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Archive for Transfer Pricing

Transfer Pricing And Intra-Group Financial Transactions

Transfer Pricing And Intra-Group Financial Transactions

Christodoulos Damianou, together with colleagues Christos Theophilou and Demis Ioannou of Taxand Cyprus present a case study of how the Cypriot tax authorities use safe harbour rules in determining arm’s-length interest rates.

Transfer pricing has always been a challenging exercise, in particular in regard to intra-group financial transactions. It was not until February 2020 that the OECD eventually published specific guidance on financial transactions, namely the “Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS Actions 4, 8-10”.[1]

In the context of intra-group loans, to provide administrative simplicity for both the taxpayers and the tax authorities, safe harbour (or safe haven) rules are often used by tax authorities in determining arm’s-length interest rates. Such rules are usually optional (i.e. the taxpayer can elect to either apply the safe harbour rule or follow the country’s domestic transfer pricing guidelines).

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Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 4 of Series): “TPEP Resolution Phase & Takeaways”

Transfer Pricing Exams & IRS Preparedness Measures

In this fourth article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we briefly summarize the IRS’s Transfer Pricing Examination Process (TPEP) Resolution Phase, which is the final phase of the TPEP’s three phases, and we list extrajudicial taxpayer courses of action such as Appeals.

The goal of the Resolution Phase is to reach agreement on the tax treatment of each transfer pricing issue examined. Important parts of the Resolution Phase include the IRS’s presentation of the issue and its resolution, case closing, and when necessary, issuing a Revenue Agent Report with adjustments, penalties (if the taxpayer failed to timely provide documentation), and tax liability.

The TPEP instructs the issue team to provide the taxpayer an opportunity to agree or disagree with the findings for each transfer pricing issue developed during the examination. For a transfer pricing issue to be resolved, there must be an open discussion between the issue team and the taxpayer in three areas: 1) factual development, 2) the law(s) that applies to the facts, and 3) each party’s interpretation of the law(s). The issue team should meet with the taxpayer to discuss all issues and determine whether a “principled resolution” can be reached. If a field resolution is not reached, the issue team will finalize the Notice of Proposed Adjustment (“NOPA”) and Economist Report.

The TPEP discusses options that the taxpayer can pursue, including Appeals,[1] and when a tax treaty country is involved, U.S. Competent Authority (CA) requests, Accelerated CA Procedures to cover subsequent taxable years, and Simultaneous Appeals Procedures whereby Appeals works jointly with the Advance Pricing and Mutual Agreement (APMA) Program and the taxpayer prior to APMA’s consultations with the foreign CA(s). Taxpayers may request CA assistance after receiving a NOPA and are not required to wait until the conclusion of an examination to file a CA request. If APMA accepts a CA request, it will assume jurisdiction over the transfer pricing issues. Otherwise, the case remains under the jurisdiction of the issue team.

We invite you to read our article Six Time-Tested TPEP Takeaways where we share pertinent insights that are even more important today than a few years ago when the TPEP was still hot off the press.

Stay tuned for the next blog post in this series, where we discuss the IRS’s April 2020 transfer pricing guidance, Transfer Pricing Documentation Frequently Asked Questions (FAQs).

If you have any questions or would like more information on the issues discussed in this article, please contact the authors:

Guy Sanschagrin, Principal in Charge of Transfer Pricing and Valuation Services, WTP Advisors (Minneapolis, MN, USA) guy.sanschagrin@wtpadvisors.com

Doug Schwerdt, Transfer Pricing and Valuation Specialist, WTP Advisors (Houston, TX, USA) doug.schwerdt@wtpadvisors.com

 

Read Blog Post Part 1 in this Series

Read Blog Post Part 2 in this Series

Read Blog Post Part 3 in this Series

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[1] The TPEP reaffirms that the IRS requires 365 days to remain on the statute of limitations for taxpayers to request Appeals consideration.

Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 3 of Series): “TPEP Execution Phase”

Doug Schwerdt

In this third article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we highlight and summarize the essential aspects of the IRS’s Transfer Pricing Examination Process (TPEP) Execution Phase.

