miércoles, 28 de junio de 2017

United Nations updates transfer pricing manual on developing countries

On 7 April 2017, the UN Committee of Experts on International Cooperation in Tax Matters issued a second edition of its Practical Manual on Transfer Pricing for Developing Countries. Similar to the 2013 edition, the revised manual is designed to respond to developing countries’ needs for guidance on the policy and administrative aspects of applying a transfer pricing analysis to intercompany transactions of multinational enterprises (i.e. applying the arm’s length principle to such transactions).
Salient features of the revised version of the manual are as follows:

  • It closely reflects the content of the OECD BEPS report on actions 8-10 (now included in the OECD’s transfer pricing guidelines).
  • It includes updated guidance on transfer pricing documentation, as well as a discussion of the three-tiered approach to documentation, i.e. the master file, local file and country-by-country reporting.
  • A new section on transfer pricing methods describes the use of the “sixth method” (sometimes called the “commodity rule”) that relies on quoted prices of the commodities market to price commodity transactions between associated enterprises. The sixth method has been used in certain Latin American countries.
  • New chapters are added on intragroup services, cost contribution arrangements and intangibles.
  • The final section of the manual contains an outline of country-specific transfer pricing rules and experience (Brazil, China, India and South Africa (covered in the 2013 edition) and Mexico (newly added)). 

Source: Deloitte

martes, 27 de junio de 2017

New Zealand: Changes made to offshore and onshore branch exemptions

A law enacted on 30 March 2017 (and applicable as from that date) introduced changes to New Zealand’s withholding tax rules for interest payments made to nonresidents and, on 11 April 2017, New Zealand’s Inland Revenue Department released a special report on the new rules. The rules address both offshore and onshore branch structures, specifically, the withholding tax treatment of interest paid to a nonresident by an offshore branch of a New Zealand company and certain interest paid by a New Zealand resident to a foreign lender with a New Zealand branch.
These interest payments now will be subject to nonresident withholding tax (NRWT) or the approved issuer levy (AIL).
Under New Zealand law, a 15% NRWT is imposed on interest paid by a New Zealand borrower to a foreign lender, with the rate usually reduced to 10% under New Zealand’s tax treaties. However, where the lender is not related to the New Zealand borrower (e.g. a foreign bank lender), an election can be made to pay the 2% AIL instead of the higher NRWT. The lender typically will be able to obtain a credit for the NRWT withheld against the tax it pays on the interest in its country of residence; in contrast, foreign lenders are not entitled to a credit for the AIL. This disparity has meant
that it may have been more tax-efficient for NRWT to be paid, rather than the AIL, leading to government concerns about potential abuse of the rules and, ultimately, to the recent changes to the offshore and onshore branch exemptions.

Source & more info: Deloitte

lunes, 26 de junio de 2017

France: List of countries not requiring VAT representative revised

A decree that applies as from 25 March 2017 revises the list of countries for which it is not necessary to appoint a VAT representative in France for VAT purposes.
Under French tax law, non-EU companies that carry out VAT taxable transactions in France (i.e. transactions for which VAT is collected by the supplier or exempt transactions that require compliance formalities) are required to appoint a VAT representative to deal with all tax and administrative formalities. Argentina has been removed from the list, and Japan, South Africa and Tunisia have been added.
In theory, countries that have concluded a treaty with France that includes a provision for assistance in the recovery of tax/VAT debts will be on the list.

Source: Deloitte

viernes, 23 de junio de 2017

Dbriefs Bytes - 23 June 2017

Italy: New law decree includes measures on the NID, patent box and transfer pricing

A law decree published by the Italian government on 24 April 2017 contains a number of tax rules that are designed to help reduce the budget deficit. The decree entered into force on 25 April 2017, although it still must be converted into law by the parliament within 60 days to be final. The changes that are most relevant for foreign investors are the following:

  • Amendment to the basis of computation of the notional interest deduction (NID);
  • Exclusion of trademarks from the scope of the patent box regime;
  • Introduction of a new downward adjustment mechanism for transfer pricing purposes; and
  • Change in the tax treatment of carried interests. 

