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Transfer Pricing Blog

BEPS Action 13 Update

Posted on November 14th, 2017

By Guy Sanschagrin

Earlier this year, our blog “Master File / Local File Transfer Pricing Documentation FAQs” provided an overview of what a Master File / Local File (MF/LF) system looks like along with practical considerations on implementing and maintaining the MF/LF system. As of today, our blog pops up at the top of Google search results for the terms “Transfer Pricing Master File” – ahead of content published by the OECD. This tells us that many found our content unique and helpful. Given your level of interest, we thought we’d provide an update on new developments associated with the implementation of Action 13 across the world.

Updates Since March 2017

Post March 2017, BEPS initiative updates primarily focus on the adoption of country-by country (CbC) reporting. We find the most important updates provide clarification on CbC reportable revenue and on applicable accounting standards.

 A.    Definition of Revenue

The model CbC standard’s definition of “revenue” is broad. All “revenue,” “gains,” “income,” or “other inflows” are revenue for CbC reporting purposes

Generally, reportable revenue includes income statement items and P&L statement items such as:

  • Sales revenues
  • Asset sales related net gains
  • Interest received
  • Extraordinary income, and
  • Certain unrealized gains

Items not considered revenue for CbC purposes. Generally, these are:

  • “Comprehensive” income and/or earnings
  • Unrealized gains “reflected in net assets,” and
  • Items reflected in a typical balance sheet’s “equity” section

B.    Other Guidance

Generally, accounting principles and/or standards are not stipulated by the model CbC standards.


  • If an equity interest is publicly traded, accounting rules already followed by the MNE Group will control
  • If the equity interest is not publicly traded, either local GAAP applicable to the MNE’s “Ultimate” Parent will control, or IFRS will control
  • The MNE Group should use the same standards across the group (presumably to allow for comparative analysis)

Currency fluctuations and the €750 million, “total consolidated,” group threshold

  • The model CbC standards prescribe a consolidated, €750 million, reporting threshold
  • While adopting jurisdictions may denominate this threshold in non-euros, there is no requirement that these jurisdictions periodically revise the CbC threshold to reflect currency fluctuations. Note that as of this date, there is no indication that this threshold will be indexed for inflation – so smaller companies will increasingly be subject to CbC requirements over time.

Revenue included in the €750 million, “total consolidated,” group threshold

  • “[A]ll…revenue that is (or would be) reflected in the consolidated financial statements should be [included]”
  • For financial institutions, items considered similar to revenue, under applicable accounting rules, should be included

Countries Adopting BEPS / Action 13 Implementation

Currently, more than 50 countries, including the US, have adopted elements of Action 13. If an MNE has an entity operating in one of those countries, it’ll probably have to modify its reporting to comply.

As summarized in the table below, of countries adopting elements of Action 13, 57 have adopted CbC reporting. Six have draft legislation, and 15 have expressed an adoption intention. Because the CbC reporting requirement is part of the BEPS “Three Tier” reporting structure, many countries adopting CbC reporting have also adopted the MF/ LF structure.




