Home  Contact Us
  Follow Us On:
 
Search:
Advertising Advertising Free Newsletter Free E-Newsletter
Magazine
  
      2024       2023       2022       2021       2020       2019       2018       2017       2016       2015       2014       2013       2012       2011       2010       2009       2008

TAX & FINANCE: OECD releases updated Transfer Pricing Guidelines
Share to

OECD releases updated Transfer Pricing Guidelines
Additional guidance on Country-by-Country Reporting
By Kelvin Lee, PwC Tianjin

BT 201801 Finance 06      继 G20 和经济合作与发展组织(经合组织)开展税基侵蚀与利润转移(BEPS)项目以来,经合组织于 2017 年 7 月至 9 月之间发布了多项与转让定价相关的指南和手册,其中,2017 版《转让定价指南》整合了自 2010 版《转让定价指南》发布以来,BEPS 项目形成的一系列成果。中国作为 G20 成员国全面参与了 BEPS 项目,并陆续发布了相应国内法规。我们建议跨国企业在解读相关指南和手册文件时,一方面需要重点关注经合组织提出的新变化,另一方面需要重视中国税务机关对于关联交易转让定价管理以及跨国反避税问题采取的特殊立场,以便更好地管理集团的转让定价风险。

      根据2017 版《转让定价指南》第 8-10 项行动计划报告所做的修改和增补主要涉及第一章(独立交易原则)、第二章(转让定价方法)、第六章(无形资产)、第七章(集团内部服务)以及第八章(成本分摊协议)。为呼应上述章节的修改和增补,2017 版《转让定价指南》还对 第九章(企业重组)及其 它章节进行了相应的修改。

      本次修订的要点主要包括:准确界定关联交易的实质至关重要。如果交易双方的实际行为 与合同安排并不一致, 应以交易双方的实际 行为作为依据;引入风险识别六步骤,以确定对风险实施控制并且具备承担风险的财务能力的交易一方所应获得的回报;法律安排应当作为判断无形资 产收益归属的初步依据。然而, 无论企业是否作为无形资产的 法律所有者,如果该企业执行 了与无形资产开发、价值提升、维护、保护和应用相关的重要 职能,则可获得上述无形资产 相关的收益;为运用可比非受控价格法分析大宗商品交易提供更为明确的指导建议;为低附加值集团内部服务的定价设立成本加成 5%的安全港机制;成本分摊协议的参与者必须对“蕴含风险的机会”具备控制相关风险的能力和权力。

      2016 财年是各国税务机关实施国别报告的第一年,经合组织结合从各界收到的意见和建议, 正不断对《国别报告实施指南》进行更新, 为纳税人和各国税务机关提供更多确定性。值得注意的是,对于国别报告表一的报告口径应该选择汇总数据还是合并数据,国家税务总局特别颁布《关于明确填报口径的公告》(国家税务总局公告[2017]26 号),指出企业应当使用汇总口径进行申报。

      对企业而言,相比《国别报告实施手册》,《国别报告风险评估手册》则可能更为重要,尤其是其中列举 的 19 项国别报告风险指标不仅为税务机关实施和应用国别报告提供了 指导意见,也便于纳税人针对其中 提出的税务风险点进行内部审核和控制。

      可以预见,各国税务机关将积极运用 2017 版《转让定价指南》、更新版《国别报告实施指南》、《国别报告实施手册》和《国别报告风险评估手册》中提出的指引,加强跨国转让定价管理,以及对现有国内立法进行补充。

      需注意的是,尽管中国税务机关积极参与了 BEPS 项目的国际讨论, 鉴于中国并非经合组织成员国,因此经合组织发布的指南和手册文件中部分内容可能并不完全适用于中国,建议跨国企业在解读相关指南和手册文件时,一方面需要重点关注经合组织提出的新变化,另一方面需要重视中国税务机关对于关联交易转让定价管理以及跨国反避税问题采取的特殊立场,以便更好地管理集团的转让定价风险。

qKey items in the 2017 TP Guidelines

The 2017 TP Guidelines incorporate a number of important international tax policy decisions that have been made over the course of the BEPS Project:
 

Action 8-10 (Aligning Transfer Pricing Outcomes with Value Creation)

Revisions made in line with Actions 8-10 generally pertain to Chapters I (The Arm’s Length Principle), II (Transfer Pricing Methods), VI (Special Considerations for Intangibles), VII (Special Considerations for Intra-Group Services), and VIII (Cost Contribution Agreements) of the 2017 TP Guidelines. The OECD also made conforming changes to Chapter IX (Business Restructurings) as well as other areas of the 2017 TP Guidelines.

transfer pricingFollowing are some key takeaways from these revisions:
 

• Accurate delineation of intercompany transactions is paramount, and the conduct of parties will prevail over contractual arrangements where there is a misalignment between the two.
 

