- Action Plan, Base Erosion Profit Shifting, BEPS, transfer pricing, value creation chain
With the introduction of OECD’s Base Erosion Profit Shifting (BEPS) Action Plans, the transfer pricing area, including the documentation requirements have undergone a huge change. On Feb. 3, 2016, Jørgen Juul Andersen from PwC Copenhagen gave DABF members and guests a great overview of the 15 Action Plan areas, as well as more depth on Action Plans 8, 9, 10 and 13. Below are some key points.
The OECD normally takes many years to eliminate unproductive processes, but in the case of BEPS, things have moved extremely fast. On Oct. 5th, 2015, they issued nearly 2000 pages of Action Points that need to be tackled in this area, and while these are still guidelines and recommendations, some of these points are being translated into legislation by different countries at different speeds, and it is unclear how binding these guidelines will be. Therefore, it is IMPERATIVE that Danish companies keep on top of the progress on the issue, as there is no “recipe” for allocation of profit between countries. Quite a bit of functional risk analysis needs to be done.
Jørgen reviewed the 15 Action Plans then pointed out a few key warning areas:
- Legal ownership alone does not create entitlement to profit
- Contracts are reviewed against conduct
- You need to know your value creation chain and where you are unique vs your peers – yet there is no instrument to measure value creation. Your company may need to rethink whether it is the parent or the subsidiary which creates the value, and in which country. Your transfer pricing documentation should no longer be general – it must be specifically related and allocated to where your value is created. How to measure value creation will be the next battlefield. You essentially need to document the DNA of your company.
See more advice from Jørgen here:
And the full presentation here.