prop · H40347 · 2016-12-06 00:00:00 — -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. TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 26 – ANNEx I TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – •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 licence agreements. •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 organised 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 (APAs) and other tax rulings relating to the allocation of income among countries. TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 ANNEx II TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – LOCAL FILE – 27 Transfer pricing documentation – Local file The following information should be included in the local file: •A description of the management structure of the local entity, a local organisation chart, and 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. 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, licences of intangibles, etc.) 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.1 •An indication of the most appropriate transfer pricing method with regard to the category of transaction and the reasons for selecting that method. TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 28 – ANNEx II TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – LOCAL FILE •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 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. •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. 1.To the extent this functional analysis duplicates information in the file, a cross- reference to the file is sufficient. TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 ANNEx III TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – COUNTRY-BY-COUNTRY REPORT – 29 A. Model template for the other than Cash and Cash Equivalents income, taxes and business Name of the MNE group: Fiscal year concerned: Currency used: Income Tax Accrued – Current Year Income Tax Paid (on Cash Basis) Profit (Loss) before Income Tax TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 30 – ANNEx III TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – COUNTRY-BY-COUNTRY REPORT each aggregation per tax jurisdiction the MNE group included in Name of the MNE group: Fiscal year concerned: List of all the Constituent Entities of youexplanationorinformationbrieffurtheranyincludePleaseconsider necessary or that would facilitate the understanding of Entity in the “Additional Information” section. JurisdictionTax OrganisationofEntitiesConstituentor ifIncorporationTaxtheinResidentJurisdictionTaxDifferent JurisdictionTaxfromJurisdictionof Name of the MNE group: Fiscal year concerned: TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 ANNEx III TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – COUNTRY-BY-COUNTRY REPORT – 31 B. Template for the Country-by-Country Report – General instructions This 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. A Reporting MNE is the ultimate parent entity of an MNE group. For purposes of completing , 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 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 for financial reporting, regulatory, tax reporting, or internal management control purposes. Treatment of Branches and Permanent The permanent data should be reported by reference to the tax jurisdiction in which it is situated and not by reference to the tax jurisdiction of of the business unit of which the permanent is a part. tax jurisdiction reporting for the business unit of which the permanent is a part should exclude financial data related to the permanent . 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. TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 32 – ANNEx III TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – COUNTRY-BY-COUNTRY REPORT 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 preceding such date, or (ii) information for all the relevant Constituent Entities reported for the fiscal year of the Reporting MNE. 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. TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 ANNEx III TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – COUNTRY-BY-COUNTRY REPORT – 33 C. Template for the Country-by-Country Report – Specific instructions Overview of allocation of income, taxes and business activities by tax jurisdiction (Table 1) 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 . 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 Model Tax Convention and its accompanying Commentary. 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 tax jurisdiction and to all other tax jurisdictions. Taxes paid should include withholding taxes paid by other entities (associated TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 34 – ANNEx III TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – COUNTRY-BY-COUNTRY REPORT 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. 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 , the stated capital should be reported by the legal entity of which it is a permanent unless there is a defined capital requirement in the permanent tax jurisdiction for regulatory purposes. 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 , accumulated earnings should be reported by the legal entity of which it is a permanent . 