1.     Argentina

30.  Isle of Man

1.     Israel

1.     Botswana

2.     Australia

31.  Italy

2.     New Guinea

2.     Caymans

3.     Austria

32.  Japan

3.     Russia

3.     Costa Rica

4.     Belgium

33.  Jersey

4.     Switzerland

4.     Curacao

5.     Bermuda

34.  Latvia

5.     Taiwan

5.     Georgia

6.     Bosnia Herzegovina

35.  Liechtenstein

6.     Turkey

6.     Hong Kong

7.     Bulgaria

36.  Lithuania


7.     Kenya

8.     Brazil

37.  Luxembourg


8.     Mauritius

9.     Canada

38.  Malaysia


9.     Namibia

10.  Chile

39.  Malta


10.  New Zealand

11.  China

40.  Mexico


11.  Nigeria

12.  Colombia

41.  Netherlands


12.  Panama

13.  Croatia

42.  Norway


13.  Romania

14.  Cyprus

43.  Pakistan


14.  Ukraine

15.  Czech Republic

44.  Peru


15.  Uganda

16.  Denmark

45.  Poland



17.  Estonia

46.  Portugal



18.  Finland

47.  Singapore



19.  France

48.  Slovenia



20.  Gabon

49.  Slovakia



21.  Germany

50.  South Africa



22.  Gibraltar

51.  South Korea



23.  Greece

52.  Spain



24.  Guernsey

53.  Sweden



25.  Hungary

54.  United Kingdom



26.  Iceland

55.  United States



27.  India

56.  Uruguay



28.  Indonesia

57.  Vietnam



29.  Ireland





Brief Examples of BEPS / Action 13 Implementation – China, India, and Mexico

Each country’s adoption of BEPS principles will vary. Ultimately, countries’ individual rules will control and many countries have instilled their own specific requirements while other countries have taken an “as in” approach. We provide brief updates on developments in China, India and Mexico.

A. China

In Summer 2016, China’s State Administration of Taxation issued Public Notice 42 which stipulates new reporting requirements for related party transactions, documentation, and CbC. The Annual Related party transaction (RPT) forms include twenty-two different tables, including CbC, while documentation is now in the form of three-tiered Master File – Local File, and Special [Items] File, which is essentially a description of an MNE’s supply chain.

B. India

In April 2016, India implemented a new “Finance Act” that adopted Action 13’s three-tiered Master File – Local File, with CbC structure. Only MNEs with consolidated revenue exceeding €750 million are subject to CbC reporting requirements, in accordance with the Action 13 guidelines. However, India prefers to see each business line mapped separately, so a diversified MNE, with significant Indian operations, might consider developing multiple Master Files broken out by business line.

C. Mexico

In Spring 2017, Mexico’s Tax Administrative Service issued its final Action 13 related compliance rules. Mexico adopted an objective turnover threshold for applying a CbC requirement. Subsidiary type entities, such as maquiladoras, must receive at least US $37 million to be subject to CbC reporting rules. Mexican entities must have met a turnover of US $.63 billion to be subject to CbC reporting rules. For Master Files, Mexico adopted Action 13’s five products and five percent principles.


These are just some examples of countries’ variable adoption of principles from the BEPS initiative, which is why performing a risks and opportunities analysis, before deciding on a new reporting structure and a transfer pricing documentation plan, is a worthwhile endeavor for most MNEs.

Given your level of interest in Action 13, we will continue to provide updated on new developments periodically. Please email us at to let us know of any topics you would like us to cover.

Master File / Local File Transfer Pricing Documentation FAQs

Posted on March 23rd, 2017

By Kash Mansori

A client recently asked me to explain the “Master File / Local File” (“MF/LF”) system of transfer pricing documentation that is being adopted by an increasing number of countries. So I thought that there was no time like the present to put together a basic overview of this increasingly common format for assembling and organizing an MNE’s transfer pricing reports.

The OECD’s BEPS project (see this post for additional background) resulted in the publication by the OECD of fifteen Action Items that were intended to form the basis for new laws, regulations, treaties, and administrative practices that would be adopted by the participants in BEPS. The final report for Action 13, “Transfer Pricing Documentation and Country-by-Country Reporting”, recommended the following: “countries should adopt a standardised approach to transfer pricing documentation… [based on] a three-tiered structure consisting of (i) a master file containing standardised information relevant for all MNE group members; (ii) a local file referring specifically to material transactions of the local taxpayer; and (iii) a Country-by-Country Report containing certain 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.”

As MNEs consider the impact of this BEPS recommendation on their compliance activities, many Frequently Asked Questions arise. What exactly is involved in the MF/LF system of transfer pricing documentation? What are the formal requirements related to it? How urgently do multinationals need to consider adopting a MF/LF system of documentation? What is the process for doing so? What are the potential advantages and pitfalls of the system? Well don’t worry, we’ve got you covered.  


(Note: for more information specifically about the Country-by-Country (“CbC”) report, please refer to this post.)


What is the MF/LF system?

For the typical MNE, it essentially means separating their transfer pricing documentation into two pieces: one portion (the MF) that they will share with any and all tax authorities that ask for it, and another portion (the LF) that contains information specific to a particular country. So the MF will generally contain descriptions of

  •  the global business, including products, services, and business strategies;
  • the major entities in the group and what functions they perform;
  • the general categories of controlled transactions that take place within the MNE group;
  • the group’s significant intangible assets and which entities are involved in their creation, management, or enhancement; and
  • the group’s financing structure as it relates to transfer pricing.

