What a busy week it has been with the third meeting on the Inclusive Framework on BEPS, including the release of some new draft reports. Furthermore, the final version of the toolkit addressing the lack of comparables was released. Lastly, FERMA provided draft guidance to the OECD on captive (re)insurance. Not that there wasnt enough reading material already.
Before going into more detail, I wanted to touch base on the picture. The search term “BEPS” is used now more often in Google searches than “transfer pricing.” It just shows how everything has shifted from a transfer pricing only world to a BEPS and value creation world. Another interesting, yet maybe not as academic observation, is that people stop searching for transfer pricing over Christmas, which doesn’t seem to be true for BEPS. But let’s get back to the transfer pricing roundup (or maybe I should call it a BEPS roundup?).
The OECD states that over 200 delegates from 83 countries and jurisdictions as well as 12 international and regional organisations met in Noordvijk, the Netherlands for the Third Meeting of the Inclusive Framework on BEPS. The meeting welcomed Vietnam as its newest and 100th member and discussed and approved its first monitoring report. The report highlights the progress that has been achieved since the Inclusive Framework first met in Kyoto in June 2016. The meeting also approved the release of discussion drafts on Attribution of Profits to Permanent Establishments and Transactional Profit Splits.
The “Platform for Collaboration on Tax” published its final version of the toolkit designed to provide developing countries practical guidance on how to address the lack of comparables in transfer pricing. The toolkit includes a supplementary report on the pricing of transactions between related parties in the extractive industries and also addresses the information gaps on prices of minerals sold in an intermediate form (including concentrates).
“In February 2017 Cyprus Tax Department has announced that the current practice regarding profit margins between related Company loans will be abolished by the 30th June 2017.
The announcement indicates that the minimum acceptable margins will apply up to 30th June 2017, and as from 1st July 2017 all related Company transactions (e.g. financing arrangements) where Cyprus Tax Resident Companies are involved, should follow the arm’s length principle. In addition, the announcement indicates that independent Transfer Pricing Study (TPS) should be provided as supporting document evidencing that the interest rate used in the particular transaction will be considered as correct having based on the market’s conditions existed at the time the transaction took place…”
Bosnia and Herzegovina
The Bosnian transfer pricing unit started looking into suspect transactions which resulted in the following two headlines this week.
- ArcelorMittal’s Bosnian unit in transfer pricing dispute with tax office
- Bosnia’s Serb Republic looks into suspected transfer pricing in Nestro
It is a welcome change to see tax authorities other than the HMRC, ATO or IRS to do some transfer pricing audits.
India: Secondary adjustments
India chose to use the interest route for its secondary adjustment. I voiced my opinion on this before and still don’t think it is the most efficient way forward. South Africa learnt the hard way that a deemed dividend is easier to monitor. Anyway, the new Indian secondary adjustments rule shall apply to primary adjustments exceeding INR 10 million (USD 150,000) made in respect of assessment year 2017-18 and onwards.