China: | Adjustments-MAP: Bulletin 6 governs MAP in relation to bilateral/multilateral APAs and special tax adjustments in one jurisdiction which would result in corresponding adjustment in another jurisdiction. According to Bulletin 6, the SAT may initiate a MAP upon the request of an enterprise or the competent authority of the other contracting state. Taxpayers with ongoing special tax investigations or those who have not paid taxes assessed in an investigation may be denied access to MAP. Special Areas-Intangible property- Hard to value intangibles: China contains the five functions in SAT Bulletin 6 including development, enhancement, maintenance, protection and exploitation (DEMPE functions) under OECD guidelines that are relevant in determining the allocation of profits from use of intangible property. In addition, Bulletin 6 added promotion as a sixth function to signify the importance China places on value created through marketing activities undertaken by Chinese companies. General for Intra-group services: SAT Bulletin 6 encompasses the provision of empowerment of tax authorities to refuse a deduction for service fees paid to a related party that does not have particular effect. The Bulletin maintains internationally accepted and OECD sanctioned benefit test. Location specific advantages for business restructurings: Bulletin 6 incorporates comparability analysis in requiring LSA adjustments. Multinational entity may face an increasing number of cases where the tax authorities make transfer pricing adjustments based on LSAs. Priority of Methods: SAT Bulletin 6 highlights the TNMM method which is generally not appropriate in transactions where the tested party has significant intangible assets. Bulletin 6 provides that a high and new technology enterprise should apply the profit split method so that a higher portion of profit will be allocated to the high and new technology enterprise. Other methods: Bulletin 6 introduces additional asset valuation and catchall method that must be applied consistently with the arm’s length principle. See the story in Regfollower |
UK: | General rule for CbC reporting requirement: The Statutory Instrument No. 497 of 30 March 2017, amends SI 2016 No. 237, which gives effect in the G20/OECD’s minimum standard for country-by-country (CbC) information needed to be provided to the tax authorities. Additionally, the regulations ensure compliance with the amended EU Council Directive on Administrative Cooperation 2011/15/EU (DAC4). Furthermore, country-by-country reporting obligation now applies to MNE groups whose ultimate parent entities are governed under UK law, including limited liability partnerships. Timing for CbC reporting requirement: Statutory Instrument 2017 (No. 497), published on 30 March 2017 governs new annual notification requirements for UK entities, with the first notifications due on 1 September 2017 and then by the end of the CbC reporting period thereafter. See the story in Regfollower |
Poland: | General rule for CbC reporting requirement: On 20 March 2017, the new legislation regarding the exchange of tax information with other countries entered into force. The Law provides information on obligations of financial institutions (FIs) and the automatic exchange of country-by-country (CbC) reports. Entities belonging to groups whose have registered office or permanent establishment (PE) in Poland shall provide the group information for the reporting year. Information exchange-Multilateral: On 20 March 2017, the new legislation regarding the exchange of tax information with other countries entered into force. The new legislation provides rules concerning the exchange of information including revenue, realized gain (loss) before tax, income tax paid and payable, capital, ROE, number of employees and tangible assets other than cash and cash equivalents. See the story in Regfollower |
Germany: | General rule for CbC reporting requirement: The German Federal Ministry of Finance recently published a draft discussion paper on transfer pricing documentation. The proposed draft TP documentation decree correspond mainly the OECD Guidance defining the relevant information to be included in the Master File and the Local File. See the story in Regfollower |
New Zealand: | BEPS related compliance: On 3 March 2017, the Revenue and Finance Minister released three BEPS related consultation papers which address the issue of Base Erosion and Profit Shifting (BEPS). The consultation papers proposed new measures to strengthen New Zealand’s rules for taxing large multinationals. Submissions on the consultation document on implementing the international convention are open until 7 April. Submissions on the other two are open until 18 April. Ministers will consider final proposals arising from the documents later in the year. See the story in Regfollower |
Ukraine: | Documentation-Requirement: Effective from 1 January 2017, in addition to the previous requirements transfer pricing documentation is expanded including copies of the agreements specifying terms and conditions of the controlled transactions; information about the payments made in the transaction; information about the taxpayers involved in the business; information about the cost allocation algorithm used in calculating the profit level indicator; and description and calculation of comparability adjustments of terms and financial results of the controlled and uncontrolled transaction. Documentation-Thresholds: Starting from 1 January 2017, criteria for tracing controlled transactions is increased with annual income of at least USD 5.4m (1.8 million in 2016) and with transactions with a single counterparty of more than USD 357000 thousand (179,000 in 2016). Documentation-Deadline: The deadline for submitting the report of controlled transactions has been changed from previous date of 1 May to 1 October of the year following the reporting year. Comparability-Range: Effective form 1 January 2017, taxpayers will be able to adjust their taxable profit for Transfer Pricing purposes to maximum or minimum values of the range of prices instead of the median. Comparability analysis: Effective from 1 January 2017, it is possible to determine a profitability margin and perform a benchmarking study if no direct comparable data is available and in such cases, the benchmarking study can be done based on financial information of comparable legal entities. Penalty for documentation failure: Starting from January 2017, penalties are based on the living wage for persons capable of work as of January 1 of the reporting year (previously penalties were based on the minimum wage). In case of non-submission of report on controlled transaction 300 living wages is imposed. For late submission of report on controlled transactions, 1 living wage for each calendar day of the delay but not more than 300 living wages. Failure to declare a controlled transaction in report on controlled transactions, 1 % of undeclared amount but not more than 300 living wages. For late declaration of controlled transactions, 1 living wage for each calendar day of the delay but not more than 300 living wages. Failure to submit TP documentation, 3% of the amount that document was not submitted but not more than 200 living wages. For delayed submission of TP documentation, 2 living wage for each calendar day of the delay but not more than 200 living wages. Failure to submit the report on controlled transactions or transfer pricing documentation within 30 calendar days following the last day of the payment of the penalty, 5 living wages for each calendar day of non-submission after expiration of 30 calendar days. See the story in Regfollower |