Meanwhile, a LF will be prepared for each country in which the MNE does business, and each one will contain:

  • A description of the local entity’s business;
  • A description of its transactions with related companies within the MNE group;
  • Financial information specific to the local entity; and
  • An economic analysis that provides support for the transfer pricing policies applied to the local entity’s controlled transactions.

Note, however, that this is just a general guideline; each individual MNE must decide for itself (perhaps in conjunction with their transfer pricing service providers) exactly what information belongs in the MF and what in the LF, based on its specific facts and circumstances.


What are the formal requirements related to the MF/LF system?

The BEPS final reports do not have any legal authority, but numerous countries have incorporated the BEPS recommendations into their regulatory or legal frameworks. As of the time of this post, approximately 25 countries have now formally adopted the MF/LF system, and therefore will expect taxpayers to prepare transfer pricing documentation in that format going forward. Some of these early adopters of the MF/LF system include Australia, China, Germany, Japan, Mexico, Netherlands, and Spain, and many of these will impose penalties on taxpayers that do not comply with their new requirements. For additional details on how specific countries are treating the BEPS recommendations for transfer pricing, Deloitte has prepared a handy quick reference guide.


How urgently should MNEs switch to the MF/LF system?

Naturally the answer to this question will depend a lot on the specifics of each company’s situation. But generally speaking, MNEs that have significant activities in one of the countries that now require transfer pricing documentation to be in the MF/LF format should probably be thinking about converting their transfer pricing documentation this year. Other companies would probably be well advised to plan to change the format of their transfer pricing documentation over the next couple of years, as the list of countries requiring the MF/LF format will continue to grow.


What is the process for switching to the MF/LF system?

Converting current and comprehensive transfer pricing documentation to the MF/LF format should not be too onerous. The primary difficulties are (i) deciding which pieces of information belong in the MF and which in the LF, and (ii) making sure that the documentation contains all of the specific elements required in each country’s definition of the LF. Note that it is particularly important to carefully evaluate all of the information that could potentially be included in the MF to ensure that none of it will create unintended problems down the road with the various tax authorities that may have access to it. The perspective of a transfer pricing specialist can be very useful in this regard.

On the other hand, if an MNE’s transfer pricing documentation is not up-to-date or is incomplete, then developing the proper MF/LF system of documentation will obviously involve some additional work, and could in fact become fairly time consuming. In those cases, it is particularly important that the company begin thinking ahead and planning appropriately. Once a tax authority asks to see an MNE’s transfer pricing documentation, it will likely be too late to cobble something together in a timely manner that meets the MF/LF requirements, and the MNE will have given the tax authority a tremendous advantage in imposing adjustments that increase taxable income in their country – putting the company at risk of double taxation and incurring non-deductible transfer pricing penalties.


What are the potential benefits and pitfalls of the MF/LF System?

Many companies have traditionally maintained numerous voluminous transfer pricing reports with repetitive information across reports. The MF/LF system has the potential of streamlining the documentation development and update process to remove the burden of updating information across numerous reports through a single MF. The MF can be leveraged as a robust document to tell the company’s story about its value chain and transfer pricing policy. Moreover, the MF/LF system can be structured in a way that promotes efficiency in the process. The key will be to develop an index within the LF that cross references the local country requirements to the components of the MF/LF transfer pricing documentation. The MF/LF system structure should be carefully thought out or risk creating an inefficient process that does not provide a compelling analysis evidencing that the company’s intercompany transactions complied with the arm’s length principle.


For additional information and perspectives, please see our BEPS Action 13 Update posted Nov 14, 2017.


Apple, the EU, and Country by Country Reporting

Posted on February 1st, 2017

By Kash Mansori

The story of Apple Inc. and the European Commission is well known by now. Back in August of 2016 the EU’s Competition Commission announced their ruling that Ireland had given Apple an unfair sweetheart deal allowing it to pay less tax in Ireland than it should, and ordered Ireland to send Apple a €13 bn bill for back taxes and interest covering the period 2003-14. For their part, Ireland and Apple both have said that they intend to fight the ruling. The legal battle is likely to go on for years, and may well end up at the highest court in the EU, the European Court of Justice.