The decree eliminates the definition of the arm’s length standard (ALS) in the Italian tax code as it applies to intercompany cross-border transactions, and introduces a new definition that is in line with that in the OECD model treaty. Under the new definition, income arising from intercompany transactions carried out with nonresident related entities will be determined according to the conditions and prices that would have been applied between unrelated parties, operating in free competition and in comparable circumstances.
Although the change is somewhat academic since both businesses and the tax authorities use the OECD definition of the ALS in practice, it still may be relevant in certain cases where reference to arm’s length “pricing” rather than to arm’s length “conditions” could result in different conclusions as to whether a transaction complies with the standard (an issue that recently has been addressed by the Italian Supreme Court).
The decree also introduces additional procedures that will allow Italian companies to avoid economic double taxation resulting from transfer pricing adjustments made by foreign tax authorities under the arm’s length principle. In particular, if a decrease in Italian taxable income is necessary to avoid double taxation, a downward adjustment in the Italian tax return now will be possible not only by means of the mutual agreement procedure provided under the EU arbitration convention and the relevant tax treaty, but also through:

  • Joint audits carried out in the context of international cooperation activities whose outcomes are shared by the participating countries; and
  • A specific request by the Italian taxpayer with the Italian competent authority for a correlative (i.e. compensating) adjustment in Italy. This option, which would allow the taxpayer to recover the higher tax paid in Italy, may be used only where transfer pricing adjustments are made by the tax authorities of a country that allows an appropriate exchange of information with Italy.

Italy’s Ministry of Finance and the head of the tax authorities are expected to issue detailed guidelines on the application of the new definition of the ALS and the implementation of the new correlative adjustment procedure.

Source & more info: Deloitte

jueves, 22 de junio de 2017

Germany: Lower house approves bill that would limit deductibility of royalty payments

On 27 April 2017, the German lower house of parliament passed a bill that would limit the deductibility of certain related party royalty payments. The bill (which would introduce a new section 4j in the Income Tax Code) generally is based on a draft law published by the federal ministry of finance on 19 December 2016.
The draft law targets royalty payments made to a nonresident that result in the “low taxation” of the income at the level of the recipient due to the application of an intellectual property (IP) regime (i.e. IP box, patent box, license box, etc.), where the IP regime is not based on the “nexus approach,” as described in action 5 of the OECD’s BEPS project.
The bill passed by the lower house largely is identical to the December 2016 draft law, but includes the following updates:

  • Clarification that if the direct recipient of the royalty payment is a transparent entity for local tax purposes, the rule would be applied at the level of the shareholders that are finally subject to tax. This clarification has been introduced to ensure that the rule would apply in such cases.
  • Introduction of a reference to chapter 4 of the BEPS action 5 report with respect to the definition of the nexus approach, including the formula in paragraph 30 and all other criteria described in chapter 4, II. (“Substantial activity requirement in the context of IP regimes”). The “grandfathering” rules in paragraphs 62-66, however, are excluded.
  • When determining whether a preferential tax regime exists when there are several creditors and different tax regimes, the lowest tax rate would be the relevant rate.
  • As described in the initial draft, the rule limiting the deduction of royalty payments would apply to payments made after 31 December 2017.

The upper house of parliament is expected to vote on the draft law on 2 June 2017, and is likely to approve the bill.

Source: Deloitte

miércoles, 21 de junio de 2017

Brazil clarifies reporting obligation for cross-border transactions

The Brazilian tax authorities published guidance on 19 April 2017, clarifying that interest arising from loans and financing transactions between resident and nonresident companies (inbound and outbound) does not need to be reported in the SISCOSERV system (the integrated system of foreign trade in services, intangibles and other transactions).
The SISCOSERV is an online return introduced in 2011, in which Brazilian individuals and legal entities are required to report information on cross-border transactions involving services and intangibles, including intellectual property rights, to the government. The Brazilian service/intangible provider or acquirer is the party responsible for submitting the return, which includes information about the client/supplier, the value of the transaction, the currency, etc.
Penalties apply for noncompliance.
In September 2016, the tax authorities issued a private letter ruling in response to questions from a taxpayer concerning SISCOSERV reporting, concluding that interest arising from loans and financing transactions between resident and nonresident companies needed to be reported in the SISCOSERV system. According to the ruling, such transactions would fall under the Service and Intangible Code Registry (NEBS) classification for “Credit Concession Services.” (The NEBS provides codes for each specific activity subject to SISCOSERV reporting.)
Since all inbound cross-border loans must be registered in the online Brazilian Central Bank system, where information on the principal amount, interest rates, maturity terms, etc. is disclosed, the conclusions in the 2016 ruling came as a surprise to most taxpayers.
The new guidance, which applies as from the date of its publication, clarifies the reporting treatment for interest arising from cross-border loans – such interest need not be reported in the SISCOSERV system, and no penalties for noncompliance will apply in cases where the information on such interest was not reported in previous calendar years.

