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WTP Reacts to OECD's Revised Guidance on Transfer Pricing

Feb 22, 2014

WTP Advisors has submitted the following reactions to the OECD draft of revised guidance on transfer pricing. The transfer pricing team at WTP has provided detailed and constructive comments in an attempt to support the efforts of the OECD to ease the compliance burden for both taxpayers and tax administrators.

The Organisation for Economic Cooperation and Development

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The OECD on 30 January 2014 released the Discussion Draft on Transfer Pricing Documentation and CbC Reporting.

The Discussion Draft has put forward proposals in draft form, in accordance with the OECD Base Erosion and Profit Shifting (BEPS) Action Plan, which was issued by the OECD on 19 July 2013. The OECD has requested comments from stakeholders.

The Discussion Draft includes two principal proposals that would alter the existing OECD Transfer Pricing Guidelines. The first proposal involves a two-tier approach to transfer pricing reporting, using a global “master file” in addition to local country files. The second proposal involves the use of country-by-country reporting templates that would require multinational companies to provide information and statistics regarding the different legal entities in the group.

WTP Advisors is pleased to provide herein our comments and reactions to the Discussion Draft, in the spirit of providing constructive and creative feedback to the OECD. These reflect the experiences of our international firm as global transfer pricing advisors to multinational companies, as well as comments and reactions garnered from conversations with interested taxpayers. We hope that the OECD will take these comments and reactions into consideration in the drafting of future proposals with respect to the OECD Transfer Pricing Guidelines. We have arranged our comments according to the specific requests for comments as stated in the Discussion Draft. This document reflects the views of the authors below as well as input from WTP Affiliates in Asia, Europe and Latin America.

Stéphane Dupuis, Managing Director, WTP Advisors, Montreal, Canada

Michael Flaherty, Partner, WTP Advisors, New York, USA

Fuad Saba, Managing Director, WTP Advisors, Chicago, USA

Guy Sanschagrin, Managing Director, WTP Advisors, Minneapolis, USA

“Comments are requested as to whether work on BEPS Action 13 should include development of additional standard forms and questionnaires beyond the country-by-country reporting template. Comments are also requested regarding the circumstances in which it might be appropriate for tax authorities to share their risk assessment with taxpayers.”


·         Forms and questionnaires should be targeted carefully for risk assessment and examination purposes;

·         Undue reliance on high-level / summary statistics can lead to inappropriate conclusions;

·         Tax authorities and taxpayers can have constructive discussions around relative TP risks.

Detailed Comments:

1)      The use of additional forms and / or questionnaires by tax administrations may be aimed at (1) achieving greater efficiency in the risk assessment of a taxpayer’s controlled transactions, or (2) obtaining additional information to support the transfer pricing examination process.

2)      With respect to the risk assessment process, tax administrations and taxpayers alike will benefit from a focus on material and significant controlled transactions, rather than an examination of every controlled transaction. Therefore, it may be possible to develop forms or questionnaires that focus on identifying and segregating out the material, significant controlled transactions for review. While in some cases the value of a controlled transaction, and thus its effect on local taxable income, can be derived from numerical information (sales volume, units produced, value of assets employed etc.,) in other cases the value of a controlled transaction may be derived from intangibles that have been developed by the local country operation, or have been licensed in from a related party. (These may include technology, know-how, marketing or other intangibles.) In these cases, forms or questionnaires that focus only on numerical information probably would not further the cause of an efficient risk assessment process. For these reasons, it will be necessary to craft the forms or questionnaires in a manner that considers all material drivers of economic activity, whether on or off the balance sheet. This should be achievable to the extent that the underlying principles of a Functional Analysis are kept in mind.

