The OECD released updated Frequently Asked Questions regarding the International Compliance Assurance Programme (ICAP) on 4 June, 2024.
The ICAP initiative is designed to promote transparent and cooperative multilateral engagements between multinational enterprise (MNE) groups and tax administrations in the countries where they operate. The programme involves the effective use of transfer pricing documentation, including Country-by-Country (CbC) reports.
The new questions include:
How many periods does an ICAP risk assessment cover, and is there a possibility for a roll forward of the outcomes?
An ICAP risk assessment generally covers one or two consecutive periods, agreed with an MNE group in advance of the ICAP risk assessment commencing, which will normally be the most recent for which necessary documentation is available.
Tax administrations will typically also aim to provide comfort with respect to a number of tax filing periods immediately following the covered periods, provided there are no material changes during these periods. The ability of a tax administration to provide comfort in respect of roll forward periods will depend on each tax administration’s domestic legal framework. Further information on each tax administration’s approach to roll forward periods (including the number of periods for which a roll forward is available) can be found in the document “Information on Participating Tax Administrations”, available on the OECD ICAP website.
My MNE group’s Ultimate Parent Entity (UPE) is resident in a jurisdiction that is not participating in ICAP. Does this mean that my MNE group cannot submit a request for an ICAP risk assessment?
An MNE group’s suitability for ICAP is considered on a case-by-case basis and MNE groups are encouraged to get in touch with their local ICAP participating tax administration to discuss potential options.
Even if an MNE group is headquartered in a jurisdiction that does not currently participate in ICAP, it may still be possible for a suitable tax administration that does participate in ICAP to act as a Surrogate Lead Tax Administration (Surrogate LTA) for the purposes of the MNE group’s ICAP risk assessment. This would mean that the Surrogate LTA would undertake the role of the Lead Tax Administration (LTA) described in the ICAP Handbook.
In this case, an MNE group that is interested in applying for ICAP should:
- identify a possible Surrogate LTA from the list of participating tax administrations, in a jurisdiction in which the MNE group has significant operations and which has sufficient familiarity with the MNE group that it is able to be an effective Surrogate LTA;
- inform the tax administration in the jurisdiction of its UPE of its desire to participate in ICAP; and
- contact the potential Surrogate LTA to discuss its suitability for the programme.
Following this contact with a potential Surrogate LTA, the tax administration may:
- Agree to act as Surrogate LTA;
- Suggest an alternative Surrogate LTA (following discussion with other tax administrations participating in ICAP); or
- Decline to act as Surrogate LTA without suggesting an alternative.
Whether other tax administrations agree to be Covered Tax Administrations for the purposes of the MNE group’s ICAP risk assessment will depend upon a number of factors, such as materiality of transactions, and the suitability of the Surrogate LTA for the role, taking into account issues such as the location of the MNE group’s management team and key activities.
In these circumstances, it may also be appropriate for an ICAP risk assessment to be undertaken with respect to a discrete segment of an MNE group rather than the entire MNE group, for example where the holding company of this segment is located in the jurisdiction of a tax administration participating in ICAP, and other participating tax administrations are satisfied that the segment is sufficiently operationally independent from the rest of the MNE group that an ICAP risk assessment can be undertaken effectively.
In instances of an ICAP risk assessment of a segment of an MNE group, the UPE of the MNE group should give its commitment and support for the ICAP process, for example by ensuring all relevant documentation and information is made available, should the segmented group not be in possession of the information required.
My MNE group’s Ultimate Parent Entity (UPE) is resident in a jurisdiction that participates in ICAP. Is it possible to approach another tax administration participating in ICAP and request that it acts as a Surrogate LTA?
Where an MNE group’s UPE is resident in a jurisdiction that participates in ICAP, the MNE group should always approach the tax administration in that jurisdiction first to request an ICAP risk assessment.
If, however, the tax administration in the jurisdiction where the UPE of the MNE group is resident declines to act as the LTA, due to a lack of capacity or the fact the MNE group only has limited activities in that jurisdiction, the MNE group may approach another jurisdiction participating in ICAP to serve as a Surrogate LTA.
In this case the MNE group should inform the tax administration of the UPE jurisdiction that it intends to do so and should act in a transparent manner with both tax administrations. The tax administration that the MNE group has requested to act as a Surrogate LTA will consult with the tax administration in the MNE group’s UPE jurisdiction and confirm that capacity and/or limited activities is in fact the reason for that tax administration declining the request to act as LTA for an ICAP risk assessment for the relevant Periods.
If the UPE jurisdiction is not content with another ICAP member acting as Surrogate LTA, it will not be possible for an ICAP risk assessment to proceed for these periods.
Where the tax administration of the UPE jurisdiction declined to act as LTA due to a lack of capacity, the MNE group may approach that tax administration again in the future with respect to later periods, when this lack of capacity may no longer apply. Similarly, should the level of the MNE group’s activities in that jurisdiction increase, the MNE group may also approach that tax administration again in the future.
My MNE group has already participated in an ICAP risk assessment. Is my MNE group eligible to request an additional ICAP risk assessment? And if so, are there specific requirements for such requests (e.g., minimum time periods between ICAP risk assessments)?
Where an MNE group has participated in an ICAP risk assessment, there is no restriction on the MNE group submitting a request for a further risk assessment for later periods, either by the same covered tax administrations or by different covered tax administrations (or a combination of the two). There is also no minimum time period that must have elapsed before a new request can be made, although tax administrations may consider the amount of time that has elapsed since this last ICAP risk assessment when making a decision whether to participate.
MNE groups that wish to request a second or subsequent ICAP risk assessment are encouraged to contact their LTA before submitting a new selection documentation package to discuss their suitability to re-enter the programme and the possible scope of a further risk assessment.
My MNE group has consolidated group revenues below the threshold for country-by-country reporting (CbC reporting) in the jurisdiction where the Ultimate Parent Entity (UPE) of the MNE group is resident. Does this mean my MNE group is not able to apply for an ICAP risk assessment?
A decision on whether to participate in an ICAP risk assessment is considered by each tax administration on a case-by-case basis.
While the ICAP Handbook indicates that a CbC report is required for the selection and the main documentation packages, tax administrations participating in the programme have agreed that MNE groups that are exempt from mandatory CbC reporting may nevertheless apply for an ICAP risk assessment.
To participate in ICAP, such an MNE group will generally have to prepare a similar report that includes the full information specified in Annex III to Chapter V of the Transfer Pricing Guidelines.
Generally, this report should be provided by the MNE group as part of the selection documentation package. Exceptionally, participating tax administrations may agree to commence the selection stage without such a report being already available, but this would still be expected to be provided as part of the main documentation package.
Additionally, such MNE groups must be prepared to explain the procedures that were utilised in preparing the report to ensure the reliability of the underlying data. This may be most suitable for MNE groups that anticipate coming within the scope of CbC reporting in future, or that fall above the threshold in some Periods and not others.
MNE groups that wish to participate in ICAP but are exempt from CbC reporting for the relevant Periods are strongly encouraged to consult with the prospective LTA before submitting their selection documentation package, to discuss their suitability for the programme.
Can my MNE group use its external tax and/or legal advisors to assist it in ICAP?
External advisors may assist an MNE group during the ICAP risk assessment process. There have been a number of completed ICAP risk assessments that successfully involved external advisors working in conjunction with the MNE group and the participating tax administrations.
However, the intention of ICAP is to facilitate transparent discussions between multiple tax administrations and the participating MNE group. Accordingly, external advisors should not be used as a replacement for personnel from the MNE group for the purposes of the ICAP risk assessment.