Source: Deloitte

martes, 20 de junio de 2017

Australian government wins landmark transfer pricing case on debt financing

On 21 April 2017, the Australian Full Federal Court (Full Court) unanimously decided in favor of the Australian Taxation Office (ATO) in the most significant transfer pricing case, and the first transfer pricing case on the issue of related party loans, ever litigated in Australia, rejecting an appeal by the taxpayer. The case concerns interest payments made under a credit facility extended to Chevron Australia Holdings Pty Ltd (CAHPL) by a US resident subsidiary of CAHPL, and involves assessments of approximately AUD 340 million in tax and penalties covering the 2004-08 period.
The US subsidiary borrowed funds (USD 2.5 billion) from an unrelated bank at an interest rate of around 1.2%, with the benefit of a guarantee from the ultimate parent company, Chevron Corporation. It then on-lent the funds (in AUD) to CAHPL at an interest rate of approximately 9% in the period under review. This interest rate was based on the stand-alone credit rating of CAHPL and a transfer pricing analysis using the actual terms and conditions of the facility.
On examination, the ATO issued assessments to CAHPL on the grounds that the related parties were not acting at arm’s length; specifically, that the interest rate on the loans was in excess of an arm’s length rate. The assessments were raised under two separate transfer pricing provisions, i.e. Division 13 of Income Tax Assessment Act 1936 (ITAA 1936) and Subdivision 815-A of Income Tax Assessment Act 1997 (ITAA 1997).
The taxpayer appealed the assessments to the Federal Court, which in 2015 held that CAHPL failed to demonstrate that the interest paid under the credit facility agreement was equal to or less than arm’s length and, therefore, did not prove that the assessments were excessive. This latter point is important, since under the Taxation Administration Act 1953, the burden of proof was on CAHPL and, as such, the government was not obliged to argue every technical aspect of the assessments before the court. The taxpayer subsequently appealed the decision of the lower court to the
Full Court.
The Full Court upheld the earlier decision of the lower court that CAHPL had failed to prove that the assessments under Division 13 and Subdivision 815-A were excessive.
The Full Court ruled that:

  • The transfer pricing law should be applied taking into account both the intent of the legislation and real world commercial considerations, and should not be interpreted in a restrictive manner. The transfer pricing provisions give the tax authorities broad powers to substitute a more commercially realistic transaction where the actual transaction is considered to be, in whole or part, one that could not occur in the open market.
  • The transfer pricing rules do not mean the fact that CAHPL is part of a global group should be ignored. The Full Court found that there was no reason to depart from the lower court judge’s view that an independent borrower like CAHPL, dealing at arm’s length, could have given security and operational and financial covenants to acquire the loan, which would have resulted in a lower interest rate. This is particularly relevant for situations where no senior secured debt is in place in addition to related party debt arrangements.
  • Consideration should be given to the availability of an explicit guarantee by a parent company in a related party financing transaction. Where such a guarantee may be available, the interest rate would be expected to be lower; where the guarantee is not available, the taxpayer should be in a position to explain why not. The court pointed out that even if CAHPL was unable to pledge security or agree to any financial and/or operational covenants, it would have been of “no relevant consequence” if there was a reasonable expectation that Chevron (or a company in Chevron’s position) would provide a guarantee. 

Source: Deloitte

lunes, 19 de junio de 2017

Denmark: National Tax Tribunal — ruling in estimated assessment in transfer pricing case issued

On 15 December 2016, the National Tax Tribunal (Landsskatteretten) issued Ruling SK 2017.115 LSR (recently published) on an estimated assessment made in a transfer pricing case. Details of the ruling are summarized below.

The case concerned a Danish company involved in the production, development and sales of high-quality products to companies in the construction industry.