3)      We believe it would be appropriate in most cases for the tax administration examination team to share the results of their transfer pricing risk assessment with the taxpayer for the following reasons:

a)      One of the fundamental obligations of a tax system is to give certainty to taxpayers regarding the legal framework and the administration of this system. As such, taxpayers will benefit from understanding the point of view of the tax authority with respect to which intercompany transactions are “risky” and how they will evaluate such transactions. This information should be shared via formal channels rather than as informal positions.

b)      A common understanding of relative risk (and relative materiality) will encourage a discussion between the tax administration and the taxpayer on the controlled transactions that will be examined. This will allow the taxpayer to focus its documentation and evidentiary efforts on these transactions and accelerate the pace of the tax examination.

c)      If the tax administration has assessed incorrectly the relative risk (and relative materiality) of a controlled transaction, sharing this conclusion with the taxpayer enables a constructive and corrective discussion before the controlled transaction is slated for examination.

4)      With respect to forms or questionnaires to support the transfer pricing examination process, it is our belief that any additional information that may be sought by tax administrations, particularly with respect to controlled transactions that are driven by intangible values, the “cloud” environment or other challenging factual contexts, should be requested as part of the Functional Analysis process that the taxpayer must prepare. This can be done after the risk assessment stage has been completed so that only material controlled transactions are covered.

a)      More than two-thirds of the OECD member countries require some form of documentation regarding transfer pricing. In most of these countries, the information disclosed in the documentation is fully adequate as a country file. One potential approach would be to standardize the documentation requirements for all OECD members without imposing additional forms.

b)      It is unlikely that any forms or questionnaires, standing on their own, can create the comprehensive picture of the controlled transactions that can be achieved in a Functional Analysis;

c)      The focus on individual financial data points, ratios or similar numerical information instead of a thorough Functional Analysis may lead to preliminary and incorrect conclusions regarding the economic impact of a controlled transaction, and also to unrealistic expectations on the part of the tax administration regarding the amount of tax payable with respect to the controlled transaction. This can only lead to disputes with the taxpayer and affect negatively the relationship with the tax administration.

“Comments are specifically requested on the appropriate scope and nature of possible rules relating to the production of information and documents in the possession of associated enterprises outside the jurisdiction requesting the information.”


·         Sharing of Master File information should be kept to a minimum.

Detailed Comments:

If the master file is properly constituted and the local transfer pricing documentation contains all relevant and appropriate information, requests for the production of other information and documents in the possession of associated enterprises outside of the jurisdiction should be kept at a minimum. Having said that, the possible rules relating to obtaining additional information and documents should be left to the domestic laws of the different OECD countries, lest they end up following the most stringent forms among all jurisdictions involved, which we think would be suboptimal.

For example, the courts in Canada have strongly supported the tax authority in its sometimes unquenchable thirst for information (cf. the decisions in the Saipem Luxembourg case, the eBay case and more recently the Soft-Moc case[1]). Essentially, the only test applied by Canadian courts is whether the requirement for information and documents is issued for a purpose related to the administration of the Income Tax Act. It is unlikely that countries like Canada would accept at this point to follow any rules suggesting a diminished scope and weaker powers for obtaining information than those presently applied. Given the abuse and taxpayer costs that this legal ambit for obtaining information may potentially entail, we do not think that its generalization would be advisable in any circumstances.

Comments are requested as to whether preparation of the master file should be undertaken on a line of business or entity wide basis. Consideration should be given to the level of flexibility that can be accommodated in terms of sharing different business line information among relevant countries. Consideration should also be given to how governments could ensure that the master file covers all MNE income and activities if line of business reporting is permitted.

For large MNEs with multiple lines of business (“LOBs”) that track their operations by LOB in the ordinary course of business, it would likely be less burdensome for the taxpayer and clearer for the tax authorities if the master file is prepared by LOB. Large and sophisticated MNE’s commonly report through line of business consolidation channels. It is not uncommon to find little in the way of communication or cooperation between subsidiaries of an MNE in a particular jurisdiction, such that all reporting flows through a LOB channel and final consolidation is done either regionally (Europe, Asia, etc) or at the highest level. This is because businesses may have very different operations in their various segments, and therefore different transfer pricing policies may be used for different LOBs. If however an MNE does not track activity by LOB to manage the business, then LOB reporting should not be required for transfer pricing purposes as this requirement would force MNEs to create data of questionable value solely for tax purposes. 