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. other than Cash and Cash Equivalents In the 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 , assets should be reported by reference to the tax jurisdiction in which the permanent is situated. Tangible assets for this purpose do not include cash or cash equivalents, intangibles, or financial assets. TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 ANNEx III TO ChAPTER v. TRANSFER PRICING DOCUMENTATION – COUNTRY-BY-COUNTRY REPORT – 35 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 , however, the permanent should be listed by reference to the tax jurisdiction in which it is situated. The legal entity of which it is a permanent should be noted (e.g. xYZ Corp – Tax Jurisdiction A PE). Tax Jurisdiction of Organisation or Incorporation if Different from Tax Jurisdiction of 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 . 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. Holding or Managing Intellectual Property , Marketing or Distribution Administrative, Management or Provision of Services to Unrelated Parties Please specify the nature of the activity of the Constituent Entity in the “Additional Information” section. TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 ANNEx Iv TO ChAPTER v. COUNTRY-BY-COUNTRY REPORTING IMPLEMENTATION PACKAGE – 37 Country-by-Country Reporting Implementation Package In order to facilitate a consistent and swift implementation of the Country-by-Country Reporting developed under Action 13 of the Base Erosion and Profit Shifting Action Plan (BEPS Action Plan, , 2013), a Country-by-Country Reporting Implementation Package has been agreed by countries participating in the /. This implementation package consists of (i) model legislation which could be used by countries to require the ultimate parent entity of an MNE group to file the Country-by-Country Report in its jurisdiction of including backup filing requirements and (ii) three model Competent Authority Agreements that are to be used to facilitate implementation of the exchange of Country-by-Country Reports, respectively based on the 1) Convention on Mutual Administrative Assistance in Tax Matters, 2) bilateral tax conventions and 3) Agreements (TIEAs). It is recognised that developing countries may require support for the effective implementation of Country-by-Country Reporting. The model legislation contained in the Country-by-Country Reporting Implementation Package takes into account neither the constitutional law and legal system, nor the structure and wording of the tax legislation of any particular jurisdiction. Jurisdictions will be able to adapt this model legislation to their own legal systems, where changes to current legislation are required. The Convention on Mutual Administrative Assistance in Tax Matters (the “Convention’), by virtue of its Article 6, requires the of the Parties to the Convention to mutually agree on the scope of the automatic exchange of information and the procedure to be complied with. In the context of the Common Reporting Standard, this requirement has been translated into a Multilateral Competent Authority Agreement, which defines the scope, timing, procedures and safeguards according to which the automatic exchange should take place. As the implementation of the automatic exchange of information by means of a Multilateral Competent Authority Agreement in the context of the Common Reporting Standard has proven both time- and resource-efficient, the same approach could be used for the purpose of putting the automatic exchange of information in relation to Country- by-Country Reports in place. Therefore, the Multilateral Competent Authority Agreement TRANSFER PRICING DOCUMENTATION AND COUNTRY-BY-COUNTRY REPORTING © 2015 38 – ANNEx Iv TO ChAPTER v. COUNTRY-BY-COUNTRY REPORTING IMPLEMENTATION PACKAGE on the Exchange of Country-by-Country Reports (the “CbC MCAA”) has been developed, based on the Convention and inspired by the Multilateral Competent Authority Agreement concluded in the context of the implementation of the Common Reporting Standard. In addition, two further model competent authority agreements have been developed for exchanges of Country-by-Country Reports, one for exchanges under Double Tax Conventions and one for exchanges under Agreements. In line with paragraph 5 of Chapter v of these Guidelines, one of the three objectives of transfer pricing documentation is to provide tax administrations with the information necessary to conduct an informed transfer pricing risk assessment, while paragraph 10 of Chapter v of these Guidelines states that effective risk identification and assessment constitute an essential early stage in the process of selecting appropriate cases for transfer pricing audit. The Country-by-Country Reports exchanged on the basis of the model competent authority agreements contained in the present Country-by-Country Reporting Implementation Package, represent one of the three tiers of the transfer pricing documentation and will, in accordance with paragraphs 16, 17 and 25 of Chapter v of these Guidelines, provide tax administrations with relevant and reliable information to perform an efficient and robust transfer pricing risk assessment analysis. Against that background, the model competent authority agreements aim to provide the framework to make the information contained in the Country-by-Country Report available to concerned tax authorities, such information being foreseeably relevant for the administration and enforcement of their tax laws through the automatic exchange of information. The purpose of the CbC MCAA is to set forth rules and procedures as may be necessary for of jurisdictions implementing BEPS Action 13 to automatically exchange Country-by-Country Reports prepared by the Reporting Entity of an and filed on an annual basis with the tax authorities of the jurisdiction of tax of that entity with the tax authorities of all jurisdictions in which the operates. For most provisions, the wording is substantially the same as the text of the Multilateral Competent Authority Agreement for the purpose of exchanges under the Common Reporting Standard.