The Execution Phase immediately follows the opening conference and consists of continued risk assessment, fact finding, information gathering, and issue development. Stages of issue development include determining the facts, applying the law to those facts, and understanding the various tax implications of the issue. The issue team is advised to make every effort to resolve factual differences with the taxpayer.

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Looming Transfer Pricing Exams & IRS Preparedness Measures (Part 2 of Series): “TPEP Planning Phase”

GUY SANSCHAGRIN

In this second article in our Looming Transfer Pricing Exams & IRS Preparedness Measures series, we highlight and summarize the essential aspects of the IRS’s Transfer Pricing Examination Process (TPEP) Planning Phase.

The Planning Phase determines the scope and issues of the transfer pricing examination. The TPEP states, “Issues selected for examination should have the broadest impact on achieving compliance regardless of the size or type of entity.” Important steps in the Planning Phase are: 1) the Initial Transfer Pricing Risk Assessment, 2) issuance of the Initial Transfer Pricing Information Document Request (IDR), 3) IRS internal planning meetings, 4) development of the exam plan, timelines and milestones, and 5) the opening conference, which is the final step of the Planning Phase and marks the transition to the Execution Phase.

Evolving Guidance
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Tax Authorities Looking For Revenue: Now Is Not the Time To Ignore Transfer Pricing

Transfer Pricing Software

COVID-19 necessitates a reassessment of the existing transfer pricing paradigms of Multinational Enterprises (MNEs). Supply chain disruptions and changes in consumer demand resulting from the COVID-19 pandemic and global recession are impacting virtually all major industries. These disruptions erode profits and will require MNEs to adjust transfer pricing approaches. MNEs also face challenges such as government restrictions on travel and enabling personnel to work remotely.

Three points are well illustrated by Will James in the 16-Mar-2020 BKD, LLP Thoughtware® article Transfer Pricing in the Wake of COVID-19: 1) Transfer pricing audits are anticipated to increase for 2020 and future tax years for MNEs with adversely affected profitability; 2) MNEs need to start preparing for audits now by documenting the arm’s length nature of their transfer pricing arrangements and including evidence and analysis of extraordinary COVID-19 business disruptions that result in lower profitability or losses; 3) Documentation of lower profitability or losses that result from COVID-19 and the recession is particularly important for reduced-profit or loss-making MNE entities subject to profit-based methods guaranteeing minimum returns (e.g., Transactional Net Margin Method).

The following is a checklist to consider:
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What We Are Doing to Help Corporate Tax Executives Handle Transfer Pricing Remotely

GUY SANSCHAGRIN on Transfer Pricing

It goes without saying that the COVID-19 pandemic is the major concern of nearly all multinational enterprises (MNEs) at the moment. Radical containment measures continue to be put in place by governments around the world in efforts to slow the spread of the virus. Many of these measures center on the concept of ‘social distancing’ and have included closing businesses and organizations, cancelling events, prohibiting international and domestic travel, and quarantining cities and even regions. COVID-19 containment measures have disrupted business as usual, from manufacturing plant shutdowns to creating information inefficiencies and collaboration challenges at MNE headquarters and across global entities. These business disruptions create challenges for effectively managing transfer pricing information and workflows.

Companies are instructing whole departments to work from home, and the traditional workplace is increasingly reserved for jobs that cannot be performed remotely. This presents challenges for MNEs, especially at the headquarters level, such as keeping information and workflows organized, and maintaining effective communication and collaboration between stakeholders and ‘gatekeepers’ in different departments of global entities.
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Netherlands: Dutch Tax Authorities And Dutch Tax Rulings

Jimmy Cox - Dutch Tax Rulings

In the Netherlands it is possible to discuss your specific tax position with the Dutch tax authorities and mutually agree on the tax consequences thereof. The Dutch tax authorities and the taxpayer are bound by the agreement they make. The agreement has to be regarding the interpretation and qualification of facts. The ruling has to be in conformity with the Dutch tax legislation. In other words the agreement cannot be in conflict with the Dutch tax legislation (contra legem). In August 2004, the Dutch ruling policy was formalized in an advance tax ruling (ATR) policy and an advance pricing agreement (APA) policy.

