Transfer Pricing Brief: May 2017

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Italy: Requirement-Rule: According to Decree No.50 published on 24 April 2017, the definition of normal value with the concept of arm’s length will be modified to be more aligned with Organisation for Economic Co-operation and Development (OECD) principles.
Adjustments-Corresponding adjustment: According to Decree No.50 published on 24 April 2017, corresponding adjustments are now allowed the conclusion of tax audits performed under international cooperation procedures, where the results are agreed by the tax authorities involved.
Special Areas-Intangible property: The Italian patent box regime allows taxpayers to elect to exclude a percentage of the income derived from the use and/or the transfer of ownership of relevant intangibles from the tax base declared for both corporate income tax (IRES) and regional tax (IRAP) purposes.
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Croatia: CbC reporting requirement-General rule: The country by country reporting requirement applies to MNEs headquartered in Croatia with annual consolidated group revenue equal to or exceeding €750 million in the previous year. CbCR applies for fiscal years beginning on or after 1 January 2016.
CbC reporting requirement-Parent company: The CbCR is filed by the ultimate parent of those multinational groups (“MNG”) that have total consolidated revenues of EUR 750 million or more in the last financial year.
CbC reporting requirement-Definition of group: The country by country reporting requirement applies where the consolidated group revenue in the preceding year is at least EUR 750 million.
CbC reporting requirement-Timing: The first CbC report for the fiscal year started on or after 1 January 2016 must be by an ultimate parent entity of the MNE group or its surrogate parent entity that is resident in Croatia within 12 months from the last day of that tax year. Thus, for the fiscal year that ended on December 31 2016, the deadline is December 31 2017.
CbC reporting requirement-Penalty for documentation failure: Penalties ranging between HRK 2,000 to HRK 200,000 will apply for noncompliance.
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Availability of APA: The Guidance on Advance Pricing Agreements (APAs) has been published in Official Gazette No. 47/15 on 3 May 2017. Accordingly, APAs could be concluded in respect of the transfer pricing treatment of intercompany transactions and would be binding on the TA.
Authority: Tax Administration.
Rules: APAs could be concluded in respect of the transfer pricing treatment of intercompany transactions and would be binding on the TA. Before submitting an official request, the taxpayer may also initiate a non-binding consultation procedure with the TA discussing the transfer pricing treatment of the intercompany transaction for which the APA request will be filed.
Withdrawal: APAs can be canceled if factual circumstances change; legislation has been amended or annulled; and facts have not been truthfully presented to the TA.
Validity: 5 years.
Fees: Ranges from HRK 15,000 to HRK 50,000 depending on the taxpayer’s turnover as stated in the most recent tax return.
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Pakistan: Dispute resolution-Alternative dispute resolution: The Federal Board of Revenue (FBR) has released a guide on the mechanism of ADR in April 2017. Based on the guide, taxpayers can seek to resolve tax disputes via ADR instead of the conventional method of appealing through the appellate authorities, tribunals and courts of law. The aim of the ADR is to reduce the costs of appeal to taxpayers and to expedite the resolution of tax disputes.
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Norway: Financial services-Restriction on interest deduction: On 4 May 2017, a discussion paper that proposes changes to the earnings stripping rules has been issued by the Norwegian Ministry of Finance which further extends the limitation to also include interest costs on unrelated party debt.  The new proposed rules provide for one exception according to which the taxpayers are able to document that the equity ratio of the company is not lower than the equity ratio reported in the consolidated financial statements, full interest costs on unrelated party debt will continue to be deductible. If passed, the amendment would be effective from 1 January 2018.
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Iceland: CbC reporting requirement-General rule: According to Regulation no.245/2017, Country-by-Country Reporting shall include the applicable information on an aggregate basis for all entities within each country. In the previous regulation no. 1166/2016, this information was requested for each entity instead of collectively for each country.
BEPS related compliance-Timing: According to Regulation no.245/2017, Country-by-Country reporting must be filed with the Directorate of Internal Revenue before the end of each calendar year or by the end of financial year. In the previous regulation no. 1166/2016, CbCR was to be filed no later than 12 months after the close of the group’s financial year.
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Korea: BEPS related compliance-Master file: A Master file must be submitted for fiscal years beginning on or after 1 January 2016, by all domestic corporations and foreign corporations with Korea-source income with Sales revenue exceeds KRW 100 billion (approximately U.S. $89 million) and the volume of cross-border related-party transactions exceeds KRW 50 billion (approximately U.S. $44.4 million)
BEPS related compliance-Local file: A Local file must be submitted for fiscal years beginning on or after 1 January 2016, by all domestic corporations and foreign corporations with Korea-source income with Sales revenue exceeds KRW 100 billion (approximately U.S. $89 million) and the volume of cross-border related-party transactions exceeds KRW 50 billion (approximately U.S. $44.4 million).
BEPS related compliance-CbC reporting requirement: The CbC report is required to be submitted by ultimate parent company when the earlier year’s consolidated sales revenue exceeds KRW 1 trillion.
Financial services-general rule: The tax authority updated the rules on the arm’s length interest rate applicable for loan transactions between a resident and a foreign related-party. The new rules set forth the arm’s length interest rate for lending and borrowing involving a Korean resident taxpayer to a foreign related party.
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India: BEPS related compliance-CbC reporting requirement: India has introduced a country-by-country (CbC) reporting requirement in section 286 of the Indian Income-tax Act-1961, with effect from financial year 2016-2017. The first round of CbC reports, when applicable, will have to be filed with the Indian tax authorities by 30 November 2017.
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Information exchange-Bilateral: On May 17, 2017, Indian Union Cabinet has given its approval for signing of a multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting (BEPS).
