TPA  Newsletter

Australia

Requirement for Transfer Pricing Documentation- Taxpayers with a high risk transfer pricing profile will be held to more stringent requirements.

Transfer Pricing Audits Penalty in Cases of Adjustments-25% penalty applies increased to 50% where the dominant purpose of entering into a scheme was to obtain a transfer pricing benefit.

Ecuador

Main Corporate Income Tax –For periods from 2013 the corporate income tax rate is 22%. From 2015 a 25% rate applies to companies with shareholders resident in low tax jurisdictions and tax havens. This rate applies to the proportion of profits that corresponds to the shareholdings of the shareholders resident in tax havens and low tax jurisdictions, but if these own more than 50% of the shares then the 25% rate applies to all the profits of the company. The 25% rate also applies to companies that do not inform the tax authorities about their shareholding structure.

Availability of Advance Pricing Agreement- Resolution No. NAC-DGERCGC14-00001048 provides for advance pricing consultations and for advance pricing agreements in relation to transfer pricing methodology. Authority for such agreement is SRI.  If the information supplied to the SRI is false or if the taxpayer’s circumstances that led to the APA change.

France

Penalty for Transfer Pricing Documentation Failure-The Finance Bill for 2015 provides that for tax audits initiated from 1 January 2015 penalties for inadequate documentation are the higher of EUR 10,000 per entity per period under audit; 0.5% of the total volume of the transactions for which the entity failed to provide adequate documentation; or 5% of the reassessed profits. These penalties apply to the taxpayers who must prepare full transfer pricing documentation. For failure to submit the abridged documentation there is a fixed penalty of EUR 150.

Secondary Adjustment- Where there is a transfer pricing adjustment the excess amount paid could be classified as a deemed dividend and withholding tax could apply. However relief from this withholding tax is available if the taxpayer files a written request for relief (before the withholding tax is payable) and accepts the transfer pricing adjustment and any penalties; and the amounts classified as a deemed dividend are repatriated to the French taxpayer within 60 days.

Korea

Financial Services-Thin capitalization rules apply to restrict the tax deduction for interest where the debt to equity ratio exceeds 2 to 1 from 1 January 2015 (previously 3 to 1) and 6 to 1 for financial institutions.

Luxembourg  

Transfer Pricing Rule-The 2015 budget passed by parliament in December 2014 introduces an enhanced framework of tax rulings in respect of the application of transfer prices. Legislation will be introduced by a Decree 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 requirement will be introduced. From 2015 the tax department will produce an annual report of all tax rulings issued in the year.

Malaysia        

Time Limits for Transfer Pricing Tax Audits– From 2015 this has been extended to seven years for transfer pricing issues. This effectively gives the tax administration two further years to examine transfer pricing issues and make additional transfer pricing adjustments in respect of years from 2009 onwards. There is however no time limit in cases of fraud, willful default or negligence.

Nigeria           

Audits Process-The FIRS transfer pricing division is responsible for the implementation of the transfer pricing regulations and taxpayers who do not prepare adequate documentation may be subject to a transfer pricing audit.

OECD  

Transfer Pricing Rule– In December 2014 the OECD published draft revisions to the transfer pricing guidelines in relation to actions 8, 9 and 10 of the BEPS action plan. Part 1 of the discussion draft concentrates on the application of the arm’s length principle and emphasizes identification of the actual commercial and financial relations between the parties and identifying the risks involved. In considering characterization of transactions the discussion draft emphasizes that the transaction should have the fundamental economic attributes of an arrangement between independent parties. Part 2 of the discussion draft notes that even if the guidelines are appropriately amended there will still be opportunities for profit shifting owing to information asymmetry between taxpayer and tax administration and the allocation of capital by taxpayers to low tax entities with minimal functions so further special measures are required.

Intangible Property-The discussion draft on actions 8, 9 and 10 of the BEPS action plan released in December 2014 indicates that in addition to changes to the guidelines in respect of the application of the arm’s length principle further measures would include special measures relating to hard to measure intangibles.

Financial Services-Part 2 of the discussion draft on BEPS actions 8, 9 and 10 issued in December 2014 notes that even if the transfer pricing guidelines are appropriately amended there will still be opportunities for profit shifting owing to information assymetry between taxpayer and tax administration and the allocation of capital by taxpayers to low tax entities with minimal functions so further special measures are required. These would include measures to ensure that there is no return assigned to a capital rich asset owning company that cannot generate return from its assets, as this would not be a rational investment for an independent party. A “thick capitalization” rule will be recommended based on a pre-determined capital ratio; there would be recommended rules to ensure appropriate taxation of excessive returns; and special measures would focus on the level of functionality, re-allocating profits if the level of functionality is not high enough.”

