Swedish court gives important guidance on the application of the TNMM

On 27 April 2012, the Administrative Court of Appeal in Stockholm (hereinafter referred to as the Court) gave its ruling in an important case regarding the application of the Transactional Net Margin Method
("TNMM") (case nr 2400-2404-11). Several questions addressed in the judgment are interesting from a transfer pricing perspective:

•  Should the estimation of whether the pricing is arm’s length be made on a single entity basis, or may the results of related entities involved in the value chain be consolidated and measured on a combined basis?   

The question regarded whether Michelin Nordic AB’s profitability should be measured on a standalone basis, or if foreign related sales agents should be taken into account when determining whether the prices are arm’s length. Michelin Nordic AB held that the combination of the functions performed by the company itself together with the functions performed by the related sales agents, constituted the complete function of a distributor. Hence, Michelin Nordic AB said that the profitability of the entire distribution function should be measured through a May 30, 2012 consolidation of the net margins on a Nordic level. The Court ruled that the measurement of the net margin should not include the sales agents but should be computed solely at the level of Michelin Nordic AB.

• May certain years when the business was restructured be excluded from the evaluation of whether the net margin is in line with the arm’s length principle?   

The question regarded whether the year when the business was restructured should be taken into consideration when evaluating whether the average net margin upholds the arm’s length principle, or if this year may be excluded from the evaluation.  Long established Swedish case law has allowed for the measure of an acceptable arm’s length price to be not only for a single year basis but has also accepted set-off prices from year to year, i.e. allowed the measure of arm’s length prices to be taken over a
multiple year period. Michelin Nordic AB argued that the year of the restructure should be excluded since the restructure resulted in organizational difficulties and inefficiencies. The Court found that the year of the restructure should be taken into account when calculating the average net margin.  

• Which range should be considered as upholding the arm’s length principle when using the TNMM?   

The Michelin Group targeted a 2% net margin for Michelin Nordic AB to achieve. However, Michelin Nordic AB held that the targeted net margin level should not be binding and instead any net margin within the inter-quartile range should be accepted, i.e. no adjustment should be made if the achieved net margin was above the lower quartile range of the benchmark. The Swedish Tax Agency, on the other hand,
held that the final outcome should be a net margin of 2%, since the way in which the Michelin Group had applied the 2% policy should be regarded as equivalent to an agreement between two unrelated parties. Even though the Court held that net margins within the inter-quartile range should be accepted, it found that the targeted net margin of 2% should be regarded as the remuneration level that would be deemed
to uphold the arm’s length principle for Michelin Nordic AB.  

• How can an analysis of gross margins be combined with the TNMM?   

Michelin Nordic AB compared its own gross margins with those achieved by comparable entities, and held that since the gross margins were in-line with the comparable results, the prices should be considered to be at arm’s length.  The Court did not agree with this view since Michelin Nordic AB had not proved that costs had been accounted for in the same way in the comparable companies as within Michelin Nordic AB. The judgment stated that such a review is necessary to allow for an appropriate comparison of gross margins.  



Source & more info: PKN

La viñeta de El Economista

Danish government initiatives to tighten the transfer pricing rules on multinational enterprises

The Danish Government has proposed legislation to tighten the grip on multinational enterprises in a general effort to increase tax revenues. The draft bill includes the following elements in relation to transfer pricing (TP):

• After having requested and reviewed a company’s TP documentation, the Danish tax authorities can request that companies file an auditor’s report confirming that the company’s controlled transactions are undertaken in accordance with the arm’s length principle. The statutory minimum period for submitting the auditor’s report will be 90 days, with the cost borne by the taxpayer. The findings of the auditor’s report will not be binding upon the tax authority’s assessment of whether the company’s transfer prices are arm’s length. The proposal is limited to companies that have made an overall loss during a four year period and to companies having transactions with countries outside the EU/EEA with whom Denmark does not have a double taxation treaty.
• Insufficient TP documentation or failing to duly meet subsequent requests of information from the Danish tax authority will be subject to a fine of approximately 35,000 EUR (DKK 250,000) per tax year, together with a penalty on 10% of any upward income adjustments. The 35,000 EUR fine can be reduced by 50% if proper TP documentation is subsequently submitted. Currently, companies can in theory be fined twice the amount of the cost saved by not preparing documentation (but such fines have seldom been levied), as well as 10% on any upward income adjustments, with the possibility of a 50 % discount if proper TP documentation is subsequently submitted. 
• The Danish tax authority will have discretion to make public all companies’ taxable income and tax payments via its internet homepage. Jointly taxed companies’ tax payments will be published as one company but showing the names of the affiliated companies.

