BEPS : strengthened requirements for justification of transfer pricing policy

The new obligations stemming from the BEPS (Base Erosion Profit Shifting) project will cause the most significant changes since the 1980s in the field of international taxation. Indeed, the countries directly involved in this project represent more than 84% of the world economy. Given the issues arising from the recovery of taxes, no doubt that many countries will pour significant efforts into the BEPS project to counter unlawful tax optimization schemes.

Towards more cooperation between countries

The BEPS project, initiated by the OECD in 2012, includes 15 actions intended to help the governments to tackle the corporate tax issues. This conceptual framework is now accompanied by operational guidance.

From now on, a multinational company will have to consider three additional areas of analysis in its transfer pricing policy:

  • Country-by-Country Reporting (CBCR). Details by entity and organized by country including turnover, profits, taxes and workforce.
  • Standardized information for all members of the group. Global organization, description of activities, patents held, intercompany agreements.
  • A detail of the transactions between the group’s subsidiaries. These transactions have to be transmitted in all the countries in which the group operates. This applies in the case of a reorganization or a transfer of intellectual property.

Towards a more robust documentation

This need for more detailed information for tax administrations will result in increased pressure on information systems and local teams. To cope with the new BEPS provisions, an optimized document organization is required. This will promote the exchange of information between departments and subsidiaries. As a result, multinational corporations will have to increase their efforts to maintain their transfer pricing policy up to date, so as to be ready for future tax audits. Furthermore, the transfer pricing documentation will have to be updated on a regular basis to ensure compliance with the latest provisions. Feel free to get in touch with us for further information !