USA - GAO Analyzed Potential Impact of BEPS

On January 27, the Government Accountability Office published a report that examines the potential impact of the OECD BEPS initiative’s revised international transfer pricing guidance on both the IRS and U.S. multinationals.

BEPS Analysis

GAO analyzed the potential effects of the two actions furthest along in implementation: revised transfer pricing guidelines and new transfer pricing documentation, including country-by-country reporting. For these actions, GAO examined (1) how likely it is that the action would reduce BEPS, (2) what is known about the potential administrative and compliance costs of the action, and (3) what is known about the potential effects the actions could have on the U.S. economy.

Transfer Pricing Guidance

As related parties transfer assets, there is the risk of making or losing money. OECD provides guidance on how to allocate risk, however, GAO found that the guidance does not adequately account for who bears the risk. GAO argued that the application of the arm’s length principle to risk is problematic because related parties cannot transfer risk the way unrelated parties can. Without addressing the application of the arm’s length principle under these situations, uncertainty about the correct transfer prices may allow for continued BEPS.

Transfer Pricing Documentation and Reporting

According to IRS officials, CbC implementation costs are uncertain at this time, but can be mitigated by using existing systems and processes. However, MNE compliance costs would likely increase due to new data system needs, according to stakeholders. GAO also concluded that the economic effect of CbC reporting is uncertain because it depends on the extent to which MNEs move business functions to low-tax countries in response to the potential increased scrutiny of BEPS.

Source: GAO - Press Release, GAO - Full Report


Transfer Pricing Associates introduces TPA BEPS Desk. If you have any questions, or need more detailed advice on any aspects of BEPS related issues, please get in touch with us. The TPA Global network has alliance partners throughout the world, and the network can provide multi-disciplinary approach on today's critical transfer pricing challenges faced by multinational enterprises.

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