However, it should be noted also that less complex or smaller MNE’s consolidate in the local jurisdiction, the country-wide activity, prior reporting to the next level.

As such an optional approach would be the best way to allow flexibility to the taxpayer and would lessen the administrative burden.  Potentially, this option would apply to taxpayers with a relatively low level of intercompany transaction activity, e.g. no more than $50 million in gross intercompany transactions.

As a general comment, information that is used in the ordinary course of business will be more meaningful than information that is created strictly for transfer pricing compliance.


Regarding “the level of flexibility that can be accommodated in terms of sharing different business line information among relevant countries:”

As stated in the previous section, if segment data is collected and reviewed in the ordinary course of business, it would be reasonable to expect that this data will be validated and accurate, and therefore could be shared across and between relevant countries if necessary. If the data is not collected in the ordinary course of business, it is more likely that requiring this data will be burdensome for the taxpayer to create, collect and organize, and as a corollary will be more likely to have inconsistencies that may cause issues between countries.

Regarding “how governments could ensure that the master file covers all MNE income and activities if line of business reporting is permitted:”

As a simple check, a high-level consolidated summary of the MNE’s financial statements could be prepared from the separate LOB’s, and tied to publicly available data. Requirements of this high-level information should be as straightforward as possible to minimize additional administrative burdens on the taxpayer.

A number of difficult technical questions arise in designing the country-by-country template on which there were a wide variety of views expressed by countries at the meeting of Working Party n°6 held in November 2013. Specific comments are requested on the following issues, as well on any other issues commentators may identify:

·         Should the country-by-country report be part of the master file or should it be a completely separate document?

The country-by-country report should be a separate document, so that it can be provided on an “as needed” basis. This would enable the MNE to minimize risks associated with sharing of potentially sensitive information.

Taxpayers are aware that transfer pricing reports often contain highly confidential information regarding strategic decisions and product and production changes. Including local country information within the master file could lead to unnecessary disclosures of confidential or proprietary information that could harm the taxpayer. Furthermore, the inclusion of local information with the master file may cause taxpayers to omit information that might otherwise be included in a local country file. As such, local country tax authorities would have reduced access to information that could clarify and support the transfer pricing at the local level.”   


·         Should the country-by-country template be compiled using “bottom-up” reporting from local statutory accounts as in the current draft, or should it require (or permit) a “top-down” allocation of the MNE group’s consolidated income among countries? What are the additional systems requirements and compliance costs, if any, that would need to be taken into account for either the “bottom-up” or “top-down” approach?


The country-by-country template should be compiled using “bottom-up” reporting from local statutory accounts.  A bottom-up approach will be built based on actual accounts and transactions, whereas a top-down approach will necessarily involve assumptions about the effects of local economic factors, operating advantages, industry impacts, and accounting methods which may not be easily interpreted. A bottom-up approach is less burdensome to the taxpayer, as it is based on data that likely already exists. This data will be more accurate and reliable for tax authorities as they will reduce reliance on assumptions, allocations and potentially misleading “economic activity factors.” Information included in the country file must be reconciled with statutory financial records, thus increasing the reliability of the data used to perform any analysis or risk assessment

The OECD may consider encouraging (but not compelling) MNEs to prepare a top-down analysis using the residual profit split method. Unlike the economic activity factors included in the template, the residual profit split method would take into account the company’s global and local intangibles, risks and value drivers to explain the split of profits across the MNE’s supply chains.


·         Should the country-by-country template be prepared on an entity by entity basis as in the current draft or should it require separate individual country consolidations reporting one aggregate revenue and income number per country if the “bottom-up” approach is used? Those suggesting top-down reporting usually suggest reporting one aggregate revenue and income number per country. In responding, commenters should understand that it is the tentative view of WP6 that to be useful, top-down reporting would need to reflect revenue and earnings attributable to cross-border transactions between associated enterprises but eliminate revenue and transactions between group entities within the same country. Would a requirement for separate individual country consolidations impose significant additional burdens on taxpayers? What additional guidance would be required regarding source and characterization of income and allocation of costs to permit consistent country-by-country reporting under a top-down model?


