Last week was a very historic week for transfer pricing enthusiasts all around the world. 67 jurisdictions signed MLIs in line with the BEPS framework to reduce the opportunity for tax avoidance. The signing of the MLIs is likely to result in 1100 tax treaties being amended, which usually would take decades. Continue reading “Weekly transfer pricing roundup – 12 June 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”
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 you probably know already, the deadline for the comments on the draft toolkit assisting developing countries in transfer pricing analyses has been extended to 7 April 2017. It seems it wasn’t just me who had a huge pile of readings and couldn’t get to all the commenting.
MNE Tax published an article last week which provides comments on the draft tool kit from Andrew Hickman dealing with: Continue reading “Weekly transfer pricing roundup – 20 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”
For the New Year I have updated the look and feel of the website. I hope it leads to a better user experience.
This week we saw Apple appealing against the EU state aid decision. It was only a matter of time. India had its budget speech and proposed to amend some of its transfer pricing rules and the OECD released some more documents which I have added to my never ending reading pile. Continue reading “Weekly transfer pricing roundup – 6 Feb 2017”
The OECD signed up a few more countries to the Multilateral Competent Authority Agreement making it 57 countries and the inclusive framework now has more than 100 countries. As you know, countries signing up to the inclusive framework agree to implement the minimum standards which include CbCR (the minimum standards include a total of 4 action points).
It has been a busy week and I am still trying to catch up with all the reading. The draft transfer pricing toolkit for developing countries was also released and comments on the draft are due on 21 February. If you have any comments but don’t want to go through the hassle of sending something through formally, please send me your rough thoughts and I will merge them with my comments. Depending on the outcome I will either post them via Grant Thornton or the SAIT/SAICA transfer pricing sub committee which I am part of.
Happy reading, and don’t forget to comment.
“The new India chapter demonstrates that the tax authority has accepted several transfer pricing positions in OECD BEPS guidelines that had previously been the subject of significant litigation, revealing some light at the end of the tunnel.
However, there are certain inconsistencies, from which one can infer that there is some road to travel, such as the discussion on low value intra-group services and the approach towards marketing intangibles.
It will be necessary for Indian taxpayers to acid test their transfer pricing documentation in view of the discussion in the India chapter to strengthen their positions and ward off potential disputes arising from intra-group transactions.”
Find out more about India’s approach on the following aspects in the article, if you do business in India it’s a must read:
- Low value adding intra-group services
- Country-by-country reporting
- Marketing intangibles
- Location savings, location specific factors
- Intangibles generated through research and development services
Transfer pricing toolkit for developing countries jointly released by IMF, OECD, UN, World Bank Group (MNE Tax)
“The Platform for Collaboration on Tax – a joint initiative of the IMF, OECD, UN, and World Bank Group – on 24 January released a draft toolkit addressing ways that emerging economies can overcome lack of comparable data or market prices for goods and services in the area of transfer pricing. The Platform has asked for comments and input on the draft by 21 February from interested stakeholders to finalise the toolkit…
The toolkit is designed to help emerging countries foster strong and credible transfer pricing regimes applying the principles developed in the OECD/G20 BEPS project and, hence, protect their tax bases from aggressive or inappropriate tax planning by multinational corporations.
The toolkit addresses some of the challenges associated accessing comparables data. It also focuses on how to make the best use of available data and on the importance of the choice of the most appropriate transfer pricing method.
It also describes issues and possible solutions when adequate data on transactions between independent parties are not available, including the potential for developing safe harbours or prescriptive approaches. Finally, due to the complexity of the topic, the toolkit sets out areas where further work is planned, and summarises a number of conclusions.
In addition, in recognition of the importance of the extractive industries and other commodities sectors to the economies of many developing countries, the draft toolkit addresses the information gap on prices of minerals sold in an intermediate form.”
“Several countries in Latin America have established new transfer pricing documentation obligations associated with the OECD’s BEPS initiative.
In this new year, Mexico, Colombia and Peru have included in their local legislation new documentation requirements that follow a three-tiered approach: CBC report, master file, and local file. These requirements are based on the revised Chapter V of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration…”
Seven more jurisdictions sign tax co-operation agreement to enable automatic sharing of country-by-country information (OECD)
“As part of continuing efforts to boost transparency by MNEs, Gabon, Hungary, Indonesia, Lithuania, Malta, Mauritius and the Russian Federation have now signed the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCAA), bringing the total number of signatories to 57. Lithuania and Hungary joined the Agreement in October and December 2016 respectively…
Gabon, Indonesia, Malta, Mauritius and the Russian Federation signed the Agreement at a signing ceremony held during the second meeting of the Inclusive Framework on BEPS on 26-27 January 2017. The inclusive framework brings together over 100 countries and jurisdictions to collaborate on the implementation of the OECD/G20 BEPS package.”
Information on the Potential Impact on IRS and U.S. Multinationals of Revised International Guidance on Transfer Pricing (United States Government Accountability Office)
In short the report states: “The Revised Guidelines Effect on IRS Administrative Costs is Likely Small, But The Effect on Compliance Costs for U.S. MNEs is Uncertain”.
