goods from all related parties

15 million

Sale of goods to all related parties

15 million

Loans owed to all related parties

15 million

Loans owed by all related parties

15 million

All other categories of related party transactions (e.g. income

and expense from service, royalty, rental and guarantee)

1 million per category of

transactions

IRAS e-Tax guide on Transfer Pricing Guidelines, Section 6. Available at:

https://www.iras.gov.sg/irashome/e-Tax-Guides/

110

ANNEX 8

CbC Report template (from Annex III to Chapter V of the OECD Transfer Pricing Guidelines)

111

112

Template for the Country-by-Country Report – General instructions

Purpose

This Annex III to Chapter V of these Guidelines contains a template for reporting a

multinational enterprise’s (MNE) group allocation of income, taxes and business activities

on a tax jurisdiction-by-tax jurisdiction basis. These instructions form an integral part of the

model template for the Country-by-Country Report.

Definitions

Reporting MNE

A Reporting MNE is the ultimate parent entity of an MNE group.

Constituent Entity

For purposes of completing Annex III, a Constituent Entity of the MNE group is (i) any

separate business unit of an MNE group that is included in the Consolidated Financial

Statements of the MNE group for financial reporting purposes, or would be so included if

equity interests in such business unit of the MNE group were traded on a public securities

exchange; (ii) any such business unit that is excluded from the MNE group’s Consolidated

Financial Statements solely on size or materiality grounds; and (iii) any permanent

establishment of any separate business unit of the MNE group included in (i) or (ii) above

provided the business unit prepares a separate financial statement for such permanent

establishment for financial reporting, regulatory, tax reporting, or internal management

control purposes.

Treatment of Branches and Permanent Establishments

The permanent establishment data should be reported by reference to the tax

jurisdiction in which it is situated and not by reference to the tax jurisdiction of residence

of the business unit of which the permanent establishment is a part. Residence tax

jurisdiction reporting for the business unit of which the permanent establishment is a part

should exclude financial data related to the permanent establishment.

Consolidated Financial Statements

The Consolidated Financial Statements are the financial statements of an MNE group in

which the assets, liabilities, income, expenses and cash flows of the ultimate parent entity

and the Constituent Entities are presented as those of a single economic entity.

Period covered by the annual template

The template should cover the fiscal year of the Reporting MNE. For Constituent Entities,

at the discretion of the Reporting MNE, the template should reflect on a consistent basis

either (i) information for the fiscal year of the relevant Constituent Entities ending on the

same date as the fiscal year of the Reporting MNE, or ending within the 12 month period

113

preceding such date, or (ii) information for all the relevant Constituent Entities reported for

the fiscal year of the Reporting MNE.

Source of data

The Reporting MNE should consistently use the same sources of data from year to year

in completing the template. The Reporting MNE may choose to use data from its

consolidation reporting packages, from separate entity statutory financial statements,

regulatory financial statements, or internal management accounts. It is not necessary to

reconcile the revenue, profit and tax reporting in the template to the consolidated financial

statements. If statutory financial statements are used as the basis for reporting, all amounts

should be translated to the stated functional currency of the Reporting MNE at the average

exchange rate for the year stated in the Additional Information section of the template.

Adjustments need not be made, however, for differences in accounting principles applied

from tax jurisdiction to tax jurisdiction.

The Reporting MNE should provide a brief description of the sources of data used in

preparing the template in the Additional Information section of the template. If a change is

made in the source of data used from year to year, the Reporting MNE should explain the

reasons for the change and its consequences in the Additional Information section of the

template.

Template for the Country-by-Country Report – Specific instructions

Overview of allocation of income, taxes and business activities by tax

jurisdiction (Table 1)

Tax Jurisdiction

In the first column of the template, the Reporting MNE should list all of the tax

jurisdictions in which Constituent Entities of the MNE group are resident for tax purposes.

A tax jurisdiction is defined as a State as well as a non-State jurisdiction which has fiscal

autonomy. A separate line should be included for all Constituent Entities in the MNE group

deemed by the Reporting MNE not to be resident in any tax jurisdiction for tax purposes.

Where a Constituent Entity is resident in more than one tax jurisdiction, the applicable tax

treaty tie breaker should be applied to determine the tax jurisdiction of residence. Where

no applicable tax treaty exists, the Constituent Entity should be reported in the tax

jurisdiction of the Constituent Entity’s place of effective management. The place of effective

management should be determined in accordance with the provisions of Article 4 of the

OECD Model Tax Convention and its accompanying Commentary.

114

Revenues

In the three columns of the template under the heading Revenues, the Reporting MNE

should report the following information: (i) the sum of revenues of all the Constituent

Entities of the MNE group in the relevant tax jurisdiction generated from transactions with

associated enterprises; (ii) the sum of revenues of all the Constituent Entities of the MNE

group in the relevant tax jurisdiction generated from transactions with independent parties;

and (iii) the total of (i) and (ii). Revenues should include revenues from sales of inventory

and properties, services, royalties, interest, premiums and any other amounts. Revenues

should exclude payments received from other Constituent Entities that are treated as

dividends in the payor’s tax jurisdiction.

