Newsletter

Australia

Audits Process-The ATO’s Base Erosion and Profit Shifting (BEPS) team is undertaking a compliance initiative called the International Structuring and Profit Shifting Project (ISAPS project). This involves around 120 risk reviews of taxpayers focusing on issues around funding, thin capitalization, asset valuation, transfer pricing, CFCs and taxation of financial arrangements. The ATO is aiming for a better understanding of these types of arrangements and may make use of exchange of tax information provisions to obtain information from foreign jurisdictions.

Brazil

Penalty in cases of adjustments-Penalties may also apply for non-reporting of cross-border transactions for Brazil’s SISCOSERV database. Under Normative Instruction 1,603/2013 issued in November 2013 a penalty of BRL 1,500 per month may apply for failure to keep to deadlines in information reporting.

Spain

Documentation Requirement-From January 2014 there is a general requirement in Spain’s tax law for Spanish companies holding balances or engaging in transactions with foreign companies exceeding EUR 1 million in 2013 to report the transactions and balances on a form called the Survey of Foreign Transactions.

France

Financial services-Thin capitalization rules also apply. Under the Finance Bill 2014 the interest deduction for interest accruing to related parties would be disallowed if the French taxpayer cannot demonstrate that the related party would be subject to corporate income tax on the amounts received amounting to at least 25% of the tax that would be due if the related party had been established in France. This would apply for financial years ending on or after 25 September 2013.

Penalty for documentation failure-Under the proposed legislation in the Finance Bill 2014 penalties of 0.5% of turnover for each financial year (with a minimum payment of EUR 10,000) would apply in the case of an incomplete reply to a request to submit transfer pricing documentation.

Main corporate income tax rate-The Finance Bill 2014 provides for an additional surcharge of 5% to 10.7% to apply between 31 December 2013 and 31 December 2015 for companies whose turnover exceeds EUR 250 million.

United Kingdom

Financial services-The transfer pricing provisions apply to financial services including loans and loan guarantees. The transfer pricing and thin capitalization provisions were merged from 2004 onwards. The tax deduction for interest may also be restricted by the worldwide debt cap which operates independently of the transfer pricing provisions. Under the debt cap the interest deduction for the UK part of the group is restricted by reference to the amount of consolidated debt of the worldwide group.

Italy

Main corporate income tax rate-The corporate tax rate is 27.5%. Companies also pay the regional tax on productive activities (IRAP) at 3.9%. For tax year 2013 a surcharge of 8.5% applies to the income of banks, financial institutions and insurance companies.

Japan

Main corporate income tax rate-The corporate tax rate is 25.5%. A reconstruction surcharge of 2.55% applied in 2013 but does not apply after 31 December 2013. Companies are generally also liable to a local enterprise tax and a local inhabitant tax.

Lithuania

Specific TP compliance-Form FR 0438 disclosing details of controlled and controlling entities must be submitted with the tax return.

Mexico

Audits Interest-From 1 January 2014, 0.75% per month and higher rates apply in certain cases.

Specific TP compliance-Maquiladora companies must submit an informative return (DIEMSE) by 30 June following the tax year. Form-An informative return (DIEMSE) must be submitted by maquiladora companies.

Netherlands

Intangible property-A Decree of 26 November 2013 gives specific guidance on the transfer pricing treatment of intangibles.

Intra-group services-A Decree of 26 November 2013 gives specific guidance on intragroup services. The Decree details the services that are regarded as shareholder services and are not chargeable to other entities in the group. The Decree also provides for low value-adding support services to be charged at cost.

Financial services-A Decree of 26 November 2013 contains specific guidance on intragroup loans, guarantees, intangibles and captive insurance companies.

New Zealand

Audits Process-The IRD is focusing on transfer pricing in respect of intangibles, business restructurings, discrepancies between legal form and substance and intragroup financing.

Peru

Financial services- With effect from 7 November 2013 a Peruvian entity is jointly responsible for the payment of tax in respect of a transfer of shares to a foreign related entity. A related entity for this purpose is a 10% shareholder or two entities that are 10% owned by a third party.

Slovak Republic

Main corporate income tax rate-From 1 January 2014 the corporate income tax rate is 22%.

Capital gains tax rate-From 1 January 2014 the corporate income tax rate is 22%.

Audits Time Limits-The limit is 6 months, but this can be extended by up to 12 months. The taxpayer must produce transfer pricing documentation within 60 days when requested by the tax authorities. Under proposed legislation this period would be reduced to 15 days from 1 January 2014.

Ukraine

TP Rules- Ukraine’s transfer pricing rules follow the arm’s length principle. The Tax Code has introduced new transfer pricing rules, which have become effective from 1 January 2013. Detailed transfer pricing rules have been introduced by secondary legislation. These secondary rules deal with calculations of price range and profitability range; official sources of market prices that are permitted for use; price deviations allowed for certain categories of goods; details of the procedure for concluding advance pricing agreements; and the list of commercial publications for determining transfer pricing of non-stock traded goods.

United States

MAP- Proposed revisions in Notice 2013-78 includes new pre-filing procedures in MAP cases, including a requirement for a pre-filing Memorandum on the nature of the issues or the adjustment required.

APAs Rules– Proposals for a revised APA procedure contained in Notice 2013-79 include provisions for pre-filing meetings and a pre-filing Memorandum. The Notice also lists specifications for APA requests. There will also be coordination between IRS offices with a view to rolling back an APA to earlier years even where the taxpayer has not requested this.