BEPS Action 13: Standardized Transfer Pricing Documentation - Does one size fit all?

Abstract: In Action 13 of the OECD/G20 Base erosion and profit shifting project, the Organization for Economic Co-operation and Development (OECD) re-examines transfer pricing documentation requirements and updates Chapter V of the Transfer pricing guidelines. Action 13 recommends a new three-tiered transfer pricing documentation structure that includes a master file, a local file, and a country-by-country report. Together, these three documents are intended to simplify taxpayers’ compliance burden, provide tax administrations with more relevant information, and increase transparency. In regulating transfer pricing, Sweden follows the Transfer pricing guidelines and requires transfer pricing documentation. This thesis examines a pending Swedish implementation of Action 13 and addresses the following themes in connection with transfer pricing documentation: (1) proportionality; (2) relevant information; (3) confidentiality; (4) compliance; (5) the factors countries should consider when formulizing new transfer pricing documentation requirements; and (6) the immediate consequences Action 13 has on multinational enterprises. As will be shown, regardless of when Sweden implements Action 13, the majority of Swedish multinational enterprises will already be compelled to compile three-tiered transfer pricing documentation that complies with the transfer pricing requirements in other jurisdictions. While the OECD contends that Action 13 strikes a balance between taxpayers’ compliance costs and tax administrations information needs, this thesis reveals that the new three-tiered transfer pricing documentation structure increases compliance costs for taxpayers as well as the administrative burden for tax administrations. Since taxpayers have struggled with what constitutes relevant information for the purposes of transfer pricing documentation, Action 13 specifically outlines the contents of the master file, local file, and country-by-country report. The Swedish transfer pricing documentation requirements are not aligned with this list of information and consequently, this thesis recognizes a clear discrepancy between the OECD’s new recommendations and Swedish legislation. Furthermore, the country-by-country report has unleashed a debate about public disclosure of financial information; however, this thesis finds that the country-by-country report should remain confidential. Finally, this thesis analyzes compliance issues from three different perspectives accordingly: taxpayers’ compliance with transfer pricing documentation requirements, tax administrations compliance with following their administrative authority, and Sweden’s compliance with the OECD and the EU. Ultimately, this thesis questions the plausibility of standardized transfer pricing documentation, i.e. ‘one size fits all’.