Weekly transfer pricing roundup – 22 May 2017

Chevron decided to appeal the AUD340 million transfer pricing ruling in relation to its financial arrangement between the US and Australia. The previous ruling is now going to the High Court and I look forward to the drama that will unravel. The ATO already started looking at other taxpayers for similar arrangements and even published some draft guidance on what is high or low risk. But more about that below. Continue reading “Weekly transfer pricing roundup – 22 May 2017”

Weekly transfer pricing roundup – 08 May 2017

Not surprisingly, Chevron slammed the Australian ruling against its loan arrangement. The ruling will have consequences for Chevron’s other projects which use debt financing and as such Chevron may take the ruling on appeal (I think I have mentioned this now every week but this time Chevron actually said they are thinking about it too). The adjusted interest rate from the ruling must also have Continue reading “Weekly transfer pricing roundup – 08 May 2017”

Weekly transfer pricing roundup – 13 March 2017

As I am sitting in my hotel room, getting ready for my presentation today, I remembered a great documentary called, “The Price We Pay”. If you should find yourself in a tight spot to explain the issues that brought us BEPS, just put on this trailer. Continue reading “Weekly transfer pricing roundup – 13 March 2017”

Transfer Pricing Summit 2016 – Day 1 of 2

cxynp_txuaaiuawAs my vivid followers will know, I promised I would provide some insight into the Transfer Pricing Summit 2016 hosted by the South African Institute of Tax Professionals (known as SAIT). Instead of giving minutes of each session I thought I give a list of the juiciest comments/moments. Obviously if you would like to elaborate on any of them, let me know via the comment section below.

  • Just documentation is not enough anymore in transfer pricing, [we] must get to the substance
  • Knowledge is key and in the digital age it is easy to get – for both taxpayers and tax administrations
  • Are leading MNEs paying their fair share of tax? If not, our tax systems are not working as most [tax] should come from these MNEs
  • Days of pleading ignorance are over (example of the Australian Parliament), you have to know what is happening in your business
  • Most African countries follow OECD, but is there enough skills? Maybe not yet, but we have auditors with no borders and funding is pledged by certain organisations like the World Bank to assist with skills development
  • Assumption is that illicit funds only flow out of developing countries to developed countries, this does not seem to be the case
  • Is there a difference between evasion or avoidance in relation to transfer pricing. It is uncommon that MNEs try to miss-price (i.e. be fraudulent) but rather, transfer pricing is not an exact science. There may be some bad apples but that is not the norm
  • Some countries apply transfer pricing to any cross border transaction, the reason for this is that countries are not always able to proof a relationship (connected person) and this way the tax authorities can put the onus onto the taxpayer to provide support that a transaction is with third parties or related parties
  • Most countries in Africa not yet doing a lot of work around IP, trying to focus on other transactions first, such as services.
  • ATAF has released a toolkit that the Nigerian tax authority is using. The feedback from FIRS has been that this is a game changer and ATAF will release this tool for other tax authorities to use towards the end of 2016
  • Question remains, how to deal with comparability studies. Usually, no local comparables are available and how can tax authorities/taxpayers get around that. Introduce a safe harbour? Maybe use less comparable companies or do geographical adjustments. A question was raised, why don’t tax authorities provide a number that should be used as an adjustment for geographical differences and taxpayers can use European comparables.
  • Africa may be looking into APAs but generally speaking, the focus is on audits as tax authorities do not have enough transfer pricing specialists/skills
  • Information should be readily available, but that is not really the case. Companies within a MNE are using different accounting systems and so forth. Difficult to just get the information. MNEs should try do a dry run to make sure there are no snags
  • Making CBCr reports public has added pressures and may result in reputational risks
  • NGOs can make more damage to a business than a tax authority can
  • Should a tax authority use a CBCr in bad faith, there is a way to stop submitting the report by a MNE, but it is unlikely that it will happen. The CBCr process is based on trust
  • MNEs need to consider the risk of ‘low valuable’ IP which a tax authority deems to be of high value

Day two will follow shortly…

Weekly transfer pricing roundup – 7 August

globe-868846_960_720Welcome to your latest transfer pricing round up, I hope you enjoy it. This week there has been a lot of finger pointing at multinational companies, again. Especially the tech industry with Facebook and Apple leading the charge. As mentioned last week, in South Africa we have received an amended draft in relation to transfer pricing documentation retention requirements, but this week I managed to actually digest the amended draft. See my blog post below or a more formal write up here.

Compulsory transfer pricing documentation requirements in South Africa

SARS has released the awaited update to its draft notice in terms of section 29 of the (South African) Tax Administration Act, 2011. I wrote a blog post about the previous draft notice in January 2016, if you need a quick refresher, click here.

