Data analytics is playing an increasingly important role in Transfer Pricing. CbCR data is particularly useful for gaining further insights, identifying possible BEPS and other related risks, and to conclude any need for action. Even local tax authorities carry out such CbCR analyses.
Main aspects and aim of CbCR
CbCR reporting has been implemented for fiscal periods commencing from 1 January 2016. The key priority of these reports is addressing BEPS and other related risks.
These reports show aggregated financial group information that can contain much more value and information than assumed at first glance. Due to the standardised requirement of information presentation regarding Table1 and Table2 as stipulated by the OECD, it is possible to look at multi-year financial information consistently.
What are tax authorities doing?
For this reason, tax authorities have significantly increased their capacities and knowledge in the area of data analytics. They are undertaking high level risk assessments and identifying possible risks from CbCR reports. It is to be expected that the level of detail in the analysis of the report will continue to intensify. KPMG has examples of tax audits being significantly driven or initiated by their investigations from the CbCR reports.
What KPMG is doing
KPMG analysed how CbCR data can tell its own special story to preventative minimise risk. Through multi-perspective analyses and data visualisations, we make your data more tangible, help to identify previously unrecognised risks, and to infer possible solutions.
Using the available Table1 information, it is possible to gain insights into various financial KPIs and financial ratios. On top of this, powerful insights can be revealed when (1) cross-checking such information regarding functional profiles from Table2, (2) performing and weighting of different tax risk indicators mentioned in the OECD’s CbCR manual handbook, or (3) considering external information such as statutory country-specific Corporate Income Tax rates.
For CbCR data analytics we are using Alteryx as a data preparation tool and Tableau for data visualisation. Tableau is a powerful visualisation tool with intelligent interaction that helps to understand data. Tableau enables new perspectives on the underlying data and thus helps to discover new insights and to identify or even solve previously unknown issues. With the ability to apply different types of filters across all sheets and dashboards, Tableau can be used to compare and analyse a wide range of data and tell a story about your data.
What benefits do you gain with these insights?
Have a better understanding and interpret more consistently routine/non-routine functional profiles and deviations from expected profit margins.
Gain an overview of the potential risk profile of the group entities and countries and know if you group and/or one of your entities is likely to become and audit target and be able to prioritize actions to strengthen your position for tax audits.
Gain insights how your “CbCR tax rate” deviates from the statutory tax rate in the countries you operate in and be able to get prepared for potential challenges in case of significant deviations (over multiple periods).