Dutch advance pricing agreement (APA)

An APA covers the agreement on an at arms’ length remuneration or on the transfer pricing methodology. The basis for an APA is a transfer pricing study. The Dutch tax authorities and the tax payer agree that the outcome of the transfer-pricing study would form the basis for the determination of the income for Dutch corporate income tax purposes.

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Are The Netherlands A Tax Haven?

Jimmy Cox On Taxes In The Netherlands

According to a majority of the members of the European Parliament, the Netherlands is, just like Malta, Cyprus, Ireland and Luxembourg, a fiscal paradise and it is demanding (without any underlying jurisdiction, incidentally) that the European Commission place these five countries on its list of tax havens.  This list is, of course, is more akin to a pillory than an honor roll.

Does the Netherlands merit being designated as a tax haven?  Most inhabitants of the Netherlands would not experience this as being the case; after all, the VAT on shopping, for crying out loud, has increased by 50% this year alone, and the highest bracket in income taxation (over EUR 68,508) remains at 51.75%:  a solid deduction indeed.  It is true that taxation on company profits has decreased from 20 to 19%, but this latter figure is still considerably higher than in Ireland (12.5%) or Bulgaria (10%), for example.  Furthermore, companies making profits higher than EUR 200,000 continue to pay 25% over this threshold.

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Transfer Pricing And BEPS – Important Announcement From President Of The Council Of The European Union

The Council Of The European Union came to a political agreement to the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. All delegations in the Commission “agree on the principle that disclosure of potentially aggressive tax planning arrangements of a cross-border dimension can contribute effectively to an environment of fair taxation in the internal market and that tax authorities share the disclosed information with their peers in other Member States.”

“The Commission presented the legislative proposal with the main purpose of this initiative is to strengthen tax transparency and fight against aggressive tax planning by including into the existing Council Directive on administrative cooperation in the field of taxation (DAC) new provisions, which would require Member States to:

– lay down rules for mandatory disclosure to national competent authorities of potentially aggressive tax planning schemes with a cross-border element (“arrangements”) by the “intermediaries”    (e. g. tax advisers or other actors that are usually involved in designing, marketing, organizing or managing the implementation of such “arrangements”); and ensure that national tax authorities automatically exchange this information with the tax authorities of other Member States by using the mechanism provided for in DAC.

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US Tax Reform As A Chess Puzzle

Co-Authors: John S. MacArthur and Dale A. Spiegel, Jr.

As with global tax strategists, chess players routinely practice against hypothetical opponents to prepare themselves for real contests. Now is the time for the tax community (“taxpayers” below) to similarly prepare for US tax reform (“USTR”).

Taxpayers (White) must act now not knowing what taxing authorities (Black) will do next. Some rules (e.g. BEPS (the OECD Base Erosion and Profit Shifting counter-measures)) are known. Some Black moves (e.g. BEPS implementation) may be anticipated with some reliability. Other potential Black gambits (e.g. the course of US tax reform) are more speculative as of this writing. Chess puzzles often allow White to make a “forcing move” that compels Black’s doom, or perhaps at least allow White to protect itself from defeat by finding a stalemate. Taxpayers moving today do not have that option – all they can do is position themselves as far as possible to achieve favorable outcomes under the most likely variety of taxing authority moves.

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Several New Jurisdictions Sign Transfer Pricing, Automatic Sharing Of Corporate Country-By-Country Reports

William Byrnes

As part of continuing efforts to boost transparency by multinational enterprises (MNEs), Brazil, Guernsey, Jersey, the Isle of Man and Latvia signed today the Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country reports, bringing the total number of signatories to 49. This marks a further milestone towards the implementation of the OECD/G20 BEPS Project and a significant increase in cross-border cooperation on tax matters.

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Transfer Pricing Summit—Last Chance To Register!!—New York—July 18-19, 2016

Kat Jenning

This is your last chance to register for the Biggest Transfer Pricing Summit of the year. Don’t miss this golden opportunity to learn from top tax leaders of the industry. This summit is highly recommended to those in order to help you advance in your career.

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