For the New Year I have updated the look and feel of the website. I hope it leads to a better user experience.
This week we saw Apple appealing against the EU state aid decision. It was only a matter of time. India had its budget speech and proposed to amend some of its transfer pricing rules and the OECD released some more documents which I have added to my never ending reading pile.
Even though not news I also wanted to highlight a new series called: A new transfer pricing perspective. The idea behind the series is to discuss thoughts or perspectives to touch on the technical world of transfer pricing.
I hope you have a great week and enjoy this weeks roundup.
“The OECD released key documents, approved by the Inclusive Framework on BEPS, which will form the basis of the peer review of Action 13 Country-by-Country Reporting and for the peer review of the Action 5 transparency framework.
The Action 13 standard on Country-by-Country Reporting and the Action 5 standard for the compulsory spontaneous exchange of information on tax rulings (the “transparency framework”) are two of the four BEPS minimum standards. Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. All members of the Inclusive Framework on BEPS commit to implementing the minimum standards and participating in the peer reviews.
The documents released … form the basis on which the peer review processes will be undertaken. The compilations include the Terms of Reference which sets out the criteria for assessing the implementation of the minimum standard, and the Methodology which sets out the procedural mechanism by which jurisdictions will complete the peer review, including the process for collecting the relevant data, the preparation and approval of reports, the outputs of the review and the follow-up process…”
“The government said transfer pricing won’t apply in the case of transactions among group companies. It will only apply in a case where one of the entities involved in related party transaction enjoys a tax break.”
India is aligning its transfer pricing rules with global standards but as you will have seen in last week’s roundup there are still some things that could use more ‘aligning’.
I am not really a fan of local transfer pricing rules and believe this should be dealt with under general anti avoidance rules (or similar). Applying GAAR is not simple either and has its own issues. In order to apply GAAR in some countries the tax authorities actually have to provide support that the taxpayer was deliberately doing something wrong, which can be difficult. In these cases local transfer pricing rules could be a solution, but we all know the limitations transfer pricing brings in a cross border world, surely there is an easier way to deal with this if there is just one tax authority involved?
India introduces secondary adjustments
India proposed to introduce secondary adjustments effective from the year of assessment 2018-2019. The secondary adjustments are based on the OECD Guidelines which can be in three different formats. India’s secondary adjustment is proposed to be in the form of a deemed loan.
I don’t think a deemed loan is the right way to go for secondary adjustments. South Africa tried the deemed loan route and moved to a deemed dividend in specie about three years after introducing the deemed loan. The main issues faced in South Africa were:
- If a taxpayer did not repay the deemed loan, interest would incur. The first issue was to calculate a deemed (arm’s length) interest rate
- Should one get across the hurdle of calculating the deemed interest which incurs annually, the other related party does not have an obligation in its books to actually repay the loan (as there is no corresponding entry)
- Furthermore, in South Africa, no one (neither taxpayer nor tax authority) really kept track of the increasing deemed debt which could render a taxpayer insolvent if this carried on for too long, which brings other issues.
I will leave it at that, but hopefully someone from India is reading this and could maybe provide some more input as to why a deemed loan was chosen as the secondary adjustment. Especially after South Africa changed its mind.
“Information released by the Court of Justice of the European Union today confirms that Apple has lodged an official appeal against the European Commission’s €13bn state aid decision.
Apple’s appeal was lodged in the names of two Irish companies, Apple Sales International and Apple Operations Europe.
The dispute involves tax rulings, granted by Ireland to Apple in 1991 and 2007 and related to the tax treatment of Irish registered non-resident companies. Although one of Apple’s Irish companies held the exclusive rights to use and license valuable Apple intellectual property in most of the world, outside of the US, under the rulings, the related income was not taxed in Ireland on the basis that the rights were held by the “head office” outside of Ireland…”
“There are many ways of supporting cross border related party transactions from an arm’s length perspective, but sometimes there are options that we may just not think about at the time. This blog post will focus on two specific ratios which you may not have considered but could make your analysis (or life) much easier…”