Transfer Pricing

Costa Rica: Tax administration temporarily suspends filing date for TP information return

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The Costa Rican Tax Administration has temporarily suspended the filing date for the transfer pricing information return. On 5 June 2017 Resolution DGT-R-28-2017 was published in the Official Gazette to give effect to this measure. The resolution modifies Article 4 of Resolution DGT-R-044-2016 to temporarily suspend the due date for filing the information return.

According to a previous ruling transfer pricing information returns for fiscal years 2015 and 2016 would have been due on 30 June 2017. This deadline is suspended until further notice. However, taxpayers should maintain the information that would be included on those information returns for filing when the tax administration requests the information.

Pakistan: Proposes documentation and CbC reporting requirements

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On June 5, 2017, Pakistan’s Federal Board of Revenue has presented a notification (Notification SRO 421 (I) / 2017) regarding Documentation and country-by-country reporting requirements in respect of transfer pricing. The proposed requirements are generally in line with the three-tiered approach set out in the BEPS Action 13 guidelines.

The CbC report form, the details of the reporting and certification authority, and the three standard CbC report tables included in the notification 421 (I) / 2017.

India: CBDT notifies new safe harbour regime for cross-border transactions

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The Central Board of Direct Taxes (CBDT) on 7 June 2017, has issued a new, relaxed, safe harbour regime in order to reduce transfer pricing disputes. The move is aimed at providing certainty to taxpayers, aligning safe harbour margins with industry standards and enlarging the scope of safe harbour transactions.

The main features of the new safe harbour regime are:

  • It has come into effect from 1st of April, 2017, i.e. A.Y. 2017-18 and shall continue to remain in force for two immediately succeeding years thereafter, i.e. up to A.Y. 2019- 2020. Assesses eligible under the present safe harbour regime up to AY 2017-18 shall also have the right to choose the safe harbour option most beneficial to them.
  • The new safe harbour regime is available for transactions limited to Rs. 200 crore in the provision of software development services, provision of information technology-enabled services, provision of knowledge process outsourcing services, provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs.
  • In respect of transactions involving the provision of software development services and provision of information technology-enabled services, safe harbour margins have been reduced to peak rate of 18% from 22% in the previous regime.
  • In respect of transactions involving the provision of knowledge process outsourcing services, a graded structure of 3 different rates of 24%, 21% and 18% has been provided, based on employee cost to operating cost ratio, replacing the single rate of 25% in the previous regime.
  • In respect of transactions involving the provision of contract research and development services wholly or partly relating to software development and provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs, safe harbour margins have been reduced to 24% from 30% and 29% respectively in the previous regime.
  • Risk spreads on intra-group loans denominated in foreign currency will be benchmarked to the 6-month London Inter-Bank Offer Rate (LIBOR) as on 30th September of the relevant year and on loans denominated in Indian Rupees to the 1-year SBI MCLR as on 1st April of the relevant year.
  • The safe harbour regime is optional to taxpayers.

In addition, on 7 June 2017,  the Central Board Of Direct Taxes (CBDT) also published Notification No. 46/2017  which prescribes the revised list of eligible international transactions for transfer pricing safe harbour rules.

 

US: Government sign an arrangement with New Zealand to exchange CbC reports

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The competent authorities of New Zealand and the U.S. have concluded an arrangement on the exchange of Country-by-Country Reports. On May 31, 2017, the U.S. Internal Revenue Service (IRS) updated its listing of competent authority arrangements (CAAs) between the U.S. and its treaty partners. The listing includes a CAA between the U.S. and New Zealand on the exchange of country-by-country (CbC) reports.

Under the arrangement, both countries desire to increase international tax transparency and improve access of their respective tax authorities to information regarding the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which multinational enterprise groups (“MNE Groups”) operate through the automatic exchange of annual country-by-country reports (“CbC Reports”), with a view to assessing high-level transfer pricing risks and other base erosion and profit shifting related risks, as well as for economic and statistical analysis, where appropriate.

The first fiscal year for which the U.S. and New Zealand intend to exchange CbC Reports is for the fiscal years of MNE Groups commencing on or after January 1, 2016. Such CbC Report is intended to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates. CbC Reports with respect to fiscal years of MNE Groups commencing on or after January 1, 2017 are intended to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates.

The Competent Authorities intend to exchange the CbC Reports automatically through a common schema in Extensible Markup Language (XML). The Competent Authorities intend to work toward and decide on one or more methods for electronic data transmission including encryption standards.

Turkey signs CRS Multilateral Competent Authority Agreement

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Turkey has signed Common Reporting Multilateral Competent Authority Agreement (CRS MCAA) for the implementation of automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (CRS) to launch exchanges in 2018. This country is the 88th jurisdiction to sign this treaty. This convention aims to prevent tax evasion. This treaty also contains provisions that would make it easier to implement automatic exchange of country-by-country reports on the tax affairs of multinational corporations with other countries’ tax administrations according to action 13 of the OECD/G20 base erosion and profit shifting (BEPS) project. Also, it helps in the implementation of exchange of private tax rulings involving multinational firms in accordance with action 5 of the BEPS project.

Netherlands: Bill on country-by-country reporting gazetted

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The lower house of the Dutch parliament adopted a bill implementing EU directive 2016/881, mandating the automatic exchange of country-by-country reporting information among EU member states on 26th April 2017. On 2nd June 2017, EU directive 2016/881bill is published in official Gazette No.215. The Bill takes effect from 5th June 2017, with retroactive effect as of 1st January 2016. In addition, on 7th June 2017, Netherlands signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS).

Pakistan: FBR proposes to introduce a Directorate General of Transfer pricing

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Federal Board of Revenue (FBR) has proposed through Finance Bill 2017 to establish Directorate General of Transfer Pricing which shall consist of a Director General and as many Directors, Additional Directors, Deputy Directors, Assistant Directors and such other officers.

The primary function of the Directorate-General is to conduct transfer pricing audit. The Bill also seeks to provide an explanation regarding transfer pricing audit to mean the audit for determination of transfer price at arm’s length in transactions between associated and which would be independent of other audits of income tax affairs of the taxpayers that are conducted under sections 177, 214C and 214D.

It is further proposed that the FBR may by notification in the Official Gazette, specify the criteria for selection of taxpayer for a transfer pricing audit and may further specify functions, jurisdiction and powers of Directorate General of Transfer Pricing.