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”
The Chevron case is still discussed in many articles around the world. This Chevron article provides more of a technical analysis of the case and even though a long read, it is a good read. It touches on many aspects that should be considered when pricing a cross border related party loan, such as:
- Should the borrower’s credit rating be analysed on a stand-alone basis? Spoiler alert, the case concluded that it should not, but there are countries where the tax authorities would look at the borrower in isolation (just a heads up)
- Should a comparable loan arrangement be exactly the same or is there some flexibility?
- How should the lender be treated in a loan arrangement?
- How much impact does a guarantee have on pricing in a loan arrangement?
- Should the currency be AUD or USD for the loan arrangement? This is interesting and arguably Chevron won this argument as the court agreed to AUD. A USD loan would arguably carry a lower rate which would have made an adjustment easier for the ATO.
This week saw the Australian Tax Office (ATO) winning an important battle against the war on multinationals not paying their fair share of tax in Australia. Chevron will have to pay approx. AUD300mil to AUD340mil in taxes, interest and penalties to the ATO. I tried to simplify the case in a few bullet points below (let me know how I did): Continue reading “Weekly transfer pricing roundup – 24 April 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”
Last week, South Africa held its budget speech and it was confirmed that South Africa is and will remain part of the BEPS project and sign up for the necessary requirements. Furthermore, it was mentioned that South Africa will continue to develop skills needed to address transfer pricing, meaning SARS (the tax authority) will increase its staff size and skill set to review current TP arrangements and ensure relevant compliance.
Most countries require additional funding around the world and without an increase in economic growth the only other way to really increase government revenue is by increasing taxes. South Africa did not escape this. Continue reading “Weekly transfer pricing roundup – 27 Feb 2017”
I am starting to make some headway with all my reading and the documents are very well written. So if you dreading the same pile, don’t, it is actually not as bad as it seems.
There is one special article I found this week from taxanalysts which you can find below. If you only have 5 minutes to read something, read that article first. Continue reading “Weekly transfer pricing roundup – 13 Feb 2017”
So it is already December. Normally I would expect things to calm down, but not in the transfer pricing world. Australia is awaiting comments just before the festive season on illicit transfers (or profit shifting) and other countries aren’t slowing down either to implement the BEPS action points and/or looking into getting additional revenue (see below for more).
Keep in mind, previously when reports referred to illicit transfers this was really only meant to capture illegal funds like drug money, but illicit transfers must be interpret much wider these days, including tax evasion (and maybe even tax avoidance).
Oh yes, last point, I am still looking for any contributions (contributors), if you are still not sure if you should write about your transfer pricing thoughts – do it.
“Treasurer Scott Morrison has released for public scrutiny until December 23 draft laws which will provide scope for the Australian Taxation Office to identify large multinationals seeking to avoid tax by shifting profits.
It will also allow the commissioner of taxation to impose a penalty tax rate of 40 per cent on arrangements that are caught in breach of the rules…”
“The amount of tax potentially underpaid by big businesses by shifting profits to other jurisdictions has increased by 60 percent in the last year, to GBP3.8bn (USD4.8bn), according to figures obtained by international law firm Pinsent Masons.
The figure is the “tax under consideration” by HMRC’s Large Business Directorate, being an estimate of the maximum potential additional tax liability across all open inquiries but before any investigations have been completed.
Pinsent Mason tax expert Heather Self said that the increase suggested HMRC has opened a significant number of new inquiries over the last twelve months, in particular into multinationals’ transfer pricing affairs. She suggested transfer pricing is becoming the single largest risk or source of potential tax inaccuracies for large businesses.
“Seventy-five percent of businesses identify tax risk management as their top transfer pricing priority, according to an EY report, In the spotlight: a new era of transparency.
Rising from 66% in 2013, the survey of 623 tax and finance executives across 36 countries reflects the striking impact of global calls for greater tax transparency on the boardroom agenda…
“A new era of tax transparency is driving monumental change throughout modern tax functions, and businesses need to begin gathering essential data to build a clearer and more optimized long-term strategy for transfer pricing,” says Peter Griffin, EY Global Transfer Pricing Leader.