Cyprus: | Information exchange-Multilateral: On 5 April 2017, the Council of Ministers approved the signing of the OECD Multilateral Instrument (MLI) Convention of 2016. The signing formality is scheduled to take place on 7 June 2017. See the story in Regfollower |
Czech Republic: | General rule for CbC reporting requirement: According to proposed amending legislation to become effective on 5 June 2017, the CbC report will be mandatory for multinational groups with an annual consolidated turnover exceeding €750 million. Czech companies will be obliged to prepare a CbC report on behalf of the entire multinational group if they are the ultimate parent company of the group or if they have been regulated for the purposes of CbC reporting as representing companies. If the Czech company prepares the CbC report itself, all the member companies of the group will need to be informed of the fact and it will be necessary to further communicate with them so that all the details that are necessary for preparing the CbC report may be obtained. Timing for CbC reporting requirement: The first reporting periods in which CbC reports should be prepared are periods beginning on or after 1 January 2016. Thus, The first due date for CbC report filling is 31 December 2017. For the reporting period ending prior to 30 September 2017, the due date for first notification shall be 30 September 2017. For reporting periods ending after 30 September 2017, the due date for the notification shall be the end of the first reporting period. See the story in Regfollower |
Costa Rica: | BEPS related compliance: Master file: Costa Rica’s tax authority (Dirección General de Tributación—DGT) issued Resolution DGT-R-16-2017 on 21 April 2017. According to Resolution, taxpayers having transactions with related parties are required to keep supporting document relating to corporate and company local information. The corporate information required by the DGT is the equivalent to the “Master file” that summarizes qualitative and quantitative data from the group at the international level, as proposed by the OECD in the base erosion and profit shifting (BEPS) project. Local file: According to Resolution DGT-R-16-2017 issued on 21 April 2017, taxpayers having transactions with related parties are required to retain supporting documentation of company local information. The company local information which is equivalent to the Local File as proposed by OECD BEPS Action 13 requires the taxpayer to provide the organization structure, chain value, financial information etc. Penalty for non-compliance: A penalty of USD 90,000 applies for failure to comply BEPS related compliance as per the requirements of Resolution DGT-R-16-2017 issued on 21 April 2017. See the story in Regfollower |
Australia: | Documentation requirement-Master file: According to ATO’s guideline, for preparing and lodging the Master file XML schema is required to be developed in in house, licensed or outsourced. While the master file XML schema contains questions in relation to taxpayer’s lodgment of the Country-by-Country (CbC) report, the CbC report itself must be lodged separately in accordance with the OECD XML. CbC statements including master file and local file must be lodged via one of the channel provided by Australian Taxation Office (ATO). Documentation requirement-Local file: According to ATO’s guideline, for preparing and lodging the Local file XML schema is required to be developed in in house, licensed or outsourced. CbC statements including master file and local file must be lodged via one of the channel provided by Australian Taxation Office (ATO). See the story in Regfollower |
Mexico: | Documentation requirement-Master file: On 3 April 2017, the Mexican Tax Ombudsman published the final regulations on transfer pricing providing guidance on the master file. The final regulations allow a foreign related party to prepare the master files and Mexican taxpayers to file the master file in English or Spanish as long as it is consistent with OECD BEPS Action 13. If the Mexican taxpayer prepares the master file locally, the information provided must align with the new definitions and specific requirements included in the final regulations. The final regulations are not effective until published by the SAT in the Official Gazette. Documentation requirement-Local file: On 3 April 2017, the Mexican Tax Ombudsman published the final regulations on transfer pricing providing guidance on local file. The local file must be filed in Spanish, except for the business description of comparable companies and agreements, which may be provided in English or Spanish. Taxpayers with an Advance Pricing Agreement (APA) or subject to the maquiladora rules will have the option to not file the local file. General rule for CbC reporting requirement: On 3 April 2017, the Mexican Tax Ombudsman published the final regulations on transfer pricing providing guidance on CbC report. The final regulations include some clarifications and definitions for the CbC report. In addition, the final regulations allow Mexican taxpayers to file just one transfer pricing information return jointly with the entities of the multinational group. See the story in Regfollower |
Netherlands: | General rule for CbC reporting requirement: On April 18, 2017, the Dutch lower house of Parliament adopted the Bill No.34651 to implement country-by-country (CbC) reporting. The bill allowed a group entity to serve as the reporting entity and a designated Dutch group entity to file an incomplete CbC report with all the information at its disposal. Penalty for non-compliance in CbC reporting requirement: The Dutch Lower House on 18 April 2017 passed proposed Amendment No.9 which increased the penalty for noncompliance to €820,000. See the story in Regfollower |
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World Tax Brief: April 2017
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