Source: PKN

New bill introduced to retrospectively amend transfer pricing rules

The Australian Government introduced today into Parliament a Bill to retrospectively amend Australia’s transfer pricing rules. The Bill confirms the intent of the Government to introduce legislation that would allow the Commissioner to issue transfer pricing assessments under the Associated Enterprises or Business Profits Articles of Australia’s Double Tax Agreements. This power will be in addition to the Commissioner’s existing ability to raise transfer pricing assessments under Division 13 of the Income Tax Assessment Act. The Bill is broadly consistent with the intent of the Exposure Draft Legislation released in March, although there are a significant number of drafting changes. If passed, the Bill will have retrospective effect from 1 July 2004.

Source & more info: PKN

Proposed tax reform in Chile introduces detailed transfer pricing bill with new compliance requirements

Facing the need for greater funding of public education, a topic that had caused social unrest, on April 30, 2012, President Sebastián Piñera sent to the Parliament a comprehensive bill that introduces major changes to the current Chilean tax system. Among the various changes is the introduction of specific transfer pricing legislation.
Source & more info: PKN

La viñeta de El Economista

Transfer Pricing Approach Ruled Invalid in DC Court

A DC Administrative Law Judge ruled that a controversial application of the Comparable Profits Method (“CPM”), developed by Chainbridge Software LLC (“Chainbridge”) on behalf of state tax auditors, was invalid for establishing an arm’s length price (Microsoft Corporation, Inc. v. Office of the Tax and Revenue, D.C. Office of Administrative Hearings, Case No: 2010-OTR-00012; May 1, 2012). Attorneys for Microsoft successfully argued that Chainbridge should have compared each of Microsoft’s business activities involving intercompany transactions against companies performing similar functions, incurring similar risks and employing similar assets. Instead, Chainbridge benchmarked profits from the entire enterprise rather than to the controlled transactions.

Chainbridge operates as a subcontractor to contingent fee auditor ACS State and Local Solutions, Inc. State taxing authorities are reported to have generated more than $250 million in state income tax assessments since 2003, resulting in more than $100 million in collections in Alabama, DC, Louisiana and New Jersey, working with Chainbridge to apply this methodology in various taxpayer audits.

In the Microsoft case, Administrative Law Judge Paul Handy found that Chainbridge failed to conduct an appropriate comparable profits analysis of Microsoft’s 2002 income based on applicable law because they improperly aggregated all of Microsoft’s income, regardless of whether the income was derived from controlled or uncontrolled transactions. In his decision, Judge Handy noted that Chainbridge’s framing of the data renders the analysis useless in determining whether Microsoft’s controlled transactions were conducted in accordance with the arm’s length standard. (See http://oah.dc.gov/oah/frames.asp?doc=/oah/lib/oah/pdf/2010-otr-00012_redacted_final_order.pdf for a copy of the decision, issued May 1, 2012.)

The use of third party contractors, such as Chainbridge, offers state taxing authorities a relatively low-risk, low cost means of recovering revenues that would otherwise go uncollected. Taxing practitioners have argued, however, that the primary purpose of state tax audits which utilize the Chainbridge approach is to generate assessments so onerous that taxpayers are pressured into settlements. In addition, as argued in the Microsoft case, assessments which rely on the Chainbridge approach do not comply with the transfer pricing regulations as established under Section 482.

The impact of this ruling remains to be seen as the DC Office of Tax and Revenue (“OTR”) and other revenue authorities, including those of Alabama, Louisiana, Kentucky and New Jersey, evaluate the continued use of the Chainbridge approach within their jurisdictions. The decision also raises questions beyond state and local tax as to the proper application of the CPM when analyzing the profits of multinationals with a number of intercompany transactions in several lines of business.

Source: Ceteris Transfer Pricing Times Volume IX, Issue 5‏

Brazil Transfer Pricing Changes Proposed

Some noteworthy impending changes to Brazil’s transfer pricing rules were issued in April through Provisional Measure 563 (PM 563). Among the highlights:

With respect to the Resale Price Minus (local acronym “PRL”) method, current Brazilian rules require that one of two margins be applied:

• 20% for transactions involving the import of goods for resale; or
• 60% for transactions involving imported goods to be used as raw materials in manufacturing processes.

PM 563 would instead apply one margin, depending on the activity and industry of the legal entity, as follows:

• 40% profit margin for:
  • Manufacture of pharmaceutical products
  • Manufacture of tobacco-related products
  • Manufacture of optical, photographic and cinematographic instruments and equipment
  • Commerce of dental health care products
  • Extraction of petrol and natural gas
  • Manufacture of petrol-derived products
• 30% profit margin for:
  • Manufacture of chemical products
  • Manufacture of glass or glass-related products
  • Manufacture of cellulose, paper or paper-related products
  • Metallurgy
• 20% profit margin for any other economic activity.

PM 563 also creates two new transfer pricing methods for the import and export of commodities (local acronyms “PCI” and “PCEX”). Under these methods, publicly-listed prices on commodity and futures exchanges, matching the date of the related-party transaction as closely as possible, may be referenced for transfer pricing purposes.

For interest paid by a Brazilian taxpayer to a related party, all loan agreements (whether they are registered or not with the Brazilian Central Bank) should now comply with the TP rules. Previously, such rules were applied only to loans not registered with the Central Bank. The interest rate accrued on the intercompany loans should correspond to an amount calculated according to the six-month term LIBOR rate, plus a spread based on an “average market rate” to be determined annually by the Minister of Finance.

With respect to the Comparable Uncontrolled Price method (local acronym “PIC”), where sampling is used to determine the arm’s length price, the size of the sample must be at least 5 percent of the total value of the relevant transactions.

These changes are effective as of January 1, 2013, assuming that the Brazilian Congress adopts them into law. However, companies may choose to apply the new rules starting in calendar year 2012

Source: Ceteris Transfer Pricing Times Volume IX, Issue 5‏

Hewlett-Packard decision increases uncertainty in debt/equity characterizations

On May 14, the Tax Court released its decision in Hewlett-Packard, representing the first of several expected foreign tax credit generator cases. However, the IRS victory may create more uncertainty for taxpayers trying to characterize financial instruments as debt or equity.
Source and more info: pwc

Spanish Supreme Court denies 0% dividend withholding tax under EU Parent Subsidiary Directive

Two recent decisions by the Spanish Supreme Court dated 21 March 2012 confirm the lower courts’ resolutions that denied the application of the 0% dividend withholding tax under the EU Parent-Subsidiary Directive on the distribution of dividends by a Spanish subsidiary to its Dutch parent entity. The ultimate parent company of the multinational group to which both the Spanish subsidiary and the Dutch parent belong is US resident.
Source & more info: Ernst & Young

Aprobados los modelos de declaración del IS

Orden HAP/1023/2012, de 11 de mayo, por la que se aprueban los modelos de declaración del Impuesto sobre Sociedades y del Impuesto sobre la Renta de no Residentes correspondiente a establecimientos permanentes y a entidades en régimen de atribución de rentas constituidas en el extranjero con presencia en territorio español, para los periodos impositivos iniciados entre el 1 de enero y el 31 de diciembre de 2011, se dictan instrucciones relativas al procedimiento de declaración e ingreso y se establecen las condiciones generales y el procedimiento para su presentación telemática.

La Distribución de la Renta en España según los datos oficiales del IRPF

En el siguiente grafico se presenta la distribución de las bases imponibles del IRPF en el ejercicio 2008 (último dato publicado)

En el año 2008 se realizaron 19.388.981 declaraciones del IRPF. Algunos datos son sorprendentes:

• Si su renta bruta es de 16.000 euros al año, entonces usted tiene la renta mediana . Es decir la mitad de la población es mas rica que usted y la otra mitad es mas pobre
• Si su renta bruta es de 33.000 euros al año, entonces usted pertenece al 15% mas rico de la población española (para ser mas precisos el 15% que mas renta declara en el IRPF).
• Si su renta bruta es de 66.000 euros al año, entonces usted pertenece al 3% mas rico de la población española (para ser más precisos el 3% que mas renta declara en el IRPF).
• En España hay apenas 100 mil personas que declaran ganar mas de 150.000 euros al año (un 0,04% más rico de todos los contribuyentes al IRPF).