The company, inter alia, delivered customer-suited products for a large-scale project in Denmark. The production and sale of the products also took place in Denmark.

The company has a branch abroad selling products to customers in the branch country. In addition, the branch develops and designs project solutions to these customers.

The total production and actual sales are carried out by the Danish headquarters, which also manages the financial administration of the branch and the billing of the foreign customers.

Because the tax administration regarded the transfer pricing documentation as insufficient, it adjusted the profits of the company concerned on the basis of an estimated assessment.

The issue was whether the tax administration was authorized to make an adjustment on the basis of an estimated assessment.

The tribunal began by referring to section 2 of the Tax Assessment Law (Ligningsloven ), which provides that dealings between group companies must be at arm's length.

Thereafter, the tribunal noted that Section 3B of the Tax Management Law (Skattekontrolloven[) obliges group companies to prepare transfer pricing documentation that, inter alia, describes how the prices and terms for a controlled transaction are established. Upon request, this documentation must be submitted to the tax administration.

Finally, the tribunal decided that if no transfer pricing documentation is prepared or the documentation is incomplete, the tax authorities are authorized to make an adjustment on the basis of an estimated assessment.

In such a case, the taxpayer has the burden of proving that the adjustment is manifestly unreasonable or incorrect.

Source: EY

Costa Rica: Resolution postpones the submission of transfer pricing informative returns

On June 5, 2017, Costa Rica's tax administration published Resolution DGT-R-28-2017, modifying article 4 of Resolution DGT-R-44-2016. The new resolution postpones the deadline of June 30, 2017 to present a transfer pricing informative return for qualifying taxpayers, and instead requires taxpayers to preserve and provide to the Tax Administration, if requested, the relevant information presented on the informative return. The Tax Administration will formally announce the new deadline and mean of submission at least three months in advance of the new deadline.
Source & more info: PwC

Dbriefs Bytes - 16 June 2017

viernes, 16 de junio de 2017

Russia updated the requirements in respect of Country-by-Country reporting, Master File and Local File

On 6 March 2017, the Russian Ministry of Finance published an amended draft law adding new provisions to the Russian Tax Code regarding the international automatic exchange of financial account information, and providing new standards for transfer pricing documentation for multinational corporations (we described the first version of the draft law in our alert dated 16 September 2016). The published draft law is available at the federal portal for bills and regulations (in Russian only). Below we summarise the key changes and the most recent status of the latest BEPS developments in Russia.
Country-by-Country Reporting
Applies to multinational group companies (“MNE”) with annual consolidated group revenue equal to or exceeding RUB 50 billion in the previous year. Regulations extend to subsidiary entities. If the parent entity is foreign, the local threshold should be used to determine if a Country-by-Country report (“CbC report”) is required.
There is no direct explanation as to how the consolidated group revenue threshold should be calculated if the parent entity is in a foreign jurisdiction which does not require the submission of a CbC report.
If the ultimate parent entity (“UPE”) of an MNE or an authorised member of an MNE compiles consolidated financial statements in a currency other than the currency of the Russian Federation, it should be converted into roubles, applying the official annual average exchange rate of the respective foreign currency to the Russian rouble in the financial year immediately preceding the financial year for which the CbC report must be filed (the previous version of the law required use of the official exchange rate as at the end of the financial year).
Entities are required to notify the Russian tax authorities within 8 months (not three months as stated in the previous version of the draft law) from the end of the last fiscal year of the parent entity. For example, if the year ends on 31 December 2017, this becomes the first reporting period. The first deadline for notifications would thus be on 30 August 2018.
Provisions regarding penalties remain the same. Failure to provide the notification or the provision of incorrect information will result in a penalty of up to RUB 50,000 (penalty not applicable for 2017–2019). Failure to submit a CbC report when required or submission of incorrect information will lead to penalties of up to RUB 100,000 (penalty not applicable for 2017–2019). However, if the taxpayer identifies inaccuracies in the filed CbC report and submits a revised version before it is discovered by the tax authorities, this will exempt the taxpayer from sanctions.
The option of submitting a singular notification on behalf of several Russian-based entities who are members of the same MNE is now available. Thus, either the UPE, the MNE’s surrogate parent entity, or even another MNE’s constituent entity in Russia (if entitled by the UPE) can submit notification containing a full list of the Russian-based constituent entities.
The data sources for the CbC report have also been rectified: now consolidated financial statements prepared in accordance with IFRS or any other globally accepted accounting standards, as well as other local standards, can be used. The draft law emphasises the importance of consistency in the chosen approach to use of information sources.
The deadline for CbC report submission remains the same: it must be filed no later than 12 months after the last day of the financial year of the MNE.

