1. In general, transfer pricing documentation ensures that tax administrations have access to the necessary information to conduct risk assessment processes and/or to audit the taxpayer’s transfer pricing practices1. In the case of the simplified and streamlined approach, documentation is important to ensure that tax administrations have sufficient and reliable information to assess whether taxpayers’ qualifying transactions meet the scoping criteria and taxpayers have properly applied the simplified and streamlined approach to in-scope transactions.
2. This section identifies the main items of information in the local file that can be useful in substantiating the taxpayer’s position on the applicability of the simplified and streamlined approach and provide tax administrations with the relevant information for its application. When considering the introduction of targeted documentation requirements for the simplified and streamlined approach, jurisdictions may consider simplifying such requirements for small and medium enterprises to limit their costs and compliance burden.2
3. The three-tiered approach to transfer pricing documentation described in Chapter V includes a local file, which provides detailed information on the taxpayer’s specific intercompany transactions. The documentation approach for the simplified and streamlined approach is built on the premise that the current content of the local file (see Annex II of Chapter V) includes the items of information and documents which are relevant to examine the taxpayer’s position.
4. The following items of information may already be included in the local file and can be particularly relevant and useful to tax administrations in assessing whether the taxpayer’s qualifying transactions meet the scoping criteria, and, if the taxpayer applied the pricing methodology, whether it did so properly:
5. An explanation on the delineation of the in-scope qualifying transaction, including the functional analysis of the taxpayer and relevant associated enterprises with respect to the in-scope transactions, and the context in which such transactions take place (e.g. whether there are any other commercial or financial relations between the tested party/taxpayer and other associated enterprises that may influence the accurate delineation of the qualifying transaction potentially in scope).
6. Written contract or agreements concluded governing the qualifying transaction and supporting the explanation on the delineation of the in-scope qualifying transaction described in (a).
7. Calculations showing the determination of the relevant revenue, costs and assets allocated or attributed to the in-scope transaction;
8. Information and allocation schedules showing how the financial data used in assessing the applicability of the simplified and streamlined approach and applying the transfer pricing method ties to the annual financial statements.
9. In relation to the information item in 60(b), where it is consistent with the scoping criteria and the conduct of the parties, the provision of a written contract would ease the administration of the simplified and streamlined approach when a taxpayer is seeking to apply the approach to a qualifying transaction. However, regardless of whether a written contract is in place, tax administrations or taxpayers can assert or challenge the approach based on the accurate delineation of the transaction performed under the principles articulated in Chapter I of these Guidelines.3
10. Financial information on the tested party is needed to understand whether the qualifying transaction meets the scoping criteria, irrespective of whether the tested party is a domestic or foreign entity.4 Accordingly, the taxpayer will also need to provide the annual financial accounts of the tested party for the relevant fiscal years.
11. Where one or more items of information relevant to assess the application of the simplified and streamlined approach are not included as part of the transfer pricing documentation, tax administrations may require taxpayers to provide them upon request. Importantly, making this information available to tax administrations as part of the annual transfer pricing requirements or upon request may translate into fewer follow-up requests for information and audits for the taxpayer, as well as in a more efficient use of tax administrations’ resources.
12. In addition to the information in the local file, taxpayers and tax administrations should leverage the information provided in the master file to support their position with regards to the application of the pricing approach. In particular, the master file can provide valuable information on the MNE Group’s business, such as main products, main geographic markets, pricing policy or the general strategy of the MNE Group for the development, ownership and exploitation of intangibles. As a matter of good practice, to avoid excessive compliance burden for taxpayers, when evaluating the applicability of the simplified and streamlined approach to qualifying transactions of a given taxpayers, tax administrations should refrain from requesting the taxpayer to produce or submit information already in the hands of the tax administration.
13. The fact that the taxpayer has prepared and submitted the above information to the tax administration does not prevent the tax administration from examining the taxpayer’s self-assessment on whether the scoping criteria are met and the pricing methodology has been applied properly.
14. Finally, when the taxpayer is seeking to apply the simplified and streamlined approach for the first time, the taxpayer should include in its local file, or in any other documentation relevant to the application of the approach, a consent to apply the approach for a minimum of 3 years, unless transactions are no longer in scope during that period, or there is a significant change in the taxpayer’s business, and notify that circumstance to the tax authorities of the jurisdictions involved in the qualifying transaction. As part of the first-time notification procedure, tax administrations could require the taxpayer to provide some or all of the items of information listed in paragraph 60. In addition, tax administrations may require taxpayers seeking to apply the simplified and streamlined approach to provide a written contract signed prior to the occurrence of the qualifying transaction. The preceding sentence is not intended to change in any way the role of a written contract in the accurate delineation of the transaction, as discussed in Section D.1 of Chapter I.