country by country reporting local file webinar€¦ · this presentation or for any decision based...

16 November 2017

COUNTRY BY COUNTRY REPORTING LOCAL FILE WEBINAR

ZARA RITCHIE - BDO

NATALYA MARENINA - BDO

JOANNE TING – THOMSON REUTERS

OUTLINE OF SESSION

1 Background and requirements for SGEs

2 Country by Country reporting Templates

3 Australian specific Local File

4 Case study

Country by Country Reporting Webinar - 16 November 20172

5 Transfer Pricing challenges

6 Questions

OUTLINE OF REQUIREMENTS FOR A SIGNIFICANT GLOBAL ENTITY (SGE)

BACKGROUNDOECD framework


OECD BEPS Action 13 on Transfer Pricing Documentation and Country-by-

Country Reporting issued in 2015

An Australian entity that is a member of a group of entities (either the

global parent entity or one of the other group members)

Group is consolidated for accounting purposes and has annual global income

AUD 1 billion or more

EXTRA COMPLIANCE REQUIREMENTS FOR SGESCountry by Country Reporting

Three Tiered Structure

Master File - standardised information relevant for all MNE group members. Prepared globally and lodged locally

Local File - containing information relevant to material transactions of the local taxpayer (different from Australian transfer pricing documentation). Prepared and lodged locally

Country-by-Country Report - information relating to the global allocation of the MNE’s income and taxes paid together with certain indicators of the location of economic activity within the MNE group. Prepared and lodged globally.


Master File

Country by Country Report

Local

Files

WHY DO SIGNIFICANT GLOBAL ENTITIES NEED TO COMPLY?

Failure to lodge tax documents including CbC Reporting documents on time will attract

maximum potential penalties ranging from AUD 105,000 to AUD 525,000 (depending on

timing)

Penalties applied to transfer pricing adjustments are doubled for SGEs and can exceed

the relevant tax shortfall


Administrative penalties increased from 1 July 2017

Particulars Potential penalties

Scheme, Statement and

unarguable positions

Base penalty amount is determined by a % of shortfall amount, which depends upon the taxpayer

behaviour, with maximum penalties of 75% for statement penalties and 50% for scheme penalties.

Penalty % is also dependent on other circumstances (e.g. existence of Australian transfer pricing

documentation and aggravating/mitigating circumstances).

Failure to lodge on time penalty

Penalties for failure to lodge - Base penalty amount determined as penalty units per period of 28

days (or part thereof) of late lodgement i.e. 1 penalty unit for small entities, 2 penalty units for

medium entities and five penalty units for large entities

NEW DEVELOPMENTS FOR SGES

Multinational Anti-avoidance Law (MAAL)

Key Details:

• Applies on or after 1 January 2016 irrespective of when the scheme commenced

• Targets schemes that limit a taxable presence or permanent establishment (PE) in Australia:

Target profit on sales activities occurring offshore where the activities of a related entity in Australia are integral to gathering those sales

MAAL requires a principal purpose (not sole principal purpose) to either obtain an Australian tax benefit or reduce or defer foreign tax

• Where MAAL applies, the foreign entity will likely be deemed to have a notional PE in Australia

Diverted Profits Tax (DPT)

Key Details:

• Purpose of the DPT is to align tax paid with the economic

substance and punish SGEs for diverting profits offshore

• Does not apply if one of these tests apply:

AUD 25 million Income test;

Sufficient foreign tax test (Relevant income recognised

for foreign tax purposes is less than 24%)

Sufficient economic substance test

• Applies to tax benefit for an income year that starts on or

after 1 July 2017. The DPT can apply to a scheme entered into

or commenced to be carried out before 1 July 2017

• Punitive 40 per cent tax applied on profits that are found to

have been diverted to ‘low taxed’ countries

• Adopts the UK’s ‘pay now, argue later’ approach



General Purpose Financial Statements

Does the company fall within the following criteria?

Australian resident or PE

Not required by ASIC to prepare GPFS

Required to lodge an income tax return

If the answer to the above criteria is ‘yes’ then the company needs to prepare GPFS and lodge with the ‘income tax return’.

When does it come into effect?

Income years commencing on or after 1 July 2016

How many GPFS need to be prepared?

Consolidated statements that include an Australian subsidiary maybe be permissible

Each entity not part of tax consolidated group must submit one GPFS

Does GPFS need to be audited?

GPFS does not need to be audited however practically auditing the GPFS provides evidence that the accounting standards have been applied

What is the penalty for not complying?

