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OECD seeks increased tax transparency from multinationals


The OECD has released a discussion draft outlining its proposals on information that multinationals may be required to disclose to tax authorities about their global operations.

The proposals would require multinationals to report extensive details of their income, taxes and business activities on a country-by-country basis, and also outline updated guidance on the transfer pricing documentation that should be prepared to review whether intra-group transactions between members of a multinational group have been conducted on an arm’s-length basis.

The proposals form part of the OECD’s action plan to counter base erosion and profit shifting (BEPS). This particular action is intended to give tax authorities a greater ability to assess the risk of a multinational’s non-compliance with local tax rules by providing a clearer view of how the local operations fit within the bigger global picture than might otherwise be possible based on local reporting requirements.

The discussion draft adopts a two-tiered approach to transfer pricing documentation: a “master file” containing standardised information for all multinational group members, and a “local file” that provides specific information related to the transactions of a local taxpayer. A country-by-country matrix of key financial information would also be required, either as part of the master file or in a separate document.

The master file is intended to provide a complete picture of the multinational’s global business and would include information such as:

  • The global organisational structure;

  • Descriptions of the global business with a particular focus on value creating activities such as development of intangibles;

  • Descriptions of any intercompany financing arrangements; and

  • Details regarding the multinational’s financial and tax positions, including allocations of income and taxes.

Though some of the required information is commonly found in transfer pricing documentation, the discussion draft also requests a number of novel items such as the title and principal office location of the 25 most highly compensated employees in each business line.

Uniformity and simplicity failure

The local file/ master file approach does not clearly achieve the uniformity and simplicity that was the stated goal of the OECD’s work on documentation given that taxpayers will now have to assemble the master file on top of the existing and varying local country documentation requirements. Some of the requirements include commercially sensitive information to which tax directors might not normally have access, for example, data on the 25 most highly compensated executives.

The OECD will need to carefully consider whether the reporting of tangible property, employee numbers and payroll expense in practice might lead to an increase in disputes and double taxation as a result of tax authorities adopting a formulary apportionment approach rather than adhering to the arm’s-length principle in making transfer pricing adjustments.

There is also concern about the risk that breaches of confidentiality may occur. Though the OECD stresses the need for tax administrators to keep taxpayer information confidential, the requirement to share the master file with all affiliates in a multinational group increases the risk that a breach could occur. The master file may contain commercially sensitive information that would not otherwise be shared with all affiliates.

The OECD has invited public comments on the discussion draft by February 23 2014. Despite the concerns that have been raised, there is a strong political desire among the OECD and G20 member countries to improve the transparency of multinationals’ tax affairs and the proposals are likely to be endorsed by the OECD (potentially with some minor modifications) later in 2014.

Sarah Stevens (, PwC Sydney;
Nick Houseman (, PwC Sydney;
Pete Calleja (, PwC Sydney;
Kathryn Horton O’Brien (, PwC Washington, DC;
Adam Katz (, PwC New York; and
Richard Collier (, PwC London

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