Consolidated reporting does not make sense

o   A proper transaction would have intercompany transactions eliminated.

o   Companies form multiple legal entities in countries for business reasons. Usually, they comprise different business units.


MNEs form multiple entities within a country because these entities often comprise different business units. Thus, a consolidation will focus attention on a presentation of data that is economically irrelevant. In addition, if a tax authority questions the consolidated results of a group of entities within its jurisdiction, it will be necessary to “unwrap” the country-consolidated transactions to the entity level. The taxpayer’s burden will thus be increased two-fold, by the need to consolidate by country entities for reporting purposes and then to unbundle the transactions under audit scrutiny. Different subsidiaries of an MNE might not employ a country coordinator overseeing the compliance of all entities on a country-wide basis. In a complex MNE, subsidiaries typically report independently to business line leadership. 

A top-down model approach inherently will provide inaccurate and unreliable results of intercompany transactions, as stated above. In fact, the top down approach will potentially be misleading to tax authorities, potentially creating unnecessary controversy and inefficiency in the process.

·         Should the country-by-country template require one aggregate number for corporate income tax paid on a cash or due basis per country? Should the country-by-country template require the reporting of withholding tax paid? Would a requirement for reporting withholding tax paid impose significant additional burdens on taxpayers?

Tax expense as reported on a cash basis or accrual basis is not a reliable indicator of any transfer pricing position and certainly cannot be used independently or superficially to asses any risk.  Tax expense is normally driven and affected by several factors: local regulations and reforms to such regulations (tax breaks, consolidation regimes), non-recurring and unusual transactions, mergers and acquisitions, adjustments due to tax audits and several other circumstances that are commonplace in MNE situations.

As described above, reporting consolidated legal entity financial data such as taxes paid by country is irrelevant for most MNEs who operate multiple entities that house separate and different business units. The different business units typically entail significantly different products or services and likely contain different functions, risks and assets. Requiring MNEs to report such information would likely increase their reporting burden by forcing them to explain meaningless numbers.

·         Should reporting of aggregate cross-border payments between associated enterprises be required? If so at what level of detail? Would a requirement for reporting intra-group payments of royalties, interest and service fees impose significant additional burdens on taxpayers?


o   This requirement will not likely improve administration. 

o   Some countries, such as the US and Canada, already require reporting intragroup royalties, interest and service fees. Others do not.

o   Depending on the jurisdiction, this requirement can represent a significant burden.


This information could be useful to tax authorities and taxpayers in performing the risk analysis to prioritize the transactions that have the greatest impact on local operating income. However, this requirement should not be compulsory since many countries do not require this information and many MNEs would not have this data readily available. Reporting aggregate cross-border payments between associated enterprises may create additional burdens for taxpayers that operate in countries that do not require this data. Similarly, requirements for reporting intra-group payments of royalties, interest and services fees will also increase burdens for taxpayers unless this information already is required as a matter of existing reporting obligations.

·         Should the country-by-country template require reporting the nature of the business activities carried out in a jurisdiction? Are there any features of specialist sectors that would need to be accommodated in such an approach? Would a requirement for reporting the nature of the business activities carried out in a jurisdiction impose significant additional burdens on taxpayers? What other measures of economic activity should be reported?


o   The raw template information, without context, would likely create situations in which data is misinterpreted and create unnecessary conflicts. 

o   Taxpayers should be encouraged to provide more explanation in the functional analysis.

o   MNEs should consider greater utilization of intercompany agreements and/or memorandums of understanding.


A simple explanation (i.e. a paragraph or two, similar to a summary in a transfer pricing documentation report) describing the nature of the business activities carried out in a jurisdiction is reasonable, and will provide context to the tax authority reviewer and therefore provide clarity. The raw template economic activity factor data, without context, would likely create situations in which data is misinterpreted and create unnecessary controversy. Taxpayers should be encouraged to provide a comprehensive functional analysis describing the functions, risks and assets associated with certain intercompany transactions. In their functional analyses, taxpayers should be encouraged to provide an introductory statement that describes the role of the functional analysis. In particular, taxpayers should provide details regarding the risks and valuable intangibles they use in the business. For transactions involving valuable intangibles, the functional analysis should identify each intangible, describe how the intangibles create value, indicate the entities that own the intangibles and identify the entities that develop them and utilize them. 

