Transfer Pricing Newsletter

Australia

Intangible Property-The ATO is increasing the amount of resources devoted to examining business restructurings, marketing hubs and intangible assets. Taxpayers should ensure that their intangible assets are clearly defined, that the economic ownership of the assets is adequately supported and documented, and that the value created by the intangibles is clarified adequately.

Financial Services– Under Draft Taxation Determination TD 2013/D3 support payments made by an Australian parent company to a foreign related entity (e.g. where a limited risk entity has not made sufficient profits or has made a loss) would be considered as capital payments and would not be tax deductible for the Australian parent.”

 Chile

Main Corporate Income Tax-A tax rate of 20% applies to Chilean companies or permanent establishments of foreign companies. Under legislation enacted in September 2014 the corporate income tax rate will rise to 27% by 2017.  From 2017 an alternative tax regime will also be available under which a 25% rate would apply to corporations, plus a 10% withholding tax on deemed distributed profits.

Main Corporate Income Tax -A tax rate of 20% applies in 2014 to Chilean companies or permanent establishments of foreign companies. Under legislation enacted in September 2014 the corporate income tax rate will rise to 22.5% in 2015 and 24% in 2016. From 2017 an attributed regime and a distributed regime will be available. Under the attributed tax regime a 25% rate would apply to corporations, and foreign shareholders would be subject to an additional tax (a withholding tax) on their income from certain entities for the relevant period. Under the distributed regime a rate of 25.5% would apply, plus a 10% withholding tax on dividends distributed by the company. The tax rate under the distributed regime would rise to 27% by 2018.”

 China

Transfer Pricing Application Process-Transfer pricing adjustments may be made in accordance with Circulars 3 and 16 “”Internal Working Procedure (Trial) of Special Taxation Adjustment”” and “”Joint Assessment Procedure (Trial) for Key Cases of Special Taxation Adjustment””.

Primary Adjustment-Under the SAT Gong Gao (2014) No 54 of 29 August 2014, provision, the taxpayer is sent a Notice of Tax Affairs and must send in contemporaneous transfer pricing documentation and other related material within 20 days of the issue date of the letter if the tax authority considers there is a risk of tax adjustments. The taxpayer may make adjustments and pay tax on its own initiative or request the tax authority to determine the transfer pricing methods and make the tax adjustments.

Czech Rep.

Transfer Pricing Compliance Form-From October 2014 a transfer pricing form has been introduced for submission to the tax authorities annually with the tax return, requiring information on related party transactions. This form must be submitted by taxpayers if their total assets are more than CZK 40 million, or net turnover is above CZK 80 million, or the annual average number of employees is more than fifty. These entities must complete the form if they have transactions with any foreign related parties in the year; have recorded tax losses and have related party transactions; or they have received investment incentives in the form of tax relief and have related party transactions. Details must be reported for each category of transaction, giving the nature of the transaction, the country of residence of the related party, the nature and volume of transactions, and a summary of related party receivables and liabilities. This form must be sent in with the return for the year to 31 December 2014.

Spain

Main Corporate Income Tax Rate-The rate is to be reduced to 28% for 2015.

United Kingdom

Transfer Pricing Rule -Transactions are now to be analyzed in the light of all relevant terms, conditions, and arrangements. There is no longer a requirement for a Direction from the HMRC Board before issuing an assessment including a transfer pricing adjustment.

Transfer Pricing Requirement- Control-The meaning of control also includes a situation where a number of parties are acting together in relation to financing arrangements and could collectively control the entity. For this purpose, “financing arrangements” are defined as arrangements that are made for providing or guaranteeing any debt, capital or other form of finance.

Financial Services– The meaning of control also includes a situation where a number of parties are acting together in relation to financing arrangements and could collectively control the entity. For this purpose, “financing arrangements” are defined as arrangements that are made for providing or guaranteeing any debt, capital or other form of finance.

Main Corporate Income Tax -From 1 April 2012 the small profits rate is reduced to 20%. From 1 April 2015 all companies will be subject to the 15% rate. The small profits rate and the marginal relief will no longer be applicable, except for companies with ring-fenced profits from oil and gas.

Specific Transfer Pricing Compliance-The taxpayer should indicate by checking the relevant box on the tax return if the SME exemption applies or if a compensating adjustment is being claimed.”

Greece

Main Corporate Income Tax -On 6 September 2014 the Prime Minister proposed the reduction of the corporation tax rate to 15%.

Luxembourg

Transfer Pricing Rule– The 2015 budget announcements include a proposal to specifically refer to the arm’s length principle in Article 56 of the LIR, and to apply the principle in the case of both residents and non-residents.

Transfer Pricing Documentation Requirement-The 2015 budget announcements include a proposed amendment to the legislation to include a specific requirement for documentation in respect of related party transactions.”

Malaysia

Main Corporate Income Tax -The main rate of corporate tax is 25%, decreasing to 24% from 1 January 2016. A minimum corporate income tax is to apply from 1 January 2013, ranging from EUR 10,000 for companies with a balance sheet total above EUR 10 million down to EUR 500 for small companies. The tax rate for small and medium enterprises is 19% in 2015 (previously 18%).

Time Limitation for Audits– Assessments or additional assessments may be made within five years after the end of the relevant year of assessment. Under the budget proposals for 2015 this would be extended to seven years for transfer pricing issues. “

Nigeria

Audit Process-A transfer pricing audit would normally involve initial information gathering; an environmental assessment; the verification of facts; additional data collection; analysis of data and the issue of an audit report outlining transactions that are inconsistent with the arm’s length principle. Taxpayers are given a chance to defend their position and if necessary there is a dispute resolution procedure. Any dispute would be dealt with by a Decision Review Panel and the tax administration would then issue a revised assessment for the additional tax liability. If the taxpayer is dissatisfied litigation is possible in the Courts.

Portugal

Main Corporate Income Tax -The budget for 2015 proposes a rate of 21% for 2015.

Thailand

Main Corporate Income Tax – The budget announcements for 2015 propose to continue the 20% rate in 2015. For small and medium enterprises profits up to THB 300,000 are not taxed and profits between THB 300,000 and THB 1 million are subject to a lower rate of 15%. Reduced rates may also apply under incentives granted by the Board of Investment.

OECD

Safe Harbor Rule-The OECD guidelines originally did not recommend the use of safe harbors owing to their inconsistency with the determination of transfer prices under the arm’s length principle. However under revisions to the guidelines approved in 2013 the OECD recognizes that properly designed safe harbors may relieve compliance burdens and provide certainty for taxpayers. If bilateral or multilateral safe harbors are negotiated they can reduce the compliance burden for taxpayers without giving rise to double taxation or double non-taxation. Sample Memoranda of Understanding have been developed by the OECD on the basis of which countries may negotiate safe harbors.

Useful Databases– Suggested approaches to the issue include expanded access to sources of comparable data; more effective use of data sources; approaches to transfer pricing that do not involve the use of comparable data; or the use of the mutual agreement procedure and advance pricing agreements.”