Weekly transfer pricing roundup – 19 June 2017

Now that all the excitement of the signing of the MLIs is over, what does that mean? The OECD states that 67 countries have signed the MLI with an additional nine countries having expressed their intent to sign. The OECD expects another 25 – 30 countries to sign. This means there will be approximately 100 countries that have signed up to these MLIs shorty. This is in line with the 99 countries that have signed up for the Inclusive Framework. The signed MLIs will modify approximately 1,100 tax treaties to implement the following four action points:

  • Action 2 – Neutralizing the effects of hybrid mismatch arrangements
  • Action 6 – Preventing the granting of treaty benefits in inappropriate circumstances
  • Action 7 – Preventing the artificial avoidance of PE status
  • Action 14 – Making dispute resolution mechanisms more effective

The OECD has published FAQs and an informational brochure which provide a lot of information on MLIs. Interestingly, the MLIs may modify tax treaties between two or more parties to the agreement. But there are a few factors to keep in mind when applying the MLIs. For example if either Contracting Jurisdiction to the Covered Tax Agreement makes a reservation on the application of a provision of the MLI, then the MLI provision for which the reservation is made does not apply and does not modify the agreement.

Luckily we still have sometime to get used to the new MLIs. The first modifications to covered treaties are likely to only become effective during 2018. In order for the MLIs to become effective they will have to be ratified first. Signatories ratify the MLI in accordance with their domestic procedures. Then the respective MLI will enter into force three months after the deposit of the fifth instrument of ratification, acceptance or approval. Six months after the MLI has entered into force, it will take effect for taxes levied (except for taxes withheld at source). If you would like to understand this process in more detail and if a certain MLI is applicable, have a look at the OECD’s step by step guide.

The above is a lot to digest, so I tried to keep the remainder of the transfer pricing round up short. Before we get into the news, I wanted to thank TaxTalk for publishing my posts on their portal as well. If you would like to read about other taxes, please go visit the website for some great insights.

Report details UN Committee of Experts’ fourteenth session on international tax (MNE TAX)

“According to the report, it was decided that the launch of 2017 update to the UN Model would be postponed until October, during the week of the fifteenth session of the Committee of Experts but that the update would not be an item for substantive discussion at that session.

An option for a “robust” limitation on benefits (LOB) clause based on the US version of the LOB clause was approved for the 2017 model treaty with modification, after debate.

Also, it was also decided at the meeting that discussion on Article 12 on royalties as related to to software payments would be deferred until the fifteenth session of the Committee. The Royalties Subcommittee was unable to reach a final decision with respect to the characterization of software-related payments.

New paragraphs for the commentary on Article 12 that deal with the characterization of “industrial, commercial and scientific equipment” were approved.

Also, following discussion, it was decided that Article 5(6) and the treaty commentary relating to reinsurancce will remain unchanged for the 2017 update but issues regarding reinsurance will be taken up again at the next session of the Committee.”

Transfer-Pricing Informative Statement in Costa Rica (Lexology)

“The new regulatory requirement on transfer pricing has been delayed. Resolution DGT-R-28-2017 was published last week in the official newspaper La Gaceta. This publication modifies resolution DGT-R-44-2016, which established the obligation to file an annual informative tax return on transfer pricing.

The new resolution states in its Transitory I the suspension of the filing of the informative tax return, which initially was established for the month of June of this year. The deadline for submitting the informative tax return will be suspended until the Tax Administration communicates the date and the electronic means for the presentation of the requirement.”

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