Features of specialist sectors could likely be accommodated / addressed in the simple explanation described above.

As described above, the key measures of economic activity would place attention on risks and intangibles. As such, depending on the industry and nature of the MNE’s business, economic activity factors that potentially would be more relevant than those in the template include research & development expenses and marketing expenses. However, overreliance on data such as these expenses without appropriate context can be misleading and misinterpreted.

Intercompany agreements can be a useful tool for tax authorities and taxpayers to distinguish economic activity factors. We note that certain countries such as Brazil and China follow a legalistic approach. These jurisdictions are known for disallowing local deductions associated with services provided by foreign entities that are not covered by agreements. Thus, MNEs should consider greater utilization of intercompany agreements to provide clarity on the roles and responsibilities of the MNE’s different entities with respect to functions and risks and the ownership of intangibles.

·         General comments on the country-by-country template:

We believe the proposed template requests information that is potentially misleading to tax authorities and burdensome to collect for taxpayers. While the administrative burden could be streamlined via automated data collection tools, we are concerned that the potential misuse or misinterpretation of template data by the tax authorities will subject taxpayers to unnecessary controversy. As provided, data that purport to be “indicators of the location of economic activity” without significant additional guidance and context would likely create confusion.

o   Furthermore, the purpose and definition of several of the metrics in this template require clarification.

o   For instance, the number of employees does not consider the relative importance of roles and responsibilities of personnel within the value chain.

o   It is not clear what is meant by “Earnings before Tax.” Is this Taxable Income? Operating Income? Normally we exclude non-operating items from our analyses. As such, the template should specify “Operating Income.”

o   The book value of tangible assets is subject to a number of issues that renders this number virtually useless as a benchmark or reference for economic analysis (e.g., varying accounting based depreciation rate schemes are typically not strictly based on economic use, differences from market value, differences from economic value, etc.).

“Comments are requested as to whether any more specific guideline on materiality could be provided and what form such materiality standards could take.”


·         Materiality Thresholds Would Undermine Reporting, Lead to More Disputes

·         Documentation Aids and Encourages Tax Planning and Compliance  

Detailed Comments:


The Discussion Draft suggests that transfer pricing documentation requirements should take into consideration external materiality thresholds, apparently assessing the relative importance of the enterprise to the local economy. This type of assessment has sometimes been employed by taxpayers to assess their visibility and likelihood of audit by tax authorities. When a low-visibility taxpayer exists side-by-side with high-visibility taxpayers, this approach suggests that the low-visibility taxpayer is less likely to be targeted for audit and may therefore have less to fear from aggressive tax planning or compliance failures. In addition, the Discussion Draft adopts a stance similar to that adopted in some jurisdictions, excusing small and medium-sized taxpayers (SMEs) from documentation requirements applied to large taxpayers.

The dangers posed by these materiality thresholds exist for both taxpayers and tax administrations. First, while some SMEs may indeed have less exposure to assessment, this materiality standard outlined in the Discussion Draft does not free taxpayers from the requirement to establish arm's length pricing, nor does it provide a safe harbor from audits or penalties for their failures to meet and confirm that they have acted according to this standard. A taxpayer that relies on a materiality standard and fails to actively manage their pricing arrangements risks both assessments and penalties, since the materiality standard does not provide a safe harbor. Second, and perhaps more importantly, a taxpayer who chooses not to prepare documentation will also likely be failing to consider tax planning and tax policies that will reduce tax risks and /or tax liabilities. In short, no good and plenty of ill can come from ignoring the preparation of reasonable transfer pricing documentation since preparing such documentation is often the first step in achieving a workable tax policy for a multinational enterprise.

