Strategizing International Tax Best Practices – by Keith Brockman

Posts tagged ‘UN TP Manual’

UN: Practical Manual on TP

As the OECD ventures forth in digital transactions and global minimum tax standards, it is always helpful to keep in  mind the UN Practical TP Manual for Developing Countries, which adheres to the arm’s-length principle.  Links to the Manual and the Committee of Experts on International Cooperation in Tax Matters are provided for reference.

In April 2019, a new chapter was added on Financial Transactions, Profit Splits and revised text on establishing Transfer Pricing Capability, Risk Assessment and Transfer Pricing Audits.

  • Attachment A: the proposed new Chapter B on Financial Transactions. The draft discusses the importance of corporate financing decisions within multinational groups and how those decisions could lead to tax base erosion. The Chapter discusses interaction with rules and measures against base erosion; common types of intra- group financial transactions and of group financing departments; the process of actual delineation and relevant characteristics of financial transactions; the process and system of credit rating; potential transfer pricing methods, including the use of simplification measures/safe harbours; different types of intra group loans and relevant characteristics; determining the arm’s length nature of intra-group loans; different types of intra group financial guarantees and relevant characteristics; determining the arm’s length nature of intra-group financial guarantees; and available methods. The chapter also discusses cash pooling practices and captive insurance, without getting into further detail on the delineation and arm’s length pricing of those specific transactions. Different types of intra-group loans are mentioned, and the draft identifies four steps to determine the arm’s length nature of intra-group loans: (i) analyse economically relevant characteristics; (ii) accurately delineate the entire transaction undertaken as well as (iii) selection and (iv) application, of the most appropriate transfer pricing method. 
  • Attachment B: Revision to the guidance contained in the Manual on the transactional profit-split method (Chapter B.3.3.) with the main focus being on seeking consistency of this guidance with the work done in the context of the Inclusive Framework on BEPS, while providing more practical examples.
  • Attachment C: A progress draft of the work on sections C.2. Establishing Transfer Pricing Capability in Developing Countries (previously C.5.); C.4. Risk Assessment (Previously part of C.3.) and C.5. Transfer Pricing Audits. The purpose is mainly to streamline the sequences of presentation and to eliminate overlaps in the current text.

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

https://www.un.org/esa/ffd/tax-committee/about-committee-tax-experts.html

India states its UN TP intent

The 2016 draft of the UN TP Manual includes India’s latest expression of alignment, as well as differing views from the OECD BEPS Actions 8-10 and 13.

Accordingly, the Indian tax administration is of the view that the guidance flowing from the final report of the BEPS project on Actions 8-10 should be utilized by both the transfer pricing officers (TPOs) and taxpayers in situations of ambiguity in interpretation of the law. However, India has not endorsed the guidance in the BEPS report pertaining to low value adding intra group services under Action 10 and has not opted for the simplified approach. Further, India has endorsed the recommendations contained in the BEPS final report on Action 13, which supported the three-tiered documentation regime comprising a Local File, a Master File and a Country-by-Country Report and has already carried out legislative changes in its domestic law.

India is known for its creativity, non-technical aggressive positions, and the number of years required to appeal initial assessments.  Some of these positions, currently in litigation and dispute, have been reiterated as a further stance in their hard line position on transfer pricing to enhance its economic fisc.  Accordingly, interested international tax practitioners should be cognizant of these positions, as other countries will surely “look and see” if such positions could also benefit their economic fisc similarly. 

EY’s Global Tax Alert is provided for reference.

http://www.ey.com/Publication/vwLUAssets/India_revises_Country_Chapter_comments_in_UN_Practical_Manual_on_Transfer_Pricing_Issues_for_Developing_Countries/$FILE/2016G_03873-161Gbl_TP_IN%20revises%20Cntry%20Cptr%20comments%20in%20UN%20Practical%20Manual%20on%20TP%20Issues%20for%20Dev%20Cntries.pdf

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