Part 2.4: TP at the level of the European commission + TP documentation Flashcards
What initiative was taken to increase the compliance between different tax authorities? History?
EU joint transfer pricing forum was created.
- 2001: Proposal to set-up the EU JTPF
- 2002: A call for candidates
- Later in 2002: 10 private persons were appointed as business members (incl professor)
=> Mandate of EU JTPF numerous times renewed
- 2015: 18 organisations (including NGOs) are member
How is the composition of the EU JTPF? (5)
- Representatives of the tax administrations of the members states (1 permanent member per country)
=> they could take one person with them - Representatives of the European Commission
- Representatives of the business community
- Representatives of the tax administrations of the candidate member states
- Representative of the OECD as observers
What are the goals of the EU JTPF? (2)
Find pragmatic solutions:
- Improve working of APAs without legislative changes
- A common approach for documentation requirements (in line with OECD)
- Improve practical application of the Arbitration Convention
Goals:
=> Avoid double taxation
=> Reduce compliance costs
What is the difference between a soft law and a hard law?
Hard law within the EU in the domain of tax is a directive.
Soft law are guidelines, code of conduct: difficult for country not to agree.
What are the three TP documents big multinationals have to produce?
- Master file
- Local file
- Country by country file
What is the master file? What are the requirements? (4)
The Master File provides a high-level overview of the MNE group business (one document for the whole MNE)
Requirements:
- A description of the business
- Supply chain, geography, organizational structure, … - Intra-group financial activity
- How is it financed? - Intangibles
- List of intangibles - Financial and tax position
- consolidated financial statement
- Unilateral Advanced Pricing Agreements (APAs) and other tax rulings
What is the local file? What are the requirements? (4)
The local file provides detailed information related to specific intra-group transactions. The information aligns closely to transfer pricing documentation (of a local entity) currently prepared.
Requirements:
- Local entity
- Management structure
- Description of business strategy - Controlled transactions
- Summary of financial information used to apply TP methods
- Copy of existing APAs and other tax rulings which are related to the controlled transactions - Financial information
- Annual local entity financial accounts for the fiscal year concerned
What is the Country by country report?
Gives a country by country breakdown of financial and tax data. List of all entities, branches and PEs, with relevant activity from a tick list
- Aggregate tax jurisdiction wide information relating to: geographical allocation of income, taxes paid, certain indicators of economic activity among the tax jurisdictions in which the MNE operates
What is the purpose of the CBC report?
- High level transfer pricing risk assessment
- Identify if revenues and profits generated are commensurate with substance - Evaluate other BEPS related risks
- Greater transparency on the location of permanent establishments and branches
- Visibility of where groups are located (Eg. tax havens) or have tax incentives - Economic and statistical analysis
- Identify artificial shifting of profits
- Provide a global view of a multinational’s value chain
=> Needs to be filled by the parent company, other companies file a notification.
WHO file a Cbc report? (3)
- Multinationals where the ultimate parent entity is resident in an OECD or G20 country
- Multinationals with consolidated group revenues of equal or more than €750m (or local equivalent) in the previous fiscal year
- All types of business structure will be within scope including for example corporations, partnerships, investment trusts
WHEN do the MNE have to file the cbc report?
- The report must be filed with the parent country tax authority within 12 months of the year end.
WHAT do the MNE have to file the cbc report?
- The MNE will be required to prepare a CbCR template for the entire in scope group for certain financial and tax information.
- The basic scope is all entities included in the consolidated group for financial reporting and there is no materiality level .
HOW do the MNE have to file the cbc report?
- The report will be filed with the parent country tax authority.
- That tax authority will automatically share the report with countries in which the group operates provided certain conditions are met:
o Confidentiality: certain confidentiality protections in place;
o Consistency: implementing filing requirement for resident parent companies and not requiring more than is in the OECD template.
o Appropriate use: commitments to using this for assessing high level transfer pricing risk and not for income allocation
WHEN do all the documents have to be filed?
- Master File to be updated in line with filing deadlines of parent
- Local File to be required no later than due date of tax return
- CbCR to be completed within one year of the end of the fiscal year of parent
- The transfer pricing documentation requirements introduced for financial years starting on or after 1 January 2016 (de facto assessment year 2017)
What are the threshholds in Belgium to qualify for filling the Master and Local file? (3)
Only one of three threshholds needs to be exceeded.
- A sum of operational and financial income of €50 million
- A balance sheet total of €1 billion
- An annual average of employees of 100 FTEs
