United States

OECD transfer pricing documentation guidance impacts US multinationals


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One outcome from the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) initiative was a revision to the OECD Guidelines regarding transfer pricing documentation. The new OECD guidance is contained in the BEPS Action 13 Report, Guidance on the Implementation of Transfer Pricing Documentation and Country-by-Country (CbC) Reporting.

The BEPS Action 13 report revised Chapter V of the OECD Guidelines for multinational enterprises (MNE) and tax administrations for years beginning from Jan. 1, 2016, namely recommending a three-tier structure for transfer pricing documentation: a master file, local files and a CbC report.

Some countries have formally adopted the new OECD guidance into their legal transfer pricing documentation requirements. Many countries are considering changes to local regulations in accordance with the OECD’s recommendations. At the same time, the significant majority of all advanced nations, including the United States, consider their transfer pricing rules to be broadly aligned with the OECD Guidelines.

For U.S. MNEs, a typical transfer pricing report, prepared in alignment with the U.S. transfer pricing documentation requirements, may not be in the format of the new OECD guidance. As such, U.S. MNEs wishing to have a single global transfer pricing report will need to reconcile their U.S. transfer pricing documentation with the new OECD guidance.

What transfer pricing documentation requirements have changed?

The new OECD guidance not only changes the transfer pricing documentation format but also requires MNEs to provide additional information to the tax authorities.

The revised OECD Guidelines recommend MNEs of all sizes maintain a master file and local files for all countries of operation, while only MNEs with annual global revenues exceeding €750 million are required to annually file a CbC report.1

The three-tier structure of transfer pricing documentation


Master file

The master file should be prepared centrally by the MNE parent company. For local subsidiaries, the master file together with the relevant local file would constitute the local transfer pricing documentation and may need to be provided to the relevant tax authority.

The master file provides an overview of the MNE group, specifically covering the following:

  • Description of the MNE’s business, including a description of the supply chain, important service arrangements, main geographic markets, brief functional analysis and description of important business restructurings
  • Discussion of the MNE’s intangibles, including a description of the overall strategy for development, ownership and exploitation of intangibles, important agreements and transfer pricing policies related to intangibles
  • Description of intercompany financial activities, including how the group is financed and description of the transfer pricing policies
  • MNE’s financial and tax positions, including consolidated financial statements and listing and description of any rulings

Local file

The local files supplement the information in the master file and provide specific details of the transactions that impact upon each local entity. While the master file provides a high-level overview of the MNE’s business, the local files should include detailed information about the local business and specific intercompany transactions and financial data of each entity.

Specifically, each local file should demonstrate that the intercompany transactions, such as payments and receipts for products, services, royalties and interest are undertaken on an arm’s length basis. Thus, the local files need to include evidence that the pricing of intercompany transactions complies with the arm’s length principle.  The local files will typically include the economic analysis or benchmarking that is a standard component of a typical transfer pricing report.

CbC report2

Under the new OECD guidance, MNEs with revenues exceeding €750 million are required to file annually a uniform template that includes revenue, profit or loss, capital and accumulated earnings, number of employees, and other items for each country in which they do business.

How does BEPS affect US transfer pricing documentation?

The U.S. transfer pricing regulations provide that contemporaneous documentation must contain 10 principal documents that should support any conclusions that the transfer pricing method (and its application) provides the most reliable measure of an arm’s-length result.

The U.S. transfer pricing regulations have not been amended to implement the BEPS Action 13 recommendations, aside from the CbC reporting requirements, which the United States has adopted for U.S. MNEs with global revenue over $850 million.

From a U.S. perspective, if a master file and a U.S. local file is properly prepared under the revised OECD Guidelines, it would generally meet the 10 principal documents standard as long as the U.S. local file includes the specific U.S. transfer pricing methodologies and an index of 10 principal documents.

However, U.S. transfer pricing reports prepared simply in compliance with the U.S. transfer pricing documentation requirements generally would not contain all of the elements required under the new OECD guidance. Hence, for U.S. MNEs wishing to have a single global transfer pricing report, they would need to reconcile the U.S. transfer pricing report with the new OECD guidance.

As such, a U.S. MNE may need to decide whether to adapt a typical U.S. transfer pricing report into the OECD format or prepare an OECD master file and local file and then reconcile this to the 10 principal documents.

How can you prepare for these changes?

MNEs preparing their annual transfer pricing documentation in 2017 to support their 2016 intercompany transactions need to consider the new OECD guidance.

For U.S. MNEs, here are some key considerations:

  1. Which countries require local files?
  2. What is the most efficient way to produce documentation in order to comply with the revised OECD Guidelines?
  3. What is the best approach for reconciling the U.S. transfer pricing documentation requirements with the new OECD master file and local file guidance?

Ultimately, it is important for U.S. MNEs to consider the new OECD documentation requirements when preparing transfer pricing documentation for the 2016 year.

1 Individual countries may adopt different threshold requirements for master file, local file and CbC report.

2 This article primarily focuses on the OECD’s master file and local file documentation requirements and is not intended to address the detailed requirements of the CbC report.


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