In terms of policy, freeing taxpayers from responsibility for preparing documentation will place tax administrators in the position that they occupied before the OECD Guidelines provided taxpayers and tax administrators guidance in documentation. By that we mean that audits will take longer owing to the absence of documentation, and that there will be more disputes between taxpayers and tax administrators and between tax administrations. Truly a step backward, not an advance in tax administration. The putative near term benefit for taxpayers will lead to poor results for all parties.

“Comments are requested regarding reasonable measures that could be taken to simplify the documentation process. Is the suggestion in paragraph 34 helpful? Does it raise issues regarding consistent application of the most appropriate transfer pricing method?”



·         Requiring Comparables Data Searches Every Third Year is Reasonable, Not New

·         Financial Data Searches Every Third Year Would Make Sense Too  

Detailed Comments:


The Discussion Draft suggests that the master file and local file be updated annually, but that the comparable database searches need be undertaken only every three years instead of annually.  However, the Discussion Draft also suggests that the financial data for the comparables be updated each year. The more limited approach for comparables searches would be available only where business descriptions, functional analyses and comparables remain relatively static.

Updating the business description, legal structure, functional analysis and comparables annually is typically a simple process, where facts have not changed, since the “heavy lifting” has usually occurred during the initial transfer pricing study. This approach is already widely used by taxpayers and advisors to streamline their compliance efforts, and insofar as that is the case, represents no real change. However, tax examiners may be inclined to argue whether facts have remained static, and will still be forced to review the detailed functional analyses and compare these analyses year-by-year to determine whether the taxpayer activities have remained static. Taxpayer efforts need to focus on year-to-year comparisons of the facts and tax administrators, and taxpayers will benefit if the OECD provides a template that can be used so that the taxpayer can easily demonstrate that the business facts are static and tax administrators can efficiently confirm that the necessary facts have been confirmed. It would be reasonable for the OECD to limit the financial update for comparables to every three years too, provided the taxpayer is able to demonstrate that there have not been significant industry changes and/or significant changes to the make-up of the list of comparables.

“Comments are requested regarding the most appropriate approach to translation requirements, considering the need of both taxpayers and governments.”



·         English for Large MNEs and Flexibility for SMEs Would be Appropriate

·         Requiring Translations Will Limit and Slow Taxpayer Disclosures/Reporting   

Detailed Comments:


The Discussion Draft suggests that the master file can be in English but that local country files might be required to be in the local language. As a rule, large multinationals and sophisticated administrations tend to use English or at least are not over-burdened by it.  Translation of local country files into a second language would represent a hugely unwelcome and costly additional burden for SMEs, and would be completely uneconomic and unjustifiable for many. Beyond the costs associated with such a requirement would be the certainty that such a requirement would make it more difficult to provide contemporaneous documentation and that it would increase the opportunity for awkward translations of complex terminology, leading to misunderstandings and misinterpretations of the narrative information typically included in the documents. Ultimately, owing to these burdens and foreseeable problems, we anticipate that most taxpayers, large and SMEs alike, would look for every opportunity to minimize the information provided in their documentation if they are required to translate the documentation into a second language. 

All of this notwithstanding, we would not suggest that local language skills have no place in local audits. When local audits occur, taxpayers must be prepared to explain their documentation to local examiners and may need the services of internal or external advisors who can deal with the tax examiners in the local language. Translation needs with respect to the local country file information can also be reduced through use of financial information and data presented in charts, graphs and diagrams to replace some aspects of the narrative in the report, although care must be exercised to ensure that the graphic illustrations do not over-simplify or confuse complex factual presentations.

On the other hand, if country files are to be accepted as a substitute for local transfer pricing documentation, it is understandable that local language country files would be mandatory. Master files can be summoned by a local tax authority in the context of an audit, with enough lead time to allow for an appropriate translation of the Master file into the local language.

“Comments are requested as to measures that can be taken to safeguard the confidentiality of sensitive information without limiting tax administration access to relevant information.”



·         Confidentiality of sensitive information can be safeguarded so long as tax authorities cooperate with taxpayers;

·         Some information may be shared with the “head office” tax authority but not with local teams.

