Strategizing International Tax Best Practices – by Keith Brockman

Archive for August, 2017

TP documentation for Malaysia: OECD+

As countries continue to align and/or expand the OECD’s transfer pricing documentation (Master File and Local File), including country-by-country (CbC) reporting, the path towards consistency continues to widen, introducing subjective determinations that will potentially lead to additional disputes and double taxation.  EY’s Global Tax Alert provides the relevant details.

The Guidelines adopt a substance over conduct principle associated with contracts and require a more detailed analysis of functions performed, assets employed and risks assumed.

The Guidelines require the functional analysis to align value-creating activities with transfer pricing outcomes by increasing remuneration for significant functions undertaken, with an emphasis on financial capacity to assume risk and exercise control over risk. Failure to conform to the terms of the written contract may cause the transaction to be recharacterized according to the factual substance, and transactions without a commercial substance can be disregarded.

Most importantly, the tax authorities will be looking at contracts with the ability to recharacterize or disregard such transaction.  To the extent additional approvals and guidelines are not adopted by the relevant tax administration, this may lead to new chaos in the transfer pricing world, including a potential ability to avoid tax treaty interpretations and increase the risk of double taxation.

The intent of various countries to adopt the new OECD transfer pricing models needs to be reviewed early to determine potential risks in one or more countries.

http://www.ey.com/Publication/vwLUAssets/Malaysia_updates_transfer_pricing_guidelines_and_introduces_master_file_requirements/$FILE/2017G_04640-171Gbl_TP_Malaysia%20updates%20TP%20guidelines%20and%20introduces%20master%20file%20requirements.pdf

US tax reform: Tax accounting impact

As the time for US seems to tick ever closer, EY’s Global Tax Alert highlights the tax accounting implications that would take effect on the “enactment date.”

Key items for consideration:

  • Tax attributes re: one-time repatriation/taxation of foreign earnings
  • Capital expensing impact
  • State tax impact, dependent on if they automatically follow federal tax law
  • APB 23, how will this be affected?

Although such items are hypothetical at the moment, some items may require additional planning to have the data available for the requisite disclosures.  Thus, the time for planning and consideration is the present.

http://www.ey.com/Publication/vwLUAssets/US_Administration_releases_Joint_Statement_on_Reform_-_Income_Tax_accounting_considerations_related_to_potential_future_US_tax_legislation_and_steps_companies_can_take_now_to_prepare/$FILE/2017G_04560-172Gbl_US%20joint%20statement%20on%20tax%20reform.pdf

US CbC Agreements

The US jurisdictional Country-by-Country (CbC) status table, link provided herein, provides a quick reference into the countries that will automatically accept the US 2016 CbC report, as it is not an obligatory filing for US MNE’s.  To the extent a country is not on this list, a detailed review will be required to ensure that timely reporting is done, possibly on a surrogate country basis.

This list should be monitored to ensure proper governance of the CbC reporting requirements, noting that filing less reports is simpler due to possible different rules, currencies and/or interpretations of similar rules by different countries.

https://www.irs.gov/businesses/country-by-country-reporting-jurisdiction-status-table

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