BEPS from an IP perspective, Part 2
Part 2: Transfer Pricing documentation requirements
From 1 April 2017, BEPS action 13 guidelines on transfer pricing (TP) documentation will be effective in Sweden. Action 13 is an effort to make MNEs global financial situation more transparent. It is a three-tiered based approach including a master file, local files and country by country reporting (CbCR).
The CbCR will be relevant for MNEs with a turnover more than SEK 7 billion, the local and master files will be, according to the proposed legislation of the Swedish Tax Agency (STA), relevant for group members with an employee base of more than 250 people and a revenue of more than 450 million. Smaller companies are exempt from the local file reporting requirements. The STA has also suggested a limitation of the size of the transfer. Transfers between group members smaller than an aggregate SEK 5 million are therefore deemed to be minor and won’t have to be detailed. This simplification however does not apply to a transaction of IP such as a sale or license.
The reporting will not be used as grounds for decision regarding tax changes but more as informing where there might be errors in the internal TP and other tax errors in these global enterprises. MNEs can, in this process, identify if there are needs to reallocate their profits and restructure their TP agreements to include more accurate risk assessments. In some cases, they might need to change their IP infrastructures and IP management to comply with the new guidelines.
Tax authorities may try to standardise their approach to transfer pricing. For MNEs and associated subsidiaries, a good preparation for a potential audit of TP practices would be to have a proactive IP management where the value contributions and internal comparable transfers are already defined and bench marked to avoid conflicts.