Time to Tackle Your New Year BEPS Resolution
January: it is dark and cold and you are already feeling guilty about the New Year’s resolutions that you haven't kept.
Not least of these - and the issue that you have been putting off dealing with - is reviewing your businesses' transfer pricing strategy following the BEPS publication last October. However, this one is far easier to keep than going to the gym 5 times a week or sticking to the avocado and cabbage diet.
The matter was broached the other morning when I shared a coffee with a long term friend who is the Financial Director of a mid-sized multinational business. Let's call him David.
"I support the principles behind BEPS" he began "but now that the actions have been published I have no choice but to address the issue. I was hoping that it might all go away. Where do I start? Thousands of pages of technical jargon from the OECD, 15 Actions - I have tried to keep up with the announcements over the past couple of years, have been to seminars and read summaries on the internet but I need practical help to understand what it really means for us. The Board don't understand and are scared that we will end up on News at Ten, whereas half of the group are still struggling to cope with the policy we implemented years ago. You eat and sleep this stuff, what do you think?”
David's plight is far from unusual. Once I had dispelled the idea that I spent my entire life thinking about transfer pricing (although as David pointed out I had spent Christmas exchanging goods with related parties) I tried to offer him some consoling words.
"It is not as bad as you think. Only a few of the 15 Actions relate to transfer pricing and on many issues it is a case of evolution not revolution. First of all set aside a couple of hours. Get a room, a coffee and a whiteboard. Bring a laptop, existing files and any other group documents that relate to transfer pricing. Then identify - evaluate - prioritise. This is a high level analysis only at this stage. Devise a plan for a more detailed review of the higher risk issues"
Then run through your related party transactions - by type or country, whichever is easiest. For example:
Services - map them. Are you sure that you have thought of all of them? Are they priced appropriately in accordance with the new BEPS principles? Are they supportable and documented?
Do the same for product transactions and don't forget that the custom duty rules are changing soon too.
IP - map the transactions, ask yourself questions: such as am I happy to defend challenges about substance and economic ownership? Oh yes, there are still planning opportunities here too...
Interest - the rules look set to change in the UK and the Government are currently consulting on the issue. Any change could raise tax liabilities significantly for some groups. Have you checked your position and informed the Board?
Finally, there is the issue of country by country (CbC) reporting and master local files to consider. Not every group will be large enough to have to produce a CbC report but many will have to change to a master file and local file approach".
David had been cheering up but suddenly his glum look had returned."It is not as bad as you think." I repeated.
"I know" said David "but it sounds like a big job".
"Yes, there are changes “I replied "but it is better to deal with them now then panic later. Tell the board a relatively small current cost could save them a lot of money in future years.... and maybe they will be able to watch the news without hiding behind the sofa".
"Thanks, I feel better now" said David. "Sorry but I have to dash”. And with that he was off, with his suspiciously pristine gym bag and a determined look on his face.
