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OECD publishes proposal to rewrite international profit allocation rules

On 9 October, the Secretariat of the Organisation for Economic Co-operation and Development (OECD) published Secretariat Proposal for a “Unified Approach” under Pillar One that, if ultimately agreed, would fundamentally alter the international tax regime. The Pillar 1 Unified Approach represents an effort by the OECD to bring together three proposals for consideration by the 134 countries of the OECD Inclusive Framework under the OECD/G20 “tax challenges of the digitalisation of the economy” project. The proposal does not ringfence the so-called “digital economy” and instead seeks to allocate a greater share of taxing rights to the countries where consumers are located - regardless of a business’ physical presence there.

German draft proposal implementing DAC6

On 26 September 2019, the German Ministry of Finance published a draft proposal regarding the implementation of mandatory disclosure rules pursuant to the European Union Directive 2018/822/EU (DAC6). Taxpayers should be aware of this new disclosure obligation. As there are many open questions, more clarity might be provided by the German tax authorities in a circular letter in the future.

EU’s General Court confirms European Commission’s State aid decision in Fiat

On 24 September 2019, the General Court of the European Union (GC) rendered its judgment (T-755/15 and T-759/15) regarding the action brought by Fiat Chrysler Finance Europe, formerly Fiat Finance and Trade Ltd (FFT) and Luxembourg for the annulment of the final State aid decision of the European Commission (EC) of 21 October 2015 on Fiat (SA.38375). The GC dismissed the actions and confirmed the validity of the EC’s decision.

EU’s General Court annuls the EC’s State aid decision in Starbucks

The General Court of the European Union (GC) recently rendered its judgment regarding the action brought by Starbucks Corp. and Starbucks Manufacturing EMEA BV and the Netherlands for the annulment of the final State aid decision of the European Commission (EC) of 21 October 2015 on Starbucks. The GC annulled the EC’s decision because the EC did not demonstrate the existence of an economic advantage within the meaning of EU State aid rules.

Transfer Pricing Podcast: US transfer pricing — a review of top developments in 2019

In this podcast Paige Hill (PwC’s US Transfer Pricing Leader), Chris Desmond (PwC’s G2M Global Trade Services Leader and Value Chain Transformation practice co-leader), Jozef Kavuliak, (Partner, PwC National Transfer Pricing practice), and Lili Kazemi (Director, PwC National Transfer Pricing practice) discuss key developments affecting US transfer pricing, including the APMA FCD model, tax reform, tariffs, US controversy and digitisation.

Transfer pricing in the Energy, Utilities and Resources (“EU&R”) Industry

Changing market trends in the Energy, Utilities and Resources industry have led to business transformation in the sector, with increasing transfer pricing and international tax considerations. Particularly in the light of continued development of international tax regulations, it is key to explore and highlight some of the tax touchpoints covered in this upcoming series of articles.

Australia Federal Court overturns ATO positions on transfer pricing

On 3 September 2019, the Federal Court (Davies J) handed down its decision in Glencore Investment Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2019] FCA 1432 (Glencore case) in favour of the taxpayer. This judgment is important because it provides clarity in relation to Australia’s transfer pricing rules and, in particular, aspects of the Full Federal Court’s 2017 decision in the Chevron case.

Puerto Rico requires transfer pricing study to fully deduct cross-border intercompany charges

On December 10, 2018, the Puerto Rican Government enacted important amendments to the Puerto Rico Internal Revenue Code of 2011 (PRIRC), amended as Act No. 257-2018. For detailed coverage of the provisions introduced and amended by Act No. 257-2018, see our Tax Insight 'Puerto Rico adopts significant amendments to its income tax code' published on January 17, 2019. In particular, the new law requires taxpayers to submit a transfer pricing study with their Puerto Rico income tax returns to avoid the 51 % disallowance on expenses or fees accrued or paid to non-PR resident related parties not engaged in trade or business in Puerto Rico (the 51 % cross-border intercompany expense disallowance).

Estonia moves to implement EU MDR

On 18 July 2019, the Estonian Ministry of Finance published draft legislation to implement EU MDR (also known as DAC6) which requires service providers (or, in certain circumstances, taxpayers) to report on cross-border tax planning arrangements that meet certain hallmarks. This draft bill must now follow Estonian legislative procedures and may be amended before final enactment, but the rules are expected to enter into effect in Estonia on 1 July 2020 (in line with the EU Directive) with arrangements implemented between 25 June 2018 and 30 June 2020 required to be reported by 31 August 2020. Our specialists analyse the proposals.

UK Tax Tribunal sets out approach to concurrent MAP and domestic litigation

The UK Tax Tribunal (the first judicial level in the UK) has recently looked at the procedure in relation to domestic litigation when an application for a Mutual Agreement Procedure has also been made by a taxpayer. In this case, Glencore International AG (& others) v HMRC, the Tribunal found for the taxpayer and has allowed a stay of the domestic appeals in order for the MAP to proceed. While this decision is not binding on other cases, it provides useful insight as at how the UK Tribunal views coterminous MAP and domestic litigation.

Canada's APA program shows continued progress

The Advance Pricing Arrangement (APA) program of the Canada Revenue Agency (CRA) is administered through the CRA's Competent Authority Services Division (CASD) in Ottawa. The CRA offers the APA program to crossborder related-party transactions. The CASD recently released its annual report on Canada's APA program covering the year ending 31 December 2018 (the report).

This is not just Transfer Pricing - this is Profit Diversion

Increasingly, businesses are discovering that transfer pricing enquiries are more likely to be part of a much wider investigation by HMRC into ‘profit diversion’. This type of investigation may start following a Diverted Profits Tax notification, but can be very wide-ranging covering a range of cross-border issues from company residence to hybrids, but will usually be resolved through an adjustment to the transfer pricing. Another feature of these investigations is that they are highly forensic in nature and large amounts of evidence will be requested from interviews of senior people to reviews of emails.

EU Commission publishes non-confidential version of its State aid opening decision in Nike

On 1 July 2019, the European Commission (EC) made publicly available the non-confidential version of its opening decision of 10 January 2019 in the formal State aid investigation into the Netherlands’ tax treatment of Nike. The EC explains the reasons for the initiation of its formal investigation and requests additional information from the Netherlands or any other Nike group company, to reach a final conclusion. This decision represents therefore the opening, not yet the outcome, of the EC’s formal investigation into this matter.

Italian tax investigations on e-commerce, e-gaming operators reflect heightened enforcement

In recent years, the Italian tax authorities (ITA) and public prosecutor offices have been conducting tax investigations on e-commerce and e-gaming operators, resulting in various challenges from both VAT and income tax perspectives. Such actions reflect increasing enforcement efforts by European tax authorities, including VAT investigations in e-commerce areas.

Australian Taxation Office continues to finalise views on cross-border debt issues

Recently, the ATO has released two Tax Determinations (TDs) that deal with aspects of cross-border financing. Some of the changes made to finalise these determinations arguably give rise to additional uncertainty. The one absolute certainty demonstrated by the release of the two finalised determinations is that the ATO will continue to have an intense focus on cross-border financing.

Tax readiness: A fresh look at stewardship expenses

The comprehensive federal tax reform legislation enacted in late 2017 (the Act) and subsequently issued guidance significantly affect the ability of taxpayers to claim foreign tax credits (FTCs). The ability to claim FTCs is closely tied to how certain expenses — including selling, general, and administrative (SG&A) and stewardship — are allocated and apportioned among different categories of income. Similar rules may also affect foreign-derived intangible income (FDII) benefits. PwC on July 24 hosted a webcast featuring specialists who discussed these issues. This Insight highlights those discussions.

