TPA Newsletter

Brazil

Financial services- Under Ordinance 427/2013 where the taxpayer is the lending party a spread of 2.5% is to be added to the minimum interest rate. The result of the computation is the minimum income that must be recognized by the taxpayer, even in a situation where no interest was charged or the actual interest rate charged was lower than this minimum. In a situation where the taxpayer is the borrower of funds, Ordinance 427/2013 sets a maximum spread of 3.5% for purposes of calculating the tax deduction for interest. If the actual interest rate charged is lower than the total of the listed rate and the spread, the tax deduction would be restricted to the actual rate charged.

Germany

 TPA Rule-On 5 August 2013 a draft decree was issued for consultation in respect of details of profit attribution to PEs, including clarification of when dealing between different parts of a legal entity is recognized for tax purposes; the allocation of free capital to the different parts of the enterprise; and attribution of assets and risks to a PE.

France

TPA Rule- Draft legislation currently under consideration would introduce a presumption that profits have been transferred if there is a transfer of functions and risks to a foreign related party unless arm’s length consideration is received by the party transferring the functions and risks. Also, the doctrine of abuse of law would be extended to apply to arrangements that are essentially tax driven, rather than just those that are exclusively tax driven.

Greece

Documentation requirement-A Summary Information Table must be prepared and submitted electronically using a special application meeting Ministry specifications.

India

Safe Harbour-Exemptions from transfer pricing rules or from transfer pricing adjustment-In August 2013 the government consulted on proposed safe harbors for specified international transactions. The taxpayer would not be subject to a transfer pricing adjustment if the transfer prices are within the specified margins. The proposed margins are a 20% ratio of operating profit to operating expenses (OP/OE) for software development or IT enabled services; an interest rate on intragroup loans of BOI base rate plus 150 basis points for loans up to INR 500 million and BOI base rate plus 300 basis points for loans above INR 500 million; commission or fees of 2% or more per annum for guarantees by Indian companies to foreign subsidiaries; for contract R&D an OP/ OE ratio of 30% (29% for generic drugs);  and OP/ OE of 12% for manufacture and export of core auto components (8.5% for non-core auto components).

Safe Harbour-Simplified interest rates-The proposed safe harbor rules contain provisions for safe harbor interest rates.

Korea, Rep Of

Documentation requirement-When submitting the annual tax return Korean companies must also submit a Declaration of Transfer Pricing Method, a Summary of International Transactions including names of related parties, relationships, transactions and amounts; and a Summary of Income Statements of Overseas Affiliates. Other documentation in respect of the arm’s length nature of transfer prices must be submitted at the request of the NTS. Proposals in the 2013 budget would require companies to submit information on foreign affiliates in which they own 10% or more and information on loss transactions of foreign affiliates.

Kazakhstan

Main corporate income tax rate –The current rate is 20% and there are plans to reduce the corporate income tax rate to 15% in 2014.

Latvia

Audits process-On 5 September 2013 the tax authorities announced their intention to send an information letter within two months before an audit begins, to allow taxpayers to voluntarily correct any errors in their records.

Penalty in cases of adjustments-If a taxpayer files a corrected return and pays under declared tax with interest after notification that an audit is to commence but before the audit begins the penalty is 5%.

Mexico

TPA Rule-The proposed 2014 tax reform would deny a deduction for payments to related parties in Mexico or abroad if the income is not taxable on the recipient or if it is subject to a tax rate less than 75% of the rate that would be paid in Mexico.

Netherlands

Audits-Under a Bill presented to parliament on 2 September 2013 the period for issuing a supplementary assessment would be reduced to two years from the date of expiration of the revision period (which is eighteen months after the submission of the tax return). The period would still be extended to twelve years in the case of fraud.

Portugal

Financial services-Fees for financial services must be at arm’s length. With effect from 2013 Portugal has introduced a restriction on the deduction of interest and has revoked the thin capitalization regime that previously applied. Net financial costs are only deductible up to the higher of EUR 3 million or 30% of profit before depreciation, net financing expenses and tax, subject to transitional provisions. The restriction applies to net financing expenses relating to bank financing and intragroup loans, and includes both domestic and foreign financing. Under the corporate income tax reform proposals for 2014 the limit would be reduced from EUR 3 million to EUR 1 million.

Main corporate income tax rate-Under the corporate income tax reform proposals for 2014 the main corporate tax rate would be reduced in stages beginning in 2014 and reaching a rate of 17% to 19% by 2018.

Russia

TPA Rule- Letter N 03-01-18/33535 clarifies that all transactions with a particular party in a tax year should be aggregated to reach this threshold.

Control- Letter N 03-01-18/33535 of 16 August 2013 indicates that a direct shareholding should consist of voting shares. The Letter also indicates that the tax authorities take a broad view of what constitutes an indirect shareholding, taking into account cross- and circle-participation.

United States

Cost contribution arrangements-Certain temporary and proposed regulations issued at the same time as the final regulations in relation to limiting certain specific analytical approaches used by taxpayers in applying the income method were finalized on 26 August 2013. These finalized regulations provide further guidance on the selection and use of discount rates in an analysis using the income method.

Vietnam

APAs-Law 21/2012/QH13 became effective. Under the draft implementing regulations there are four key phases of the APA process: the consultation (pre-filing) phase; the APA submission phase: the assessment phase; and the discussion and negotiation phase. In relation to APA forms implementing regulations are to specify the required forms. APAs withdrawal, validity and the relevant office shall be included in the implementing regulations.  Filing fees are yet to be announced in the near future.