Weekly transfer pricing roundup – 7 November

I am sure you are as glad as I am that I managed to get back in time to write the transfer pricing roundup for its normal release time. Here it is. Notably, it is missing a write up on the new released notice that makes transfer pricing documentation/information retention a compliance requirement in South Africa where the R100mil threshold of aggregate cross border related party transactions is met (approx USD7.4mil). But I will write a separate post about that, so you will see the summary in the next roundup.

As always, happy reading.

MENA Transfer Pricing in a Post BEPS World (Newsweek Middle East)

This is a great update on some of the Middle East and North Africa countries, specifically including: Oman, Egypt, Qatar, Saudi Arabia, and Pakistan.

“Historically, the Middle East and North Africa (MENA) region has been perceived as a region where taxation and transfer pricing initiatives are not high up on government agendas. Although this has been the case for a significant period of time, recent changes in the region such as decreases in global oil prices coupled with developments of the Base Erosion and Profit Shifting (BEPS) project by the Organization for Economic Co-operation and Development (OECD) have prodded governments across the region to consider updating their legislation and issuing guidance…

In December 2015, the government of Oman proposed changes to its tax laws (i.e., Corporate Income Tax (CIT) increase from 12% to 15%, tax free threshold removal, and Liquid Natural Gas companies may be subject to CIT at 55%, in order to bring their taxation in line with oil companies), albeit without issuing clear transfer pricing regulations or documentation requirements. It has been reported that tax administrations in Oman are becoming more sophisticated and are now expecting taxpayers that perform intragroup transactions to document their transfer prices.

Egypt is an exception to the general outlook across the MENA region, it is a country which has progressed significantly in comparison to other jurisdictions in terms of transfer pricing. Egypt has had local transfer pricing rules in place since 2010 and has implemented a dedicated transfer pricing unit within the administration, whose main purpose is to ensure that Egyptian taxpayers comply with local transfer pricing rules…

Qatar, which has issued specific transfer pricing rules under both the State tax regime and the Qatar Financial Centre tax regime. The legislation has been influenced by the U.K.‘s transfer pricing provisions, which conform to the OECD Guidelines. The most recent tax developments in Qatar were in April 2016, the Qatar Tax Authority, the Public Revenues and Taxes Department (PRTD), has informed tax agents that from 1 April 2016, it will no longer accept paper submissions for income tax, withholding tax declarations, withholding tax refunds and approvals for the transfer of shares. The PRTD expects these documents to be submitted through the electronic Tax Administration System.

Saudi Arabia, a G20 country that generally follows Egypt’s footsteps, in March 2016 issued a new tax declaration requirement for Saudi tax/zakat payers to include in their tax return the “value difference for materials and services provided by related parties in excess of market prices”. Although there is currently no clear guidance issued by the General Authority for Zakat and Tax (GAZT), the arm’s length principle is deeply embedded within the law and the tax administrations are challenging intragroup transactions that don’t have transfer pricing documentation in place…

Pakistan has already made public its commitment to the three-tier documentation approach detailed in Action 13 in its 2016 Finance Bill, which includes Country-by-Country Reporting requirements. It is to be seen what will be the next moves for Saudi Arabia or Egypt, but what is certain is that the transfer pricing environment will develop significantly in the region in the next few years.”

Hong Kong sets out plan to adopt BEPS tax measures, revamp transfer pricing laws (MNE Tax)

“Hong Kong’s priorities for implementing the OECD/G20 base erosion profit shifting (BEPS) project include adopting the four BEPS minimum standards and putting in place a legislative framework for a new transfer pricing regulatory regime, according to an Inland Revenue Department (IRD) consultation paper released October 26.

As a member of the BEPS inclusive framework, Hong Kong has agreed to adopt all four BEPS minimum standards, namely, countering harmful tax practices, preventing treaty abuse, imposing a country-by-country reporting requirement, and improving cross-border dispute resolution. Implementation of these standards should be Hong Kong’s top priority, the paper states.

Another priority is to adopt into law rules on transfer pricing and require that these rules be construed consistently with OECD standards, the IRD paper states…”

Watchdog: IRS faces barriers in tax avoidance reviews (The Hill)

“The Internal Revenue Service lacks a strong operation to audit a critical international tax compliance area, according to a watchdog report released Thursday.

At issue is transfer pricing, a cost structure used by multinational companies to price goods and services they sell to subsidiaries in foreign locations…

[T]he inspector general report said the IRS does not have a solid operation to audit transfer pricing transactions.

Among the major issues: a lack of communication between units in charge of transfer pricing information, adherence to an audit toolkit called a “roadmap” and rules within the operation.

The inspector general also found that some employees do not have access to a system called the specialist referral system, which generates 20 percent of the transfer pricing referrals.

The IRS agreed with most of TIGTA’s five recommendations in the report, including giving business taxpayers access to the “roadmap” when the agency is about to audit their transfer pricing report.

However, the IRS disagreed with the “roadmap” being used as the primary tool for reviewing cases…”

Singapore Adds To Transfer Pricing Requirements (Tax-News Global Tax News)

“On November 3, 2016, the Inland Revenue Authority of Singapore (IRAS) released details of a new form that certain companies will be required to file from the 2018 assessment year to report their related-party transactions.

The form must be completed and filed together with the income tax return (Form C) if the value of related-party transactions disclosed in the audited accounts for the applicable financial year exceeds SGD15m (USD10.8m). The IRAS noted that the value of related-party transactions as disclosed in the audited accounts is the aggregate of all amounts of related-party transactions as reported in the income statement but excluding compensation paid to key management personnel and dividends; and year-end balances of loans and non-trade amounts due to/from all related parties…”

Panama signs tax convention (Cayman Compass)

“Six months after the Panama Papers revelations, Panama signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters last week, making it the 105th jurisdiction to join the predominant instrument for transparency and combating cross-border tax evasion.

Panama was one of the few main offshore financial centers that was not a signatory to the convention when a leak of internal client data of Panamanian offshore law firm Mossack Fonseca was revealed by world media in April…”

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