The penalty for non-compliance is the administrative penalty multiplied by a factor of 100 (i.e., maximum of $525,000 per document)

NEW DEVELOPMENTS FOR SGES

COUNTRY BY COUNTRY REPORTING TEMPLATES

COUNTRY BY COUNTRY REPORT


MASTER FILE• Chart describing MNE's legal and ownership structureOrganizational Structure

• Important drivers of business profit

• Supply chain

• Intra-group services

• Main Geographic markets

• Brief functional analysis

• Business restructures, acquisitions or divestures

Description of MNE’s business

• Overall strategy for the development, ownership and exploitation of intangibles

• Ownership list of intangibles

• Important agreements relating to intangibles (including CCA, principal research agreements and licence agreements)

• R&D intangibles

• Transfers of intangibles

MNE’s Intangibles

• Financing of Group (including external loans)

• Financing members of MNE Group (including location)

• Transfer pricing policies relating to financial arrangements

MNE’s intercompany financial activities

• Consolidated financial statement

• Unilateral APAs and Tax Rulings relating to allocation of income globally

MNE’s financial and tax positions


AUSTRALIAN LOCAL FILE DESIGN

Long Form Local File consists of following three elements:


Short Form Local File

Local File Part A

Local File Part B

ATO

GLOBAL ENTITY

MASTER FILE

LOCAL FILE

(OECD design)

CbCRFOREIGN TAX

AUTHORITY

12 Months after y/e

12 Months after y/e

Given to Local Entity

6.5 Months after y/e

6.5 Months after y/e

Exemption possible*

* Need to apply to ATO for exemption (ideally before tax return due)

** Expected to be used for risk assessment by ATO

Exemption possible*

LOCAL ENTITY

GPFS (with tax

return)

IDS (with tax

return)**

LOCAL FILE

(ATO design)**

PROVIDED BY

LOCAL ENTITY

AUSTRALIAN

TRANSFER

PRICING

DOCUMENTATION

Prepared beforetax return due

(for penalty

mitigation)


SGE TRANSFER PRICING CYCLE

AUSTRALIAN SPECIFIC LOCAL FILE

SHORT FORM LOCAL FILE V/S LONG FORM LOCAL FILE

You are eligible for Short Form Local File

Do you satisfy de minimis rules for ‘small taxpayers’ or ‘materiality’?

Do you have less than AUD 2 million of IRPDs?

Do you have transactions on the exception list?

• Derivative transactions

• Assignment license or other transactions involving IPs

• Transactions of a capital nature

Or

You must

prepare

Long Form

Local File

No

Or

No

No

Yes


SHORT FORM LOCAL FILE

Provide a description of the following in relation to

the local entity

Organisational structure

Business description and strategy

Recent business restructures

Transfers of intangibles

Key competitors


LOCAL FILE PARTS A & B (LONG FORM)

Australian specific design

Differs significantly from OECD standard

Detail required much greater than for IDS

Information is required on a transaction by

transaction basis

Legal agreements required

Require disclosure regarding existence of

contemporaneous transfer pricing documentation


CASE STUDY

LOCAL FILE - CASE STUDY

Australian medical equipment distributor

Purchased goods for distribution from

• India Co for USD (in AUD equivalent) 2,500,000 (10 transaction),

• Singapore Co for AUD 850,000 (3 transactions) plus AUD 500,000

TNMM used as pricing method for all transactions (Cost Plus by counter party)

No written agreement but invoices with details of transactions available

Part of Relevant Agreement Series

Australian specific contemporaneous transfer pricing documentation prepared

India Co has a private ruling for transaction


TRANSFER PRICING CHALLENGES

GLOBAL AND LOCAL MNE TRANSFER PRICING CHALLENGES


Challenges encountered

Increased complexity

Multiple datelines

management

Different obligations

between local jurisdictions

Higher risks of litigation

Higher Transparency

(publicly available

information)

Increased administrative expenses and

resources employed

New additional

obligations

Different years of applicability

(i.e. different year ends of

subsidiaries)

Localising of centrally

prepared documentation

Increased focus from

tax authority

Effect of BEPS

To satisfy the new obligations

(i.e. coordinating with

international parties to obtain

relevant information)

QUESTIONS

Zara Ritchie

Partner and Head of Global Transfer Pricing Services

Melbourne

Email: [email protected]

Direct: +61 3 9605 8019

Mobile: +61 419 878 500

Natalya Marenina

Principal, Transfer Pricing

Sydney

Email: [email protected]

Direct: +61 2 8264 6649

Mobile: +61 450 856 965


THANK-YOU!Contact Us

DISCLAIMER

This presentation has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The

presentation cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained

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