Strategizing Multinational Tax Risks

International Tax Review has published, in association with KPMG, an informative summary of transfer pricing (TP) landscapes in the following countries:

Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, Thailand and Vietnam.  I will summarize key highlights from each country, with the following link provided for a complete reference:

Click to access Asia%20Transfer%20Pricing%202014.pdf

• Australia: New TP legislation is aligned with a policy intent of self-assessment; market support strategies classified as a capital or revenue nature

• China: Location savings; Focus on domestic contributions as a part of the global value chain; value-add analysis of intra-group services; domestic GAAR; expert panel at the SAT level providing TP opinions

• Hong Kong: Bilateral/multilateral APA focus; TP documentation to mitigate risk

• India: Valuation of share investments; advertising expenditures resulting in marketing intangibles; intra-group services; “significant people function” approach to intangibles

• Indonesia: Automatic tax audits; ITO tax revenue focus; MAP/APA trend; unpredictability

• Japan: Combined TP and income tax audits; bilateral APA’s; documentation of related party profits in intercompany transactions

• Korea: Intercompany royalties; intra-group service fees; local benchmarking focus; TP audit process diagram; TP Review Committee

• Malaysia: Local company comparable supplement to TP documentation; Intercompany transaction disclosure to assess TP risk; proof that intercompany services have been rendered and are not duplicative

• New Zealand: Inter-group financing / credit assessment tools; OECD alignment; TP questionnaires to taxpayers re: risk assessment; collaboration

• Philippines: Internal database for risk assessment; year-end adjustments; withholding taxes

• Singapore: Intra-group service fees; APA / MAP procedures

• Taiwan: Specialized TP teams; inspection forms to re-complete economic analysis on a transaction-by-transaction basis; intra-group funding; cross-border licensing; China-Taiwan OECD model based cross-strait taxation agreement

• Thailand: Forthcoming reforms in TP, thin capitalization, CFC rules and GAAR; inter-company services re: benefits received; FX documentation; local comparables; APA and MAP process

• Vietnam: MAP and APA regulations; annual disclosure of related party transactions effective 1/1/2014; targeted sectors for TP audits

There are many common themes highlighted in this region, and it is evident that transfer pricing processes and reporting obligations have increased significantly.  Accordingly, this region may merit a special TP review re: contemporaneous documentation and the particular risk areas for each country.