Archive for Yvette Kwong

BEPS And Transfer Pricing

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The news headlines that many multinational companies (MNCs) have been reducing their income tax burden through shifting of income to no- or low-tax countries have resulted in the OEC’s Action Plan on addressing Base Erosion and Profit Shifting (BEPS). The BEPS action plan is very aggressive and comprehensive.

Major countries including China, India and the US are actively involved in the BEPS project.

MNCs are challenged with getting ready for potential regulatory changes that may happen soon to impact their existing tax planning structures that they put in place a few years ago.

Major Goals of BEPS Read more

How To Succeed In Cross-Border Merger And Acquisition Deals In China

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Foreign direct investments have been increasing for the past few decades.

According to Baker & McKenzie for multinational companies venturing into China through Mergers and Acquisitions there are eight essentials that these companies need to be aware of in order to succeed.  They are as follows:

1. Knowing your China counter-party
2. Conducting deep due diligence
3. Structuring the deal
4. Navigating government approvals
5. Satisfying valuation requirements Read more

Staying With The Trend For The Tax Function

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The “Buzz Words” these days for the in-house Tax Function are:

• Transformation
• Value Creation
• Tax/Business Strategic Alignment
• Business Partnering
• Risk Management/No Surprises

Transformation of the Tax Function – The Whys, What’s and How’s

Why does the Tax Function need transformation? Read more

Valuation of Intangible Property – Financial Reporting Versus Transfer Pricing

TaxConnections Picture - Blue CheckmarkCan the valuations used for financial reporting be used for transfer pricing and tax reporting?

Both the IRS and the OECD have pointed out that valuations of intangible assets (“IP”) for financial reporting and transfer pricing are not exactly the same, and taxpayers should not assume that financial statement auditors and tax authorities would accept one for the other.

Under US GAAP and IFRS Fair Value is the benchmark for the price that would be received to sell an asset or paid to transfer a liability between market participants at the measurement date.

For Transfer Pricing (tax reporting) purposes the Arm’s Length Standard is the benchmark to achieve the results that would have been realized between uncontrolled taxpayers.

Although similar, financial reporting and transfer pricing definitions of IP are different in several areas which often lead to different valuation results.

Aggregation Approach For Financial Reporting And Transfer Pricing

Financial reporting focuses on tangible and intangible assets acquired and liabilities assumed. Excess is recorded as goodwill. Read more

VAT Exemption Coming To Companies In China

TaxConnections Blogger Yvette Kwong posts about Value Added Taxes In ChinaThe pilot VAT program put in place in January 1, 2012 was expanded nationally on August 1, 2013. The long-awaited administrative measure on VAT exemption for cross border services would now allow companies in China to follow the prescribed procedures to obtain VAT exemption on previously non-zero-rated service revenue from cross-border international transportation and “modern services” within the scope of the pilot VAT program.

Services that may benefit from this new administrative measure include R&D and design services provided to foreign service recipients.

Certain services such as consultancy services in respect of immovable properties or goods located in China are fully subject to VAT even if provided to foreign service recipients.

Services such as exhibition and advertising services are VAT exempt only if performed overseas and regardless of whether the service recipient is Chinese or foreign.

International transportation services are either zero-rated or VAT exempt depending on whether the service provided is a general VAT taxpayer with relevant licenses or a small-scale VAT taxpayer.

Zero rating means that service provider in China does not have to charge output VAT on cross-border services and also can apply for a refund of its related input VAT. Read more

Much Anticipated “Free-Trade Zone” – China Officially Opened In Shanghai on September 29, 2013

TaxConnections Member and Blogger Yvette Kwong posts about China Free Trade ZoneAs part of China’s strategy and long-term goal to further open up China to the world economy and international trade, China has set up a “Free Trade Pilot Area” or FTPA in Shanghai.

The intent is to observe and learn from Shanghai’s experience for nationwide application later on in China.

According to Deloitte the focus will be on policy reforms rather than preferential treatment. This should result in trade, investment and financial liberalization.

Details of the rules are expected to be announced shortly with full implementation of those rules to be accomplished by the end of 2013.

Business Sectors Likely to Benefit from the FTPA

The FTPA will give wholly foreign-owned banks the opportunity to set up shop in China for the first time.

Two foreign banks (Citigroup and Development Bank of Singapore) and eight Chinese banks have received approval to open branches in the zone.

According to the Wall Street Journal banks in the zone are expected to have more freedom to set interest rates and Read more

Emerging Transfer Pricing Issues For China and S.E. Asia

TaxConnections Tax Blog - China and Southeast Asia Transfer Pricing IssuesLocation Specific Advantages (LSAs)

Tax authorities in emerging markets such as China and South East Asia are paying more attention to LSAs.

LSAs generally refer to location savings on the supply side  and market premiums on the demand side.

Location Savings

In the context of transfer pricing (TP), ‘‘location savings’’ generally refer to (net) cost savings realized by an MNE (multinational enterprise) as a result of relocating  some of its operations from a ‘‘high cost’’ to a ‘‘low cost’’ location.

Market Premiums

On the other hand, market premiums refer to location specific ability to sell products at a higher price.

In a United Nations Transfer Pricing (“TP”) Manual released in 2012  China’s State Administration of Taxation (“SAT”) indicated that China would promote the LSA concept in future practice.

Current  challenges include how to identify, quantify and allocate LSAs. Read more

Transfer Pricing – Intangibles Valuation And Tax Planning Face More Headwind

TaxConnections Blogger - Yvette Kwong and transfer pricingTransfer Pricing – Intangibles Valuation And Tax Planning Face More Headwind

The OECD’s July 2013 revised discussion draft (“the Revised Draft”) on transfer pricing aspects of intangibles include some updates that may impact MNC’s tax planning of intangible assets (“IP”).

The Draft adopts a broad definition of intangibles and provides guidance on what is not considered intangible assets.

There was guidance on how the funding of intangible development should be remunerated based on arms’ length principles. Comparability factors to consider include the following:

•  Location savings

•  Other local market features

•  Assembled workforce

•  Multinational group synergies.

The Revised Draft adopts a more transactional approach and retains a focus on functions performed, assets used and risks assumed. Read more

China Relaxes Procedures To Send Cash Out Of Country

iStock_000015914943XSmallAccording to a recent Deloitte webcast China is simplifying its procedures for outbound payments.

Bulletin [2013] No. 40 and Huifu [2013] No. 30 removes the requirements of tax clearance certificates for outbound payments.

Also, SAFE is allowing cross-border cash pooling for pilot multinational companies and state-owned enterprises. This allows for cross-border intercompany borrowing, lending and netting or cash pooling (within limits). Tax considerations include deductibility of intercompany interest expense, withholding tax on interest payments, and transfer pricing issues concerning intercompany charges.

Further, excess cash from the China operations of an MNC could be used to finance overseas cash needs of sister companies via equity or debt. Read more