BEPS Action Plan 13: Transfer pricing documentation and country-by-country reporting

SUITS THE C-SUITE By Reynante M. Marcelo and Ronald Steven A. Arriesgado

Business World (11/02/2015 – p.S1/2)

First of two parts

Of the 15 Action Plans to address Base Erosion and Profit Shifting (BEPS), Action Plans 8 to 13, or those dealing with transfer pricing (TP), are generally expected to have an immediate impact because most of the recommendations under the TP-related Action Plans can be implemented right away without the need for changes to bilateral tax treaties or domestic laws.

The BEPS Action Plans on TP consist of amendments or revisions to certain sections of the Organization for Economic Cooperation and Development (OECD) TP Guidelines, and a great majority of countries (having patterned their TP rules after the OECD Guidelines) may consider these changes as having been incorporated into their TP rules.

Action Plan 13 sets out a three-tiered standardized approach to TP documentation in order to provide tax administrations with all the essential information that they will need to conduct a TP risk assessment. A standardized approach is also expected to reduce the costs for compliance with the documentation requirements by providing a uniform and consistent set of information and documents for all countries. This approach requires the preparation of a Master File, a Local File and Country-by-Country Report, following a prescribed template.


The master file provides high-level information on the organizational structure, business, intangibles, intercompany financial activities and the financial and tax position of a multinational enterprise (MNE). An MNE is a company that is part of an MNE group, which, in turn, is defined as a group of associated companies with business establishments in two or more countries.

The information on the business of an MNE will include, among others, a description of the supply chain for the group’s five largest products/service offerings by turnover, plus any other products/services amounting to more than 5% of group turnover. It will also include any business restructuring, acquisitions and divestitures during the fiscal year. Of special consideration is the requirement in the Masterfile for information on the MNE’s annual consolidated financial statements for the fiscal year concerned, as well as a list and description of existing unilateral Advance Pricing Agreements (APAs) and other tax rulings.

The MNE may present information by line of business if some significant business lines that operate independently from the group. When the requirements of the master file can be fully satisfied by specific cross-references to other existing documents (like the local file), such cross references should satisfy the relevant requirement.

Unlike the requirement for a country-by-country report, Action Plan 13 does not prescribe a revenue threshold on the requirement for a master file, although the local country may impose such thresholds.


The local file provides more detailed information relating to specific intercompany transactions, such as those taking place between a local country affiliate and associated enterprises in different countries, which are material in the context of the local country’s tax system.

Some of the information will include the management structure, organizational chart of the local entity, details of business restructurings and intangible transfers, including the audited financial statements for the fiscal year concerned, and if not available, the existing unaudited statements. The local file will also show reconciliation on how financial data used in applying the TP method ties up to the financial statements.

Where a requirement of the local file can be fully satisfied by a specific cross-reference to information contained in the master file, such a cross-reference should suffice. The master file and the local file are to be delivered directly to local tax administrations.


Action Plan 13 also prescribes a template for accomplishing a report on the global allocation of revenue (related and unrelated party), profit (loss) before income tax, cash tax paid (corporate income tax and withholding tax), current year’s tax accrual, employees, stated capital and accumulated earnings, tangible assets (other than cash and cash equivalents) and the main business activity for each tax jurisdiction in which the MNE group operates.

This report, known as country-by-country report (CBCR), is required for MNE groups with annual consolidated group revenue in the immediately preceding fiscal year of €750 million or around P40 billion. The CBCR will be prepared and filed in the jurisdiction of the tax residence of the ultimate parent entity and will cover fiscal years beginning on or after Jan. 1, 2016.

The first CBCRs are due for filing not later than Dec. 31, 2017.

The reporting MNE should list all of the tax jurisdictions in which “Constituent Entities” of the MNE group are resident for tax purposes. A constituent entity is a separate business unit that is included in the Consolidated Financial Statements of the MNE group for financial reporting purposes.

Since the CBCR contains sensitive information on the business of an MNE, tax administrations should ensure that the conditions of confidentiality and consistency are strictly observed, and that the CBCRs should only be used for assessing high-level TP and BEPS-related risks.

In the second part of this article, we shall look into compliance issues for TP documentation, such as the contemporaneous nature of TP documentation, time frame, materiality, retention of documents, frequency of documentation updates, penalties and confidentiality.

Reynante M. Marcelo is a Tax Partner and Ronald Steven A. Arriesgado is a Senior Directorof SGV & Co.