Autores: Jose Ignacio Conde-Ruiz y Juan Rubio Ramírez
Fuente: Nada es Gratis

ECJ declares French dividend withholding tax on foreign investment funds discriminatory

On May 10, 2012, the European Court of Justice (ECJ) ruled that subjecting foreign investments funds to French dividend withholding tax is discriminatory pursuant to the European Union's (EU) free movement of capital principle. This ECJ decision applies to residents in the EU and third countries (such as the United States).

Source & more info: pwc

Argentine National Tax Court sustains taxpayer position on appeals decision: the importance of the proof in transfer pricing issues

Early in 2010, the National Tax Court (NTC, an administrative instance dependent on the Executive Branch) ruled in favor of Aventis Pharma SA (Aventis), regarding an ex-officio assessment income tax for FY2000 levied by the Tax Authority in connection with transfer pricing issues.
During the tax audit, the Tax Authority rejected two comparability adjustments to the results of the tested party (Aventis) and also rejected one comparable from the set of comparables selected to test the transfer prices of the manufacturing segment, using the Transactional Net Margin Method (TNMM).

Source & more info: PKN

OECD launches Tax Inspectors Without Borders

The OECD’s Task Force on Tax and Development, meeting in Cape Town, South Africa, has launched the concept of Tax Inspectors Without Borders/ Inspecteurs des impôts sans frontières – a new initiative to help developing countries bolster their domestic revenues by making their tax systems fairer and more effective. Building on that concept, the OECD will establish an independent foundation, to be up and running by the end of 2013, that will provide international auditing expertise and advice to help developing countries better address tax base erosion, including tax evasion and avoidance. The initiative was championed by Oupa Magashula, Commissioner General of the South Africa Revenue Service, Nhlanhla Nene, South Africa’s Deputy Finance Minister and Pascal Saint-Amans, Director the OECD’s Centre for Tax Policy and Administration.
The stakeholders from business, civil society, as well as OECD and developing country governments attending the Tax and Development Task Force unanimously welcomed the initiative which fills a gap in the existing provision of audit assistance. They agreed to work together to launch a sustainably financed independent organisation to host a Tax Inspectors Without Borders secretariat by the end of next year. This initiative complements several efforts by donor agencies, notably USAID, to mobilise expertise.
“Countries helping each other is the only way to effectively fight global tax evasion and avoidance.”, said OECD Secretary-General, Angel Gurría. “The idea is quite simple. Tax Inspectors Without Borders will match ‘demand’ from developing countries wanting outside help with complex international tax audits with the ‘supply’, of international experts, drawn mainly from cadres of tax inspectors serving in other tax administrations. Joint teams will operate under the local leadership in each country, based on a learning by doing approach”.
Oupa Magashula added that, “The Tax and Development Task Force should now mobilise the best experts and make them available to developing countries and get the Tax Inspectors Without Borders secretariat in place so the work can begin in earnest from 2013”.

