Transfer Pricing Newsletter

Canada

Penalty for documentation failure

Penalties may apply if the taxpayer does not make reasonable efforts to arrive at the arm’s length price. The documentation may be used to demonstrate that reasonable efforts have been made.

Transfer pricing documentation requirement

The documentation must outline the organization of the group and must contain details of the property or services involved, the terms and conditions of the transactions, the identity of the parties involved, the functions, assets and risks of the parties, the data and methods considered and used and the analysis to arrive at the pricing. Also required are the underlying assumptions, strategies and policies influencing the pricing. TPM-05R clarifies that taxpayers may also use the exhaustive list of documentation provided by the Pacific Association of Tax Administrators (PATA) to fulfill the requirements.The documents must be provided to the Minister of National Revenue within three months of a request for the contemporaneous documentation to be submitted. The updated version of TPM-05R clarifies how the taxpayer is to deliver the documentation and how the three month period is measured.  TPM-05R also clarifies the documents to be produced and what constitutes a reasonable effort by the taxpayer to comply.

Audits process

Requests for documentation may be made only by writing on the initial contact with the taxpayer regarding each year under audit. As per TPM-05R if the taxpayer has expressed the intention of applying for an APA the tax auditor must contact the competent authority before requesting documentation.

Czech Rep.

 Financial services

Fees for financial services must conform to the arm’s length principle. Under draft legislation issued for consultation, it would be clarified that the transfer pricing rules would not be applicable to interest free loans or loans with interest that is lower than the arm’s length interest, if the party making the loan is not resident.

Spain

Main corporate income tax rate

Under a stimulus plan announced in May 2014 the corporate tax rate would be reduced from 30% to 25% in two stages beginning in 2015.

France

Transfer pricing documentation requirement

On June 2014 the government initiated a public consultation on a new transfer pricing information return to be used by taxpayers to report transfer pricing details on an annual basis. This would involve completing a tax form with a table of information on transfer pricing during the year including transaction amounts, countries involved and transfer pricing methods. The draft form is generally in line with the OECD approach to country by country reporting put forward in the project on base erosion and profit shifting (BEPS).

Greece

Documentation formatting for transfer pricing

A ministerial decision of 9 April 2014 set out the detailed requirements in respect of the contents of the documentation file, entities and transactions subject to documentation requirements, exemptions from documentation requirements, transfer pricing methods, language requirements and the contents of the summary information table. A Decree of 29 May 2014 requires the Master documentation file to include details of changes in intangible asset ownership involving related parties during the year and financial transactions in the group; and the Greek documentation file should also include details of the transfer pricing policy;  details of the application of the arm’s length principle in a sale, acquisition or transfer of an intangible asset; and any extraordinary transactions or events such as business restructurings during the period.

Japan

Main corporate income tax rate

A legislative package approved by the Cabinet on 24 June 2014 includes a proposal to reduce the effective rate of corporate tax to a level between 20% and 30% within a number of years in stages, commencing from 2015.

Kenya

Transfer pricing rules

The current definition of a permanent establishment is to be reviewed and the arm’s length principle is likely to be applied to transactions between permanent establishments and other parts of the same legal entity.

Capital gains tax rate

Under proposals in the 2014 budget capital gains on the sale of shares or property in oil and mineral prospecting companies would be taxed at 30% for resident companies and 37.5% for non-resident companies. Previously these capital gains were taxed by withholding at 10% for resident companies and 20% for non-resident companies.

 Malaysia

Transfer pricing documentation requirement-

From 2014 onwards a new item R4 has been introduced in the tax return (Form C) requiring taxpayers to indicate that transfer pricing documentation has been put in place at the date of filing the tax return.

Audits process

From 2014 a Transfer Pricing Awareness Survey Form is being given to taxpayers at the commencement of the audit, to gauge the transfer pricing awareness of management on issues such as establishing a global transfer pricing policy and determining transaction prices.

Pakistan

Main corporate income tax rate

The 2014 budget set the corporate tax rate at 33% for the year to 30 June 2015 (previously 34%). The rate is 25% for small companies. From 2014/15 and alternative corporate tax is to be charged at 17% on accounting profits where companies declare continuing losses or very low profits for tax purposes.

Capital gains tax rate

Generally the same tax rate that applies to other categories of income. Assets held for more than one year are taxed on 75% of the capital gain. There is no indexation allowance.

Sweden

Main corporate income tax rate

In June 2014 the Committee on Corporate Taxation proposed that net financial costs should be disallowed, and instead a financial allowance of 25% of taxable income should be introduced, effectively lowering the tax rate.

Financial services

In June 2014 the Committee on Corporate Taxation proposed that net financial costs should be disallowed, and instead a financial allowance of 25% of taxable income should be introduced.

Singapore

Transfer pricing documentation requirement

Further guidance on transfer pricing documentation is expected to be issued for public consultation in September 2014. This is likely to impose more stringent documentation requirements on taxpayers.

Audits process

The IRAS considers that the majority of taxpayers are currently not complying with the requirement for contemporaneous documentation and this is likely to lead to more intense scrutiny of documentation in future.

United States

Specific transfer pricing compliance

Final regulations (TD 9667) effective from 6 June 2014 and proposed regulations issued at the same time provide guidance on the filing requirements for Form 5472 which is the information return for a 25% foreign owned US corporation or a foreign corporation engaged in a US trade or business.