Master file
The requirements for the Master file’s contents are described in more detail and are better aligned with the OECD recommendations published as part of BEPS Action 13.
Another change that would bring additional concerns to the Russian-based subsidiaries who are members of the MNE is that the new draft now entitles the Russian tax authorities to directly request the Master file from Russian taxpayers that are members of an MNE, rather than requesting it from the UPE.
In the meantime, failure to submit a Master file when required, or for submitting incorrect information, does not lead to a penalty (the previous draft law prescribed a penalty of RUB 100,000).

Local file
The obligation to prepare a Local file arises for Russian taxpayers who:

  • are members of MNEs with consolidated revenue exceeding RUB 50 billion (or an equivalent threshold applied by foreign law to the non-Russian resident UPE), and
  • conduct transactions with related party (-ies) from the same MNE that is (are) not Russian resident.

The new draft provisions regarding the Local file now refer to Articles 105.15 and 105.17 of the Russian Tax Code. This means that the Local file should contain the same structure and content as the national transfer pricing documentation on controlled transactions that taxpayers must prepare under current transfer pricing rules for taxation purposes. The difference arises in the part concerning the additional information that must be included to complete the document with content in line with OECD recommendations published as part of BEPS Action 13.
The new draft law does not expressly state that national transfer pricing documentation is fully replaced by the Local file. Neither is it specified whether the Local file should be prepared for one particular transaction (as it should be for national transfer pricing documentation) or for all transactions.
A Russian taxpayer, part of an MNE, must provide the Local file upon request from the tax authorities within the same timeframes as stipulated for the local transfer pricing documentation on controlled transactions, i.e. not earlier than 1 June of the year following the calendar year in which the controlled transactions took place, and within 30 working days from the tax authorities’ request.
Failure to submit the Local file when required or for submitting incorrect information does not lead to a penalty (the previous draft law prescribed a penalty of RUB 100,000).
Country information (CbC report, Master file, Local file) should be presented in Russian, and all figures reported in Russian roubles. There is nothing to prevent taxpayers additionally presenting Country information in a foreign language.
There is an exception granted only to MNE’s which have a UPE that was not a Russian tax resident in the reporting year. In this case, the CbC report may be provided in a foreign language.

New definitions implemented
The definitions of certain terms have also been updated:

  • MNE’s ultimate parent entity;
  • MNE’s authorised entity;
  • consolidated revenue.

The definitions of these terms have been brought into line with the OECD Guidelines published as part of BEPS Action 13.
The draft law is now being considered from the point of view its regulatory influence.
Given development of this draft legislation, we would recommend that companies that are members of the MNEs falling under the requirements outlined above assess the scope of potential obligations and necessary disclosures in Russia. Local subsidiaries of foreign-owned MNEs should communicate the latest developments regarding BEPS implementation in Russia to their head offices or subholdings. These steps will help the MNEs prepare processes, make arrangements, and identify risks by the date on which the new requirements take effect.

Source: KPMG

jueves, 15 de junio de 2017

OECD releases updated guidance on Country-by-Country reporting

On April 6, 2017, the Organisation for Economic Co-operation and Development (OECD) released additional guidance on implementation of Country-by-Country (CbC) reporting (the guidance), as set out in the Action 13 Report “Transfer Pricing Documentation and Country-by-Country Reporting.” Guidance was originally published in June 2016, was expanded upon in December 2016, and has been updated again in this latest version. The new content in this version primarily seeks to address concerns raised by the asset management industry in seeking to comply with the prior guidance. Nevertheless, the guidance has a broader impact.

