Strategizing International Tax Best Practices – by Keith Brockman

Archive for the ‘OECD / UN’ Category

OECD TP Guidelines

This 2017 edition of the OECD Transfer Pricing Guidelines incorporates the substantial revisions made in 2016 to reflect the clarifications and revisions agreed in the 2015 BEPS Reports on Actions 8-10 Aligning Transfer pricing Outcomes with Value Creation and on Action 13 Transfer Pricing Documentation and Country-by-Country Reporting. It also includes the revised guidance on safe harbours approved in 2013 which recognises that properly designed safe harbours can help to relieve some compliance burdens and provide taxpayers with greater certainty.

A link to the Guidelines is attached for reference.

http://www.oecd.org/tax/transfer-pricing/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-20769717.htm

UN: TP developments

The UN Transfer Pricing Subcommittee has provided a work designed to move forward its guidance in updating the UN Practical Manual on Transfer Pricing for Developing Countries.  The paper provides three attachments addressing:

  • Financial Transactions, a new chapter
  • Profit Splits, revised text
  • Establishing Transfer Pricing Capability, Risk Assessment and Transfer Pricing Audits, revised text

All three attachments are significant and timely issues, noting the EU and other countries similar emphasis on these topics.

The paper is a valuable read in understanding UN’s direction on the above issues, and is included as a referenced link.

https://www.un.org/esa/ffd/wp-content/uploads/2019/04/18STM_CRP1_Update-UN-Practical-Manual-on-Transfer-Pricing.pdf

OECD: Financial instruments draft

Under the mandate of the Report on Actions 8-10 of the BEPS Action Plan (“Aligning Transfer Pricing Outcomes with Value Creation”), Working Party No. 6 (“WP6”) has produced a non-consensus discussion draft on financial transactions.

Comments are due by September 7, 2018.  The treasury function, guarantees, intra-group loans, cash pooling transactions and captive insurance are the broad agendas discussed.

The guidance is not intended to prevent countries from implementing approaches to address capital structure and interest deductibility under domestic legislation, nor does it seek to mandate accurate delineation under Chapter I as the only approach for determining whether purported debt should be respected as debt.

As this guidance is critical for establishing if an instrument is true debt, as well as transfer pricing implications for financial relationships, this discussion draft is critical to review and provide relevant comments.

The OECD’s discussion draft is referenced herein for review.

 

http://www.oecd.org/tax/transfer-pricing/BEPS-actions-8-10-transfer-pricing-financial-transactions-discussion-draft-2018.pdf

The Platform’s TP toolkit

On 22 June 2017, the “Platform for Collaboration on Tax” (the Platform) – a joint effort of the Organisation for Economic Co-operation and Development (OECD), United Nations (UN), International Monetary Fund (IMF) and World Bank Group (WBG) – released a toolkit (the Toolkit) designed to help developing countries address the lack of “comparables” for transfer pricing analyses and better understand mineral product pricing practices.

This Toolkit should also be reviewed by multinationals (MNEs) in developing countries to address the potential lack of comparables to better understand how the tax authorities will approach a transfer pricing audit.  The mining supplement is required reading for those working in that industry.

Additional toolkits will be forthcoming:

  • TP documentation
  • Indirect transfer of assets
  • Base eroding payments
  • Tax treaty negotiation capacity
  • Supply chain management
  • BEPS risk assessment

As the first edition of the Toolkit has now been published, it will be interesting to watch developing countries apply the tools prescribed, providing a baseline going forward.  All international tax practitioners should be familiar with this latest joint endeavor, as it is an indication of the shared resource approach that is now our future.

EY’s Global Tax Alert provides additional details, and the OECD Toolkit are referenced for review.

http://www.ey.com/Publication/vwLUAssets/OECD_UN_IMF_and_World_Bank_issue_toolkit_for_addressing_difficulties_in_accessing_comparable_data_for_transfer_pricing_analysis/$FILE/2017G_04037-171Gbl_OECD%20UN%20IMF%20and%20World%20Bank%20issue%20toolkit%20for%20difficulties%20in%20accessing%20comparable%20data%20for%20TP%20analysis.pdf

http://www.oecd.org/tax/toolkit-on-comparability-and-mineral-pricing.pdf

UN: TP Manual for Developing Countries

The UN has published the second edition (First edition in 2013) of a transfer pricing manual for developing countries.

The world has changed considerably since 2013, notably affected by BEPS and the OECD’s  actions, including collaborating with developing countries.  However, the UN notes developing countries may not have the sophistication as other developed countries, and this manual provides valuable insight into the trends in this area.

The transfer pricing practices of Mexico, China and Brazil are also summarized in this edition.

The TP Manual is a “must read” for international tax practitioners to fully understand today’s complex dynamics that do not lead to global consistency or simplification.

http://mnetax.com/wp-content/uploads/2017/04/UN-2017-Manual-TP.pdf

 

US int’l developments: CbC exchange

EY’s Global Tax Alert, referenced herein, provides a summary of the latest US international tax developments, including the exchange of BEPS related information.

US recently finalized two model competent authority agreements that will be used for exchanging country-by-country (CbC) reports. One model will apply to information exchanged under US tax treaties, the other will be used with US tax information exchange agreements (TIEAs). A tax treaty or TIEA serves as the legal basis for the exchange of tax information in the CbC reports.

Most importantly, the US has two requirements for countries exchanging CbC reports under OECD’s Action 13: (1) a legal instrument authorizing the exchange, and (2) adequate data security.  With respect to the security prerequisite, this presents uncertainty as to which countries are not considered to have the requisite security.  However, will this “list” be communicated in advance so MNE’s are in compliance with that country’s laws requiring the submission of CbC data?  This should be a forethought, rather than an afterthought, to the process.

http://www.ey.com/Publication/vwLUAssets/Report_on_recent_US_international_tax_developments_-_17_March_2017/$FILE/2017G_01247-171Gbl_Report%20on%20recent%20US%20international%20tax%20developments%20-%2017%20March%202017.pdf

BEPS update: transparency

The latest BEPS updates are detailed in EY’s Global Tax Report, with the underlying premise of transparency.

Summary:

OECD: On 5 December 2016, the OECD released an updated version of the Guidance on the Implementation of Country-by-Country Reporting, providing flexibility for notification filing dates for countries not requiring a country-by-country (CbC) report for 2016.

Belgium: New innovation deduction covering patent and other IP rights.

EU: Proposal for hybrid mismatch rules with non-EU countries

Norway: Adoption and regulations for CbC reporting

UK: Interest limitation rules, among other provisions

US: CbC Form 8975 released

From a MNE perspective, it is increasingly apparent that deductions to, and benefits from, tax haven countries are under attack and substance is the key to business and tax decisions.  

(CbCR).http://www.ey.com/Publication/vwLUAssets/The_Latest_on_BEPS_-_19_December_2016/$FILE/2016G_04446-161Gbl_The%20Latest%20on%20BEPS%20-%2019%20December%202016.pdf

%d bloggers like this: