TPA Newsletter

Argentina

Documentation requirement-From 3 January 2014 there is a monthly reporting requirement for certain domestic transactions on the Argentinian market using Form F968. The criteria for transactions to be included in the monthly report are similar to those that apply to foreign related party transactions under the transfer pricing rules. There is also a requirement under General Resolution 3573/13 for certain specific types of entity and certain investment vehicles conducting business operations in Argentina to register contracts with foreign entities.

France

TPA Rule-Draft legislation introducing a presumption that profits are received if functions and risks are transferred to a foreign related party, unless arm’s length remuneration is paid, has been struck down by the Supreme Court and will not be implemented in its current form.

Indonesia

Intra-group services-Circular SE-50/PJ/2013 instructs tax auditors to check that the service has been provided and given economic benefit to the recipient. Shareholder services, duplicate services, incidental benefits, passive association or on-call services may not be charged to related enterprises. The calculation of the arm’s length charge must be clearly shown.

Financial services-In examining interest payments to third parties Circular SE-50/PJ/2013 indicates that tax auditors should look at the interest coverage ratio, i.e. the earnings before interest and tax divided by the interest expense.

Application process-According to Circular SE-50/PJ/2013 in selecting the most suitable transfer pricing method the tax auditor should consider the strengths and weaknesses of the method; its compatibility based on the analysis of functions, assets and risks of the taxpayer; the availability of reliable information and comparability factors including the possibility of adjustments to comparables.

TP method– According to Circular SE-50/PJ/2013 the profit level indicator used should be the most suitable indicator based on the facts and conditions and may include the commonly used PLIs such as net margin, net mark-up or return on assets.  Audits-Process-Circular SE-50/PJ/2013 indicates that tax auditors should look at functions, assets and risks so as to determine the characteristics of the taxpayer’s business, and check the manufacturing and marketing intangibles.

India     

Safe Harbour– The taxpayer should submit safe harbor options to the tax administration on Form 3CEFA on or before the due date for submitting a return of income for the year. The Assessing Officer has 2 months from the end of the month the form is filed to accept the options or refer them to the Transfer Pricing Officer. If no decision is made within two months the taxpayer’s safe harbor options are deemed to be accepted and apply for five years. The safe harbor provisions cannot apply to international transactions with associated enterprises located in notified jurisdictions.

Japan

Main corporate income tax rate – This includes interest paid on third-party loans that are guaranteed by a related party, subject to certain proposed exceptions including where the loan is secured or guaranteed by a 90% subsidiary of the borrower or is secured by a negative pledge by a company in which the borrower has a direct or indirect interest.

Malaysia

Audits process– Under the transfer pricing audit framework a taxpayer may be selected for audit based on the significance of its controlled transactions before taking into account other risk analysis. The time frame for a transfer pricing audit is four to five days.

Netherlands

Intangible property– The transfer of intellectual property cannot be at arm’s length unless the transferee has the capacity to perform the function of managing the property. There are also particular issues in respect of the transfer of intellectual property to a low tax jurisdiction.

 Intra-group services-Where the cost plus method is used for pricing services the direct charge method is preferred, but if this is not possible an indirect charge method can be used, allocating costs to subsidiaries based on a key such as employee costs, employee numbers or turnover.

Norway

Financial services-There is no special rule for financial services in Norway. 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, subject to certain proposed exceptions including where the loan is secured or guaranteed by a 90% subsidiary of the borrower or is secured by a negative pledge by a company in which the borrower has a direct or indirect interest.

Russia

Financial services-From 1 January 2015 interest on related party loans should be charged at market rates and documentation should be maintained to demonstrate this.

Slovenia

Audits-The statute of limitations is normally ten years but may be extended for the duration of legal procedures in connection with collecting taxes.

Slovak Republic

TP methods-With effect from 1 January 2014 an application for the approval of the use of a specific transfer pricing method must be made at least 60 days before the beginning of the period in which it is to be applied. Audits-Time Limits-With effect from 1 January 2014 the taxpayer must produce transfer pricing documentation within 15 days of a request by the tax administration (previously 60 days).

Turkey

Specific TP compliance-Listed companies may also be required to submit a report on controlled transactions to the Capital Markets Board.

Ukraine               

Main corporate income tax rate– The tax rate is 19% in 2013 and 18% in 2014.

Vietnam

Main corporate income tax rate-The tax rate is 22% from 1 January 2014 and 20% from 1 January 2016.

APAs rules– Under Circular 201 there are five main steps in the APA process: the consultation (pre-filing) phase; the APA submission phase: the assessment phase; and the discussion and negotiation phase and the conclusion and circulation of the agreement. To continue the APA the taxpayer must submit an annual report in relation to the APA with the tax return and notify any material changes affecting the APA in a separate ad hoc report within 30 days of the change. An APA is valid for up to five years with the possibility to renew the agreement for a further five years if there are no material changes to the transactions to which the APA applies. The agreement cannot apply to periods before the date of the APA application. There is no fee required for an APA application. The GDT is responsible for the APA process in cooperation with provincial tax departments, while the Ministry of Finance is responsible for the APA framework.