Source & more info: PWC

miércoles, 14 de junio de 2017

Netherlands Advances Legislation to Substantially Increase Transfer Pricing Documentation Penalties

On April 18, 2017, the Dutch lower house (House of Representatives) of Parliament adopted legislation (Bill No. 34651 and proposed Amendment No. 9) that would implement EU Directive 2016/881 (the “Directive) on automatic exchange of CbC reporting information among EU member states, and  increase the maximum documentation penalties. However, proposals that would make CbC reporting public and lower the reporting threshold from €750 million to €40 million were not adopted by the House of Representatives.
The legislation is being considered by the Dutch upper house, and if enacted, would apply to fiscal years that begin on or after January 1, 2016.
On January 17, 2017, the Dutch Finance Secretary submitted Bill No. 34651 to Parliament to implement the Directive. See also the Explanatory Report. The bill would amend the Dutch Law on International Assistance in the Field of Taxation (“LIA”) and the Corporation Tax Act (CTA).
The Directive requires EU member states to automatically exchange CbC reports with any other EU member state in which one or more constituent entities of the MNE group are either tax resident or subject to tax with respect to a business carried out through a permanent establishment (PE). Bill No. 34651 proposes to implement this provision by adding a new Article 6e to the LIA. According to the new Article, the Netherlands will provide the CbC report within 15 months after the last day of the group’s reportable year (18 months for the first reporting period commencing on or after January 1, 2016). The legal basis for the automatic exchange of CbC reports would be the OECD Convention on Mutual Administrative Assistance in Tax Matters, a bilateral Dutch tax treaty, or a Dutch tax information exchange agreement (TIEA).
Bill No. 34651 proposes to amend the CTA by allowing a surrogate parent entity to submit the CbC report to the tax authorities in the member state where it is a tax resident. The bill also includes a notification requirement (in addition to the existing obligation under the CTA) for a Dutch tax resident group entity if the ultimate parent company does not provide that entity with the information necessary to complete the report. Finally, the bill recognizes the possibility of additional legislation with respect to the form and content of notifications, and extends the penalty provision for notification obligations.
Proposed Amendment No. 9 would increase the maximum penalties for violation of the new transfer pricing documentation requirements – including for CbC reporting notifications – from €20,500 to €820,000. This measure was adopted by the House of Representatives on April 18th.
Proposed Amendment No. 10, which was not adopted by the House of Representatives, would have required Dutch taxpayers to publish their CbC report in the commercial trade register eight days after filing it with the Dutch tax authorities. 
Proposed Amendment No. 11, which was not was adopted by the House of Representatives, would have reduced the current CbC reporting threshold in the Netherlands from €750 million to €40 million.

martes, 13 de junio de 2017

Draft MLI positions of different territories reflect a range of views on BEPS implementation

On 7 June 2017, 68 territories signed The Multilateral Convention To Implement Tax Treaty-Related Measures To Prevent Base Erosion And Profit Shifting (MLI). They also lodged with the OECD their provisional decisions on various choices available under the MLI in amending the effect of existing bilateral and other double tax treaties. The impact will depend on a degree of ‘matching’ those choices and with a suitable lag time after the parties to a particular treaty have ratified their positions.

The MLI introduces considerably more complexity and uncertainty into the international tax system. The choices available to each territory are extensive and, at least initially, matching the approaches of particular territories may be challenging. The OECD’s role is to publish information on territories’ choices, irrespective of whether the territories do so themselves. We have seen some helpful material already, though any additional assistance from the OECD may come later. Furthermore, businesses may want to think through the consequences related to particular fact patterns.

Source & more info: PwC

Recent Italian tax developments could affect many funds and companies with operations or investments in Italy

Recent tax news from Italy may affect institutional investors, multinationals with Italian investments or operations, companies willing to invest in Italy, and fund managers and executives. The recent developments include:

  • new provisions on carried interest
  • amendments to the notional interest deduction rules
  • changes to Italy’s ‘white list’
  • new rules on taxation of non-Italian-domiciled individuals ('non-doms')
  • Supreme Court decisions clarifying the concept of ‘physical substance’.
Source & more info: PwC

lunes, 12 de junio de 2017

Tax Court in Amazon rejects IRS’s proposed application of income method for pricing cost-sharing buy-in payments

In an important transfer pricing opinion published on March 23, 2017, the U.S. Tax Court in Amazon.com, Inc. v. Commissioner rejected the IRS’s preferred approach to pricing cost-sharing buy-in payments as inconsistent with the arm’s length standard, employing reasoning that has implications for related-party transfers of intangible property in general.

