Implementation of BEPS action 13 in the Benelux

Abstract

In 2015, the OECD launches an action plan of 15 actions aiming at combatting the Base Erosion and Profit Shifting (BEPS) problem. The action 13 of this ambitious plan targets the transfer pricing (TP) documentation and brings forth a three-tiered approach which comprises a Country-by-Country (CbC) report, a Master File and a Local File. The CbC report is one of the four minimal standards, it was first issued by the OECD and later translated by the European Union through the fourth revision of the Directive on Administrative Cooperation (DAC IV). With a filling threshold of EUR 750 million, the CbC report objective is to provide tax administration with an overview of the allocation of incomes, taxes paid and a listing of all the Constituent Entities of an MNE group. As for the Master File, it requires the targeted company to make a description of its business, operations and TP policies at a global level. Finally, the Local File provides detailed information on specific intercompany transactions.

Understanding the context and characteristics of the action 13, three research questions were raised. The first one aims at the major differences between the national implementations of the BEPS action 13 in the BENELUX. By comparing each national translation of the action 13, it was found that the main differences lie within the reporting thresholds. In fact, the first discrepancy is the special two-part format of the Belgian Local File. Secondly, while the threshold for the revenue is EUR 50 million in Belgium and in the Netherlands, the Belgian legislation added two other thresholds: EUR 1 billion as total balance sheet and100 workers on a full-time equivalent basis. The findings of the second research question are related to the suitability and desirability of TP documentation regarding the BEPS problem. By reviewing the scientific researches, it has been noted that the TP documentation could reduce profit shifting by 50% and even more when that documentation is implemented alongside with penalties. Finally, the last research question looks after the consequences and practical problems of the BEPS action 13. Whilst this TP documentation might bring increased disclosure and a potential surge in tax income, it should be mentioned that companies will face an increased administrative burden and that issues regarding confidentiality and potential loopholes have been raised by various stakeholders. Moreover, it turns out that some tax administrations and companies weren’t fully prepared to submit or receive this new TP documentation.