Source: OECD

La viñeta del día

Reestructuraciones de negocio y reacciones de la Administración

La globalización económica y la mayor competitividad que se exige a las empresas han derivado en los últimos lustros en procesos de deslocalización de actividades y rentas. Esto último ha generado una reacción de las Administraciones Tributarias de la mayoría de los países occidentales, entre ellos España, que ven amenazada la base de sus ingresos tributarios por procesos de reorganización empresarial internacional, en forma de regularizaciones por precios de transferencia o establecimiento permanente en las estructuras resultantes tras la reorganización.
En este contexto, la Sentencia del Tribunal Supremo (TS) de 12 de enero de 2012 ha refrendado la actuación de la AEAT frente un grupo farmacéutico que, en 1999, procedió a reorganizar la actividad de su filial en España, que hasta la fecha actuaba como un fully-fledged manufacturer, para pasar a operar como un contract manufacturer y prestador de servicios comerciales, mediante sendos contratos, a favor de otra empresa del grupo residente en Suiza.
La resolución en cuestión avala la interpretación de instancias anteriores (TEAC y Audiencia Nacional) sobre la existencia de un establecimiento permanente de la entidad suiza beneficiaria de los servicios de su afiliada en España, sobre la base de una interpretación “sustancialista” o finalista de las disposiciones del Convenio de Doble Imposición aplicable y del tratado-modelo de la OCDE.
Difícilmente pueden entenderse las conclusiones del tribunal, cuya argumentación jurídico-formal del Modelo de Convenio de la OCDE es cuanto menos controvertida, si no se toman en consideración varias circunstancias que la propia resolución resalta: por una parte, la estrechísima relación entre ambas figuras contractuales, que consideradas en su conjunto, permiten a la entidad suiza desarrollar un ciclo mercantil completo en el mercado español; y por otra parte, el estricto control al que someten ambos contratos a las operaciones corrientes de la filial española, lo que unido a la fórmula de fijación de los precios de transferencia, vacían a la misma de riesgo empresarial y autonomía de operaciones, lo que por ende la transforma contractualmente en un apéndice de su mandante suizo.
A nuestro juicio, el TS realiza un ejercicio similar al que propugna la “teoría del levantamiento del velo societario”, aplicado a las relaciones contractuales entre empresas del grupo, dirigido a otorgar el régimen fiscal que deriva de la realidad económica subyacente que emana las mismas. Una vía que, sin perjuicio de sus virtudes, será sin duda un foco de controversia e incertidumbre en los próximos años. 

Antonio Pina

La AEAT propone a las grandes empresas reforzar la cooperación mutua en materia tributaria

El secretario de Estado de Hacienda, Miguel Ferre, y la directora general de la Agencia Estatal de Administración Tributaria (AEAT), Beatriz Viana, han asistido esta mañana a la sexta sesión plenaria del Foro Tributario de Grandes Empresas. Durante su intervención en la sesión del Foro, Viana ha invitado a los representantes de las empresas asistentes a constituir un nuevo grupo de trabajo destinado a reforzar la relación cooperativa existente entre el sector empresarial presente en el Foro y la propia administración tributaria.
Según explicó Viana, la creación de este nuevo grupo de trabajo, que se sumaría a los tres ya existentes (racionalización de cargas fiscales indirectas, precios de transferencia e Impuestos Especiales), permitiría "reflexionar con sosiego" y "definir las condiciones" para un nuevo impulso a la relación cooperativa entre ambas partes, al tiempo que ayudaría a definir las características básicas de nuevos mecanismos de información y asistencia para las empresas complementarios de los ya existentes.
En este sentido, Viana subrayó que existen ya en la actualidad instrumentos para favorecer la relación cooperativa, como los acuerdos previos de valoración (APAs), que "no están siendo utilizados en todo su potencial por las grandes empresas cuando, en realidad, proporcionan la seguridad jurídica que la empresa demanda".
"Creo firmemente que en los próximos meses debemos avanzar en esta materia", afirmó la directora de la Agencia, fomentando los mecanismos de colaboración existentes para resolver dudas de las empresas sobre el tratamiento tributario de sus operaciones y profundizar en las razones por las que estos mecanismos de consulta no son suficientemente utilizados.
Avances del Foro 

La reunión del Foro sirvió también para hacer repaso de los últimos avances alcanzados en los tres grupos de trabajo, en materias tales como la simplificación de trámites electrónicos y procedimientos de recaudación, o los mecanismos de valoración de precios de transferencia en operaciones financieras e intangibles.
En paralelo, y de acuerdo con el compromiso adquirido en el Foro, la Agencia Tributaria ha publicado ya un total de 17 notas e informes con una serie de criterios para la aplicación de los tributos en el ámbito de la Ley General Tributaria, recaudación, IVA, Impuesto de Sociedades, IRPF, Impuestos Especiales y comercio exterior. Aunque los criterios publicados no tienen carácter vinculante, sí suponen una guía para los contribuyentes que quieran conocer los criterios de la Agencia en determinadas materias complejas o conflictivas.
Código de Buenas Prácticas 