The opinion represents the latest in a series of court decisions rejecting the IRS’s interpretation and application of the arm’s length standard, especially with respect to transfers of intangible property between related parties.

Source & more info: PwC

sábado, 10 de junio de 2017

OECD released a Public Discussion Draft on Implementation Guidance on Hard-to-Value Intangibles

On May 23, 2017, the OECD released a Discussion Draft on Implementation Guidance on hard-to-value intangibles (HTVI). The Discussion Draft is published in the framework of the OECD/G20 BEPS Action 8 – Aligning Transfer Pricing Outcomes with Value Creation – Intangibles (which was incorporated in the revised Chapter VI of the OECD Transfer Pricing Guidelines (TPG)), which introduced guidance for tax administrations on the review of pricing arrangements relating to intangibles as determined on an ex ante basis by considering ex post results. The Discussion Draft provides guidance on the implementation of the HTVI approach by way of examples. In addition, the Discussion Draft explains the relationship of the HTVI approach to access to the Mutual Agreement Procedure (MAP).  The Discussion Draft builds on an earlier discussion draft of June 4, 2015 which lead to the insertion of section D.4 on hard-to-value intangibles in the revised Chapter VI on Intangibles in the TPG.  After repeating the main principles of the HTVI approach as discussed in Section D.4, the discussion draft suggests to tax administrations to act as early as possible when HTVI issues are identified.

Source & more info: PwC

viernes, 9 de junio de 2017

United Kingdom: Scope of double taxation treaty passport scheme expanded

The UK government published its response to a consultation held on the “double taxation treaty passport” (DTTP) scheme on 20 March 2017, as well as a document that includes some new terms, conditions and guidance on the DTTP. The consultation was held in 2016 to explore whether the DTTP scheme still meets its purpose and whether the scope of the scheme should be expanded. The new guidance, which removes some restrictions under the DTTP scheme, applies to loans entered into on or after 6 April 2017.
Introduced in 2010, the DTTP is designed to provide a simpler process for foreign corporations lending to UK companies to obtain treaty clearance on loan interest payments and to eliminate the need to apply for clearance on the application of a lower withholding tax rate under an applicable treaty on a loan-by-loan basis. Under UK law, a 20% domestic withholding tax must be deducted from interest payments made to nonresidents unless the rate is reduced under an applicable tax treaty, and advance clearance is required from the UK tax authorities before a reduced rate of withholding can be applied. Before the introduction of the passport scheme, clearance was required for each loan, a cumbersome process that the UK tax authorities recognized could lead to delays before interest could be paid.
The scheme enables foreign companies lending to UK borrowers to obtain a DTTP, confirming that they meet the requirements of the relevant tax treaty with the UK. The effect of a DTTP is that the treaty rate should be available to all loans made by the foreign company, without the need to apply for advance clearance on each loan. Notably, the scheme is available only to lenders that are resident in a country that has concluded a tax treaty with the UK that provides relief at source on UK interest payable. If a “treaty passport” is granted, the lender can make multiple loans to UK borrowers by simply providing the details of the passport to the UK borrower (who then notifies the UK tax
authorities). Passports are valid for a five-year period, after which they may be renewed. The UK tax authorities maintain a public register of passport holders, which includes details on the overseas lenders.
Before the effective date of the new guidance, the DTTP scheme applied only where both the lender and the borrower were corporate entities, thus creating a burden for the foreign lender where loans were made to noncorporate UK borrowers. Under the updated guidance, the scheme is available to all UK borrowers that have an obligation to deduct withholding tax from interest payments, where a tax treaty applies, including UK partnerships, individuals and charities.
Transparent entities (including partnerships) will be admitted to the scheme as lenders where all of the constituent beneficial owners of the income are entitled to the same treaty benefits under the same treaty. Overseas partnerships can apply for a treaty passport if all partners are resident in the same jurisdiction and are entitled to the same treaty benefits. Sovereign wealth funds and pension funds that are relying on the withholding tax rates under a tax treaty also will be admitted as lenders.
Since the new guidance applies to loans entered into on or after 6 April 2017, loans obtained before that date will continue to be subject to the old rules, i.e. the passport scheme applies only to corporate-to-corporate loans.
Source: Deloitte

Dbriefs Bytes - 9 June 2017