There is much more to it, but I won’t try and summarise the 50 page report here.
The traffic is starting to increase in Johannesburg, which means things are getting back to normal and so is this blog. Obviously I have more content planned for 2017 but I won’t promise too much upfront.
On another note, you will see below that CbCR has formally been introduced in South Africa. Once you open the ITR14 you will see the tax return has also been amended to ask for additional information but no space has yet been provided to actually notify SARS about the reporting entity. Hopefully SARS will introduce a painless notification process that doesn’t require additional registrations or more admin for taxpayers.
Updated Singapore transfer pricing guidance allows simplified method for related party loans (MNE Tax)
“Singapore’s Inland Revenue Authority (IRAS) on January 12 published the fourth edition of its e-Tax Guide on transfer pricing.
The new guidance includes a discussion of risk analysis and adds new provisions allowing taxpayers to optionally use an indicative margin for related party loans instead of preparing a detailed transfer pricing analysis. The new procedure can be applied to related party loans obtained or provided from January 1…”
It is a great idea to introduce something like this for cross border related party loans as a proper thin capitalisation analysis/study (or TP work for credit ratings and arm’s length interest rates) can be rather costly. The issue with introducing something like this is similar to that of safe harbours. The difference here is that the tax authorities can manage the risk by making sure the indicative margin is low enough to keep profit stripping via high interest deductions at bay but yet keep it high enough to for taxpayers to not ‘create’ other transactions to shift profits.
“The final South African regulations for country-by-country (CbC) reporting were gazetted on 23 December 2016. With the release of the final regulations, South African multinational group companies are now obliged to report certain information in line with the Base Erosion and Profit Shifting (BEPS) project, directed by the Organization for Economic Co-operation and Development (OECD)…”
“Indonesia has revised tax rules for transfer pricing documentation to match global standards and curb practices of tax avoidance, an official with the tax office said yesterday.
A finance minister’s decree signed last year but made available to the public only last week called for firms doing cross-border transactions with affiliates to prepare transfer pricing documents detailing global structure and payments…”
“The [Indian] tax department on Friday signed a Bilateral Advance Pricing Agreement (BAPA) with Indian subsidiary of a Japanese trading company as the department looks to reduce litigations by providing certainty in transfer pricing.
Recently, the Central Board of Direct Taxes (CBDT) has also modified an existing Bilateral Advance Pricing Agreement with another Indian subsidiary of a Japanese company to include rollback provisions, an official statement said.
In all, three Bilateral Advance Pricing Agreements are now signed with Indian subsidiaries of Japanese companies, all including rollbacks. The total number of Bilateral Advance Pricing Agreements entered into by CBDT now stands at eight, it added…”
This week McDonald’s made a bold move by restructuring its operations amid a proby by the EU competition authority, India and the USA signed their first APA, and the OECD provided some more guidance on CBCr. See the articles below, happy reading.
“McDonald’s Corp. on Thursday said a large portion of its non-U.S. income would be taxed in the U.K. following a restructuring that shifts operations away from Luxembourg amid a probe by the European Union competition authority over its tax arrangements.
McDonald’s said it had created a U.K.-based international holding company that would have “responsibility for the majority of royalties received from licensing the company’s global intellectual property rights outside the United States.” It added in a statement that the profits of the new international holding company would be subject to U.K. corporation tax.
The Luxembourg office will retain responsibility for restaurants in the country, but other functions will transfer to the U.K holding company, McDonald’s said.
The move comes as the European Commission, the EU’s executive arm, investigates the company’s tax affairs in Luxembourg. The commission, which opened the probe last December, alleges that a deal Luxembourg granted the fast-food chain in 2009 may have illegally reduced its tax burden and breached competition rules.
Brussels could order the fast food giant to pay back as much as €1.5 billion ($1.6 billion) in unpaid taxes between 2009 and 2015 to Luxembourg, according to an October statement by U.S. and European trade unions, which based its information largely on the company’s public financial statements.
McDonald’s says it received no special treatment and paid all taxes it owes. On Thursday, the company said it paid more than $2.5 billion in corporate taxes in the EU between 2011 and 2015…”
“India and the US have reached a deal for the first bilateral advance pricing agreement, a move that will enable American firms to ascertain tax liabilities beforehand, Finance Minister Arun Jaitley said today…”
“On December 5, 2016, the OECD released updated guidance on the implementation of country-by-country (CbC) reporting under BEPS Action 13. The OECD also released a database containing information on CbC reporting implementation by various countries to date.
The December 5th guidance updates the Q&A guidance issued by the OECD on June 29, 2016 and October 12, 2016, which address the following CbC reporting issues:
- Transitional filing options for multinational enterprises (MNEs) (“parent surrogate filing”).
- The application of CbC reporting to investment funds.
- The application of CbC reporting to partnerships.
- The impact of currency fluctuations on the agreed €750 million CbC reporting filing threshold…”