New Transfer Pricing Documentation and Transparency
Reporting—What You Need to Know
By Gordon Denusik, CPA, CA
Gordon Denusik is a partner in
the transfer pricing group of
KPMG LLP in Vancouver.
C
hanges are on the horizon for transfer pricing, yet again.
Over the past number of years, public and political focus on
perceived tax avoidance by multinational enterprises (MNEs)
has increased, along with concern that taxation is not properly
aligned with economic activities and value creation. To address the
potential disconnect between the transfer pricing outcomes and value
creation, and to improve the quality of transfer pricing documentation,
the Organisation for Economic Co-operation and Development (OECD)
released its Action Plan on Base Erosion and Profit Shifting in July 2013.
The plan consisted of a 15-point action list to be completed in the
2014 and 2015 calendar years.
This article focuses on action #13 of the OECD plan—a re-examination
of transfer pricing documentation—which will affect, in one way or
another, all Canadian corporations that have cross-border relatedparty transactions.
Enhancing transparency
As stated by the OECD, the goal of action
#13 was to: “Develop rules regarding transfer
pricing documentation to enhance transparency for tax administrations, taking into
consideration the compliance cost for business. The rules to be developed will include
a requirement that MNE’s [sic] provide all
relevant governments with needed information on their global allocation of income,
economic activity and taxes paid among
countries according to a common template.”1
The OECD issued a discussion draft on
transfer pricing documentation and countryby-country (CbyC) reporting for public
consultation in January 2014. In September
of that year, it released Guidance on Transfer
Pricing Documentation and Country-byCountry Reporting, which replaced chapter V
of its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
This new chapter set out a revised standard
for transfer pricing documentation, calling for
significantly more information and transparency than are currently needed to meet
the documentation requirements of Canada
and other jurisdictions.
The new guidelines in chapter V call for a
three-tiered approach to transfer pricing
documentation that consists of a master file,
a local file, and a CbyC report. This threetiered approach expands the existing documentation requirements significantly.
ECD, Action Plan on Base Erosion and
O
1
Profit Shifting, OECD Publishing, 2013.
(http://dx.doi.org/10.1787/9789264202719en)
36 CPABC in Focus •May/June 2015