The UN provided us with some holiday reading in the form of an updated 2017 United Nations Practical Manual on Transfer Pricing for Developing Countries, designed to give concrete advice to developing nations on administering transfer pricing laws. I have not yet read the 680 odd page manual but there are some very interesting things in here. It feels like I have to take a weeks leave to read and study the full manual. The 2017 UN transfer pricing manual includes:
- A section that puts transfer pricing into an economic context
- A section that provides substantive discussion of the arm’s length principle
- A section that deals with administrative issues
- And a fourth section that deals with country practices, including practices in India, Brazil, China, South Africa, and Mexico.
Furthermore, the manual adds new chapters on intra-group services, intangibles, cost sharing agreements, and business restructuring. Importantly, the manual is in line with the arm’s length principle and the OECD/G20 BEPS project. There is mention made of the sixth method that you would have come across in Brazil for example, I am looking forward to see how this is in line with the arm’s length principle, as I am not convinced right now that it is.
There have been more developments throughout the week, so happy reading…
“According to industry sources on April 10, the National Tax Service (NTS) has imposed 314.7 billion won (US$275.74 million) in corporate taxes for alleged tax evasion on Oracle Korea after conducting a tax audit of the company for four months from July 2014.
Through the audit, the NTS said it found that Oracle Korea, the local unit of Oracle Corp., a global leading information technology (IT) firm, dodged about 310 billion won (US$271.62 million) of taxes for seven years by taking advantage of a tax haven abroad. Accordingly, all eyes are on whether other tech giants, such as Google and Apple, will stop evading taxes.
Oracle Korea transferred most of gains it earned in South Korea to the headquarters in the U.S. in the name of software license fees. In the process, the company was required to pay intellectual property rights fees to South Korea’s tax agency according to the Korea-U.S. Tax Treaty. However, Oracle Korea did not pay corporate taxes to the NTS as the company started sending the fees to Oracle’s unit in Ireland, a known tax haven, from 2008…”
I am sure Ireland doesn’t like being called a tax haven but that is besides the point. Everyone has been threatening that more and more countries will pick up on this, and that is exactly what is happening. We are still far away from a final number that Oracle is willing to pay, if anything at all. As you know, some of these arrangements aren’t illegal and without the necessary changes in tax rules/laws, there may not be an adjustment at all. Going forward, these things are unlikely to work and many MNEs have started changing their arrangements, but there is a history that will have to be dealt with. Let’s wait and see.
“As most of the Base Erosion and Profit Shifting (BEPS) Action Plan is made up of best practice recommendations rather than ‘red line’ requirements, it was always going to be applied electively and in different ways from country to country.
Yet implementation has already confounded expectations in the extent to which many of the optional recommendations are being embraced and fast-tracked by major economies worldwide. These legislative changes are set to have a significant impact on financial and operational structures, as well as effective tax rates.
At the same time, some of the BEPS actions that were meant to be universally and consistently implemented have stalled through lack of political momentum or international agreement on how they should be applied…”
The full report sets out the: successes, setbacks and the road ahead. I was able to add my comments in the final report, but please let me know your thoughts on the write up.
“… we need additional skills to address transfer pricing, base erosion and profit shifting,” [in South Africa] Kingon said.”
Mark Kingon is a SARS executive and again we have a SARS executive saying how important transfer pricing is. Within South Africa we have seen a lot of movement in transfer pricing with increased focus and activity by SARS. This just shows that we can expect even more activity. The South African GDP is not predicted to grow (optimistic views are close to 1%) but yet the revenue target (tax collection) was increased by 10.5%. This additional revenue has to come from somewhere.
“The UN’s Committee of Experts on International Cooperation in Tax Matters on April 6 released a guidance note for developing countries on how to analyze transfer pricing issues associated with extractive industries.
The UN extractives industry guidance note is expected to be included in the UN’s forthcoming “Handbook on Selected Issues in the Taxation of the Extractive Industries for Developing Countries,” to be launched this October.
The note analyzes the major consecutive stages within the extractive industry, namely, the facets of the extractive industry value chain. In particular, the study examines mining and mineral extraction and the production of oil and natural gas.
This would be the fifth document published in the last 18 months authored by a transnational institution intent on bringing transfer pricing analytical techniques to the attention of resource-rich developing countries.
The guidance follows work prepared by the OECD and G20 for base erosion profit shifting (BEPS) plan Action 8-10, concerning commodity transactions, which adds paragraphs 2.16A-2.16E to Chapter II of the Transfer Pricing Guidelines; the Platform for Collaboration on Tax’s January 24, paper titled “Information Gaps on Prices of Minerals Sold in an Intermediate Form;” and a World Bank Group procedural guide for practitioners and tax administrations, also published in January, titled “Transfer Pricing in Mining with a Focus on Africa.”
Unfortunately, this new UN guidance, like the recent work the other transnational institutions, ignores a host of legal and economic developments, including the impact of bilateral investment treaties on the extractive locations…”
“The Cayman Islands and Belize have become members of the “Inclusive Framework on BEPS,” the OECD announced April 13…
With the Cayman Islands and Belize joining, membership in the inclusive framework now stands at 96 countries and jurisdictions…”