Soichiro Matsuo, global head of TP, and Inga Kondrataite, regional head of tax for Asia Pacific, talk to TP Week from Nissan Motor’s headquarters in Japan about working through the challenges of implementing BEPS measures and CbCR. Their work on documentation, APAs and the management of TP globally has earned Nissan the International Tax Review Asia In-House Transfer Pricing Team of the Year award.
What were the specific accomplishments of the team for winning the Asia In-House Transfer Pricing Team of the Year award in the 2017 Asia Tax Awards.
Soichiro Matsuo: For our award submission we identified three main areas, BEPS, APAs and transfer pricing setting and monitoring.
Over the past year, we created the global master file for Nissan Group, and set up the process to prepare the country-by-country report (CbC) for the first time. This was all done by the existing in-house team.
We were also working on numerous bilateral APAs and were able to successfully conclude two of them. In most cases we communicated directly with the tax authorities, as on the Japan side we do not use advisors. In addition, we devised many policies and an in-house system to implement the transfer pricing rules by ourselves.
Our team profile also played an important role in our success. The team has diverse nationalities and backgrounds, a strong gender balance, and members participate in various domestic and international transfer pricing roundtables, forums and organisations.
Inga Kondrataite: The transfer pricing system Matsuo-san mentioned is an impressive tool. The team looks at transactions by country, by each manufacturing and distributing entity, and by car model. So you get a huge matrix of 500 or more transactions that is reviewed on a semi-annual basis. That is the scope of work the TP team deals with.
In regard to BEPS implementation, during the last year we finalised the master file and did two CbCR dry runs. Members of the transfer pricing team are also working in the project team for BEPS implementation. So we worked with our existing resources to roll out both the master file and CbCR on top of everyone’s daily jobs. We ran 72 interviews with top management in different functions and different regions to understand how the business works.
TP Week: What was the greatest challenges in applying BEPS measures to Nissan’s tax system?
IK: The greatest challenge was to implement BEPS, i.e. master file and CbCR with our existing resources and existing budget. Specifically for CbCR, another challenge was to gather all the required data, which is not as simple as it sounds. With multiple different systems that do not always talk to each other, and data coming from many different sources, there was a lot of manual work involved. It involved a lot of excel sheets and working with data files to build a complete single report. For example, branch data is not available in consolidation package, so we had to reach out to each relevant entity and ask to split back the entity data for branches, and then reintegrate everything into the report afterwards.
TP Week: Are you considering implementing new technology as BEPS measures result in additional processes?
IK: When we were rolling out the trial reports for CbCR we were mostly using the reports from existing consolidation systems and much of this was done manually or in Excel.
Going forward, we now know what the CbCR process entails and all the inherent issues and challenges with the data we have and how to make it work. For this year, we are thinking about how to optimise and speed up the process for future reporting years. Potentially with technology solutions. After all the work we have done, we have a much better idea what kind of solution we are looking for.
SM: BEPS aside, for general transfer pricing setting and adjustments we don’t have a proprietary data base so it is mainly manual work in Excel. For the time being, we do not expect to change that.
However, we are considering to implement a technology solution to help manage, track and store local TP documentations at a central HQ level, and are looking at alternatives.
TP Week: Looking at Japan overall, how has the OECD’s BEPS project been received? What types of changes have been introduced?
SM: Many other Japanese companies I meet with do not have sufficient resources for tax. In Japan, the function is historically recognised for filing tax returns and assuring tax compliance, primarily domestically. The introduction of the BEPS project will change this. Many Japanese companies will change and focus more on tax governance. Taxpayers should manage transfer pricing and profit allocation on a country-by-country basis and consider the risk allocation. I believe many Japanese companies will begin to manage their transfer pricing.
IK: In Japan, it is common that the tax function is not a separate function but part of the accounting department in a company. Thus there is the domestic compliance focus that Matsuo-san mentioned. What we are seeing is that many companies are now realising they have to become more global in their approach and also get more involved with their overseas related companies. Interactions with tax authorities globally are increasing, and will continue to do so all around the world as countries are implementing BEPS measures.
We believe Nissan is quite ahead of the game because we have had a dedicated transfer pricing team for a number of years now.
TP Week: Have trends in the automotive sector such as electric cars or self-driving cars impacted on transfer pricing risks by having to outsource R&D and IP?
IK: There is probably more of this type of risk to be accounted for in the future. I believe key technology developments are still being developed in-house. We haven’t seen many changes in terms of transfer pricing yet but we imagine that connectivity, digital features and services will change the industry and will bring about different tax and transfer pricing topics in the near future.
TP Week: What are the goal posts for Nissan’s in-house TP team this year?
SM: Technology optimisation is one of them. We are looking for an efficient method to integrate our databases with technology. We also would like to convey the importance of our activities to the management to secure more budget.
IK: In the course of the project our advantage was that we accomplished everything in-house, such as doing the interviews ourselves. Not only did we learn a lot about the business, we also explained the BEPS initiative and the new requirements inherent in the BEPS measures to top management in various business areas. In a way we educated people within the company.
We have lived with BEPS for the past few years and look at tax guidelines on a daily basis but it is important to create awareness in other departments. One of our goals is to further educate other functions and other group companies. We have prepared CbCR and master file centrally but it will be people in the individual countries that will be facing the tax authorities. So we want to ensure that they are on the same level of understanding.
The above article was published on www.internationaltaxreview.com on 6 July 2017 and has been republished with the approval of the Publisher.