• A six-step process for identifying risk is provided, with return for risk allocated to the party that controls the risk and has the financial capacity to assume it.
 

• Although legal agreements continue to serve as a starting point, returns from intangibles accrue to the entities that carry out the development, enhancement, maintenance, protection, and exploitation (DEMPE) functions, and not necessarily to the legal owner of the intangibles.
 

• Clearer guidance on application of comparable uncontrolled prices (CUPs) to commodity transactions is offered.
 

• A safe harbour of five percent is established for low-value-adding intra-group services.
 

• Cost Contribution Agreements (CCA) participants must have the capability and authority to control risks associated with risk-bearing opportunity. Current contributions can be valued at cost, but pre-existing contributions should be valued based on the principles of Chapters I, II, and V of the 2017 TP Guidelines.

BT 201801 Finance 03 2Action 13 (Transfer Pricing Documentation and CbCR)

OECD’s efforts under Action 13 have significantly increased transfer pricing compliance burdens as well as transparent requirement; as a result, the MNEs face significantly higher disclosure obligations in many jurisdictions. Revisions made under Action 13 generally pertain to Chapter V (Transfer pricing documentation) of the 2017 TP Guidelines. The updated Chapter V now includes a discussion of the OECD-favoured three-tiered approach to transfer pricing documentation (i.e. master files, local files and CbCR).
 

Key points

From China’s transfer pricing perspective, to incorporate the BEPS Deliverables and latest transfer pricing administration practice into the domestic legislation, China’s State Administration of Taxation (SAT) has issued a series of regulations in 2016 and 2017, i.e. the Public Notice Regarding Refining the Reporting of Related-Party Transactions and Administration of Transfer Pricing Documentation (SAT Public Notice [2016] No.42, or PN42), Public Notice Issued by the SAT on Matters Regarding Refining the Administration of Advance Pricing Arrangement (APA) (SAT Public Notice [2016] No.64, or PN64), and Public Notice Issued by SAT Releasing the Administrative Measures for Special Tax Adjustment (STA) and Mutual Agreement Procedures (MAP) (SAT Public Notice [2017] No.6, or PN6).

BT 201801 Finance 08It is noteworthy that China’s transfer pricing regulations are not exactly the same as the 2017 TP Guidelines. Some examples are discussed in the following paragraphs.
 

PN42 has stricter standards for information disclosure than BEPS Action 13, e.g., China tax authorities require enterprises to disclose the overseas related parties’ information including business scope, registered address, address of actual operation, actual income tax, registered capital, total amount of investment, and tax preferential treatment, etc. Additionally, annual financial statements of each of the parties involved in group value chain for the immediately preceding fiscal year is to be disclosed in local file.
 

With respect to the intra-group service, the China tax authority does not accept the safe harbour rule of five percent for low-value-adding intra-group services.
 

In addition, during the enactment of Practical Manual on Transfer Pricing for Developing Countries by the United Nations, the SAT pointed out that OECD’s definition of shareholder activities is too narrow. Based on this position, PN6 stipulates that finance, tax, human resources and legal activities carried out for decision-making, monitoring, control and compliance purposes of the group may also be recognised as non-beneficial services (close to shareholder services), and tax authorities can disallow the deduction of the full amount already claimed and make special tax adjustment accordingly, which is different to the 2017 TP Guidelines.
 

The BEPS Actions 8-10 came up with five functions relating to the value creation of intangible asset: development, enhancement, maintenance, protection and exploitation (DEMPE). PN6 added the function of “promotion” as another important function that creates value for intangibles, and emphasised that transfer pricing analyses shall consider whether the Chinese local affiliates are reasonably compensated based on the value they created, especially for transfer pricing analysis on royalty arrangements.
 

