Weekly transfer pricing roundup – 23 October

5120304358_72af165e30It seems we are currently in a space where we discover a lot of transfer pricing issues (I am not brave enough to refer to mispricing yet), mainly because these arrangements where not audited or attacked by tax authorities before and with the current BEPS activity increasing, it was only a matter of time. More articles are suggesting alternative approaches to transfer pricing, such as the turnover tax discussed in the first article below.From what I remember a turnover tax has been considered before and there are other issues that this may not solve. Obviously this is besides the fact that the OECD was quite clear that the arm’s length principle is here to stay.

Is transfer pricing being replaced?

Another article below is discussing the previously raised common tax base in Europe, again this would eliminate transfer pricing altogether. I guess, the common tax base was considered before as well, and it could be a great idea, but it would only work if all governments involved would actually implement a common tax base, which is usually the issue.

Herewith your TP news.

There is one way to put a stop to BHP’s tax avoidance (The Conversation)

“Firms that use resources inefficiently (placing a resource misallocation cost on society) are effectively underwritten by reduced tax bills (or by paying no tax at all) and encouraged to inflate operating costs often by excessive executive salaries (representing an opportunity cost to public revenue).

At the same time, hugely successful companies find it easy to exploit international variations in tax regimes to transfer price and reduce tax payments.

Shifting the tax emphasis from profits to input costs has a number of advantages over the current system. It would create an environment much more like the economic textbook example where firms minimise costs and maximise profit.

It would do this by ensuring:

  • All production is taxed, irrespective of the profit and loss outcomes. In this way society gets a return on the use of all scare resources; discouraging inefficient resource use and providing firms with incentives to minimise costs
  • The incentive for transfer pricing disappears as firms now want to minimise rather than maximise internal costs of production or operation. One way in which they may do this is to reduce discretionary internal costs such as executive salaries
  • The eradication of transfer pricing provides a major boost to tax revenue and opens up the possibility of tax reform and tax reduction at the personal level
  • Profits are non-taxed; firms will now have the incentive to maximise profits
  • Shareholders will benefit from greater returns and more transparent means of comparing resources
  • The number of tax minimisation specialists would be reduced (surely a huge social benefit).”
BHP Rebukes Tax Critics After Claims of Evasion in Australia (Bloomberg Markets)

“We’re astonished to hear some politicians claiming that we haven’t been paying our fair share,” Jac Nasser, chairman of Melbourne-based company, told an audience of investors, executives and journalists at a company event in London on Monday night. “If we were avoiding tax, we’re clearly no good at it.”

BHP Scolded for Tax ‘Dummy Spit’ by Former Australian Treasurer (Bloomberg Markets)

“Former Australian Treasurer Wayne Swan labeled BHP Billiton Ltd.’s response to his allegations of tax evasion a “dummy spit” and demanded an explanation for its practice of funneling some sales of resources in the nation through Singapore to lower its tax burden.”

“The dummy spit by BHP executives in London” was “yet another example of how out of touch corporates are with ordinary people and why, around the world, many corporates are held in such low regard,” Swan, who was Australia’s treasurer from 2007 to 2013, said in a speech to parliament on Wednesday. “The board of BHP should provide a full and frank explanation of its role in approving this aggressive transfer pricing.”

Fresh EU assault on our tax regime in wake of Brexit and Apple ruling (Business Irish)

“Radical plans to be unveiled next week include a proposal to ban transfer pricing – a practice that allows big companies like Apple to cut bills by shifting profits through low-tax countries, especially Ireland.

The Government and others have vetoed all previous attempts from Brussels to impose common tax rules.

But a string of scandals including the so-called LuxLeaks, and Britain’s imminent departure from the Union, are seen by officials as clearing the way for the more radical common tax plans.In proposals to be unveiled next week, the European Commission will say that large companies should calculate their corporate taxes in the same way across the bloc…”

Vietnam Transfer Pricing Rules to Multiply Reporting Duties (Bloomberg BNA)

“Vietnam is preparing transfer pricing regulations that would increase the amount of data companies must report on their internal transactions, but exempt more taxpayers from reports altogether.

A draft decree expected to take effect in early 2017 would require what accounting firm Deloitte called a “huge” amount of added paperwork. In the main file, companies would delineate their organizational structure, key business lines, past-year mergers or acquisitions, transfer pricing policy, group financial results, intangible assets and major intra-group agreements.

In a second file focused domestically, taxpayers would describe related parties, major competitors, local and overseas management teams, analysis for transfer pricing methods and reasons for extended losses.

The third file is the so-called “country-by-country” report, which the Organization for Economic Cooperation and Development is urging governments to adopt. The dossier categorizes a corporation’s taxes, staff, assets, transfer pricing activities and other figures, all based on each country where it operates…”

What are your thoughts?

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