TPA Newsletter

Azerbaijan

Transfer pricing Rule-A Bill on transfer pricing is being re-introduced to parliament and if approved will take effect from 1 January 2014. This Bill is expected to introduce five permitted transfer pricing methods.

Brazil

Financial services- thin capitalization rules apply to restrict the interest deduction unless the value of the debt does not exceed twice the investor’s equity stake; or the overall indebtedness of the company does not exceed twice the equity stake of related parties in the Brazilian subsidiary. Net equity must be computed under the accounting rules that applied at 31 December 2007, according to transitional taxation arrangements in connection with the move to using the new Brazilian GAAP in preparing accounts.

For export transactions- price valuation under Export Transactions (PCEX) method. For exports of commodities the PECEX method must be used, and there is no safe harbor. A list of commodities for this purpose is provided by NI 1312/12 and amended by NI 1,395/2013.

Specific TP compliance-under Normative Instruction 1277 as amended by NI 1,391/2013 all transactions with non-residents in services, intangibles or other transactions that produce a variation in the net equity of either party must be reported to the tax authorities by the last day of the month following the transaction (or the month following the commencement of provision of a service or the commercialization of an intangible).

APAs- under revised ruling procedure taxpayers may file a request to consult the tax authorities on the interpretation of the tax and customs legislation. Applications may be made to the General Tax Coordination Department. Late payment penalties and interest do not apply to issues in respect of which a consultation was filed before the deadline for paying tax, up to the date where a decision is issued.

Canada

Financial services-under the thin capitalization rules a company may deduct interest on debts with specified non residents up to the applicable debt: equity ratio of 1.5: 1. A specified non-resident is a non-resident with a 25% shareholding in the Canadian company. Proposed tax measures in the 2013 Economic Plan would extend the scope of the thin capitalization rules to cover Canadian resident trusts and non-resident corporations and trusts.

France

Documentation Deadlines-an abridged version of the transfer pricing documentation must be submitted within six months of the due date for filing the transfer pricing return. This includes a description of the business, intangible assets held, the transfer pricing policy, business activities and changes in the year, transactions above EUR 100,000 with related parties and transfer pricing methods.  Full documentation should be provided to the tax inspector on the first site visit of a tax audit, or within 30 days of being requested.

Greece

Documentation Requirement-A Summary Information Table must be prepared and submitted electronically using a special application meeting Ministry specifications within four months of the year end. Companies must prepare a Transfer Pricing Documentation File documenting transactions with Greek and foreign related parties within four months after the end of the tax year.

Documentation Thresholds-if a transaction with the same related party does not exceed EUR 20,000 this is excluded from the SIT and from the documentation requirements. If there are several transactions of the same type with the same related party these must be aggregated in computing the EUR 20,000 threshold.

Penalty for documentation failure-there is a penalty of EUR 10,000 for late filing of the SIT and a penalty of EUR 100,000 for non-filing of the SIT.

APAs Withdrawal-an APA can be revised, revoked or cancelled if the taxpayer does not adhere to the terms of the agreement or if the critical assumptions change or are found to be incorrect.

Indonesia

Audits process-Indonesia has an extensive system of tax audits. Companies selected for audit may include those claiming refunds or those declaring losses, or where an adjustment to the profits of one company gives rise to an adjustment for the other company involved in the transaction.

Penalty in cases of adjustments-late payment penalties do not apply between July and December 2013 for companies with a turnover below IDR 4.8 billion.

India

Exemptions from transfer pricing rules or from transfer pricing adjustment-the proposed margins are a 20% to 22% ratio of operating profit to operating expenses (OP/OE) for software development or IT enabled services; a 25% OP/OE ratio for knowledge process outsourcing services; an interest rate on intragroup loans of BOI base rate plus 150 basis points for loans up to INR 500 million and BOI base rate plus 300 basis points for loans above INR 500 million; commission or fees of 2% or more per annum for guarantees by Indian companies to foreign subsidiaries (1.75% if the amount guaranteed exceeds INR 1 billion).

Audits Time Limits-only companies with transactions of more than INR 150 million are subject to a transfer pricing inspection.

Luxembourg

Main corporate income tax rate-circular LIR 174/1 has clarified that the minimum corporate income tax does not apply to permanent establishments or exempt entities. Minimum corporate income tax paid in 2013 will be carried forward as a credit against future corporate tax liabilities.

Mexico

Main corporate income tax rate-under a proposed tax package an additional tax of 10% would be imposed from 1 January 2014 on profits and dividends paid to Mexican individuals and foreign residents.

Malaysia

Main corporate income tax rate-the main rate of corporate tax is 25%, decreasing to 24% from 1 January 2016.

Norway

Financial services-from 1 January 2014 the tax deduction for related party interest paid is to be restricted to 30% of the taxable earnings before interest , tax, depreciation and amortization. This includes interest paid on third-party loans that are guaranteed by a related party. Disallowed interest could be carried forward for ten years. This interest restriction will only apply if the net interest on all loans is more than NOK 3 million.

Philippines

Audits Time Limits-accounting records must be retained for a period of ten years following the day after the deadline for filing the tax return.

Russia

Financial services–the rules apply where a foreign lender owns at least 20% of the Russian borrower or a Russian affiliate issues a guarantee or secures fulfillment of the debt obligation.

United States

MAP-the procedure for making requests for competent authority relief is outlined in Revenue Procedure 2006-54. The IRS is in the process of amending Revenue Procedure 2006-54 which needs to be updated as a result of organizational changes including the formation of the Advance Pricing and Mutual Agreement (APMA) office.

South Africa

Financial services-under proposals in the Tax Laws Amendment Bill 2013 relief from transfer pricing provisions would apply to certain related party loans with equity features where the creditor is a South African resident company with a shareholding of at least 10% in the debtor.