OECD Risk Assessment Templates Help Taxpayers, Show Broad Scope

The OECD last week released templates for its International Compliance Assurance Program’s selection documentation package. The templates will help taxpayers who are interested in ICAP get a better sense of requirements to participate in the program and issues that an assessment is likely to cover.

The documentation package requires broad information covering all of a taxpayer’s intragroup transactions, highlighting the importance of coordination between interested taxpayers and the lead tax administration prior to submission of an application and during the selection stage.

ICAP is a voluntary risk assessment program with three phases: selection, risk assessment and issue resolution, and outcomes. During the selection phase, the scope of the ICAP risk assessment is agreed by the relevant tax administrations and communicated to the taxpayer. Scoping determinations include the lead tax administration and other participating tax administrations, covered periods and transactions (and any excluded transactions), and the target timeframe.

In subsequent phases, participating tax administrations review an additional documentation package submitted by the taxpayer, perform a risk assessment, and issue outcome letters.

The four-to-eight-week selection phase begins when the taxpayer submits a selection documentation package, which aims to provide tax administrations sufficient information to determine whether to accept the taxpayer into the ICAP program in their jurisdiction. The selection documentation package includes the master file and country-by-country report for the most recent period.

Taxpayers also must submit three template forms, which were part of the Organization for Economic Cooperation and Development’s recent release.

MNE group information form. This is a two-page template that seeks basic information about the multinational group members in ICAP jurisdictions and explanations on which jurisdictions are proposed to participate (or not participate) in the assessment.

APAs and tax rulings. This is a two-page form for the taxpayer to describe completed and in-progress advance pricing agreements and tax rulings in each relevant ICAP jurisdiction.

Covered risk overview. This is a five-tab spreadsheet requiring various data points on the taxpayer’s intergroup transactions. In the first tab, taxpayers list each type of transaction and indicate proposed covered jurisdictions that participate in each transaction and the general transfer pricing policy for the transaction. In the next two tabs, the revenue and expenses for each transaction are listed by jurisdiction.

The fourth and fifth tabs require a listing of restructurings and any reported permanent establishments and unreported permanent establishment issues to be covered in ICAP. If the taxpayer moves on to the risk assessment phase, it must submit a main documentation package, including local files, financial statements, and templates that haven’t yet been published.

Consistent with ICAP’s efficiency goal, the selection documentation package only seeks documents that a tax department has already created (such as the master file and country-by-country report) and data that is readily available in most cases (such as transactional revenues and expenses). The amount of information that the taxpayer must prepare in the ICAP process remains significantly less onerous than that required at the start of the APA program or typically required in a transfer pricing audit.

Taxpayers may still be reluctant to provide such a comprehensive overview of its intercompany transactions to tax authorities, for fear that the ICAP submissions will spawn audits or inquiries into transactions that haven’t been or wouldn’t otherwise arise on audit.

The selection documentation package templates highlight the broad scope of an ICAP assessment, which may deter taxpayer participation.

The covered risk overview template requires information about all of a taxpayer’s transactions. The participating tax administrations, rather than the taxpayer, decide which transactions will be included in the risk assessment.

Through informal consultations prior to the submission of an ICAP application and during the selection process, taxpayers may be able to direct focus toward specific transactions to ensure that they are covered by the risk assessment.

To that end, interested US taxpayers should review the IRS’s ICAP frequently asked questions and contact the IRS for an informal consultation before proceeding with an ICAP application. Initial scoping questions can and should be addressed prior to embarking on the program.

Concerns about the scope of ICAP assessments likely will resolve over time if taxpayers continue to go through the program with positive experiences, and as the OECD continues to release information and statistics on the program.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Lauren Ann Ross is special counsel at Covington & Burling, focusing on tax controversy matters and transfer pricing issues.

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