Updated CbCR Guidance

The updated CbCR Guidance represents the complete set of published OECD guidance related to CbCR between June 2016 and September 2017. Specifically, this updated document now addresses:
 

• How to treat an entity owned and/or operated by two or more unrelated MNE Groups;
 

• Whether aggregated data or consolidated data for each jurisdiction is to be reported in Table 1 of the CbCR;
 

• Definition of “revenues” to be reported in Table 1 of the CbCR;
 

• How to report the amount of income tax accrued and income tax paid; and
 

• Transitional relief available for MNE Groups with a short accounting period that starts on or after 1st January 2016 and that ends before 31st December 2016.

DM1JTPPXcAEnbupKey points

Fiscal Year 2016 was the first year of CbCR implementation for taxpayers and tax authorities. OECD continues its effort in collecting comments and suggestions, and updating the CbCR guidance, so as to provide more certainty to taxpayers and tax authorities.
 

Please note that China SAT specifically released the Public Notice Regarding Clarifying Issues Related to the Filling of “Annual Related Party Transaction Reporting Forms (2016 Version)” (SAT Public Notice [2017] No. 26) on 7th July 2017, and requires that companies shall use the aggregated data for filing.
 

CbCR Implementation Handbook and CbCR Risk Assessment Handbook

CbCR Implementation Handbook

The CbCR Implementation Handbook summarises a series of BEPS Deliverables on CbCR:
 

• Key factors that countries should consider while introducing a domestic legal framework for filing and use of CbCR (Chapter 2), which reinforces BEPS Action 13 requirements, e.g., definitions, format and content contained in CbCR, timing for filing, etc.;
 

• Issues concerning the implementation and operation of an international framework for the exchange of CbCR (Chapter 3), which introduces relevant background and terms of Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (MCAA), e.g., a commitment to exchange CbCR, timing of exchange, manner of transmission, notification of non-compliance by a reporting entity, a domestic obligation for the filing of CbCR, confidentiality and appropriate use, consultation between competent authorities, etc.;
 

• Operational aspects of CbCR (Chapter 4), which includes mechanisms to identify entities required to file CbCR, handling of CbCR, sanctions for non-compliance, common transmission system, etc.;
 

• Practical issues (Chapter 5), which suggests the importance of engaging with stakeholders, guidance to taxpayers and tax authority staff, and providing training for staff who will deal with CbCR, etc.; and
 

• Guidance on appropriate use of Information contained in CbCR (Annex), which re-emphasises the suggestions of “appropriate use” by BEPS Action 13 and MCAA, given the fact that the CbCR will give tax authorities unprecedented access to information of MNE Groups. The Annex outlines the meaning of “appropriate use”, consequences of non-compliance with the appropriate use condition and approaches that may be used by tax authorities to ensure the appropriate use of CbCR information, etc.

worlds most hackable countryCbCR Risk Assessment Handbook

The CbCR Risk Assessment Handbook provides tax risk control advice to tax authorities:
 

• Role of tax risk assessment (Chapter 2), which summarises the role of tax risk assessment in tax administration and core characteristics of an effective risk assessment system, and examples of approaches used in different countries;
 

• Overview of CbCR (Chapter 3), which outlines information contained in CbCR and potential advantages that CbCR might have over data from other sources;

• Incorporating CbCR into tax risk assessment framework (Chapter 4), which explores ways in which CbCR information can be incorporated into a tax authority’s risk assessment framework, and the main potential tax risk indicators (please refer to content below) that may be identified using CbCR;
 

• Challenges in using CbCR (Chapter 5), which lists the challenges that may be faced by a tax authority in using CbCR for tax risk assessment, e.g., large volume of CbCR information to be processed, the need for systems and training, etc. Although the CbCR Risk Assessment Handbook does not address all the challenges, OECD will continue updating this handbook based on the experience of tax authorities, to supplement approaches that may be adopted to address the challenges;
 

• Other sources of data that may be used alongside CbCR (Chapter 6), which concerns other data sources that tax authorities could consider using alongside the CbCR, including: 1) information held by the tax authority, e.g., tax returns, transfer pricing documentations, etc.; 2) information available from other government sources, e.g., the Financial Intelligence Unit, registers of companies and customs information; 3) publicly available information, e.g., financial reports for listed groups, and 4) commercially available information, e.g., commercial databases, etc.; and
 

• Using results of a tax risk assessment based on CbCR information (Chapter 7), which suggests that where risk indicators are identified by tax authorities, additional manual review should be triggered to verify the existence of risks.
 

