by Julie Martin
Tax officials from eight countries — Australia, Canada, Italy, Japan, the Netherlands, Spain, UK, and US — on January 23 launched in Washington, DC, a pilot program to jointly assess the tax and transfer pricing positions of multinational corporations.
A handbook was also released detailing the pilot program, known as the International Compliance Assurance Programme or ICAP. It is expected that the handbook will be modified to create an ICAP operating manual once the pilot is complete.
The ICAP has been described by Pascal Saint-Amans, director of the OECD’s centre for tax policy and administration, as a potential “game changer” for the audit and risk assessment of multinational companies. If the pilot is extended, the ICAP’s multilateral approach could minimize risk and cost of compliance for MNEs and lower costs for tax administrations, Saint-Amans said.
Under the program, which is voluntary for multinationals, tax administrations would jointly review the MNE’s tax affairs using the firm’s country-by-country reports, master file, and local file, as well as other materials specified in the ICAP handbook.
To start, the countries will only address transfer pricing and permanent establishment risks. The goal is to complete the assessment in 12 months.
If the review goes well, countries will provide outcome letters to the multinational stating that the MNE will not likely be audited in that jurisdiction with respect to specific tax risks. The letter will also identify any tax risks that remain.
Thus, the review provides assurances, not legal certainty, as would be the case if the multinational sought an advance pricing agreement or other private tax ruling.
Achim Pross, OECD Head of the International Co-operation and Tax Administration Division, said last June that the program was developed because multinational taxpayers asked for an opportunity to explain the contents of their country-by-country reports, which will be transmitted to multiple tax administrations in accordance with action 13 of the 2015 OECD/G20 base erosion profit shifting (BEPS) plan.
At the same time, tax administrations realized that they may benefit from a multilateral conversation on tax risk assessment, Pross said.
The ICAP is being developed by the OECD Forum on Tax Administration Large Business and International Programme and is sponsored by the Canada Revenue Agency.