France enacts DST, partially delays corporate tax rate reduction

The French Parliament on July 11 passed a tax on digital services by large internet and technology providers and partially postponed the corporate income tax rate reduction initially intended to apply as of January 1, 2019. Publication of the law in the Official French legal Gazette occurred on July 25, 2019. The new 3% digital tax applies to companies providing certain digital services in France with global annual revenue in excess of EUR 750M and revenue in France exceeding EUR 25M. The tax is based on the amount, excluding VAT, that the taxpayer collects as consideration for taxable services provided in France as of January 1, 2019.

DIPN No. 58: Transfer pricing documentation and country-by-country report

The Inland Revenue Department (IRD) issued Departmental Interpretation and Practice Notes No. 58 (DIPN 58) on July 19, 2019 setting out its clarifications on the application of transfer pricing (TP) documentation rules stipulated in the Inland Revenue (Amendment) (No. 6) Ordinance 2018 (the BEPS and TP Ordinance). The TP documentation requirements set out in the BEPS and TP Ordinance are consistent with the Organisation for Economic Co-operation and Development's (OECD's) three-tiered standardized approach which includes the Master File, Local File and Country-by-country (CbC) Report. The DIPN 58 specifies the IRD's views and practices on the above-mentioned three-tiered TP documentation in Hong Kong such as examples on applicability of exemption thresholds, administrative procedures, required content, etc.

Transfer Pricing Podcast: ATO PCG on inbound distribution arrangements - what it means for multinationals operating in Australia

In this podcast, Edwin Baghdasarayan, Sarah Steven, and Karim Raphaël from PwC Australia discuss the latest Practical Compliance Guideline (PCG) on inbound distribution arrangements released by the Australian Taxation Office, including what the ATO is aiming to achieve. Edwin, Sarah and Karim also discuss the response from taxpayers to date as well as the main options taxpayers will have in addressing the implications of the PCG.

EU mandatory disclosure rules - UK draft regulations published

The draft UK regulations follow DAC6 closely, and require disclosure to HMRC of cross border arrangements entered into by taxpayers which fall within certain hallmarks . These hallmarks are very broadly defined and many commercial transactions will be within the scope of the rules . The disclosures will be shared between the tax authorities of all EU Member States quarterly. The consultation document sets out the approach HMRC intends to take in interpreting DAC6 and elaborates on how the rules will operate in practice. HMRC will provide further guidance alongside the finalised regulations.

Danish Tax Agency rules that a home office of an employee of a UK company constitutes a permanent establishment in Denmark

On 7 May 2019, the Danish Tax Agency published its binding ruling regarding the tax residence and permanent establishment (PE) status of a UK company in Denmark in relation to a home office used by its Danish General Manager. The ruling concluded that even though the UK company should not be considered a Danish tax resident, the General Manager’s home office in Denmark creates a fixed place of business PE for the UK company.

UK publishes draft legislation and guidance on digital services tax

The UK tax authorities on July 11 published draft legislation and draft guidance for a digital services tax (DST) to become effective April 1, 2020. These are available for public consultation until September 5, 2019. The DST is expected to apply by default at 2% of deemed UK revenues derived in excess of £25m, where the group's total global revenues from in-scope activities exceed £500m. Revenues are considered from in-scope activities if derived in connection with providing users with search engine, online marketplace, or social media services, and include revenues from associated advertising businesses. Thus, UK revenues in scope are those linked to UK users but may not be derived from UK sources, and businesses conducting in-scope activities may need to perform complex allocations.

UK publishes draft legislation and guidance on digital services tax

On 11 July 2019, the UK tax authorities published draft legislation and draft guidance for a digital services tax (DST) to begin from 1 April 2020. These are available for public consultation until 5 September 2019. The DST is expected to apply by default at 2% of deemed UK revenues derived in excess of £25m, where the group's total global revenues from in-scope activities exceed £500m. In-scope activities are those that are derived in connection with providing users with search engine, online marketplace, or social media services, and includes revenues from associated advertising businesses. Thus UK revenues in scope are those linked to UK users but may not be derived from UK sources, and complex allocations may need to be performed by businesses conducting in-scope activities. A safe-harbour exists and lowers the 2% rate where applicable.

Luxembourg ratifies new tax treaty with France

Luxembourg’s Parliament voted to approve Bill n° 7390 on July 2, thereby ratifying four tax treaties or protocols amending treaties. This package includes an entirely new tax treaty (’treaty’) and accompanying protocol (‘protocol’) between Luxembourg and France, which had been signed in March 2018.

India 2019 budget: Impact on foreign investors and multinationals

The Indian Finance Minister presented the initial Union Budget 2019 (Budget 2019) of the Modi Government 2.0 on July 5. Budget 2019 provides the blueprint for helping India reach a USD five trillion economy by 2024. Budget 2019 reflects a vision for the next three to five years to make India an investment-driven economy. The budget encompasses some key focus areas – it aims to strengthen India’s infrastructure, uplift the rural economy (with a focus on agriculture), create a world-class education system, support micro, small, and medium enterprises (MSMEs), foster gender inclusiveness by empowering women, and revive the banking and non-banking financial company (NBFC) sectors. It also emphasizes the importance of partnering with industry, striving for an all-round development.

FS Transfer Pricing Seminar - June 2019

In our session on digitalisation, our team of tax policy and transfer pricing experts discussed the challenges that groups are facing because of the OECD’s recently released work-plan addressing the tax challenges of the digitalisation of the economy. The focus was on challenges for the financial services sector, for which the digital tax was not initially intended, and practical aspects of what is believed to be the biggest change to the international tax system in the last 80 years.

Transfer Pricing Podcast: Swiss tax reform - key transfer pricing considerations

In this podcast, Benjamin Koch (Swiss Transfer Pricing Leader), Armin Marti (Swiss Tax Policy Leader), and Flora Marin (Swiss Transfer Pricing Senior Manager) discuss the new tax measures that will be put in place to implement Swiss tax reform, including the transition measures, patent box, and the R&D incentive. Benjamin and Armin also share their recommendations on what companies should be doing before the end of 2019 in anticipation of the new law taking effect.

OECD work programme for reaching consensus on tax challenges from digitalisation sets ambitious targets according to stakeholders

The OECD released on 31 May 2019 the Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy, agreed by the OECD/G20 Inclusive Framework (IF). The aims are broadly to have a political agreement on a unified approach by the end of 2019 and to be prepared to implement that solution by the end of 2020. Stakeholders at the US Council for International Business (USCIB) 2019 OECD International Tax Conference on 3-4 June had a first opportunity to react, amid presentations from OECD and members of the IF involved in agreeing the programme.

US: Ninth Circuit upholds cost-sharing regulations in Altera

The Ninth Circuit Court of Appeals in Altera Corp. v. Commissioner, in a 2-1 decision, has reversed the US Tax Court and has upheld the validity of the Treasury regulation (Reg. sec. 1.482-7A(d)(2)) requiring stock-based compensation costs to be included in the costs shared in a cost-sharing agreement (CSA). This Tax Insight provides more details.

UK CFC State aid case - webcast on latest developments

Join our tax and legal specialists to discuss the latest developments in this case and what you should be doing to prepare for the recovery process that HMRC will be starting very soon. In particular, we'll be discussing the approach to an SPF analysis and the annulment application process. There'll be a Q&A session for those joining the live session and a recording will be made available after the event.

Autumn Budget 2018 - UK Digital Tax

The Chancellor and Financial Secretary to the Treasury have increasingly raised the prospect of a UK Digital Services Tax (DST) in the past few months. The Chancellor is reported to have told officials that “nothing is off the table” and his conference speech noted that “the time for talking is coming to an end and the stalling has to stop … if we cannot reach [multilateral] agreement the UK will go it alone with a digital services tax of its own.”

EMEA International Tax Services Webcast Series - Digital Taxation

he OECD and EU Commission are currently developing frameworks with the aim of enabling jurisdictions to tax the digital economy more effectively globally and across EU member states. In the meantime, various jurisdictions have been discussing and introducing unilateral digital tax measures. In this webcast, our experts will give an overview of the international digital tax landscape, and will explain the implications of the Digital Services Taxes being introduced in the UK and France, including practical examples of how the new rules may impact businesses.

Ninth Circuit upholds stock-based compensation regulation in Altera; reverses Tax Court

Today, the Ninth Circuit issued its opinion in Altera v. Commissioner. In a 2-1 decision, the court upheld the validity of the cost-sharing regulation requiring stock-based compensation be treated as a cost-shared cost, reversing the Tax Court (reaching the same conclusion as the 9th Circuit's previously withdrawn opinion). One of the judges on the three-judge panel dissented. The full opinion can be found here. Because Altera is entitled to seek reconsideration or reconsideration en banc (or possibly seek review by the Supreme Court), the Ninth Circuit's decision is not yet final. We will issue a more detailed Tax Insight on the Altera opinion shortly.

Argentina introduces materiality thresholds and modifications to transfer pricing informative returns

On May 27, General Resolution 4496 (GR 4496) was published. Through this Resolution, the Federal Administration of Public Revenue (AFIP) modified certain aspects of General Resolution 1122 (GR 1122), which governs transfer pricing documentation requirements and related obligations. Some of the amendments aim to partially regulate the modifications introduced to the Income Tax Law and its Regulatory Decree regarding transfer pricing, as a result of the latest tax reform, which applies to fiscal years starting from January 1, 2018.

China publishes 2018 APA Annual Report

The State Taxation Administration (STA) of China in April published the China Advance Pricing Arrangement Annual Report (2018) (2018 Annual Report) in Chinese and English versions. The 2018 Annual Report describes the regulations, procedures, latest statistics, and implementation status of the advance pricing arrangement (APA) program in China, and provides references for enterprises and competent tax authorities in other countries and regions.

Swiss tax reform approved in public vote

Swiss voters approved tax reform in a public vote on 19 May 2019, enabling the new legislation to become effective on 1 January 2020. The legal process to implement the new federal tax law into the cantonal tax laws has already been completed in five cantons (e.g. Basel-Stadt, Geneva, Glarus, Neuchâtel, and St.Gallen). The remaining cantons are expected to implement or, if a public vote is required, to vote about the implementation in the cantonal tax laws later this year.

German Supreme Tax Court changes its case law regarding the blocking effect of Art. 9 (1) of the OECD Model Tax Convention

According to the German Supreme Tax Court in its ruling of 27 February 2019, published on 15 May 2019, and contrary to its previous case law, Article 9 (1) of the OECD Model Tax Convention, does not prohibit an income adjustment under domestic transfer pricing rules, where the write-off of an unsecured group loan is not recognised as a deduction from taxable profits.

Tax readiness: Preparing for controversy in the new world order

The global tax controversy environment has been changing rapidly in recent years, with a substantial impact on multinational companies (MNCs). There also is a growing trend, both globally and in the United States, to focus on transfer pricing, which puts pressure on MNCs to be proactive and prepare for controversy on issues regarding profit allocation and intangibles. While disputes are on the rise, there are limited options for efficient and effective resolution.

Transfer pricing in the automotive supplier industry

Intangibles and substance requirements are at the heart of the BEPS project. It is easy to predict that the new OECD guidelines will put suppliers under increased scrutiny by tax authorities. In the past many tax authorities have challenged the business models of suppliers if the income of group companies do not commensurate with their substance. The new guidelines will provide strong support for this view.

Attribution of profits to permanent establishments in India

The Indian Government has recently issued a public consultation report in relation to profit attribution to Permanent Establishment in India, inviting comments from stakeholders by the mid of this month. This report suggests a three-factor apportionment approach, by assigning an equal weight to sales, manpower (i.e. employees and wages) and assets. As per the Report, this represents a combination of both demand and supply related factors, thereby allocating profits derived from India, partly to the jurisdiction where sales take place (driven by consumers and market), and partly where factors of production are located or where supply related activities are conducted.

BREXIT from a transfer pricing lens - podcast

Loic Webb-Martin (Transfer Pricing Partner), Susan Edwards (Transfer Pricing Director), and Steven Brown (Transfer Pricing Senior Manager) provide insights on BREXIT from a transfer pricing perspective. Among other topics, they discuss long-term TP consequences of BREXIT restructuring, VAT considerations, and possible controversy solutions.

IRS requires collaboration between LB&I examiners and APMA on transfer pricing audits

The Commissioner of the IRS Large Business and International Division (LB&I) on February 19 issued a memorandum for employees of LB&I, entitled "Interim Guidance on Mandatory Issue Team Consultations with APMA for Examination of Transfer Pricing Issues Involving Treaty Countries." The memorandum requires LB&I Issue Teams that examine transfer pricing issues that could generate adjustments involving a treaty partner to consult with the Advance Pricing and Mutual Agreement (APMA) office.

Going below the line - New accounting treatment of pension expenses and their transfer pricing impact

In March 2017, the FASB released Accounting Standards Update No. 2017-17 ("ASU 2017-17") to provide final guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost in the financial statements. In this guidance, the FASB explained certain amendments made to Topic 715 (Compensation—Retirement Benefits) of the FASB Accounting Standard Codification that are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods.

EU State Aid - UK CFC case: Analysis of Profits attributable to UK Significant People Functions

On 2 April 2019, the European Commission (EC) issued a press release announcing its conclusion that the UK Finance Company Partial Exemption Rules (the FCPE rules) is partly justified for the period from 2013 to 2018 (for more detail read our news report). The UK government is now required to initiate recovery of the alleged State aid irrespective of any appeal against the decision. It seems most likely, at this stage, that recovery will be based on the extent to which the UK has significant people functions. This means that the taxpayers who benefitted from the FCPE rules will need to assess the profit allocable to UK significant people functions (SPFs) in order to determine whether, in light of the Commission decision, they have benefited from State aid which must be recovered for the historic periods.

UK CFC State aid case - our specialists discuss

In this video, Jonathan Hare and Juliet Trent from PwC's EU Direct Tax Group discuss what businesses should be thinking about following the European Commission's press release that an aspect of the UK's CFC regime constitutes State aid. The detailed final decision is expected to be released in the next couple of weeks.

Hong Kong extends the CbCR Notification deadline

The Hong Kong Inland Revenue Department (“IRD”) has released a one-time extension for filing the Country-by-Country Reporting (“CbCR”) Notification for Hong Kong taxpayers with an Ultimate Parent Entity (“UPE”) where its fiscal year begins on 1 January 2018. Specifically, such Hong Kong taxpayers will have until 15 May 2019 to file their CbCR Notifications.

Discontinuance of LIBOR will affect transfer pricing

The London lnterbank Offered Rate (LIBOR) serves as the benchmark for an estimated US$370 trillion in financial transactions worldwide. The discontinuance of LIBOR at the end of 2021 will require alternative base rates to be used by market participants. Emerging alternative rates differ by region, currency, tenor, and basis. This pending change has transfer pricing implications for multinational enterprises (MNEs) across all industries that have intercompany financing arrangements tied to LIBOR. MNEs should evaluate the impact on existing transactions and policies and prepare a transition plan that addresses the anticipated impact from LIBOR's discontinuation.

EC final state aid decision on financing income exemption

The European Commission announced in an April 2 press release that the Group Financing Exemption (GFE) within the UK Controlled Foreign Company rules is ‘partly justified.’ The UK CFC rules broadly allow the United Kingdom to tax the income of overseas subsidiaries controlled by a UK corporate parent where that income is regarded as artificially diverted from the United Kingdom.

Canadian appeal court rules CRA cannot compel oral interviews of taxpayers during audit

The Federal Court of Appeal (FCA) on April 3 released its decision in the Minister of National Revenue vs. Cameco Corporation. The matter before the FCA was the Federal Court (FC) decision not to issue a compliance order pursuant to subsection 231.7(1) of Canada's Income Tax Act (the Act) compelling Cameco Corporation (Cameco) to comply with the Minister of National Revenue's (the Minister's) request that employees attend interviews and provide oral answers to questions posed by Canada Revenue Agency (CRA) auditors pursuant to paragraph 231.1(1)(a) of the Act.

Draft transfer pricing legislation comes to Hong Kong

On 29 December 2017, a draft bill to implement key actions arising from the OECD BEPS agenda was published. The draft bill includes significant changes to codify transfer pricing, introduce country-by-country (CbC) reporting and Master File and Local File transfer pricing documentation, expand the Advance Pricing Agreement (APA) regime and introduce a stringent penalty regime with potential civil and criminal sanctions. The draft bill is more complex than expected, goes beyond the BEPS minimum standards and introduces a strict approach to determining "the" arm's length price.

US reports increase in executed APAs and APA requests amid longer processing times

On March 30, 2018, the IRS Advance Pricing and Mutual Agreement Program (APMA) issued its 19th Annual Statutory Report (the Report) concerning Advance Pricing Agreements (APAs). The Report states that APA applications for 2017 increased to 101 filed requests, up from 98 in 2016. These numbers indicate that APAs continue to be an attractive option for companies seeking to manage their tax risks and achieve certainty around their intercompany pricing issues.

Poland to introduce provisions of the simplified APA procedure by the end of June 2019

The Polish Ministry of Finance has announced its intention to introduce a simplified APA procedure for intra-group transactions which are subject to the tax deductibility limit. Apart from the simplified APA procedure, the draft bill also covers changes to other procedures such as mutual agreement procedure (MAP), the currently binding APA provisions (for core transactions) as well as changes aimed at unification and simplification of the current terms and procedures.

EU expands list of non-cooperative tax countries to 15 jurisdictions

The EU, via the Economic and Financial Affairs Council (Ecofin), has updated its so-called 'blacklist' of non-cooperative tax jurisdictions to encompass 15 countries, including Bermuda, Barbados and the United Arab Emirates (UAE). A number of jurisdictions have been added to the blacklist for failing to satisfy, by 31 December 2018, what the EU bodies considered adequate in-country substance requirements in order for entities to qualify for their beneficial tax systems.

UK changes definition of permanent establishment

The UK Finance Act 2019, which became law on February 12, includes the legislation required to update UK domestic law to align with the UK’s position on the changes to the Permanent Establishment (PE) definition arising from the OECD’s Base Erosion and Profit Shifting (BEPS) project and included within the Multilateral Instrument (MLI). This effectively expands the definition of PE in the UK which - together with forthcoming changes to many double tax treaties - is likely to result in more PEs arising.

European Commission opens State aid investigation into Luxembourg’s tax treatment of Huhtamäki

On 7 March 2019, the European Commission (EC) issued a press release announcing the opening of a State aid investigation into tax rulings granted by the Luxembourg tax authorities to a Luxembourg subsidiary of the Huhtamäki group in relation to the treatment of interest-free loans granted by another Irish subsidiary of the group to the Luxembourg company.

French government proposes digital tax and delay in corporate tax rate reduction

On 6 March the French government launched the legislative process to introduce a tax on digital sales realised by large internet and technology companies and to partially postpone the corporate income tax rate reduction initially intended to apply as of 1 January 2019. The proposed 3% digital tax would apply to companies providing certain digital services in France with global annual revenue in excess of EUR 750M and revenue in France exceeding EUR 25M. The proposed tax would apply to digital gross sales realised as of 1 January 2019.

Permanent Establishment and the Offshore Oil and Gas Industry

Despite the long history of the Permanent Establishment (“PE”) concept, the practical application to the offshore oil and gas industry continues to raise a number of issues and disputes between taxpayers and tax authorities. In this article, Szymon Wlazlowski considers the key PE risks created by common activities performed under each of the four phases of the asset life cycle.

Hong Kong implements country-by­-country reporting notification requirements

A CbCR Notification should be distinguished from a Country­ by-Country (CbC) Report. The CbC Report is to be exchanged automatically between tax administrations under relevant exchange arrangements. As of January 29, 2019 Hong Kong has exchange arrangements with 11 jurisdictions. These are France, Guernsey, Ireland, Japan, Jersey, Korea, Malta, Netherlands, New Zealand, South Africa, and the United Kingdom.

Tax policy bulletin on OECD's digitalisation consultation; extra days to respond

The OECD released a detailed consultation document on 13 February 2019, commencing a 17 day window for stakeholders to submit comments before a public consultation in March on proposals to address the tax challenges arising from the digitalisation of the economy. A 19 February OECD announcement extended the deadline to require responses by 6 March, providing a full three week consideration period, as originally announced.

OECD begins consultation to reshape the international tax system for the digitalised age

On 13 February 2019, the OECD released a public consultation document on "Addressing the tax challenges of the digitalisation of the economy". The consultation will run until 1 March 2019, and a public meeting will then be held in Paris on 13 and 14 March 2019. If agreed at the Inclusive Framework, any of the proposals could have a significant impact on all international businesses.

Transfer Pricing: Quality over quantity

Historically, smaller international businesses may not have been subject to the level of scrutiny that larger inbounds or listed companies have, and therefore, could have concluded that central material prepared by their HQ was sufficient to support their UK TP position without further localisation. Whilst the above may still hold true for some, the OECD BEPS project has raised the profile of TP and undoubtedly changed the international tax landscape.

Country-by-country reporting, our experiences thus far and what to expect going forward

The OECD recommended country-by-country reporting (CbCR) requirements to address base erosion and profit shifting and it is now fully entrenched around the world. There are over 70 countries having implemented and/or committed to implement CbCR rules and around 1800 exchange arrangements in place for tax authorities to share the submitted CbC reports such that we are reaching the point where CbCR is the new norm.

China publishes 2017 APA annual report with further efforts to resolve international disputes

The Annual Report describes the regulations, procedures, latest statistics, and implementation status of the APA program in China, and provides references for enterprises and competent tax authorities in other countries and regions. These statistics show that China had concluded a total of 147 APAs by the end of 2017, and a number of other APAs (yet to be concluded) were in the application process at that time.

Saudi Arabia publishes draft transfer pricing by-laws

The General Authority of Zakat and Tax (GAZT) in the Kingdom of Saudi Arabia (KSA) published its draft Transfer Pricing By-Laws. This is the first time that transfer pricing regulations of any kind have been published by the GAZT and demonstrates the KSA’s commitment to introducing transfer pricing rules and implementing the OECD's BEPS recommendations on transfer pricing.

EU Joint Transfer Pricing Forum issues the draft Profit Split paper

The EU Joint TP Forum (JTPF) has recently issued the draft paper on the “Application of the Profit Split Method within the EU”. The main purpose of this document is to address two issues: (1) when it is appropriate to apply the Profit Split Method (PSM), and (2) the use of profit splitting factors.  This paper is an attempt to address these issues with the aim to explore how the application of the PSM could be simplified.

Transfer Pricing Tax Disputes - HMRC’s New Profit Diversion Compliance Facility

HMRC has today announced the introduction of a Facility aimed at Multinational Enterprises (‘MNEs’) with a risk of HMRC challenge in relation to what is described as "profit diversion". The new Facility is designed to encourage companies potentially impacted to review both the design and implementation of their tax policies, change them as appropriate and use the Facility to put forward a report with proposals to pay any additional tax, interest or penalties due.

Updates to the Diverted Profits Tax Guidance

In this article, we summarise the main updates to the Diverted Profits Tax guidance that was published on 31 December 2018. These updates may affect companies that are already discussing their arrangements with HMRC or who could potentially be within the scope of DPT. This remains an area of HMRC focus as demonstrated by the launch of the Profit Diversion Compliance Facility on 10 January. 

OECD begins consultation to reshape the international tax system for the digitalised age

On 13 February 2019, the OECD released a public consultation document on "Addressing the tax challenges of the digitalisation of the economy". The consultation will run until 1 March 2019, and a public meeting will then be held in Paris on 13 and 14 March 2019. If agreed at the Inclusive Framework, any of the proposals could have a significant impact on all international businesses.

Thailand enacts transfer pricing legislation

The Revenue Code Amendment Act to introduce specific transfer pricing provisions into the income tax law (No. 47) was published in the Royal Gazette on November 21, 2018, and therefore has become law. Specific transfer pricing provisions will apply to accounting periods starting on or after January 1, 2019. Once in effect, Thailand's income tax law will contain a definition of the arm's-length principle and introduce penalties for failure to comply with the transfer pricing disclosure requirement, in addition to the penalties for failure to comply with Thailand transfer pricing rules.

ATO releases draft profit guidance for Auastralian distributors - are you in the danger zone?

The Australian Taxation Office (ATO) has released a draft Practical Compliance Guideline (PCG), 2018/DB, which sets out its profit expectations for Australian distributors. Guidance is provided for specific industry segments -pharmaceutical and life sciences, information and communications technology (ICT), and automotive -as well as a general distribution category for distributors in all other industry segments.

Transfer pricing tax disputes - HMRC’s response to Profit Diversion

With the resolution of some major transfer pricing enquiries by HMRC since the introduction of Diverted Profits Tax, together with the introduction of further far-reaching legislation in the recent Budget, it’s a good time to look the changing landscape for transfer pricing disputes in the UK and what might come next. In this series of articles we will share experience gained on how best to prepare for, and successfully navigate a way through, the new type of TP enquiry in the UK.

Israeli tax authority issues transfer pricing guidance on business restructuring

On 1 November 2o18 the Israeli Tax Authority (ITA) published a circular providing its view regarding business restructuring of an Israeli entity that is part of a multinational group. The circular sets out the ITA's position on the identification and characterization of a business restructuring and, in the event that a business restructuring has occurred, the circular sets out the methods for performing a valuation of the functions, risks and/or assets (FAR) that have been terminated or transferred outside of Israel

Cameco decision addresses transfer pricing recharacterisation rules in Canada

The Tax Court of Canada (the TCC or the Court) published on September 26 its decision in Cameco Corporation (2018 TCC 195), resolving a long-running dispute between Cameco Corporation (Cameco, the Appellant) and the Minister of National Revenue (the Minister or the Crown) involving reassessments to Cameco's 2003, 2005, and 2006 taxation years. The adjustments made in the reassessments related to the prices used in the purchase and sale of uranium contracts involving Cameco, Cameco Europe (CESA, a Swiss branch of Cameco's Luxembourg subsidiary) and, later, its Swiss subsidiary (CEL), as well as its US-based subsidiary (Cameco US) and third parties. The Minister's reassessments were based on arguments that Cameco's structure, specifically the reorganization that took place in 1999, was a sham. The Minister further argued that CESA/CEL performed few if any valuable functions during the years under consideration and, accordingly, reassessments were warranted pursuant to either paragraphs 247(2)(b) and (d) or paragraphs 247(2)(a) and (c) of the Income Tax Act (the Act), the latter being the transfer pricing provisions more typically employed (and referred to by the TCC as the traditional transfer pricing rules).

CbC Data: What happens next?

At PwC’s global TP conference in Tokyo in October an informal survey was conducted of what individual tax authorities are doing with the CbC data that has started to arrive. An interesting picture emerges of several dozen varieties of ‘not much…yet’; and four where visible action or specific plans provide insight into what many, if not most countries, are likely to do.

Keeping the PEace - The (re)Emergence of Unilateral PE Measures in wake of Multilateral Efforts

Unilateral advances on digital taxes and digital PE concepts will challenge international tax harmony and cause serious challenges - are we ready? The past year has seen our tax world manage to slowly gain ground in post-BEPS territory, but also it’s been a year in which we have witnessed the rise of revolutionary concepts attempting to lead ‘old’ taxation frameworks into the digital era.

Transfer Pricing Podcast: Swiss tax reform - key transfer pricing considerations

In this podcast, Benjamin Koch (Swiss Transfer Pricing Leader), Armin Marti (Swiss Tax Policy Leader), and Flora Marin (Swiss Transfer Pricing Senior Manager) discuss the new tax measures that will be put in place to implement Swiss tax reform, including the transition measures, patent box, and the R&D incentive. Benjamin and Armin also share their recommendations on what companies should be doing before the end of 2019 in anticipation of the new law taking effect.

TP Perspectives: Anti-avoidance and the arm's length principle

Tax authorities around the world are increasingly seeking additional tools to use in their attempts to tax business profits locally which they consider to be diverted from their jurisdictions. In addition to the implementation of the Organisation for Economic Co-operation and Development (OECD)’s anti Base Erosion and Profit Shifting (BEPS) recommendations, some countries are going further and introducing or proposing additional domestic legislation which is separate from, but interacts closely with, transfer pricing legislation. Fundamentally, these rules mean that if the legal arrangements are not considered to reflect the economic reality or the pricing is not arm’s length, tax authorities can essentially rewrite how the transaction should look and levy tax accordingly. The impact of this on businesses is that they are having to reach a clear, evidence-based view in respect of these complex and often subjective rules, and in many cases are having to respond to ever more detailed and far-reaching information requests from local tax authorities, looking at the activities and motivation for the business operating model.

TP Perspectives: TP in the automotive industry

At the heart of the BEPS project are payments for intangibles and substance requirements. To be sure, the OECD guidelines put suppliers under increased scrutiny by tax authorities. In the past, many tax authorities challenged the business models of suppliers if the income of an entity in a group was not commensurate with their substance. In this article, we examine how the OECD guidelines provide strong support for this view.

Coordinated approach to transfer pricing controls within the EU: "Think international – act international – audit international"

In October 2018, the EU Joint Transfer Pricing forum agreed the Report on a coordinated approach to transfer pricing controls within the EU (the “Report”). The report establishes best practices by issuing various recommendations for both taxpayers and tax administrations, and encourages closer cooperation in the field of transfer pricing controls. The report is aimed at ensuring that tax administrations use the possibilities provided for under the Directive on Administrative Cooperation in the Field of Taxation (Directive 2011/16/EU) on a real time basis for the purpose of achieving a high degree of coordination, smooth communication and exchange of information during a transfer pricing control. It is increasingly common to see tax administrations across the EU working together where there are cross-border arrangements in which they have a shared interest. The UK is making increasingly use of these collaborative approaches, either by international exchange of information or multilateral controls within the EU.

TP Perspectives: IP Ownership and arm's length compensation

In July 2017, the OECD released an updated version of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations ("OECD Guidelines"), which incorporates new transfer pricing approaches agreed to by OECD and G20 countries in the 2015 base erosion profit shifting (BEPS) plan final reports. The OECD Guidelines address the issues of returns to IP development by focusing on people function and risk control. In this article, we consider returns to an IP Company with varying degree of economic substance in four different scenarios. Through this analysis, we highlight economic considerations that need to be taken in account when applying the OECD approach to determining IP returns.

'Cameco' decision addresses the sham doctrine in Canada

On 26 September, the Tax Court of Canada published its decision in Cameco Corporation (2018 TCC 195), resolving a long-running dispute between Cameco Corporation and the Minister of National Revenue involving reassessments to Cameco’s 2003, 2005, and 2006 taxation years. This Tax Insight focuses on the Court’s findings in respect of the sham argument.

Change in Definition of Permanent Establishment in UK Law

The UK finance bill, which was published on 7 November 2018, includes the legislation required to update UK domestic law to align with the UK’s position on the changes to the Permanent Establishment (“PE”) definition arising from the OECD’s Base Erosion and Profit Shifting (“BEPS”) project and included within the Multi-Lateral Instrument (“MLI”). This effectively expands the definition of PE in the UK which, together with forthcoming changes to many Double Tax Treaties, is likely to result in more PEs arising.

Belgium launches pilot program on cooperative tax compliance

The Large Enterprises Division of the Belgian tax administration (LE Division) has announced its launch of a two-year pilot project on cooperative tax compliance (Cooperative Tax Compliance Program - 'CTCP).The program seeks to transform the traditional approach of ex-post tax investigations into a system of proactive, real-time, and constructive dialogue on the tax affairs of corporations. Reducing tax uncertainty, enhancing compliance, and fostering mutual understanding are main goals of the initiative.

OECD Transfer Pricing on Financial Transactions

In early July, as follow up work in relation to the BEPS project, the OECD issued a new public discussion draft paper (the “Draft Paper”) regarding the transfer pricing aspects of financial transactions. The Draft Paper seeks to clarify principles previously included in the 2017 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the “OECD Transfer Pricing Guidelines”) in relation to four areas. Further detail on each of these topics and the implications for Financial Services groups appears below.

EMEA Permanent Establishments Webcast Series - Current Developments in PE Asia-Pacific

After a short break, we are pleased to inform you that we will resume the PE Webcast Series, with Episode 5 – Current developments in PE Asia-Pacific. This webcast will be held on Tuesday, 30 October 2018, 2.00 – 3.00 pm CET and will focus on the typical PE issues that may arise from activities in Australia, China, India and Singapore. Please follow the link to register for the session and we look forward to discussing this important topic with you.

OECD Financial Transactions Paper Podcast - Guarantees

In this podcast, PwC transfer pricing professionals Jeff Rogers and Daniel Pybus discuss the Guarantees section of the OECD draft financial transactions paper (with some specific insights on the GE Capital case a number of years ago). This podcast forms part of a 5 part series which will cover Delineation, Captives, Interest rate pricing, Guarantees and Cash pooling.

OECD Financial Transactions Paper Podcast - Cash Pooling

In this podcast, PwC transfer pricing professionals Michel van der Breggen, David Ledure and Daniel Pybus discuss the Cash Pooling section of the OECD discussion draft providing insights from a European perspective and also the crossover with recent case law in this area. This podcast forms part of a 5 part series which will cover Delineation, Captives, Interest rate pricing, Guarantees and Cash pooling.

OECD Financial Transactions Paper Podcast - Interest Rate Pricing

In this podcast, PwC transfer pricing professionals Nick Houseman and Daniel Pybus discuss the Interest Rate Pricing section of the OECD draft financial transactions paper (with some specific insights on the crossover between the OECD paper and the Chevron case). This podcast forms part of a 5 part series which will cover Delineation, Captives, Interest rate pricing, Guarantees and Cash pooling.

OECD Financial Transactions Paper Podcast - Captives

In this podcast, PwC transfer pricing professionals Loic Webb-Martin and Daniel Pybus discuss the Captives section of the OECD draft financial transactions paper focussing on the key takeaways, short term actions, and the longer term direction of the OECD / implications of the paper. This podcast forms part of a 5 part series which will cover Delineation, Captives, Interest rate pricing, Guarantees and Cash pooling.

Closer look at the recent HMRC transfer pricing and DPT statistics

This article takes a closer look at the recent HMRC transfer pricing and diverted profits tax (DPT) statistics for 2017/18 and what they mean. Overall, tackling transfer pricing remains a priority area for HMRC, with the 2017/18 TP yield high at £1.7b (in line with the previous year) and an increasing number of HMRC staff dealing with TP issues. The key takeaways from the recent statistics are: 1. Transfer pricing yield remains high 2. DPT is bringing in tax revenues 3. HMRC settles TP enquiries faster 4. HMRC is focused on MAP, limiting resources to deal with APAs.

Practical Impact of BEPS Projects on Transfer Pricing for Private Business

Transfer Pricing (“TP”), the area of international tax concerned with the pricing of intercompany transactions used to be the focus of PLC boardrooms rather than Private Business, but no longer. The OECD’s Base Erosion and Profit Shifting (“BEPS”) project has raised the profile of TP on tax authorities radars for UK inbounds and UK PLCs as well as privately owned and private equity backed business. As a consequence, we have seen a significant increase in the number of TP audits and challenges on Due Diligence, which can give rise to price chips, TP adjustments, penalties, interest, and reputational risk.

More payments face WHT risk from 1 January 2019 as six more territories ratify MLI

Companies face a potentially increased withholding tax (WHT) burden on payments, etc between the UK and Australia, France, Japan, Lithuania and the Slovak Republic from 1 January 2019. These five territories deposited their ratification instruments and final positions in September for the multi-lateral instrument (MLI) to effect BEPS modifications to existing tax treaties. Israel did similarly, but the current UK-Israel tax treaty is not a covered tax agreement for the MLI on the basis that a new agreement or Protocol is being negotiated. There is, of course, a wider impact of these territories’ ratifications for other counterparties and in relation to other taxes. These six join the earlier nine ratification territories so that, where a bilateral treaty is covered (with one proviso) the new year date is also applicable if the treaty involves any two of the current fifteen ratification territories.

Israeli tax authority issues transfer pricing guidance on entity classification and safe harbor ranges

The Israeli Tax Authority (ITA) on 5 September 2018 published two circulars setting out its approach to classification and transfer pricing methods that are appropriate for use in connection with certain intercompany transactions between an Israeli entity and related parties abroad that are part of a multinational group. The circulars set out the ITA's view on the appropriate way to distinguish between entities performing marketing activities and those performing sales activities, as well as how to choose the most appropriate transfer pricing method for use with intercompany transactions involving such entities. Finally, the circulars include indicative benchmark ranges for some transactions that could be used as a form of safe harbor (providing an exemption from certain transfer pricing documentation requirements) where certain requirements are met.

Tax Court of Canada rules in favor of Cameco in transfer pricing case

The Tax Court of Canada has recently published its decision in the long-running dispute between Cameco and the Canada Revenue Agency (CRA) relating to transfer pricing adjustments made by the CRA to Cameco's 2003, 2005, and 2006 taxation years. The adjustments related to the prices used for purchase and sale of uranium contracts involving Cameco, its Swiss­ and US-based foreign subsidiaries, and third parties.

Diverted Profits Tax - dealing with deadlines

In this article, we suggest a constructive approach to HMRC engagement as a key deadline for the issue of preliminary and final charging notices for 2016 approaches. For a business with a December year end which had notified HMRC of potential chargeability to DPT, HMRC has until 31 December 2018 to issue a preliminary notice for the year ended 31 December 2016. This will be particularly relevant for companies that received a notice into 2015 and there remain unresolved issues, or where HMRC have started challenging or querying their 2016 arrangements.

OECD releases additional guidance on Country-by-Country reporting

On 13 September 2018, the OECD released additional guidance on the implementation of country-by-country reporting (CBCR) developed under Action 13 of the OECD BEPS action plan. The new guidance provides additional clarifications with respect to a number of areas, including the treatment of dividends, the use of shortened numbers in Table 1, the treatment of major shareholdings and the reporting consequences of mergers and acquisitions. In some cases, MNE Groups will have filed CBCRs inconsistently with the additional guidance and will have to determine whether to amend CBCRs for prior and future reporting periods.

PwC comments on discussion draft on transfer pricing aspects of financial transactions under BEPS Actions 8-10

On 14 September 2018, the OECD published the public comments received on the discussion draft on transfer pricing aspects of financial transactions, which deals with follow-up work in relation to Actions 8-10 (“Assure that transfer pricing outcomes are in line with value creation”) of the BEPS Action Plan. Part 3 of the public comments (page 115) include the PwC response to the discussion draft. Read the PwC response here.

India’s second APA Annual Report reflects growth, shift in focus

India's Central Board of Direct Taxes (CBDT) have released the Second Annual Report on the Indian Advance Pricing Agreement Programme. The APA Report highlights the progress made in financial year 2017-18. The APA statistics continue to be encouraging, as the total number of concluded APAs has reached 219 (of which 67, including 9 bilateral APAs, were signed in FY 2017-18). A noteworthy development is the shift in focus from Unilateral APAs to Bilateral APAs. There was a slight increase in time taken to conclude APAs in FY 2017-18 over the average of prior periods.

Hong Kong - extensive changes to exchange of information rules enter into force

Hong Kong is honouring its commitment to meet the international standards on exchange of information for tax purposes. With the additional disclosure and increased tax transparency, business groups and individuals should carefully assess whether the changes made will have any potential impact on their tax exposure in their jurisdiction of residence and any other jurisdictions where they have business operations or investment activities.

Permanent Establishment - Services PE developments

Managing Permanent Establishment (“PE”) risks have always been a challenge for tax departments of large Multinational Corporations (“MNCs”). The risks are often largely dependent on the activities and travel patterns of many hundreds or thousands of staff, and keeping track of individuals’ movements and activities is often very difficult.

OECD publishes long-awaited additional guidance on use of profit split methods

On 21 June, the OECD published revised guidance on application of the profit split method. This follows a mandate in Action 10 of the BEPS Action Plan, seeking clarification on application of the profit split method in light of global value chains, and represents a full revision of the current guidance on the use of profit splits in Chapter II of the OECD's Transfer Pricing Guidelines for Multinational Enterprises, as well as the associated Annex II.

Hong Kong enacts new BEPS and transfer pricing law

Hong Kong formally introduces a transfer pricing (TP) regulatory regime and documentation requirement into Hong Kong tax law. As a member of the Inclusive Framework, Hong Kong has begun to fulfill its pledge to put in place the OECD BEPS Initiatives with this enactment. This is the first piece of legislation to explicitly address TP matters in Hong Kong.

Latest Transfer Pricing and DPT statistics from HMRC

HMRC has just released its latest statistics on transfer pricing and Diverted Profits Tax (DPT). In the 6 years to 2017/18, HMRC recorded some £6.5 billion of additional tax by challenging transfer pricing arrangements, with the yield in 2017/18 approaching £1.7 billion. DPT, now in its third year, produced a separate yield of £388 million and the number of DPT notifications has risen to 220. The other significant change is the dramatic fall in Advance Pricing Agreement (APA) applications, which fell to 16 in 2017/18, half the previous year, coupled with an increase in the number of requests for the Mutual Assistance Procedure (MAP) which have more than doubled over the last 6 years. While the average time taken to resolve MAP cases has remained fairly constant at around 2 years, the average time taken to complete APAs has increased substantially and is now over 3 years.

Belgian transfer pricing decision analyses profit attribution to a PE

Beginning in February of 2018, the Belgian tax authorities will initiate a new wave of transfer pricing (TP) audits. The central transfer pricing investigation team (TP Unit) is investing in additional manpower and changing investigation approaches to increase the effectiveness of audits. Taxpayers should also expect more scrutiny on TP matters from other tax departments, such as the Large Companies Department and the Special Tax Inspectorate (BBI/ISI), given specific training was recently conducted to educate these field inspectors on new international tax developments and given the enhanced collaboration protocols those tax departments now have with the TP Unit. Taxpayers may also be increasingly faced with joint/multilateral audits and the international exchange of information through such audits. The TP Unit is teaming with foreign tax authorities more frequently to conduct investigations and check consistency of taxpayer information.

Peru clarifies requirements for Master File and CbC Reporting

On 29th June 2018, the Peruvian Tax Administration (SUNAT) published the Superintendence Resolution. The resolution establishes the scope and deadlines for the presentation of the Master File (MF) and the Country-by-Country Report Informative Returns (CbC Report). With this guidance, multinational groups having operations in Peru that have not yet prepared these Informative Returns for Fiscal Year 2017 should do so as soon as possible.

Mexico issues new rules for transfer pricing adjustments

On 11 July 2018, the Mexican Tax Authority (SAT) published amendments to the rules for transfer pricing adjustments. The rules provide the definition of transfer pricing adjustments, the types of adjustment, and additional requirements to be met for adjustments to income and deductions. The new rules should provide greater clarity and certainty to taxpayers in Mexico but require more supporting documentation.

Profit fragmentation – draft legislation

The new anti-avoidance rules on profit fragmentation apply from April 2019. They are designed to target abusive arrangements but the draft legislation is much wider. We believe that many normal businesses may need to notify HMRC of arrangements involving overseas entities under the new rules, even if it is clear that no extra tax will ultimately be due. We have brought this to HMRC’s attention but it is unlikely that any industry specific exemptions will be introduced.

OECD non-consensus discussion draft on the transfer pricing aspects of financial transactions: no longer just about contractual risk

One of the last missing pieces of the OECD BEPS project, is the development of transfer pricing guidance on financial transactions. While the OECD had pushed back the publication several times, on 3 July it published a first discussion draft (the Draft). The complexity of the topics and disparate regional approaches has led to the publication of a non-consensus document, within which there are many areas where the OECD is seeking input from commentators. The Draft sets outs various approaches that may be appropriate for the covered topics, without giving explicit guidance. This Tax Insight provides a brief summary of the Draft, while more detailed observations will follow shortly in a Tax Insight and Tax Policy Bulletin

The UK Tops Forbes' Best Countries For Business 2018

Forbes determines the Best Countries for Business by rating 153 nations on 15 different factors including property rights, innovation, taxes, technology, corruption, freedom (personal, trade and monetary), red tape and investor protection, weighting each category equally. The UK has risen from last year’s fifth place to first place in 2018.

Transfer Pricing Updated draft APA template released by IRS offers taxpayers more options

On 14 May, the IRS's Advance Pricing and Mutual Agreement Program (APMA) released a new template that taxpayers must use when requesting an advance pricing agreement (APA) in the US. The new template updates a proposed draft template that the IRS made available for public discussion in September 2017. An announcement explaining the new template and the IRS response to public comments preceded its release.

New Dutch transfer pricing decree implements OECD guidelines

The Decree provides further guidance on application of the arm's length principle and aims to incorporate recent changes following the OECD BEPS project and related changes in the 2017 OECD Transfer Pricing Guidelines. The Decree emphasises the importance of conduct over contract and functions to control risks, as well as explicitly calling attention to penalties.