There are many interesting aspects to this story. First of all, there’s the issue of how the ongoing campaign by the EU Competition Commission to examine tax matters may effectively give it significant oversight of the EU’s tax and transfer pricing policy. I think it’s fair to say that this was an unforeseen development in transfer pricing enforcement even just a few years ago.

Secondly, the case touches on some interesting technical tax and transfer pricing issues, including but not limited to:  the role of holding companies in the tax structures of MNEs; the use of transfer pricing rules on intangibles for tax planning purposes; the ways that US corporate income tax deferral impacts tax policy and enforcement outside the US; how the concept of “fairness” applies to international taxation, and how it may sometimes be at odds with the arm’s length standard; and, perhaps most significantly, how tax letters or rulings by their very nature may be viewed by some (such as the EU Competition Commission) as “unfair”, even when those rulings are intended to simply reflect how the existing laws pertain to a specific taxpayer and its particular set of circumstances.

But in reading a nice background article by BNA on the Apple case the other day, I was struck by another significant implication of the Apple story: it’s a perfect illustration of how the new BEPS rules on Country by Country Reporting (“CBCR”) could affect MNEs in the years to come. (See this post for more about the important topic of CBCR.)

The BNA article, “The Inside Story of Apple’s $14 Billion Tax Bill” (subscription required), provides some new details about how the Competition Commission came to make its unprecedented ruling against Apple and Ireland. One bit that particularly caught my attention:

In January 2016, CEO [Tim] Cook met with Margrethe Vestager, the EU competition chief.

Vestager, a daughter of two Lutheran pastors, has a reputation for being even­handed but tough, cutting unemployment benefits while advocating strict new rules for banks when she served as Denmark’s finance minister. While she has acknowledged that her team had little experience with tax rulings—in a November interview with France’s Society magazine, she said, “We learned on the job”—Vestager says enforcement of EU rules on taxation is a matter of “fairness.”

In the meeting with Cook, she quizzed him on the tax Apple paid in various jurisdictions worldwide. She told the Apple executives that “someone has to tax you,” according to a person present at the meeting.

This seems to suggest that the Competition Commission began focusing on the Apple-Ireland tax situation not because of any technical concerns about the arrangement, but simply because it appeared to them that Apple was not paying enough tax. The tax outcome that Apple had achieved was what initially drew the Competition Commission’s attention, plain and simple.

And that is exactly what CBCR is designed to reveal to tax authorities around the world: tax outcomes. In effect, CBCR will make it less important whether a particular tax planning or transfer pricing approach adopted by a MNE is technically correct, and more important what the end result of that tax planning strategy looks like in terms of actual taxes paid. Of course, once under scrutiny then it will still be important that a taxpayer’s tax and transfer pricing policies be as defensible as possible… but the story of Apple and the EU underlines – with a bright fat yellow highlighter – the fact that CBCR will probably make it more likely than ever before that scrutiny by tax authorities will be guided by the actual tax outcomes reported by MNEs.

2016 Blog Archive

Posted on December 31st, 2016

Country by Country Reporting Update

What to Expect When You’re Expecting… An Audit

The Economist Falls for Formulary Apportionment

2015 Blog Archive

Posted on December 31st, 2015

Dutch State Aid: Starbucks update

What the Focus on “Value Creation” Misses

BEPS – What It All Means

The Quantera Global Connection

BEPS in Verse

It’s All About the Data

Australia First!

Value Creation and the Lightbulb

Small Countries Taking Big Bites

Transfer Pricing and the Regulatory Climate in India

The EU Commission’s Problematic Reasoning on Amazon

2014 Blog Archive

Posted on December 31st, 2014

There Must Be a Better Way. Right?

The Most Aggressive Tax Authorities in the World?

Attacking the Cash Box

Simplifying the Rules. A Bit.

German Wishes for Irish Taxes

What Is This ‘BEPS’ Thing, and Should I Care?

Fighting Over Tax Revenue in Europe

A New Arena for Transfer Pricing Disputes

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