TPA Newsletter 

Australia

TPA Rule- The Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill containing new subdivisions 815-B to 815-E ITAA 1997 was enacted on 2 July 2013.

Control-The transfer pricing legislation does not depend on the test of control or share ownership, it applies whether or not the parties are related or associated.

Brazil

Applicable Methods  (for import transactions – Arithmetic average cost (Preço de Revenda menos Lucro, PRL) method, minimum 20%-40% margin depending on the economic activity of the company.

Germany

TPA Rule-Legislation passed on 29 June 2013 and effective for periods beginning after 31 December 2012 amended the transfer pricing provisions to treat a permanent establishment as a separate enterprise in line with the Article 7 of the OECD Model Tax Convention. The legislation provides for analysis of functions, assets and risks of the parties and for the attribution of the appropriate amount of free capital and the provisions also clarify that the arm’s length principle applies to transactions between partnerships and other types of entity. The law refers to an economic transaction rather than a business relation to ensure that all types of transaction are potentially within the scope of the transfer pricing rules.

Financial services-No specific provision but financial services must conform to the arm’s length principle.

Denmark

Main corporate income tax rate- Legislation was passed on 27 June 2013 to reduce the rate from 25% to 22% by stages between 2014 and 2016. The rate will be 24.5% in 2014, 23.5% in 2015 and 22% from 2016.

Capital gains tax rate-Corporate capital gains are taxed at the same rates as business income.

Indonesia

Audits Process-Regulation PER-22/PJ/2013 effective from 1 July 2013 sets out audit procedures for taxpayers with special relationships. The procedures include identification of the taxpayer’s business and comparison of financial ratios with those of the industry in general; criteria to be used in choosing the transfer pricing method; and application of the arm’s length principle through the comparability analysis and comparability adjustments. In respect of transactions involving intangible property the auditor must identify the intangible; arrive at a valuation and determine the arm’s length compensation. The tax auditors also use the Benchmark Behavioral Model outlined in DGT Ruling SE-40/PJ/2012 in their risk assessment. This operates by comparison of financial indicators from taxpayers within the same industry who have the same scale of activities.

India

Availability of APA-The CBDT has published a Guidance Note and Frequently Asked Questions on APAs. The Guidance Note clarifies that the APA office cannot refuse a request by the taxpayer for a pre-filing meeting.

Pakistan

Main corporate income tax rate –Under the 2013 budget proposals, for tax years ending in 2014 and subsequent years the tax rate is to be reduced to 34% except for banking companies that will continue to be liable to a 35% rate. The rate for small companies will continue to be 25%.

Poland

Intangible property-Amendments to the transfer pricing rules from 18 July 2013 provide that where functions, assets and risks are transferred as part of a business restructuring the tax authorities may consider whether the arrangements would have been accepted by independent parties.  

Intra-group services-Amendments passed on 18 July 2013 provide that in the case of low value-adding services the taxpayer only needs to submit a description of the transaction. The amendments set out the required elements in the description of these low value-adding services. The amendments also include a definition of shareholders’ costs, which are incurred for the benefit of the parent company but do not benefit other members of the group.

Safe Harbour-Rule– Simplification measures applies to small transactions and to low value adding services.Amendments to the transfer pricing rules from 18 July 2013 provide for simplified documentation requirements for low value-adding services along the lines suggested in the report by the EU Joint Transfer Pricing Forum.

Priority of Methods- With effect from 18 July 2013 amendments to the transfer pricing rules have removed the hierarchy of transfer pricing methods. The taxpayer should use the most appropriate transfer pricing method in light of the type of transaction and availability of comparable information. Previously the CUP method was preferred over other methods.

Validity of an APA- Measures proposed in 2013 would provide for retrospective application of an APA.

Romania

Audit Process-For late payment of tax liabilities that arise up to 31 July 2013 the late payment penalty is 0% of outstanding liabilities if the tax is settled within 30 days; 5% if settled within the next 60 days and 15% if settled after more than 90 days. For late payment of tax relating to liabilities that arise after 31 July 2013 the late payment penalty is 0.02 per day of delay.

Russia

Intra-group services-Letter 03-01-18/19214 of 11 June 2013 clarifies that the tax authorities have the right to adjust the tax base in the case of not only the sale of goods but the performance of works or services between related parties where these are on different terms to those that would be agreed between related parties. The adjustment would be made to profits for income or corporation tax purposes and could also affect the VAT liability.

Ukraine

Control-With effect from 1 September 2013 the rules will be extended to cover affiliates who pay tax that is at least 5% lower than the rate in Ukraine, or affiliates domiciled in countries where the tax rate is at least 5% less than that in Ukraine. Transactions with any related party will be within the scope of the transfer pricing legislation if the volume of transactions in the year is at least UAH 50 million. With effect from 1 September 2013 the scope of the transfer pricing rules extends to transactions between related parties that are both resident in Ukraine.

Applicable Methods– Comparable uncontrolled price method (“CUP”)-Permitted with effect from 1 September 2013.

Applicable Methods– Resale price method-Permitted with effect from 1 September 2013. Cost-plus method-A net profit method is permitted with effect from 1 September 2013. Transactional net margin method-Permitted with effect from 1 September 2013. Profit split method-Permitted with effect from 1 September 2013.

Other methods-With effect from 1 September 2013 a method of last resort would be permitted where the permitted methods cannot be applied.

Priority of Methods-A taxpayer may select and use the method that is most appropriate for the controlled transaction.

Specific TP compliance-With effect from 1 September 2013 taxpayers must prepare an annual notification of controlled transactions and file the report by 1 May following the end of the tax year. Transfer pricing documentation must be submitted within two months of a request by the tax authorities in the case of large companies and within one month of a request in the case of other taxpayers.

APAs– From 1 September 2013 APAs will be possible for large taxpayers.

Vietnam

Financial services-A plan to introduce thin capitalization rules has not yet been implemented.

Main corporate income tax rate- The tax rate is to be reduced to 22% from 1 January 2014 and to 20% from 1 January 2016. Enterprises with revenue less than VND 20 billion and fewer than 200 employees are subject to a 20% rate of tax from 1 July 2013 and to a 17% rate from 1 January 2016. Income from certain investment projects may be subject to a 10% rate under an incentive regime.

South Africa

Financial services-Under proposed legislation a restriction will apply from 1 July 2013 to interest on debt related to acquisitions and reorganizations.

Main corporate income tax rate- For companies carrying on qualifying activities in special economic zones a rate of 15% may be available for 10 years from 1 January 2014 under incentive legislation.

Audit Rules-Reduction of penalties- Draft legislation has been introduced to clarify circumstances in which relief from penalties would be available.