And here is your next weekly transfer pricing roundup. I am thinking of the next technical article and would appreciate your thoughts. Let me know if you came across anything interesting lately that I can do some research on.
If not, you will just have to read whatever I come up with. But for now enjoy this weeks roundup.
“Finance Minister Steven Joyce and Revenue Minister Judith Collins have released three consultation papers proposing new measures to strengthen New Zealand’s rules for taxing large multinationals.
“Our broad-based low rate tax system continues to perform very well for New Zealand overall,” Mr Joyce says. “However it’s important that it keeps evolving to ensure that all companies operating in New Zealand pay their fair share of tax.”
“The proposals in these documents are in line with the recommendations from the OECD’s base erosion and profit-shifting (BEPS) project which has developed best practice measures for the global response to BEPS.”
The consultation documents contain proposals for:
- Tackling concerns about multinationals booking profits from their New Zealand sales offshore, even though these sales are driven by New Zealand- based staff
- Preventing multinationals using interest payments to shift profits offshore, and
- Implementing New Zealand’s entrance into an international convention for aligning our double tax agreements with OECD recommendations…”
MNE Tax mentioned and summarised the above here and said:
“The New Zealand government on March 3 released a slew of tax proposals in three consultation documents all aimed at preventing tax avoidance by multinationals.
Included are proposals that would tighten New Zealand’s permanent establishment (PE) and transfer pricing rules, further limit interest deductions, and provide the New Zealand tax authority with tools to deal with uncooperative multinationals…”
“… In the past, the question was more focused on pricing the transaction and the ATO tended to accept assertions made by taxpayers. In contrast, today the ATO does not accept assertions, but rather it challenges them. Now the question would be what are we pricing ‒ the transaction that actually took place, or a notional transaction? In other words, the first question is moving towards “what is the counterfactual?”, “what would independent parties do?”. Only then you price the transaction, or perhaps you would price some notional transaction if the ATO says that independent parties would enter into a transaction that is different to the actual transaction…”
This is the case in many tax jurisdictions at the moment, including Africa. I wouldn’t refer to it as notional transactions as this only refers to transactions that should be there but aren’t. I think the OECD word of delineating a transaction is more appropriate – i.e. find the true substance of the transaction.
“The Federal Inland Revenue Service (FIRS) has released updated Transfer Pricing (TP) Declaration and Disclosure Forms, which take effect from January 2017.
The update by FIRS is aimed at improving disclosure and transparency by taxpayers in their TP Returns, as well as providing FIRS with better information for their use in conducting TP risk identification and assessment.
The updated TP Disclosure form requires taxpayers to specify the year of assessment and basis period to which the form relates, as well as the comparative values for each item of income or expense received or paid to connected and independent sources…”
It looks as if Nigeria is following other tax authorities with this and it was just a question of when. South Africa (and other tax authorities like the ATO) have been using this to identify tax payers for additionally information requests and audits. This is usually done through data analytics or other automatic data analysis.
“The Internal Revenue Service has put companies on notice: It is targeting offshore earnings and transfer pricing as part of a new audit push.
The federal tax collector highlighted the two issues last month in connection with a new series of 13 audit “campaigns,” as opposed to the broader approach it has historically taken…
The IRS is highlighting how companies claim energy credits, use insurance contracts, or transfer funds to shareholders, among other issues. It is also targeting specific industries, such as land development, TV broadcasting and insurance.
IRS examiners previously audited companies after an algorithm scored their returns. Those with higher scores raised more red flags. But auditors didn’t know where exactly to look for the problems, so they dug through entire returns to find errors…”
“The Decree provides new transfer pricing compliance requirements, including three-tiered TP documentation, new TP declaration forms, guidance on the deductibility of related party expenses, and interest deductibility, all of which are substantial changes to existing rules…”
The four key changes in the TP administration are as follows:
- Related party definition
- TP documentation
- Deductibility of expenses