Detailed Comments:


By its very nature, the information contained in a Functional Analysis, or in transfer pricing documentation, is sensitive and often confidential. MNEs are right to be concerned that access to these documents, unless tightly controlled, can lead to the loss of economic value if confidential business information falls into the hands of adverse or competitive parties. For this reason, we believe that tight safeguards should be imposed on the sharing of such information:

a)      Under certain circumstances, it may be necessary for the taxpayer to disclose certain information to the tax administration on an “eyes only” basis, meaning that the tax administration may review a printed document but may not make or retain copies of that document beyond the period allotted for that review. It may be appropriate for a representative of the taxpayer to remain present with the tax examiner during such review. A similar approach would be to provide the taxing authority with limited access to a secure data room, where documents may be viewed but not copied.

b)      In other cases, it may be necessary for taxpayer’s legal counsel (for example, IP counsel,) to be present during examination discussions with the taxpayer, and for counsel to limit, based on her informed discretion, the nature of the information that is shared with the tax administration.

c)      In some cases it may be necessary to limit the nature of information available to a “local country” tax authority, for example if the MNE is contemplating a strategic transaction with respect to its operations in that country, In such cases, while the tax authority in the “home country” may have access to such information, it would not be appropriate for it to be shared with the local country tax authority.

d)      In cases where, under a Tax Exchange of Information agreement, the tax administrations of two countries have agreed to share taxpayer information, for example as part of a joint audit proceeding, it may be appropriate for the to control the electronic sharing of documents through the use of passwords or access keys, or for the taxpayer to make information available on the secure networks of the controlled entities on an “eyes only” basis, as suggested above.

e)      In all of these cases it would behoove the tax administration(s) to respect the sensitivity and importance of confidential information, and to explore avenues in which access to this information does not compromise it. Since there cannot be a single answer that fits all cases, the OECD CBC guidelines should encourage tax administrations to be flexible and creative and work with the taxpayer in a cooperative manner so that sensitive information can be shared without adverse effect.

“Comments are requested regarding the most appropriate mechanism for making the master file and country-by-country reporting template available to relevant tax administrations. Possibilities include:


·         The direct local filing of the information by MNE group members subject to tax in the jurisdiction;

·         Filing of information in the parent company’s jurisdiction and sharing it under treaty information exchange provisions;

·         Some combination of the above.”



·         Care should be taken to preserve confidentiality when sharing information.

Detailed Comments:

In many jurisdictions including Canada for example, the jurisprudence established by the Courts has clearly recognized the broad powers of the tax administration to obtain foreign-based information as long as a minimal justification exists to obtaining the information in question. Accordingly, to the extent it is made clear that those documents have to be available upon request to all tax administrations concerned in a reasonable timeframe, the form of the mechanism for making the master file and the country-by-country reporting template available is ultimately relatively unimportant.

Having said that, given that some portions of the master file would be requested as part of any typical transfer pricing examination (e.g., general description of the business, etc.), for practical purposes while ensuring optimal confidentiality, some combination of direct local filing and filing of information in the parent company’s jurisdiction should be implemented. In particular, in the cases where the parent company of a multinational group of companies would not want its foreign affiliates to have access to portions of the country-by-country reporting template, this specific information should indeed be filed in the parent company’s jurisdiction and be shared only between tax authorities and under treaty information exchange provisions.

“Comments are specifically requested as to whether reporting of APAs, other rulings and MAP cases should be required as part of the master file.”

It is warranted for the sake of transparency that lists and brief descriptions of all the APAs, other rulings and MAP cases are required and therefore included in the master file. That said, it would not be justified or justifiable that significant portions of those APAs, rulings and MAP cases be included or quasi automatically asked for by the tax administrations.

[1] In Saipem Luxembourg SA v. Canada (Customs and Revenue Agency), the court ordered, in the context of a request for foreign-based information, an examination of worldwide documentation even though the Canadian permanent establishment represented but a small fraction of the taxpayer’s entire business operation. In eBay Canada Ltd. v. Canada (National Revenue), the court authorized the disclosure of information stored electronically on US servers. The same approach regarding broad access to foreign-based information was reconfirmed in Soft-Moc Inc. v. M.N.R.

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