La Agencia Tributaria ha apostado también por un mayor avance en la aplicación del Código de Buenas Prácticas en Materia Fiscal, al que ya se han adherido 38 empresas o grupos de empresas (73 entidades en total), de las cuales 23 forman parte del Foro.
Casi dos años después de su aprobación, en julio de 2010, las conclusiones que se extraen de la aplicación del Código son muy positivas, ya que ha permitido conocer de forma directa -y, en la medida de lo posible, solventar- las dudas de las empresas sobre la aplicación de las normas fiscales. Con la adhesión a este código por parte de las empresas, la Agencia Tributaria pretende que aumente la transparencia y la cooperación en la práctica fiscal. El código impone un conjunto de recomendaciones para evitar la utilización de estructuras fiduciarias opacas, intensificar la colaboración en la detección de prácticas fraudulentas y mejorar la información al Consejo de Administración de las políticas fiscales aplicadas antes de la aprobación de las cuentas anuales y la declaración del Impuesto sobre Sociedades.
¿Qué es el Foro de Grandes Empresas? 

El Foro de Grandes Empresas nace en julio de 2009 como órgano para el impulso de la relación cooperativa entre la Agencia Tributaria y un grupo de 27 grandes empresas, tanto en materia de prevención y lucha contra el fraude, como de mejora de la seguridad jurídica de los contribuyentes. En concreto, el Código de Buenas Prácticas, accesible a través de la web de la Agencia (www.agenciatributaria.es), es el primero de estas características elaborado y aceptado de forma conjunta por empresas y administración en todo el mundo.
El Foro está presidido por el presidente de la Agencia Tributaria y secretario de Estado de Hacienda, Miguel Ferre. Por parte de la Administración Tributaria son miembros del Foro la directora general de la Agencia y sus responsables de Gestión, Inspección, Recaudación, Aduanas y Delegación Central de Grandes Contribuyentes; la representación empresarial le corresponde a un miembro del Consejo de Administración de cada una de las empresas que forman parte del Foro, que podrá delegar en un representante expresamente designado por el Consejo para las reuniones.
Empresas participantes en el Foro Tributario de Grandes Empresas:
Acerinox Endesa Mercadona
ACS FCC Michelín España-Portugal
Amadeus IT Holding Gas Natural-Fenosa Norfin Holder
Banco Santander Generali España Renault España
Bankia Iberdrola Repsol YPF
BBVA Iberia Seat
Cepsa Inditex Siemens
Cofares La Caixa Telefónica
El Corte Inglés Mapfre Vodafone

La viñeta de El Economista

United States - D.C. transfer pricing analysis invalidated

A District of Columbia Administrative Law Judge ("ALJ") in Microsoft Corp. v. Office of Tax and Revenue found a "fatal error" in a contract auditor's "comparable profits" transfer pricing audit methodology that included all of the taxpayer's income rather than narrowing its analysis to only controlled transactions among affiliated entities. By failing to separate Microsoft's controlled transactions (those between affiliates) from its uncontrolled transactions (those made at arm's length with third parties), the ALJ found the transfer pricing analysis "arbitrary, capricious, and unreasonable." Additionally, the ALJ found fault in the analysis because it failed to separately measure similar types of transactions.
The ALJ recognized that transactions may be aggregated when they involve related products or services. Because there was no factual showing of such interrelationship, the ALJ found that aggregation was not permissible. While the decision is limited to the specific facts of this case, the ALJ's decision draws into question similar audit practices that do not comport with federal and state guidance.

Source and more info: PKN

El Salvador issues Transfer Pricing Guidelines

On 23 March 2012, the Dirección General de Impuestos Internos ("DGII") issued Administrative Guideline No. DG-001/2012, intended to provide general guidance to taxpayers on the tax treatment of related party transactions or transactions with entities domiciled in tax havens jurisdictions. In 2009, the Salvadorian Tax Code ("TC"), was modified through Decree No. 233, which included among the relevant changes the introduction of new transfer concepts such as the definition of the arm’s length principle and comparability (along with the criteria for establishing it), and the definition of related parties, which includes tax havens.

Source & more info: Ernst & Young

Guatemala passes transfer pricing legislation for transactions in 2013

Guatemala passed transfer pricing legislation resulting in new compliance requirements starting in 2013 that will apply to transactions that occurred in 2013. The new transfer pricing legislation generally adheres to the Organisation for Economic Cooperation and Development ("OECD") in its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations ("OECD Guidelines").
Among the requirements is the preparation of contemporaneous transfer pricing documentation that it should be provided to the Superintendencia de Administración Tributaria ("SAT") within 20 days of it being requested.

Source & more info:  PKN