Brazil  

Audit Process-Available resources of the tax authorities-The ECF accounting tax bookkeeping is a new filing requirement which will replace the current corporate income tax return (DIPJ).  The Emissor Cupom Fiscal (ECF) for transfer pricing purposes facilitates the creation of such comprehensive databases. Since taxpayers are required to report information regarding transfer pricing in the ECF, the Brazilian tax authorities will be able to test these prices using the prices of similar products traded by other companies.

Financial Services– In case of transactions with companies that are subject to a “tax privileged regime” the thin cap ratio of 0.3:1 is applicable instead of the standard ratio 2:1.”

Portugal        

Main Corporate Income Tax -From 1 January 2015 the corporate tax rate will be 21%.

Ukraine          

Transfer Pricing Rule- At the legislative level, the “”arm’s length”” principle is introduced for transfer pricing purposes from 2015. The definition of this term stipulates that the volume of taxable income obtained by a taxpayer participating in one or more controlled transactions shall be deemed compliant with the “”arm’s length”” principle, if the terms of the above transactions are not different from those applied between non-related persons in comparable uncontrolled transactions. If the price in a controlled transaction or the relevant profitability ratio of a controlled transaction is beyond the price range (profitability), the price range (profitability) median is applied to comply with the “”arm’s length”” principle. Article 39 of the Tax Code of Ukraine provides the improved rules on advance agreements on prices. Such advance agreements are available to taxpayers deemed to be large. The regulator’s duty to use officially recognized sources of information about market prices has been excluded from 2015. In the new wording of Article 39 of the Tax Code of Ukraine, both the taxpayer and the regulator may use sources of information that allow them to compare the commercial and financial terms of transactions. (Law No. 1264-1, Article 39 of the Tax Code of Ukraine (Amended).

Arm’s Length Principle-Transactions with any related party will be within the scope of the transfer pricing legislation if the volume of transactions in the year exceeds either 1 million UAH (net of VAT) or 3% of the tax payer’s annual income provided annual income of such tax payer exceeds 20 million UAH. Transactions with non-related parties under certain conditions may also be considered as controlled ones. The new indicator of control has been introduced from 2015. The persons are now also be recognized as related if the overall value of loans, credits, interest-free loans, provided by one person to the other one, exceeds equity capital of the borrower in more than 3.5 times (in 10 times for financial institutions and lease companies). This rule applies also to the cases when financing is provided by various institutions but under guarantee of one person.

Transfer Pricing Documentation Requirement– The new rules of the Tax Code of Ukraine which is effective from 2015, stipulate the obligation of the taxpayers, engaged in controlled transaction, to compose and keep transfer pricing documentation. The transfer pricing documentation should contain the detailed information on the controlled transactions, including details of the parties, description of transfer pricing policy of the group, conditions of each controlled transaction, description of goods (works, services), functional and economic analyses of controlled transactions and results of comparability analysis. Taxpayers are required to submit transfer pricing documentation within a month from the day of receipt of the request from the central fiscal authority. The central fiscal authority may request such information by May 1 of the year following the reporting one. Reports are submitted by such taxpayers in electronic form.

Penalty for Transfer Pricing Documentation Failure– Penalty for documentation failure- For failure to notify controlled transactions or failure to file primary documentation the penalty is a fine of 100 times the minimum wage (previously 5% of the amount of the controlled transaction). For failure to file transfer pricing documentation the penalty is ten times the minimum wage (previously one hundred times the minimum wage).

100 times the minimum wage established by law as of January 1 of the tax (reporting) year in case of failure to submit (untimely) report on controlled operations; one percent of the amounts that are not declared in the report, but no more than 100 times the minimum wage for all undeclared operations and three percent of the value of controlled transactions regarding which a taxpayer failed to provide the mandatory documentation.

Time Limit Audit Rules– A transfer pricing audit must be completed within 18 months, but an extension of another 12 additional months may be granted to the tax auditors. Look back period for transfer pricing audits is 2555 days.

Audit Process-Available resources of the tax authorities-The use of “official list” for sources of information has been cancelled in the amendments made in law No. 1264-1 of Ukraine. From 2015, it is allowed to use any source of information which is generally accessible and contains information on comparable transactions and parties. The use of non-accessible information which is available only to state authorities is directly prohibited.