Global Transfer Pricing Update: February 2020 - Tax and Legal blog

TransferPricing update Feb 2020
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 present both risks and opportunities. Our transfer pricing updates will provide you with the latest transfer pricing issues and developments worldwide that may affect your business.

Brazil considers convergence with OECD transfer pricing standards

The OECD has released a detailed report that marks the conclusion of a joint project with the Brazilian Federal Revenue launched in February 2018 to examine the similarities and divergences between the Brazilian and OECD transfer pricing approaches.
Given that convergence has been agreed to by the OECD and Brazilian Federal Revenue, and the Brazilian government has reaffirmed its intention to become an OECD member, a full alignment of the transfer pricing rules is just a matter of time. The next steps were set out and involve:

  • The release of a blueprint and roadmap for convergence, to be developed in 2020;
  • Conclusion of the policy design of the system, including an impact assessment from the RFB on local tax collection;
  • Developing draft legislation;
  • Establishing a plan for capacity building for the tax administration; and
  • Development of safe harbor regimes.

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Financial Services Transfer Pricing: Outlook for the asset management sector for 2020 and beyond

Asset managers are fundamentally transforming the way they work. Key triggers are new fee arrangements, clean share classes, and the unbundling of fees, which will require tax departments to examine the potential impact on fee flows, existing transactions, and transfer pricing policies, as well as the availability of fee data for benchmarking purposes. The continuous progress of technology also raises the question of how to structure such investments from a transfer pricing perspective with respect to the ownership and use of the resulting intangibles.

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Germany introduces legislation to enact significant changes to transfer pricing rules

The German Federal Ministry of Finance (“MoF”) has published a draft law that would implement the EU anti-tax avoidance directive and is a far-reaching revision of sec. 1 of the Foreign Tax Code, which serves as the core legal basis for transfer pricing adjustments in German tax law and defines the main aspects of the German interpretation of the arm’s length principle.

Some important aspects of the draft law from a German transfer pricing include:

  • The MoF proposes implementing the internationally adopted “best method rule” and the adoption of the interquartile range as the general approach.
  • The MoF has introduced a legal definition of the term “intangibles” based on OECD transfer pricing guidelines and the implementation of the “DEMPE” concept in German tax law.
  • Extension of the scope of price adjustment clause to all business transactions that involve valuable intangibles.
  • The so-called “escape clauses” that allow an individual valuation of the transferred assets instead of a transfer package valuation under certain conditions have been removed.
  • Expansion of the definition of related parties, partly to avoid the tax evasion that wold occur in cases in which related entities issue non-voting shares or enter into voting agreements.
  • The draft law reduces the turnover threshold for the obligation to prepare a master file from EUR 100 million to EUR 50 million (fiscal years beginning after 31 December 2020).
  • The draft law codifies the requirements and procedure to obtain an APA and creates a legal basis for the APA program.

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Israeli court supports taxpayer’s business model change

Israel’s Central District Court recently ruled that the fact that a taxpayer opts to enter into a related-party arrangement for the purpose of reducing business risk does not necessarily imply that it has executed a transaction that essentially embodies the transfer of “economic value” or an “asset.”

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OECD releases report on transfer pricing of financial transactions

The OECD on 11 February released final guidance on the transfer pricing aspects of financial transactions. The long-awaited release marks the first time the OECD transfer pricing guidelines will be updated to include such guidance.

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OECD’s Inclusive Framework renews commitment to efforts to address tax challenges from digitalization of economy

The OECD released a statement that affirms the Inclusive Framework’ commitment to reach agreement on a solution to the tax challenges posed by a digitalization of the economy by the end of 2020, while deferring a decision on US Treasury Secretary Mnuchin’s proposal for a “safe harbor” approach to Pillar One until other elements of the solution have been agreed.

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Public consultation document released on review of CbC reporting minimum standard

On 6 February 2020, the OECD/G20 Inclusive Framework on BEPS released a public consultation document on country-by-country (CbC) reporting to tax authorities under BEPS action 13. The OECD is asking for businesses’ experience of how reports are being used by tax authorities in risk-assessing cases for audit. Views are also sought on a number of potential changes, including whether the revenue threshold for reporting should be lowered, whether in-country consolidation of financial data should be required and whether additional information should be requested.

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Qatar introduces transfer pricing regulations

The State of Qatar recently introduced new transfer pricing regulations, which are applicable for accounting periods ending on or after 31 December 2019. Qatari entities with a 31 December year-end must complete a transfer pricing form/questionnaire, which is due by 30 April 2020.

The new transfer pricing requirement include five elements in the compliance process:

  • A transfer pricing form / questionnaire must be provided with the tax return;
  • A master file must be in place by April 2020;
  • A local file must be in place by April 2020;
  •  Country-by-country (“CbC”) reporting requirements; and
  • A requirement to obtain approval from the GTA if the taxpayer is not applying the CUP method.

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Ukraine parliament adopts BEPS tax reform measures

On 16 January 2020, the Ukraine parliament adopted a tax reform bill containing significant changes to the tax legislation, including long-debated recommendations under the OECD base erosion and profit shifting (BEPS) project and changes to tax administration procedures. Measures in the reform include the introduction of the three-tiered transfer pricing reporting requirements, a new fixed ratio rule that limits the amount of interest expense that may be deducted, general anti-abuse rules (GAAR), new controlled foreign company (CFC) rules, and a mutual agreement procedure (MAP) and amendments to the definition of a permanent establishment (PE).

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If you would like to discuss more on this topics, please do reach out to our key contacts below.

Key contacts

 

Habermacher_Blog

Hans Rudolf Habermacher - Partner, Transfer Pricing Leader Switzerland

Hans Rudolf has over 17 years’ of experience in advising clients in Transfer Pricing concepts. He successfully engages with MNCs in various industries in the planning, implementation, documentation & defence of TP concepts. Further he has significant experience in the design and implementation of principal & licensing structures. He is also highly successful in filing and negotiating bilateral APA's (Advanced Pricing Agreements) and mitigating double taxation issues through MAP procedures.

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Raoul Stocker_BLOG

Raoul Stocker - Partner, Business Tax Leader Zurich

Raoul Stocker is a tax partner with more than 15 years’ experience specifically in international tax litigation such as mutual agreement procedures and advanced pricing agreements. His focus lies on corporate tax planning, cross-border structuring of corporate transactions and businesses, transfer pricing as well as taxation of financial institutions. Raoul is also a lecturer of transfer pricing and tax law at the University of St. Gallen.

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Aoife Thompson

Aoife Thompson - Consultant, Transfer Pricing

Aoife has over 4 years of professional experience advising clients on corporate and international tax issues. She is an Associate of the Institute of Chartered Accountants and a qualified Chartered Tax Advisor. Aoife works on advising large multinationals in a variety of industry sectors in the field of international taxation and transfer pricing, and more specifically in relation to corporate restructurings, business model optimisation, tax due diligences, tax audits and documentation projects.

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