(P) Base Erosion and Profit Shifting („BEPS”) – a hot topic

Highly noticeable in a fast moving world is an accelerated globalization trend, leading to the incorporation of more multinational corporations that open subsidiaries in different tax jurisdictions. The different geopolitical conditions lead not only to higher segmentation of the multinational corporations activities, but also to their differentiated specialization on the value added chain of every business. This structural development of multionational corporations is a result of their tax and economic planning. A successful tax planning implies compliance with the rule according to which the profits need to be allocated between entities based on the functions performed, risks assumed and assets used. The experience of previous years has led the Governments to conclude that multinationals do not fully comply with the aforementioned basic rule, thus, lately, a special concern has been shown in regard to the analysis of intercompany transactions, of the prices used between entities part of the same group, and mostly on the allocation of profits between entities in different tax jurisdictions. The European Commission Vice – President, Joaquin Almunia, stated: „in the present context, defined by great budgetary constraints, it is particularly important that multinationals correctly pay their part of taxes”. Based on this preoccupation of the European Commission, as well as of other international organizations, a hot, largely debated subject in the past years is represented by the anti – BEPS policies and measures. The Organization for Economic Cooperation and Development („OECD”) has launched an action plan through which the implementation of a series of monitoring instruments for the correct taxation of every entity in a multinational group is desired, depending on the profit that would be attributable to it, according to the share it brings in the profitability of the group as a whole. Few of the aspects treated by the OECD action plan refer to:

• Defining intangibles;
• Ensuring the allocation of profit is associated with value creation;
• Developing rules for „hard to value” intangibles;
• Updating guidance on cost contribution;
• Clarifying when a transaction can be reclassified;
• Amendment of the transfer pricing documentation.

The amendment of the transfer pricing documentation implies the emersion of a third party, namely Country by Country Report. The three parts of the transfer pricing documentation shall consist of: a) Master File: It will provide an overview of a multinational’s global business operations and transfer pricing policies and will include descriptions of the main profit drivers, intangibles strategy and financing. b) Local Files: