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.
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.
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.
Welcome to our latest update on recent developments in international and treasury tax of interest to multinationals operating in the UK.
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
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).
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.
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.
In a world where transfer pricing and tax professionals are adapting not only to the OECD's BEPS Action Items, but also to US tax reform and expanding global trade wars, it has become increasingly important to integrate careful value chain analysis into tax planning, compliance, and controversy activities.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.”
With a number of important recent and upcoming developments in the OECD's international tax work, the OECD's Centre for Tax Policy and Administration (CTPA) gave the latest tax update. Topics included:
If you are an MNE Group with a December year end, irrespective of whether you are headquartered in the UK or a subsidiary in the UK, the 31 December 2018 deadline for filing your FY17 Country by Country (“CbC”) Report and/or your FY18 UK CbC notification is fast approaching. Getting the CbC Report and notification filed on time is just the start of the process.
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.
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.
In this podcast, PwC transfer pricing professionals Krishnan Chandrasekhar and Daniel Pybus discuss the Delineation section of the OECD draft financial transactions paper. This podcast forms part of a 5 part series which will cover Delineation, Captives, Interest rate pricing, Guarantees and Cash pooling.
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.
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.
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.
Welcome to our latest update on recent developments in international and treasury tax of interest to multinationals operating in the UK.
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.
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.
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.
Welcome to our latest update on recent developments in international and treasury tax of interest to multinationals operating in the UK.
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.
The European Commission (“EC”) has issued a press release concerning its final decision in the State aid investigation into tax rulings granted by the Luxembourg tax authorities to a Luxembourg subsidiary of the McDonald’s group in relation to the treatment of a branch established in the United States of America (“US”).
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 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 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.
On August 15, PwC hosted a webcast featuring PwC specialists who discussed how globally mobile workforces are evolving and the resulting compliance challenges; why US tax reform is further confounding the analysis; and what actions they should consider. This Insight highlights some of those discussions.
The entry into force of decree n°2018-554 and the publication of the related implementation circular published in the French Public Finance Official Bulletin (BOFIP - BOI-80-10-40-20180718), confirm the ‘French singularity’ in terms of transfer pricing documentation.
On August 16, the US Court of Appeals for the Eighth Circuit vacated and remanded the Tax Court’s June 2016 memorandum opinion in Medtronic, Inc. v. Commissioner, which had found substantially in favor of medical device manufacturer Medtronic in its transfer pricing dispute with the IRS...
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.
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 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.
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.
A draft law significantly changing the Polish transfer pricing regulations was published on 16 July 2018. The draft law grants the tax authorities new tools for auditing and challenging related-party transactions, and changes the obligations imposed on taxpayers conducting such transactions.
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.
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.
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.
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.
On 11 July, PwC hosted a webcast featuring PwC specialists who discussed the current state of transfer pricing strategy for MNEs. This Insight highlights some of those discussions. Watch the webcast replay below and register for future webcasts in PwC’s Tax Reform Readiness series, which addresses other areas affected by tax reform.
The Legislative Council passed the base erosion and profit shifting (BEPS) and transfer pricing (TP) Bill on 4 July 2018.
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
On 3 July 2018, the OECD released their BEPS discussion draft on the transfer pricing aspects of financial transactions. The paper focuses on the accurate delineation of financial transactions under Chapter I of the OECD Guidelines.
The Israeli Supreme Court has upheld two recent District Court decisions requiring a US-parented Israeli subsidiary that provided R&D services to the US parent company to include in its costs in determining its revenue, under a cost-plus formula, option expenses relating to US parent company options granted to the Israeli company's employees.
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.
This article analyses and comments on a recent decree published by the Italian Ministry of Finance (MEF). This is an important step in aligning Italian transfer pricing rules with international standards following BEPS, and the 2017 revisions of the OECD Transfer Pricing Guidelines.
The new EU mandatory disclosure rules will come into force on 25 June 2018. Make sure you understand what these rules mean for you.
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.
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.
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.
OECD considers the scope of the future revision of administrative approaches and intra-group services guidelines
The OECD is considering starting two new projects to revise the guidance in Chapter IV (administrative approaches) and Chapter VII (intra-group services) of the Transfer Pricing Guidelines. Interested parties are invited to send their comments on later than 20 June 2018.
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.
On 22 March, the OECD released a final report containing additional guidance on attribution of profits to permanent establishments (the Report).
The IRS intends to amend the Regs.Sec.1.6038-4 country by country (CbC) reporting obligations for US multinational enterprise (MNE) groups that qualify as a "specified national security contractor".
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).
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.
New transfer pricing legislation and guidelines came into force in Singapore on 23 February 2018. These codify transfer pricing (TP) requirements for the preparation of TP documentation, provide guidance on how these rules are to be applied and introduce new penalties and fines for non-compliance.
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 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.
As a result of a modification to article 32-H of the Federal Tax Code (FTC), the due date has been amended for filing simplified informative returns on tax situation (ISSIF per its Spanish acronym).
The 2017 tax reform reconciliation act - the largest overhaul of the US tax code in 31 years - is already having a substantial impact on US taxpayers, including on operating models and business strategy decisions.
Belgian transfer pricing audits: increased manpower, new focus areas, and enhanced cooperation on the horizon
Although the selection, approach, and criteria used to conduct an audit will remain largely unchanged for 2018, it is expected that the process will change starting next year, when the Belgian tax authorities will have access to country-by-country reporting data, the Master File and the Local File/specific Belgian Local Form.
On 27 December 2017, the Argentine Congress passed comprehensive tax reform, which became effective as of 1 January 2018. It contains a number of important changes related to transfer pricing...
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.
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.
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.
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.
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.
The PwC response to the OECD discussion draft on profit splits released in June 2016
Changes to the global transfer pricing environment post-BEPS have required taxpayers and practitioners alike to reconsider transfer pricing policies for intra-group operational transitions. The impact of these changes on intra-group treasury transactions is no different. However, the challenges for the latter are amplified due to a combination of the ultra-low interest rate environment and a wide dispersion in cash management policies that tax authorities observe upon audit review. As a result, traditional treasury pricing mechanisms now need to be reviewed to assess the impact of the evolving regulatory and controversy developments.