It is notable that Chapter 4 and Annexes to the CbCR Risk Assessment Handbook include a number of approaches and a summary of potential tax risk indicators to identify tax risks, including three broad scenarios with possible presence of transfer pricing risks, and nineteen tax risk indicators that may be detected using information in CbCR.

CBCRimage4WEBV2 01Three scenarios with possible presence of transfer pricing risks are:

1. Where entities engage in recurring transactions with related parities which have the potential to erode a jurisdiction’s tax base over time;
 

2. Where entities engaged in large or complex one-off transactions, including business restructurings and transfers of key income producing assets; and
 

3. Where a group does not have effective tax governance processes in place to control, document and review the pricing of related party transactions on an ongoing basis.

BT 201801 Finance 0519 potential tax risk indicators are:

1. Footprint of a group in a particular jurisdiction;

2. A group’s activities in a jurisdiction are limited to those that pose less risk;

3. There is high value or high proportion of related party revenues in a particular jurisdiction;

4. Results in a jurisdiction deviate from potential comparables;

5. Results in a jurisdiction do not reflect market trends;

6. There are jurisdictions with significant profits but little substantial activity;

7. There are jurisdictions with significant profits but low levels of tax accrued;

8. There are jurisdictions with significant activities but low levels of profit (or losses);

9. A group has activities in jurisdictions which pose a BEPS risk;

10. A group has mobile activities located in jurisdictions where the group pays a lower rate or level of tax;

11. There have been changes in a group's structure, including location of assets;
12. Intellectual property (IP) is separated from related activities within a group;

13. A group has marketing entities located in jurisdictions outside its key markets;

14. A group has procurement entities located in jurisdictions outside its key manufacturing locations;

15. Income tax paid is consistently lower than income tax accrued;

16. A group includes dual resident entities;

17. A group includes entities with no tax residence;

18. A group discloses stateless revenues in Table 1 of CbCR; and

19. Information in a group’s CbCR does not correspond with information previously provided by a constituent entity.
 

Key points

In comparison to the CbCR Implementation Handbook, the CbCR Risk Assessment Handbook may be more important to taxpayers, especially the 19 potential tax risk indicators, which not only provide tax authorities with guidance on how to implement and utilise the CbCR, but also allow taxpayers to conduct internal assessment and control with clearer directions.

BT 201801 Finance 04The takeaway

Since the release of 2010 TP Guidelines, the international tax environment has changed dramatically, and global tax authorities are seeking bilateral and multilateral cooperation to reshape the international tax rules system.
 

China as a member of G20 proactively participates in the BEPS Projects, and has since released PN42, PN64 and PN6 in an effort to actively apply the BEPS Deliverables in the practice of domestic anti-avoidance.
 

We also noticed that the China local tax authorities were collecting, reviewing and grading the 2016 local files in accordance with PN42, so as to evaluate the transfer pricing risks associated with the MNEs. In terms of the master file and CbCR, given that the deadlines of master files and CbCR for most countries are yet to be reached, it remains to be seen whether tax authorities will devote centralised efforts to review the master files and CbCR.
 

It is noteworthy that despite China’s vigorous participation in international discussion over BEPS topics, the OECD guidelines and handbooks may not be completely applicable to China practice, as China is not an OECD member. It is recommended that when interpreting these OECD guidelines and handbooks, the MNEs should focus on not only the revisions and changes made by OECD, but also the China tax authorities’ unique views and positions, so as to better manage transfer pricing risks in this country.

    Subscription    |     Advertising    |     Contact Us    |
Address: Magnetic Plaza, Building A4, 6th Floor, Binshui Xi Dao.
Nankai District. 300381 TIANJIN. PR CHINA
Tel: +86 22 23917700
E-mail: webmaster@businesstianjin.com
Copyright 2024 BusinessTianjin.com. All rights reserved.