There are important updates and changes in the amended draft notice which arguably means that the amended draft notice is now applicable to more taxpayers. The previous draft notice was only relevant for a taxpayer with a group consolidated South African turnover of R1 billion or more. Without going into detail on the definition of consolidated South African turnover, the R1 billion threshold was seen to be too burdensome on taxpayers that may not have material related party transactions (more on this later). This threshold changed and the amended draft notice’s threshold reads as follows…

Apple’s Profit Reporting A ‘Fraud,’ Nobel Laureate Joseph Stiglitz Says (Huff Post)

Nobel Prize-winning economist Joseph Stiglitz has called Apple’s profits a “fraud,” blaming weak U.S. laws for allowing the company to shift its tax burden to low-tax Ireland.

“Here we have the largest corporation in capitalization not only in America, but in the world, bigger than GM was at its peak, and claiming that most of its profits originate from about a few hundred people working in Ireland — that’s a fraud,” Stiglitz, a former head of the World Bank and an advisor to the Hillary Clinton presidential campaign, told Bloomberg TV this week

What Facebook And Apple Can Teach You About Transfer Pricing (Forbes)

Two interesting stories today about the intricacies of the international corporate taxation system. One concerns Facebook and the manner in which the IRS is questioning the basis upon which they did a transaction. The other is Joe Stiglitz going off on one about Apple and really not understanding the basic issues at all. Both are about transfer pricing, at least purportedly they are. And the correct answer here is that Facebook is at least being asked an interesting question (and obviously I have no idea what the answer is) while Stiglitz seems not to grasp the basics at all…

If Apple’s Irish tax loophole is a fraud, the whole tech industry is guilty (NetworkWorld)

Apple’s profits in Ireland are “a fraud,” said Nobel Prize-winning economist Joseph Stiglitz in an interview with Bloomberg Television’s Tom Keene. True it is, but almost every tech company uses the same loophole for which Stiglitz blamed the U.S. tax system.

Stiglitz said: “Our current tax system encourages companies to keep their money abroad, opens up a vast loophole through what is called the transfer-pricing system that allows them not only to keep their money abroad but, effectively, to escape taxation…

CBDT signs advance pricing agreement with Japanese firm (Business Standard)

The Central Board of Direct Taxes (CBDT) has entered into an APA with an Indian subsidiary of a Japanese trading company to foster a non-adversarial tax regime.

“Signing of this bilateral APA is an important step towards ascertaining certainty in transfer pricing matters of multinational company cases and dispute resolution,” said a statement issued here by the Finance Ministry under which the CBDTfunctions…

Weekly transfer pricing roundup – 10 July

I feel like I am repeating myself, but yes another newsworthy week for transfer pricing. The OECD has released two long-awaited discussion drafts, namely, attribution of profits to PEs and revised guidance on profit splits. You can find both discussion drafts here. If you have any comments which you would like to put forward, let me know and I will collate them all to provide a response accordingly. On top of these two discussion drafts much more has happened.

Initiating your APA in Ireland (TP Week) 

Ireland has introduced a formal bilateral APA programme which came into effect on 1 July 2016. It may now be preferable to initiated your bilateral APA in Ireland…

OECD releases discussion drafts on attribution of MNE profits to permanent establishments and profit splits (MNE Tax)

The OECD today released two discussion drafts on international tax standards that deal with allocating multinational corporation profits between tax jurisdictions: guidance on the attribution of profits to permanent establishments (PEs) and proposed revisions to OECD transfer pricing guidelines on profit splits…

Multinational companies have increased their work on BEPS compliance, Thomson Reuters survey finds (Yahoo finance)

Two-thirds of corporate tax executives surveyed say their companies are proactively preparing for the onslaught of new tax regulations resulting from the BEPS Action Plan.

That’s a 22% increase in the past year. In Thomson Reuters 2015 BEPS Readiness Survey, 54% of respondents said they were actively preparing for the new reporting requirements. This year, it`s 66%…

OECD proposes conforming amendments to transfer pricing guidelines on business restructuring (MNE Tax)

The OECD on July 4 published proposed amendments to Chapter IX of the transfer pricing guidelines dealing with business restructuring to conform the guidance to recent changes made to other chapters on account of the final OECD/G20 base erosion profit shifting (BEPS) reports. Significant changes were made to Chapter 1 of the guidelines concerning delineating transaction and allocating risk.

The OECD is not open to any discussions about the concepts in the draft; it just seeks feedback on whether the conforming changes address all inconsistencies between Chapter IX and the revised transfer pricing guidelines and whether the proposed changes remove all duplication in the chapters…

Transfer pricing deals to get special scrutiny after inversions (BNA)

Transfer pricing deals are among post-inversion transactions IRS agents should be closely scrutinizing, the agency said in a newly posted audit guide.

At a time when the agency is in the midst of a crackdown on inversions, the new international practice unit calls for agents to put both these transactions and the tax planning that happens afterwards under the microscope…

US tax authorities seek to challenge Facebook over transfer pricing (CCH Daily)

The US Internal Revenue Service (IRS) is seeking information from Facebook about the transfer of various rights associated with its global business to a holding company in Ireland, over concerns that these may have not been valued correctly for accounting purposes…