Transfer Pricing Newsletter

Argentina

Compliance-Decree 2103/2014 created a special unit to monitor cross-border trade and coordinate the work of the various government bodies to ensure the correct application of the law on international trade including the transfer pricing rules. The unit is composed of representatives of government bodies.

Australia

Transfer Pricing Documentation Requirement-Taxation Ruling 2014/8,includesthe actual conditions of the transaction, considering relevant comparable circumstances, particulars of the methods used to identify arm’s length conditions, what are the arm’s length conditions and the appropriate transfer pricing treatment and have material changes been identified and updated.Practice Statement PS LA 2014/3 sets out the responsibilities in respect of transfer pricing under self-assessment and sets out the steps to be taken in preparation of documentation.

Penalty in Cases of Audits Adjustments-Practice Statement PS LA 2014/2 confirms that taxpayers with no supporting transfer pricing documentation at the time of filing the tax return are liable to an automatic penalty of 25% and there is little prospect of mitigation of this penalty.

China

Main Corporate Income Tax-Circular CAIShui [2014] no 59 has extended the 15% tax rate to Technologically Advanced Service Enterprises (TASEs) in 21 trial cities until 31 December 2018. These must provide qualifying services and 50% of employees must have an associate degree or above. Revenue from technologically advanced services must be more than 50% of total revenue in the year and revenue from qualifying offshore technologically advanced outsourcing services must be at least 35% of total revenue for the year.

Czech Rep.

Burden of Proof relating to Tax Audits –According to a published decision of the Supreme Administrative Court in June 2014 the burden of proof in transfer pricing decisions involving recipients of investment incentives is with the taxpayer.

Spain

Corporate Income Tax Rate-With effect from 1 January 2015 the tax rate is reduced to 28% (previously 30%) and will decrease to 25% from 1 January 2016. The tax rate for SMEs is 25% in 2014. A 20% rate applies to micro-enterprises (with turnover under EUR 5 million) for the years 2011 to 2013. A rate of 15% will apply for two years to companies newly formed in 2014 and 2015.  Surcharge from 0.01% – 0.75% may apply.

Financial Services-From 2015 there is a limit on the deductibility of interest on loans to purchase shares. Interest deductible is limited to 30% of the operating profit of the acquiring entity. This applies when the acquired and acquiring entities merge within a four year period or when new entities join the same tax group as the acquired and acquiring entities. The restriction does not apply in the year of acquisition if the acquisition debt is less than 70% of the cost of the shares. It will not apply in the following eight years provided that the acquisition debt is amortized down in that period to 30% of the total consideration. Also, intragroup profit sharing loans are characterized as equity for tax purposes so expenses paid in connection with the loan will not be deductible for tax purposes and the interest may be treated as a dividend.

Exemption from Documentation Requirements for Safe Harbour Rule-From 2015 simplified documentation is introduced for taxpayers with a net turnover below EUR 45 million.

Priority of Methods- From 2015 the hierarchy of transfer pricing methods does not apply. For periods to 2014 a hierarchy of transfer pricing methods was specified under which, where possible, the transactional methods should be used to establish an arm’s-length price in preference to profit-based methods.

Thresholds for Transfer pricing Documentation – From 2015 simplified documentation is introduced for taxpayers with a net turnover below EUR 45 million.

Validity for Advance Pricing Agreement- From 2015 there is further scope for retroactive advance pricing agreements within the period of the statute of limitations.

Finland

Transfer Pricing Rules-The Finnish Government has published a transfer pricing handbook for foreign companies entering the market in Finland and for Finnish companies going abroad. This outlines transfer pricing principles and gives examples of the treatment of transactions involving the sale and use of tangible and intangible assets, related party services, intragroup financing, documentation and the relationship between transfer pricing and customs valuations.

Greece

Authority for Advance Pricing Agreement- A template and guidelines for APA applications and procedures have been published by the Ministry of Finance.

Korea

Unilateral Advance Pricing Agreement– Simplified APA program is to be introduced from 2015 for the conclusion of unilateral APAs by manufacturers, wholesalers, retailers or service providers with revenue under KRW 50 billion. Applicants will be able to submit a reduced amount of information and approval will be given within one year. The scope of information required will be determined in a pre-filing meeting.

Luxembourg

Transfer Pricing Rule-A position paper released on 10 December 2014 states that there will be an enhanced framework of tax rulings in respect of the application of transfer prices. The paper confirms that legislation will be introduced to specifically state that profits between related parties will be determined in the light of the arm’s length principle and OECD principles and that specific documentation requirements will be introduced. From 2015 the tax department will produce a report of all tax rulings issued in the year.

Malta

Capital Gains Tax Rate- In the case of property disposals a final withholding tax of 8% applies (10% if a non-trader acquired property 2004 or 5% if property acquired in last 5 years by non-trader).

Peru

Main Corporate Income Tax –The corporate tax rate in 2014 is 30%. Under draft Law 4007/2014-CR the corporate tax rate will be reduced to 28% for 2015 and 2016; 27% for 2017 and 2018; and 26% in 2019.

Vietnam

Interest on Audits – Previously an increased interest rate applied to tax due for more than 90 days but this higher rate no longer applies.

South Africa

Audits Process- A Transfer Pricing Unit has been established at the Large Business Centre of SARS. There is a focus on the strategic audit of high risk, high value transactions.