On August 1, 2024, the Organization for Economic Co-operation and Development (OECD) Forum on Tax Administration released a new set of guidelines on their website detailing the documentation requirements for multinational enterprises (MNEs) applying to the International Compliance Assurance Program (ICAP). This update introduces the Selection Documentation Package, an important component for MNEs looking to engage with ICAP.
Background on ICAP
The International Compliance Assurance Program (ICAP) is a voluntary framework aimed at enhancing tax compliance and reducing disputes. Through ICAP, multiple tax authorities collaborate to assess the risk profile of an MNE. In exchange, MNEs receive assurance regarding the treatment of low-risk transactions, reducing the likelihood of audits on these transactions for a designated period.
ICAP was first piloted in January 2018 with 8 tax administrations. This initiative expanded to 19 administrations in March 2019 and became a formal program in September 2021. Currently, 23 jurisdictions are involved in ICAP, with the program details outlined in the ICAP Handbook. The OECD provided its first set of ICAP statistics in January 2024, highlighting the program’s growth and progress.
Breakdown of the Selection Documentation Package
Submission Checklist:
- MNE Group Information Form: This form collects details about the MNE, such as the name of the group and its ultimate parent entity (UPE), proposed periods for the covered transactions, and contact information. It also asks if the MNE conducts a self-assessment of its Country-by-Country Report (CbCR), though this is not mandatory for ICAP participation.
- Covered-Risk Overview: This document provides a snapshot of the transactions covered by ICAP, including categories of transactions, relevant jurisdictions, and the value of these transactions. It helps participating tax administrations understand the scope and scale of the MNE’s activities.
- List of APAs/Tax Rulings: A list of all Advance Pricing Agreements and tax rulings, including those pending.
- Country-by-Country Report (CbCR) and Master File: Recent CbCR and Master File submissions offer insights into the global structure of the MNE and its operations.
- Summary of MNE Group’s Global Structure: If not already covered in the Master File, this summary outlines the organizational structure of the MNE.
Details on the first three elements on the checklist are as follows:
MNE Group Information Form
- This form is needed for detailing the MNE’s structure and covered tax administration preferences. It requires the MNE to specify which jurisdictions it proposes to include in the ICAP risk assessment. Excluded jurisdictions can still express interest, and the MNE must note any significant changes affecting these jurisdictions in the past year.
MNE Covered-Risk Overview
- This spreadsheet categorizes the transactions the MNE is involved in and identifies the jurisdictions impacted by these transactions. It highlights whether each transaction involves asset transfers, functions, or liabilities, and provides the value of these transactions for each participating jurisdiction.
MNE Group APA Details
- This table documents all APAs and tax rulings involving the MNE. It requires information on the jurisdictions involved, participating group members, a brief description of the transactions, covered periods, and details of the transfer pricing methodologies agreed upon.
The OECD has also announced that further details regarding the Main Documentation Package and the Outcome Letter template will be available shortly.
Implications and Future Outlook
The release of the Selection Documentation Package marks an advancement in the ICAP process, offering MNEs clearer guidance on how to prepare for participation. The forthcoming Main Documentation Package and Outcome Letter template are expected to provide further clarity and practical information.
For businesses, securing tax certainty through ICAP can be a strategic move in managing tax risks and avoiding disputes. As the global tax environment continues to evolve, ICAP offers a structured approach to achieving stability and predictability in tax matters. The latest OECD Tax Certainty Days highlighted positive experiences from companies participating in ICAP, underscoring its value in enhancing tax compliance and reducing uncertainties. Tax professionals and investors should review the updated ICAP guidelines to assess if and how they can fully leverage the benefits of this program. his challenging environment and safeguard their financial stability.
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