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Transfer pricing in the time of BEPS
Two initiatives from BEPS draft have significant implications for transfer pricing. Taxand USA explains how these suggestions could affect multinationals.
The two action items published this September include potentially monumental changes to the practice of transfer pricing — some potentially controversial.
Action 13: Documentation and Country-by-Country Reporting
This would require each member of a multinational group to disclose significant amounts of financial data related to all group members in most countries in which the group has presence. This information is designed to give local country tax authorities around the world insight that will allow them to evaluate taxpayers for transfer pricing and other BEPS-related risks — through visibility into global operations that currently doesn’t exist for many jurisdictions.
Action 8: Transfer Pricing Aspects of Intangibles
Among the intangibles now described are goodwill and going concern value, which the guidance says “should be taken into account when establishing arm’s length prices.” The guidance recognises that a precise definition of goodwill is not necessary for transfer pricing purposes.
Quality tax advice, globally
Actions 8 and 13 of the BEPS initiative present significant overhauls to transfer pricing guidance, especially in the areas of documentation standards and concepts of value creation. This new guidance presents a challenging landscape for forward-looking taxpayers responsible for mitigating tax risk.