Transfer pricing - cost base and share options

Many listed and some unlisted companies, whether UK or inbound, will meet the conditions to claim a statutory UK Corporate Tax deduction in relation to their employee share plans. There are a number of conditions to be met to claim this deduction, with one of the most important being that the employee actually acquires shares. Many companies now net settle their awards i.e. the share award is settled partly in shares and partly in cash, with the cash being used to fund the taxes due. This can restrict the statutory deduction the company can claim as employees acquire less shares. Companies should consider the impact of net settlement on their current and historic corporate tax deductions in the UK and how these share awards should be reported on their ERS annual returns.

Are the future OECD transfer pricing guidelines on related party financial transactions set in stone?

A consultation draft (practice note) to help policymakers and tax authorities of developing countries address potential profit shifting from mining activities through excessive interest deductions was published on 18 April 2018 by the OECD and the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF). Notwithstanding the limited scope of this report, it offers a glimpse of the OECD's evolving stance on the transfer pricing aspects around interest limitation rules.

Australia extends CbC reporting deadline for Local File Part A

In relation to the Australian Country by Country (CbC) reporting rules, the Australian Taxation Office (ATO) has released the timeframes for filing the Australian Local Files for the year ended 31 December 2017 ("Year 2" Australian Local Files) or later. Taxpayers that wish to lodge "Part A" of their Local File instead of completing certain questions on the International Dealings Schedule (IDS) will have until 14 September 2018 to lodge Part A.

OECD guidance on attribution of profits to PEs leaves unanswered questions

On 22 March, the OECD released a final report containing additional guidance on attribution of profits to permanent establishments (the Report). The Report sets forth high-level principles for attributing profits to permanent establishments (PEs), following the two discussion drafts published in July 2016 and June 2017 and public discussions held in November 2016 and November 2017. The Report provides further guidance on the Final Reports on Base Erosion and Profit Shifting (BEPS) published in October 2015.

First bilateral APA completed between Belgian and Indonesian tax authorities

This is the first BAPA between both countries, and is also one of the very few Competent Authority cases (including Mutual Agreement Procedures) between an EU jurisdiction and the Government of the Indonesian Republic. The BAPA concerns the arm's length remuneration for the use and exploitation of intangibles by an Indonesian operational company, and licensed by a Belgian company.

Vietnam update on transfer pricing filing due dates

On 24 February 2017, the Vietnamese government released transfer pricing decree No. 20/2017/ND-CP: “Providing the tax administration applicable to enterprises having controlled transactions” (Decree 20). Decree 20, which is effective from 1 May 2017, is understood to apply to taxpayers with a year end after this date.

UK Transfer Pricing Legislation Updated

UK Transfer Pricing legislation provides that it is to be interpreted “in such manner as best secures consistency" with a specific version of the OECD Guidelines. Until now this was the 2010 version as amended by the OECD’s final Base Erosion and Profit-Shifting (BEPS) Report of October 2015.

New Taiwan transfer pricing documentation requirements finalised

On 13 November 2017, the Taiwan Ministry of Finance (MOF) announced amendments to the Rules Governing Assessment of Profit-seeking Enterprise Income Tax on Non-Arm's Length Transfer Pricing (TP Assessment Rules). Subsequently, on 13 December 2017, the thresholds for the Master File and the Country-by-Country Report (CbC Report) were announced. A three-tiered approach, including the existing Local File and newly introduced Master File and CbC Report, will apply starting from fiscal year 2017.

IRS issues guidance to examiners on important transfer pricing issues

On 21 January 2018, the IRS Large business and International (LB&I) Division on issued five memoranda providing administrative guidance to examiners on several key transfer pricing related examination issues. The memoranda also highlight certain technical transfer pricing issues that remain priorities for LB&I. In general, the memoranda reflect the IRS's broader intent to deploy effectively its limited examination resources and to be selective and strategic in the types of transfer pricing issues it decides to pursue.

CbC reporting local filing obligation confirmed for certain Canadian taxpayers

The Canada Revenue Agency (CRA) recently confirmed that a Canadian taxpayer must file a 2016 country-by-country (CbC) report as a constituent entity (CE) in Canada - even if a CbC report is filed by the group's ultimate parent entity (UPE) or surrogate parent entity (SPE) in another jurisdiction - in all cases where (1) Canada does not have an activated exchange agreement with the jurisdiction of the UPE or SPE by 31 December 2017 or (2) has an activated agreement but it is not in effect for fiscal years beginning 1 January 2016.

PwC response to OECD on attribution of PEs

On 22 March, the OECD released a final report containing additional guidance on attribution of profits to permanent establishments (the Report). The Report sets forth high-level principles for attributing profits to permanent establishments (PEs). The new additional guidance indicates that the high-level principles should apply regardless of whether the countries involved have adopted the principles of the Authorised OECD Approach (AOA) to attributing profits to PEs. It addresses issues surrounding commissionaire structures and the anti-fragmentation rules covered in the report on BEPS Action 7 issued on 5 October 2015 and under the Multilateral Instrument (MLI). In general, while offering some helpful and welcome views, the Report is limited to providing high-level guidance.

OECD seeks input on new mandatory disclosure rules

There have been dramatic improvements in tax transparency over the past decade. However, challenges still remain. High profile leaks, such as the release of the 'Panama' and the 'Paradise' papers by the International Consortium of Investigative Journalists (ICIJ), underscore the widespread use of offshore structures to hide beneficial ownership of assets and income.

Country by Country Reporting update

The OECD recently issued a new handbook outlining 19 Transfer Pricing and BEPS risks and risk assessment options available to Tax Authorities to determine if multi national enterprises (MNEs) groups are exhibiting those risk.

Country by Country Reporting - are you prepared for XML conversion

UK headquartered groups caught by Country by Country Reporting (CbCR) rules with December year ends, the deadline for their first submission is 31 December 2017. The report must be made in the form of an XML document. You cannot submit a pdf or alternative file format. PwC's service takes your excel or word CbC report and with limited additional effort from you converts the information into an XML format ready for submission.

The risky side of transfer pricing

The revised OECD Transfer Pricing Guidelines (2017) include a detailed risk analysis framework to guide taxpayers and tax authorities on the allocation and assumption of risk under the arm's length principle. The purpose of this article is to review the current stance of tax authorities globally as to how they are intending to use this risk analysis framework in practice.

The impact of DEMPE

Before BEPS asking a TP practitioner what does DEMPE mean? might have elicited a strange response, but BEPS has changed all that. This article discusses DEMPE functions, what are they, which are important and what do they mean for a transfer pricing analysis.

Customs & TP – solutions for harmony

The rules governing customs duties and transfer pricing often don't align. Managing these inherent disconnections is complex, time consuming and challenging for businesses. This article discusses how to effectively manage these tensions and gain additional cross tax efficiencies and reduce risk/administrative burden.

OECD, BEPS and Permanent Establishments

PwC's submitted response to the OECD for PricewaterhouseCoopers International Limited on behalf of its network of member firms welcoming the opportunity to comment on the OECD’s second Public Discussion Draft on Additional Guidance on the Attribution of Profits to Permanent Establishments and requesting a chance to speak at the subsequent public consultation.

TP Documentation in the Middle East?

This Tax Insight, from Transfer Pricing, analyses some of the potential benefits for multinationals operating in the Middle East of preparing and maintaining a TP Masterfile and TP local files on a selective basis.

HMRC's TP and DPT statistics to 2016/17

HMRC recently released its 2016/17 statistics in relation to transfer pricing and diverted profits tax. In the years from 2011/12 to 2016/17, HMRC secured £5.914 billion of additional tax by challenging the transfer pricing arrangements of multinationals. DPT was first applied in 15/16.