OECD releases selection documentation package for MNEs participating in ICAP risk assessments

Executive summary

On 1 August 2024, the Organisation for Economic Co-operation and Development (OECD) Forum on Tax Administration published on their website a list of documentation requirements for the selection stage of the International Compliance Assurance Program (ICAP). The Selection Documentation Package includes the following high-level information that a multinational enterprise (MNE) is expected to provide at the time it applies to ICAP:

• Submission checklist
  
  
• MNE group information form
  
  
• MNE covered-risk overview
  
  
• MNE group Advance Pricing Agreement (APA) details

The OECD website indicates that information relating to the Main Documentation Package and the Outcome Letter template will be coming soon.

Background

ICAP is a voluntary risk assessment and assurance program. Under ICAP, multiple tax administrations come together to simultaneously risk assess an MNE. In return, the program offers MNEs a level of tax certainty through audit protections provided by the participating tax administrations regarding the MNE's low-risk covered transactions for a specified period.

The first ICAP pilot was launched in January 2018 with eight tax administrations. The second pilot began in March 2019 with 19 tax administrations. ICAP became a full program in September 2021. Twenty-three jurisdictions currently participate in ICAP and the program is covered by the ICAP handbook (pdf). The OECD published the first ICAP statistics in January 2024.1

Frequently Asked Questions (FAQs) about ICAP are periodically updated, with the most recent FAQs including information about the benefits of ICAP, the level of comfort provided, factors to be considered in deciding whether an MNE group is suitable for ICAP and how to apply to ICAP.2

Selection Documentation Package

The ICAP handbook includes an overview of information an MNE is expected to provide. Templates had been provided to an MNE seeking to participate in ICAP by the tax administration of its ultimate parent entity (UPE), and the OECD has now published these on its website.

Submission checklist

This checklist should be completed to indicate the documentation included in the submission:

• MNE group information form
  
  
• Covered-risk overview
  
  
• Country-by-country report (CbCR) for the most recent period
  
  
• Master file for the most recent period
  
  
• Summary of MNE group's current global structure (if not included in Master file)
  
  
• List of APAs/tax rulings

MNE group information form

This form requires information about the MNE applicant, including group and UPE name, proposed covered periods, contact details and whether the MNE group prepares a CbCR self-assessment. The form indicates that such a self-assessment is not mandatory for participation in ICAP.

This form also includes a table of proposed covered tax administrations. For each tax administration participating in ICAP (currently 23 jurisdictions), the MNE should indicate whether it proposes to include the tax administration in the ICAP risk assessment. The form indicates that the MNE should provide explanatory information in the table for any jurisdictions that it proposes not to include. Any jurisdiction that the MNE proposes to exclude may still express interest in participating in the ICAP risk assessment. The MNE should also include information in the table regarding any material changes in each jurisdiction in the last 12 months. The form indicates that a change is likely to be material if the change (1) means that information a tax authority already holds about previous group activity, such as the CbCR or master file information, no longer reflects the group structure or supply chain or (2) is otherwise relevant to understanding the proposed covered transactions and tax footprint of the business.

MNE covered-risk overview

This spreadsheet requires information providing an overview of the covered transactions to which the MNE group is a party, including:

• The category of each transaction
  
  
• The relevant jurisdictions where the recipients of intra-group payments under each of these categories are resident or have operations
  
  
• Indication as to whether each transaction category involves a transfer of assets, functions or liabilities or payments to or from each jurisdiction with a tax administration participating in ICAP and where the MNE group has a constituent entity
  
  
• Indication as to the value of each transaction category for each jurisdiction with a participating tax administration and where the MNE group has a constituent entity.

MNE group APA details

A table is used to provide the proposed covered tax administrations with information regarding all APAs and/or tax rulings to which the MNE group is a party. For an APA or tax ruling that is complete, all sections of the table should be completed. For an APA or tax ruling that is not yet final, as much information as is available should be provided. The information in the table includes the jurisdictions, the parties (members of the MNE group) to the APA or tax ruling, a brief overview of the nature of the transaction, the covered periods and details on the transfer pricing methodology and/or return agreed as part of the APA or tax ruling.

Implications

The publication of the Selection Documentation Package provides helpful practical information on ICAP. The yet-to-be published Main Documentation Package and the Outcome Letter template are expected to provide additional practical information. Companies are encouraged to review these materials in considering participation in ICAP.

Tax certainty is critical in today's constantly changing environment; businesses can seek to secure tax certainty by exploring ways to manage tax risks while also utilizing the various available dispute prevention and resolution mechanisms. Tax certainty mechanisms will play an important role for both taxpayers and tax administrations in both implementation and ongoing administration of the Pillar Two global minimum tax rules. Several companies discussed their positive experiences and benefits achieved from participation in ICAP during the latest OECD Tax Certainty Days.3