Profit (Loss) before Income Tax

In the fifth column of the template, the Reporting MNE should report the sum of the

profit (loss) before income tax for all the Constituent Entities resident for tax purposes in

the relevant tax jurisdiction. The profit (loss) before income tax should include all

extraordinary income and expense items.

Income Tax Paid (on Cash Basis)

In the sixth column of the template, the Reporting MNE should report the total amount

of income tax actually paid during the relevant fiscal year by all the Constituent Entities

resident for tax purposes in the relevant tax jurisdiction. Taxes paid should include cash

taxes paid by the Constituent Entity to the residence tax jurisdiction and to all other tax

jurisdictions. Taxes paid should include withholding taxes paid by other entities (associated

enterprises and independent enterprises) with respect to payments to the Constituent

Entity. Thus, if company A resident in tax jurisdiction A earns interest in tax jurisdiction B,

the tax withheld in tax jurisdiction B should be reported by company A.

Income Tax Accrued (Current Year)

In the seventh column of the template, the Reporting MNE should report the sum of

the accrued current tax expense recorded on taxable profits or losses of the year of

reporting of all the Constituent Entities resident for tax purposes in the relevant tax

jurisdiction. The current tax expense should reflect only operations in the current year and

should not include deferred taxes or provisions for uncertain tax liabilities.

Stated Capital

In the eighth column of the template, the Reporting MNE should report the sum of the

stated capital of all the Constituent Entities resident for tax purposes in the relevant tax

jurisdiction. With regard to permanent establishments, the stated capital should be reported

by the legal entity of which it is a permanent establishment unless there is a defined capital

requirement in the permanent establishment tax jurisdiction for regulatory purposes.

Accumulated Earnings

115

In the ninth column of the template, the Reporting MNE should report the sum of the

total accumulated earnings of all the Constituent Entities resident for tax purposes in the

relevant tax jurisdiction as of the end of the year. With regard to permanent establishments,

accumulated earnings should be reported by the legal entity of which it is a permanent

establishment.

Number of Employees

In the tenth column of the template, the Reporting MNE should report the total number

of employees on a full-time equivalent (FTE) basis of all the Constituent Entities resident for

tax purposes in the relevant tax jurisdiction. The number of employees may be reported as

of the year-end, on the basis of average employment levels for the year, or on any other

basis consistently applied across tax jurisdictions and from year to year. For this purpose,

independent contractors participating in the ordinary operating activities of the Constituent

Entity may be reported as employees. Reasonable rounding or approximation of the

number of employees is permissible, providing that such rounding or approximation does

not materially distort the relative distribution of employees across the various tax

jurisdictions. Consistent approaches should be applied from year to year and across entities.

Tangible Assets other than Cash and Cash Equivalents

In the eleventh column of the template, the Reporting MNE should report the sum of

the net book values of tangible assets of all the Constituent Entities resident for tax

purposes in the relevant tax jurisdiction. With regard to permanent establishments, assets

should be reported by reference to the tax jurisdiction in which the permanent

establishment is situated. Tangible assets for this purpose do not include cash or cash

equivalents, intangibles, or financial assets.

List of all the Constituent Entities of the MNE group included in each

aggregation per tax jurisdiction (Table 2)

Constituent Entities Resident in the Tax Jurisdiction

The Reporting MNE should list, on a tax jurisdiction-by-tax jurisdiction basis and by legal

entity name, all the Constituent Entities of the MNE group which are resident for tax

purposes in the relevant tax jurisdiction. As stated above with regard to permanent

establishments, however, the permanent establishment should be listed by reference to the

tax jurisdiction in which it is situated. The legal entity of which it is a permanent

establishment should be noted (e.g. XYZ Corp – Tax Jurisdiction A PE).

Tax Jurisdiction of Organisation or Incorporation if Different from Tax Jurisdiction of

Residence

The Reporting MNE should report the name of the tax jurisdiction under whose laws the

Constituent Entity of the MNE is organised or incorporated if it is different from the tax

jurisdiction of residence.

116

Main Business Activity(ies)

The Reporting MNE should determine the nature of the main business activity(ies)

carried out by the Constituent Entity in the relevant tax jurisdiction, by ticking one or more

of the appropriate boxes.

Business Activities

Research and Development

Holding or Managing Intellectual Property

Purchasing or Procurement

Manufacturing or Production

Sales, Marketing or Distribution

Administrative, Management or Support Services

Provision of Services to Unrelated Parties

Internal Group Finance

Regulated Financial Services

Insurance

Holding Shares or Other Equity Instruments

Dormant

Other

1. Please specify the nature of the activity of the Constituent Entity in the “Additional

Information” section.

 
117 
 
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