Transfer Pricing Documentation Master File A global strategic imperativeFebruary 2017

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Transfer Pricing Documentation Master File | A global strategic imperative

Higher standards of consistency • Multinationals are required to prepare either one Master File that covers all businesses or a separate Master File for each global business line

Specific requirements and functional analyses • Supply chain of top five products • Business restructuring details • Description of value drivers and main markets • Information about unilateral APAs and tax rulings

Intangibles • Description of IP strategies, location of R&D facilities, and other agreements

Financial transactions • Description of group financing arrangements, central financing functions, and cash boxes

• The great increase in breadth and depth of information to be gathered

• Executing multifaceted divisional and/or product line approaches

• Articulating supply chain, value drivers, intangibles, and other critical elements

• A heightened level of transparency (e.g., the Master File will be shared with multiple tax authorities and possibly released to the public)

• Maintaining consistency with prior year documentation studies and outcomes from CbCR

• Expanding tax department skills, capabilities, and tools to adapt to new requirements

The Master FileKey challenges for multinationals

While Country-by-Country Reporting (CbCR) has received the bulk of the attention from the OECD's Action 13 guidance, an accompanying requirement of the three-tiered approach, the Master File, may actually pose greater challenges for multinational corporations.

The Master File requires a deeper level of reporting (with potentially more sensitive data) and will be directly disclosed to countries where multinationals do business.

The main differences from the documentation currently prepared include:

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Transfer Pricing Documentation Master File | A global strategic imperative

Project launch and management • Develop Master File strategy (e.g., minimum requirement vs. comprehensive) • Consider risk appetite and level of transparency • Assess role of all stakeholders (including C - Suite) early in the process • Understand that the first year is critical and may require significantly more resources to execute properly • Appoint project champion/team • Evaluate technology solutions • Devote adequate resources levels to project management • Drive timelines by the earliest approaching deadlines across locations where the MNC carries on business (not by the headquarter location regulations) • Establish cross-jurisdictional information sharing protocols for updating and sharing of Master File

Information gathering • Gather exhaustive information across jurisdictions, especially in decentralized MNCs • Identify TP positions taken across jurisdictions, business divisions, tax audits, and APAs • Coordinate information gathering with Local File and CbCR efforts • Coordinate with local finance, legal, HR, and IT teams • Use judgement to avoid presenting unnecessary information

Building a robust Master FileCore phases

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Transfer Pricing Documentation Master File | A global strategic imperative

Strategic alignment with BEPS Action Plan: Actions 8–10 • Reassess complex tax structures (e.g., IP holding companies, regional hubs, passthrough entities, central financing structures)

• Use the Master File to not only document current operations but prepare for future change

• Align risk/return based on the six-step functional analysis approach (Identify, Determine, Analyze, Interpret, Allocate, Price)

• Focus on substance in jurisdictions where CbCR shows disproportionate profits

• Define “Groups” of intangibles and “General” descriptions

• Prepare a summary of key facts which support the transfer pricing policy (and capture these facts consistently and unambiguously in the Master File)

Information presentation and report structure • Consider structuring Master File by business division and then by TP structure of various supply chains • Evaluate what must be included in the Master File versus which details are better suited for the Local Files • Adopt a modular approach to structuring the report and leverage Local Files • Validate that Master File supports the figures shown in CbCR analysis • Evaluate translation requirements • Consider use of digital technology tools to help enhance consistency, efficiency, and repeatability • Identify information to be provided in main body of report versus appendix • Maintain version control for documents as well as progress dashboards • Maintain proper "check-lists" to ensure that all elements are prepared • Obtain sign-offs from respective stakeholders

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Transfer Pricing Documentation Master File | A global strategic imperative

• Automating a majority of the process around information gathering and report production • Enhancing central control and oversight of the workflow through a central dashboard • Permitting delegation of responsibilities • Streamlining leverage of content across multiple files • Enhancing collaboration and transparency by facilitating efficient process flow • Providing flexibility to use business specific templates

Technology plays an important role

Benefits:Web-based platform • Online platform facilitates efficient collaboration

Automatic report generation • Customizable questionnaires help gather factual information in consistent and timely manner

• Information can be automatically converted into OECD/BEPS compliant transfer pricing documentation reports

Central management and audit trail • Project administrators can centrally manage process with input from local entities

• Platform enables central management for review and feedback by local users

• Dashboard helps establish a clear workflow to enhance control over content and deadlines (including an audit trail)

Time and resource savings • Streamlined process enables focus on value-added activities

Deloitte TP Digital DoX is a global technology platform specifically designed to help multinational businessesefficiently meet increasing demands for consistent transfer pricing documentation by:

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