“Adapting to this new reality will be key to executing effective and compliant transfer pricing. With 73% of survey respondents still monitoring transfer pricing results on just a quarterly or annual basis, it is clear that a significant step change still needs to take shape…”
Offshore marketing hubs have been in the news before and have been blamed by Governments (the onshore Governments) to be facades or shams for the purpose of profit stripping. The ATO has now released some interesting steps to analyse offshore hubs. In the ATO discussion paper, discussed below, the ATO provides a compliance approach to transfer pricing issues relating to centralised operating models involving procurement, marketing, sales and distribution functions. No doubt this will spark interest by other tax authorities as well. Happy reading, and don’t forget to share or comment!
“The ATO has said that it is concerned that certain related-party offshore marketing hub arrangements may be in breach of transfer pricing rules.
Marketing hubs typically provide marketing and sales functions for goods or commodities produced in Australia and sold offshore. These functions may include price negotiation, contract administration and management, customer relations, shipping, and delivery.
The ATO said that these arrangements can give rise to significant profit shifting issues for the Australian entities involved…”
ATO colour codes hubs (Lexology)
“The ATO has released a discussion paper on its draft practical compliance guideline for offshore hubs. Think of it as the ATO’s risk-differentiation framework applied to offshore marketing hubs but on steroids. The purpose of the guideline is for taxpayers to understand the ATO’s view of the transfer pricing risk applicable to their offshore hub and the likelihood of ATO compliance activity.
The guideline uses 5 colour zones to rank the risk to revenue of offshore hubs (green = low to red = very high). The primary test is a cost plus benchmark. If the hub’s mark-up on its costs (e.g. salary of overseas staff, rent, etc) is 100% or less, then (subject to also passing a secondary cross-check test which is yet to be finalised) the taxpayer’s hub will be in the green zone (low risk). The ATO warns against mark-ups “drifting” up towards this 100% benchmark if currently below it. The benefits of being in the green zone are limited ATO compliance activity, simplified transfer pricing record keeping requirements and access to the APA program.
If the hub’s profit is greater than 100% of its costs or the secondary cross-check test is failed, the taxpayer’s hub will be in either the blue, yellow, amber or red zone depending on:
- the net tax impact of the hub;
- the existence of transfer pricing documentation; and
- behavioural aspects of the taxpayer (e.g. level of co-operation and transparency with the ATO).
Moving up in the different zones brings with it a stricter compliance approach from the ATO.
If taxpayers want to transition existing arrangements to the green zone, the ATO will (for the first 12 months) remit penalties and interest if a voluntary disclosure is made in relation to prior years. Although, the ATO also accepts that just because a taxpayer wishes to come within the green zone going forward this does not mean that prior year arrangements were non-arm’s length.
The ATO will use the reportable tax position (RTP) schedule to obtain information about a taxpayer’s marketing hubs and their risk rating under the guideline.
At the moment the guideline only deals with marketing hubs but it is intended that over time additional schedules will be added for other types of hubs (e.g. procurement hubs).”
“The Finnish Tax Administration (Vero Skatt) is advising multinationals of the option for quick advanced discussions to establish transfer pricing positions.
In a notice published Aug. 15, Vero Skatt said the administration is offering “the possibility to examine the tax position flexibly in advance” so that companies can avoid “unexpected tax consequences.” …”
“New law (no. 6728), effective 9 August 2016, provides new rules related to transfer pricing. The provisions make changes to article 13 of Turkey’s corporate tax law (no. 5520) to align Turkish transfer pricing rules to OECD transfer pricing guidelines.
The new law:
- Provides a 10% threshold for purposes of defining a “related party”
- Removes what has been a strict hierarchy among the transfer pricing methods
- Allows certain types of “roll back” for APAs
- Provides a 50% discount on the tax penalty imposed on taxpayers satisfying the rules for timely and proper documentation…”
“The Multistate Tax Commission’s Transfer Pricing Committee voted to adopt an Information Exchange Agreement, which permits states to share taxpayer information with other states participating in the transfer pricing program. The Committee has an October meeting scheduled, at which it intends to discuss specific taxpayers and their transfer pricing regimes…”