Organise Your TP Records (Now)!

October 28 2015

With the OECD's BEPS deliverables to be finalised for the G20 Finance Ministers in a few weeks time, the clock is now ticking loudly for corporates to organise their TP Records and prepare for Country-by-Country-reporting (CBCR).

At Questro, we are passionate advocates for technology solutions to help corporates respond to the coming challenges in this area, whether developed "in-house" or purchased from 3rd party providers. CBCR in particular, is area which mandates a technology solution. It is simply not possible to carry out an effective CBCR risk review, without strong technology "link" between your draft CBCR report and your underlying global TP Records (e.g. MasterFiles, Local Entity TP Reports, Benchmarks, Legal Agreements, External Advisor Memorandum/ Opinions, Uncertain Tax Positions, Tax Accounting Documentation, Audit History etc.). Whilst some CBCR positions may at first glance appear "very risky", e.g. limited headcount or functions in a particular tax jurisdiction but a disproportionate share of global profits, you may conclude they are not, given robust and extensive TP documentation. Equally, some "moderately risky" positions may raise bigger concerns in the absence of any recent TP documentation or intra-group legal agreements.

In short, CBCR raises 2 sets of risks:

that it exposes real TP profit shifting issues that will draw the attention of tax authorities via audits/enquiries; and

that the data contained within the report gives "false-positive" or "false negative" results, i.e. it may suggest an underlying TP issue that isn't an issue, thus, triggering unnecessary audits and enquiries, or it may give a corporate a false sense of security because the ratios or other data points seem to be in a "normal" range.

We see great danger in simply running ratio based analysis (as sold by some advisors via traffic light reports or "heat maps"). The key issue here is your underlying TP Records and your ability to access and evaluate these records in a user friendly manner.

Technology solutions in this space, whether developed in-house, or purchased from a 3rd party provider, should address the following key functionality:

Establish a "single repository" for storage, access, sharing, controlling, and analysis of your global TP data;

Enable "bespoke user profiles" to be created so that the global tax department can decide what regional or local users can access and edit;

Provide a "one screen overview" of all TP documents for a particular legal entity and year;

Contain "quick search functionality" to enable users to pull up similar documents or results for compare and contrast purposes;

Allow "easy storage and sharing" features (ideally drop box storage functionality and quick share features); and

Include some "value-adding dashboard" functionality to show you what you've got, what you're missing, and what has been updated to the system recently.

Whist some corporates have IT systems for TP data management that address some or all of the points above, many do not. At Questro, we believe that the heavy tax transparency that is being imposed on corporates, requires an equally significant response on the side of corporates to better manage and track their global TP Records.

Please join the tax technology debate and share your views and technology ideas with 250+ Heads of Tax and Senior Transfer Pricing/Tax Professional at:

https://www.linkedin.com/groups/Tax-Technology-Solutions-BEPS-8320596/about