Multinational companies are operating in an environment of unprecedented complexity. The rising volume and variety of intercompany transactions and transfer pricing regulations, coupled with increased tax authority collaboration across borders presents both risks and opportunities. Our country updates will provide you with the latest transfer pricing issues and developments worldwide that may affect your business.
Germany’s draft tax law includes BEPS measures
Germany’s Ministry of Finance has issued a draft tax law that mainly includes measures based on the recommendations from the OECD’s Base Erosion and Profit Shifting (“BEPS”) initiative.
The draft law would introduce the Country-by-Country (“CbC”) reporting in accordance with the recommendations under Action 13 of BEPS. The CbC reporting rules would apply for fiscal years starting on or after 1 January 2016.
In addition to the obligation of preparing a local file, which is already part of the German tax law, the proposed regulation would introduce a new obligation to prepare a master file for German taxpayers that are part of a multinational group with consolidated turnover of at least EUR 100 million in the preceding year. As with the local file, the master file would have to be presented only upon request from the tax authorities in case of a tax audit. The information would have to be provided to the tax authorities within 60 days of the request (30 days for extraordinary business transactions).
The draft law would also implement automatic information exchange procedures regarding advance cross-border tax rulings, to comply with the applicable EU directive.
Denmark finalizes implementation of OECD three-tiered approach to transfer pricing documentation
On 4 May 2016, Danish tax authorities issued an executive order that implements the transfer pricing documentation recommendations from Action 13 of the OECD’s BEPS initiative.
The new Danish CbC reporting requirements apply as of 1 January 2016. In addition, a draft executive order on CbC reporting was submitted for consultation on 6 April 2016. Once finalized, the draft executive order will provide further details on the specific information to be filed and guidance on the format of the submission.
Parallel to the implementation of the CbC reporting requirements, Denmark has been working on an update of its transfer pricing documentation requirements. In this respect, the 4 May 2016 executive order implements the requirements to prepare a master file and a local file as of fiscal year 2016.
The new Danish transfer pricing documentation requirements will require Danish companies to rethink their transfer pricing documentation strategy in line with the latest developments.
Austria plans introduction of “standardized” transfer pricing documentation
On 9 May 2016, Austria’s tax authorities have issued the long-awaited draft Transfer Pricing Documentation Act, which introduces obligatory standardized transfer pricing documentation requirements in line with the OECD’s three-tiered approach.
The requirement to prepare a CbC report will apply to fiscal years starting on or after 1 January 2016. In the case of an Austrian entity assuming the filing responsibility for the foreign ultimate parent company, the CbC report may be submitted for fiscal years starting on or after 1 January 2017.
Similarly, the preparation of a master file and local file will be mandatory for fiscal years starting on or after 1 January 2016. The transfer pricing documentation reports do not have to be filed together with the tax return, however the master file and the local file must be submitted upon request by the tax authorities within 30 days after filing the corporate income tax return.
Even though the legislation has not been finalized, sufficient information regarding thresholds and contents is provided in the draft Transfer Pricing Documentation Act so that companies that may be affected by the documentation requirements may start the process of preparing the required documentation.
US competent authority statistics reveal substantial increase in number of double tax cases resolved in 2015
The Internal Revenue Service on 27 April 2016 released competent authority (“CA”) statistics for the 12-month period from 1 January 2015 to 31 December 2015.
The key trend the IRS CA statistics reveal is a 45 percent increase in the number of Advance Pricing and Mutual Agreement (“APMA”) cases the IRS resolved in 2015. The 193 cases resolved in 2015 represent the highest number of case resolution since 2002. However, 93 of those cases involved double tax cases with India.
Looking forward, the number of requests for CA assistance is expected to continue to rise, in light of the foreign and IRS audit environment, the increased emphasis by the IRS on the need to seek CA assistance, and the new BEPS environment.
As the IRS continues to emphasize the need for US taxpayers to pursue effective and practical remedies, including recourse to competent authority, before claiming a foreign tax credit, US taxpayers under foreign audit should take care not to acquiesce to foreign-initiated adjustments. In addition, US taxpayers that are under tax or transfer pricing audit in foreign jurisdictions, or that have a reasonable expectation that they may be subject to a foreign tax audit, should be mindful of treaty timelines to request competent authority relief or file notifications, and take all necessary protective measures to preserve their right to seek competent authority relief.