Strategizing International Tax Best Practices – by Keith Brockman

TEI has published comments addressing the UN Practical Manual on Transfer Pricing for Developing Countries, in addition to US IRS Notices for revisions to Revenue Procedures setting forth new policies to implement the Competent Authority (CA) and Advance Pricing Agreement (APA) procedures.  References to TEI’s submissions are included for reference:

UN TP Manual key comments:

http://www.tei.org/Documents/TEI%20Comments%20on%20UN%20Transfer%20Pricing%20Manual%20March%202014.pdf

  • Harmonize UN and OECD Transfer Pricing (TP) guidelines to reduce cross-border disputes
  • Risk assessment should be the primary focus, with most multinationals (MNE’s) “low-risk” status due to global and consistent TP policies and documentation
  • First step of tax authorities should be to address overall business, group TP policy and risk control framework
  • Domestic legislation defeats the purpose of a standard international TP guideline
  • Recharacterization by tax authorities should only be permitted in clear cases of abuse
  • TP documentation flexibility must be preserved
  • Burden of proof should reside with tax authorities, with penalty protection granted to taxpayer upon providing sufficient TP documentation
  • Intangible discussion precedes work of the OECD on revision of its Chapter VI Guidelines, reducing likelihood of harmonization
  • Intra-group services and management fees: Consistency of UN and OECD approaches for clarity, in addition to uniform safe harbors
  • TP documentation: “Less is more” approach to assess risk, materiality consideration on a group and country level, global and regional comparables, English language
  • Chapter 10 policy objectives are not aligned with the UN TP Manual and the arm’s-length principle

US Competent Authority key comments to Notice 2013-78 re: revisions to Revenue Procedure:

http://www.tei.org/Documents/TEI%20Comments%20on%20Notice%202013-78%20Revised%20CA%20Revenue%20Procedure%20-%20FINAL%20to%20IRS%20Mar%2010%202014.pdf

  • Opening the CA process to taxpayer initiated adjustments is welcome
  • A new procedure whereby an informal consultation is arranged with taxpayers to discuss its exhaustion of remedies to reduce its foreign tax before claiming a US Foreign Tax Credit (FTC) should not be compulsory.  The timeliness of such advice is also of concern.
  • CA initiated MAP cases and required inclusion of MAP issues that are not a part of the taxpayer’s request for assistance raises many questions.
  • Provision of all information to both CA’s is over broad and may not be mutually relevant.
  • US CA assistance may be denied if a foreign initiated adjustment is agreed to without consulting the US CA: this raises resource and timeliness issues and should also have no impact upon  the merits for claiming a US FTC.

US APA key comments to Notice 2013-79 re: revisions to Revenue Procedure

http://www.tei.org/Documents/TEI%20Comments%20on%20Notice%202013-79%20Revised%20APA%20Revenue%20Procedure%20-%20FINAL%20to%20IRS%20Mar%2010%202014.pdf

  • The Notice reflects prior creation of the Advance Pricing and Mutual Agreement (APMA) program
  • Details are set forth regarding the “pre-filing” process
  • Appendix is included stating the required materials to be submitted for inclusion
  • Rules are provided for when the IRS may cancel or revoke a completed APA
  • Inapplicable information should not be submitted, but a “suitable explanation” why the information is not relevant must be provided
  • The suggested changes will increase information required for application, and time required for APA completion, thereby reducing the likelihood that taxpayers will proceed with an APA request

 

In alignment with the OECD’s BEPS proposals, unilateral country legislation including General Anti-Avoidance Rules (GAAR), and the UN TP Manual principles for developing countries, tax controversies are expected to increase significantly.  Tremendous pressure will be placed on CA assistance around the world, and possibilities for new APA ‘s will be reviewed to reduce inherent uncertainty.

Accordingly, all multinationals and interested parties should read TEI’s excellent comments to better understand the issues to be confronted, with suggestions for thoughtful and practical ideas to achieve mutual objectives for taxpayers and tax authorities around the world.

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