Information exchange-Multilateral: The Union Cabinet has given its approval for India’s signing of a multilateral convention(MLI) to implement tax treaty-related measures to prevent base erosion and profit shifting (BEPS) which is scheduled to take place in Paris on 7 June 2017.
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Australia: Risk Assessment: Draft Practical Compliance Guideline PCG 2017/D4 of 16 May 2017, sets out a self-assessment risk framework which will allow taxpayers to self-assess the tax risk of their related party financing arrangement and realize the compliance approach the Commissioner is likely to implement based on the risk profile. The provisions of the draft guidance will apply to both inbound and outbound financing arrangements that are entered into with a non- resident related party.
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Main corporate income tax rate: In the 2016–17 Budget, the Government announced that it intended to progressively reduce the corporate tax rate from 30 per cent to 25 per cent over the next ten years. The corporate tax rate is reduced from 28.5% to 27.5% for the 2016–17 income year for small business entities.
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Hungary: CbC reporting requirement-General rule: Hungary released a draft law on country-by-country (CbC) reporting on 10 March 2017. According to law, all Hungarian tax resident entities that are part of a multinational group that derives annual consolidated income of at least EUR 750 million will need to comply with the CbC reporting requirements.
Parent company: A Hungarian resident ultimate parent entity must file a country-by-country report with the Hungarian tax authority within 12 months of the last day of its reporting fiscal year. If the ultimate parent is tax not resident in Hungary, Hungarian resident constituent entities may become reporting entities and may be appointed by their groups to file the CbC report.
Definition of group: Global group means a group of entities, at least one of which is a foreign entity that are consolidated for accounting purposes as a single group.
Profits and tax paid: The CBCR must include information on the main data of the MNE per each tax jurisdiction involved with its operation i.e. revenue, pre-tax profit / loss, paid corporate income tax, capital etc.
Employees: The average number of employees in each entity must be reported.
Assets: CbC reports must contain tangible assets other than cash or cash equivalents and main business activity.
Timing: The first CbC reports and notifications must be filed for the fiscal year commencing on or after 1 January 2016, within 12 months of the last day of that fiscal year. In future fiscal years notifications must be made no later than the last day of the reporting fiscal year. Any change must be reported within 30 days of such change occurring.
Penalty for non-compliance: Failing to submit reports or notifications, late submission, or providing incorrect, false or incomplete information may be subject to a default penalty of up to HUF 20 million.
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Czech Republic: Information exchange-Multilateral: The government of the Czech Republic has given its approval of signing of the multilateral convention (MLI) to implement tax treaty-related measures to prevent base erosion and profit shifting (BEPS) which is scheduled to take place in Paris on 7 June 2017.
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Singapore: Cost-plus method: Recently, the Inland Revenue of Singapore has clarified its practice that allows services companies which provide “routine support services” to adopt the cost-plus mark-up method.
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France: CbC reporting requirement-Parent company: If the parent company established in France and files the CbC report that entity must “check a box” indicating this information on its tax return. If a legal entity established in France is the subsidiary of an ultimate parent company located in a jurisdiction and files the CbC report that entity is not required to mention any CbC reporting information on its tax return. Other than the above circumstances entity must indicate the legal name and address of the entity filing the CbC report on its income tax return.
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Colombia: Local file: Local files must be filed for tax year 2016 between 11 July and 25 July, depending on the last number of the taxpayer’s ID, as established in Decree 1625 of 2016.
Master file: Must be filed for tax year 2017 in 2018 in accordance with dates to be determined by the Government; tax year 2016 is not subject to the master file requirement.
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Germany: Information exchange-Multilateral: On 21 December 2016, the Federal Government approved the signing of the Multilateral Convention on the implementation of tax-related measures to prevent the shortening of profits and the shift of profit. The signing ceremony is scheduled to take place in Paris on 7 June 2017.
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Russia: Information exchange-Multilateral: The Russian government approved the signing of the, Multilateral Convention (2016) (MLI). The signing ceremony is scheduled to take place in Paris on 7 June 2017.
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Ukraine: APAs-Rules: According to the adopted amendments to the Regulation No. 504 of 17 July 2015, an APA will become effective on the date agreed by the State Fiscal Service and a taxpayer (depending on the terms and conditions of the controlled transactions) or on 1 January of the year following that in which the APA was signed.
APAs-Validity: According to adopted amendments to the Regulation No. 504 of 17 July 2015, the validity of an APA is extended from 3 to 5 years.
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Brazil: BEPS related compliance-CbC reporting requirement-General rule: According to Normative Instruction 1,709/2017 published on May 25 2017, the Brazilian entity may amend its corporate income tax return within 60 days and file the CbC report on behalf of the entire group for calendar year 2016 if a competent authority agreement (CAA) is not concluded between Brazil and the reporting entity’s jurisdiction by 31 December 2017.
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Belgium: Master file: Belgium’s Federal Public Service (FPS) Finance recently updated its transfer pricing documentation forms in relation to master file based on BEPS Action 13.
CbC reporting requirement-Timing: On December 22, 2016, the Federal Public Service (FPS) announced the extension of CbC reporting notifications to September 30, 2017 for fiscal year 2016.
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Bulgaria: Information exchange-Multilateral: The Bulgarian government approved the signing of the, Multilateral Convention (2016) (MLI) on 17 May 2017. The signing ceremony is scheduled to take place in Paris on 7 June 2017.
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Israel: Information exchange-Multilateral: On 22 May 2017, the tax authority in Israel announced the signing of a multilateral agreement for the automatic exchange of country-by-country (CbC) reports and of common reporting standard (CRS) information.
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Spain: Specific TP compliance: Spain’s Tax Agency has published a draft order approving Form 232 for reporting related-party transactions and transactions and situations that involve countries and territories considered to be tax havens. The deadline for filing Form 232 has been set generally in May.
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