Archive for Transfer Pricing

Global Transfer Pricing Forum 2015, Washington D.C., September 24 & 25

The 15th Annual Global Transfer Pricing Forum, hosted by International Tax Review and TP Week in association with Deloitte, will be held at the Park Hyatt Hotel in Washington DC on September 24 and 25.

For those of you who have attended in previous years, you’ll know that the event attracts over 200 tax executives, both government and in-house, and private practice who come together to hear from 30+ expert transfer pricing speakers and discuss the direction of the transfer pricing landscape.

Of course, the event takes places just at the time when final BEPS guidance will be delivered in October 2015, making this year’s forum one of the last public opportunities Read More

Written by | Posted in TaxConnections • Transfer Pricing

Companies Divert Huge Amounts of Cash Out of Africa

Large corporations conduct vast scams to avoid paying taxes levied by African governments, according to a joint UN–African Union report cited by the Wall Street Journal. Because the governments lack the expertise and enforcement clout to halt such practices, companies frequently underreport the goods they import or sell in order to avoid taxes, and the resulting profits are typically diverted overseas, with the result that as much as $60 billion is illegally moved out of Africa annually, the report says.

These reports will only stimulate Transfer Pricing reviews by African Tax Authorities.

For additional information about Africa specific Transfer Pricing, connect with me on TaxConnections. Read More

Written by | Posted in Africa • Transfer Pricing

Australian Tax Office BEPS “Progress Report”

In a speech last week ATO’s Mark Konza, Deputy Commissioner – International, gave an insight into the ATO’s activities in responding to a number of the OECD’s post Cairns G20 Minister’s Conference BEPS Action Plan items.

Deputy Commissioner Konza put particular emphasis on the ATO’s strategy in connection with “Action Item 1: address the tax challenges of the digital economy”. Commenting on the ATO’s work on this aspect he said-

“The broader digital economy is also being addressed through our four-year dedicated compliance program to address International Structuring and Profit Shifting (ISAPS). Tax and law professionals from external firms have been recruited into the ATO to help Read More

Written by | Posted in Australia/Oceania • Income Tax • International • OECD • Tax Controversy • Tax Policy • Tax Risk Management • Transfer Pricing

Transfer Pricing: 25% Rule of Thumb Not Applicable To Determining Royalty Rates

Attached please find a recent U.S. Court of Appeals for the Federal Circuit case (September 16, 2014 in VirnetX, Inc. v. Cisco Sys., Inc.) in which a U.S. court finds again the “25 percent rule of thumb” to determine royalty rates inadmissible:

“[W]e agree with the courts that have rejected invocations of the Nash theorem without sufficiently establishing that the premises of the theorem actually apply to the facts of the case at hand. The use here was just such an inappropriate “rule of thumb.” Previously, damages experts often relied on the “25 percent rule of thumb” in determining a reasonable royalty rate in a hypothetical negotiation. That rule hypothesized that 25% of the value of the infringing product would remain with the patentee, while the remaining 75% would go to the licensee. [W]e held the “25 percent rule of thumb” to be inadmissible Read More

Written by | Posted in International • OECD • Transfer Pricing

The Basics of Offshore Tax Planning For Canadian Corporations – Part 4

Transfer Pricing Issues

As is the case with most major counties, Canada has rules in its tax laws aimed at preventing income from being shifted to other jurisdictions by unreasonable transfer pricing [1].

To date, most of the activity of the CRA and reported tax cases has focused more on inbound transfer pricing issues involving charges by multi-national corporations to Canadian subsidiaries. However, the rules can certainly be applied in connection with outbound tax planning of the type being outlined in this series [2].

If the CRA successfully applies these rules, they could lead to a reassessment of Read More

Written by | Posted in Corporate • International • Transfer Pricing

Comparison of Holding Regimes: Latvia vs. Ireland – 4:4!

What is common to Facebook, LinkedIn, EA, Apple and PayPal? Most of you already know or suspect – first, these businesses work in e-commerce; but what is the key? They use companies in Ireland; the first two have even established their group headquarters in Ireland. A respected Irish tax consulting company highlighted the 10 most significant advantages of this globally popular holding-company jurisdiction in a recent article. In considering these 10 Irish advantages, using sports terminology I challenge you to a game: which holding regime scores more (is better) – the Latvian one or the Irish one?

1. CAPITAL GAINS TAX EXEMPTION – LATVIA 1:0 IRELAND

This exemption has been implemented in both countries, but in Ireland it has been limited by several preconditions. For example, only EU or residents in Ireland of tax treaty Read More

Written by | Posted in Europe, Middle East • R&D Credit Services • Transfer Pricing

Advance Pricing Agreements Report Released By IRS

Report Concerning Advance Pricing Agreements (2013)

Highlights excerpted:

In February of 2012, the former APA Program was moved from the Office of Chief Counsel to the Office of Transfer Pricing Operations, Large Business and International Division of the IRS (TPO) and combined with the United States Competent Authority (USCA) staff responsible for transfer pricing cases, thereby forming the Advance Pricing and Mutual Agreement (APMA) Program.  During the last quarter of 2013, new proposed revenue procedures governing APA applications and MAP applications were released for public comment in Notice 2013-79, 2013-50 I.R.B. 653, and Notice 2013-78, 2013-50 I.R.B. 633, Read More

Written by | Posted in Transfer Pricing

BEPS And Transfer Pricing

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
Written by | Posted in OECD • Transfer Pricing

IRS Releases Transfer Pricing Audit Roadmap

Transfer pricing audit is getting a momentum and is being perceived as a big weapon in the hands of the Internal Revenue Service for the adjustments. IRC 482 gives immense powers to the IRS for adjusting income, credits and deductions of a taxpayer where it finds that a revenue is lost due to the related party transactions that were not conducted on arm’s length standard.

The IRS’s Large Business and International division has released a roadmap providing detailed guidance on transfer audits, including audit techniques and tools to assist with transfer pricing exams, as well as an estimated timeline for the exam, insights as to how the exams will be conducted, and tips for upfront planning. Read More

Written by | Posted in Audit • IRS • Transfer Pricing

OECD Releases Draft of Radical Country-by-Country Reporting Template

The OECD has just published its draft of “A Model Template of Country-by-Country Reporting” that would require companies for the first time to provide tax administrations with exhaustive details of how they allocate their income, taxes, and business activities on a country-by-country basis.

On July 19, 2013 BEPS Action Plan, the OECD was directed to “develop rules regarding transfer pricing documentation to enhance transparency for tax administration, taking into account the compliance costs for business.

The rules to be developed will include a requirement that MNE’s provide all relevant governments with needed information on their global allocation of the income, economic Read More

Written by | Posted in OECD • Transfer Pricing

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

Written by | Posted in Tax Provision/Tax Reporting • Transfer Pricing

7 Habitual Mistakes Companies Make – An Introductory Tax Risk Management Case Study

TaxConnections Blog PostBBA Ltd decides to go for Tax Risk Management

TAKE BBA LTD, part of the international Rialtry Group, (a fictitious name but the facts are real) as an example. They faced a major tax audit on all fronts.  The trigger had been an article in the Exposé magazine, citing them as having sneaked assets offshore under the radar screen without detection by the IRS, and now they were leaking huge sums of money to a tax friendly jurisdiction, escaping significant tax charges in their country of effective management.

Four years later, they concluded their Tax Risk Management (TRM) process.  The process was heralded a great success by the board of directors of BBA Ltd, the Rialty Group, and the IRS.  Why?

There were no less than 30 key tax areas that required investigation and audit by the IRS.  IRS audit teams were typically given 100 man hours per key tax area to audit, and then would be expected to deliver a result through revised assessments.  Three thousand man hours would have been spent completing all the audits to arrive at a result for the IRS. This would have meant an equal, if not greater amount of time and resource to be spent by BBA Ltd. With a very small tax department, they would have had to hire an extensive number of outside consultants at great expense. Read More

Written by | Posted in Africa • International • Transfer Pricing
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