Transfer Pricing Technical

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.

This article analyses and comments on a decree published on 14 May 2018 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 IRS's Advance Pricing and Mutual Agreement Program (APMA) have 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.

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.

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 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.

The 2017 tax reform reconciliation act (the 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.

Changes to the global transfer pricing environment post-BEPS have required taxpayers and practitioners alike to reconsider transfer pricing policies for intra-group operational transactions.

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.

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.