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Tax and transfer pricing have been in the spotlight over the last 12 months. The US tax reform, for example, has created a number of challenges and opportunities for firms. Many organisations have used the reform to revisit legacy models and update pricing to reflect current market conditions. However, they also need to adapt to new base erosion and anti-abuse provisions. In the US, as in many other jurisdictions, transfer pricing has become a priority. Complying with related obligations requires multinationals to invest in implementing and maintaining their transfer pricing policies. With tax authorities, such as HM Revenue & Customs (HMRC) in the UK, increasing the size and scope of their transfer pricing operations, some taxpayers have taken action, adopting less aggressive structures to satisfy authorities.

UNITED STATES

B. Chase Wink

Skadden, Arps, Slate, Meagher & Flom LLP

“US tax reform has created opportunities and challenges related to transfer pricing (TP) for multinational organisations operating in the US. It has provided corporate tax organisations a reason to revisit legacy models and to update pricing for current market conditions. In addition, taxpayers who have historically foregone charging foreign affiliates for certain intangibles owned in the US are now considering charging arm’s length compensation to take advantage of the tax-favoured foreign derived intangible income (FDII). As for challenges, the recent US tax reform also brought a new base erosion and anti-abuse tax (BEAT), which functions as a minimum tax aimed at inbound investors using TP and base eroding payments to limit their US tax exposure.”

UNITED KINGDOM

James Ross

McDermott Will & Emery UK LLP

“There has been nothing dramatically new in the last 12 months, but the trends we have seen over the last few years have continued. Tax authorities are focusing ever more on the appropriate transfer pricing (TP) of intangibles. When doing so, they put rather less weight on comparables than in the past. Their default position is generally to argue for an allocation based on profit split, which reflects the perceived downgrading of the comparable uncontrolled price (CUP) method in the Organisation for Economic Co-operation and Development (OECD) transfer pricing guidelines.”

IRELAND

Gerard Feeney

Deloitte Ireland LLP

“In September 2017, the Irish government published the ‘Review of Ireland’s Corporation Tax Code’ (The Coffey Review), which was undertaken by an independent expert. The Coffey Review represents one of the most fundamental analyses of Irish tax legislation in recent years and, among other tax areas, includes recommendations on transfer pricing (TP). Following a public consultation process, the government published Ireland’s Corporation Tax Roadmap in September 2018. The Tax Roadmap takes stock of the changing international tax environment and outlines the proposed changes to TP in the coming years, based on the Coffey Review.”

FRANCE

Nadia Sabin

FIDAL

“Since 1 January 2018, the French transfer pricing (TP) documentation requirements have been aligned with the latest version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations issued by the Organisation for Economic Co-operation and Development (OECD). But a few differences exist between the French requirements and the OECD Guidelines. For example, the French regulations do not request providing a description of the group’s TP policies related to research and development (R&D) and intangibles, a description of the individuals to whom local management reports and the countries in which such individuals maintain their principal offices, and information on the main competitors.”

BELGIUM

Leslie Van den Branden

Grant Thornton Tax & Legal

“In Belgium, the obligation to prepare and file transfer pricing (TP) documentation was introduced in 2016. Multinational groups with consolidated gross revenues exceeding €750m will need to file a country-by-country (CbC) report. Belgian subsidiaries or branches that are part of a multinational group with consolidated gross revenues exceeding €750m must file a specific CbC notification form annually. Furthermore, Belgium has introduced the obligation to prepare and electronically file TP documentation, in line with the Master File (MF) Local File (LF) concept”

NETHERLANDS

Patrick T.F. Schrievers

NovioTax

“The most significant transfer pricing (TP) development is the increasing awareness for companies to comply with TP regulations due to more transparency and exchange of information – a result of the base erosion and profit shifting (BEPS) project. Compliance requirements in a post-BEPS environment are more demanding than ever before. In addition, we have recently seen an interesting court decision in the Netherlands – the Zinc case – that will have a significant impact on all taxpayers involved in drafting TP documentation. This summer we have also seen the long anticipated South Dakota v. Wayfair decision of the US Supreme Court.”

GERMANY

Michael Freudenberg

KPMG

“General guidance on the application of the arm’s length principle dealing inter alia with the pricing of intercompany finance and IP transactions, was expected in Germany for quite some time. However, recent developments have again slowed down the regulatory process and it is now anticipated that, instead of a holistic solution, we will see separate guidance on particular topics being enforced over the next couple of years. One example is the newly issued ordinance on cost sharing arrangements, which replaced the existing regulations. The reasons for the delay are diverse.”

ITALY

Aldo Castoldi

Studio Tributario e Societario

“The last 12 months have brought several important changes to Italian laws and regulations affecting transfer pricing (TP). First, the country-by-country (CbC) reporting obligation was introduced for multinationals (MNEs) operating within Italy with a consolidated turnover exceeding €750m. Companies must prepare a CbC report, pursuant to the indications contained within the Organisation for Economic Co-operation and Development (OECD) base erosion and profit shifting (BEPS) Action Plan 13, through which they must report to the tax authorities certain economic and financial information, broken down for each country in which the company operates.”

SWEDEN

Jenny Stenesjö

Mazars

“In our experience, the Tax Agency in Sweden is more alert when it comes to identifying controlled transactions. The Tax Agency has also adopted a more aggressive approach on transactions for which no benchmark analysis has been performed. We have in some cases seen, where a company has failed to present a benchmark analysis, courts in Sweden accept the Tax Agency’s transfer pricing (TP) evaluation without adjustments. Another development we have seen in the last 12 months is more frequent questioning from the Tax Agency on which of the Organisation for Economic Co-operation and Development (OECD) methods have been used by the group.”

AUSTRALIA

Tracey Murray

Glasshouse Advisory Pty Ltd

“In July 2017, the Australian Taxation Office (ATO) introduced a Diverted Profits Tax (DPT) to act as a disincentive for significant global entities diverting profits out of Australia to lower taxed jurisdictions. The DPT imposes a penalty tax rate of 40 percent, plus interest, and does not allow relief via Australia’s double tax treaties. The ATO recently issued specific guidance on the implementation of these new provisions, which provides practical examples around the issue of determining whether the economic substance of a transaction supports the allocation of profits.”

ALGERIA

Rafik Boussa

Grant Thornton Algeria

“Transfer pricing (TP) regulations have been applied to transactions between related companies since financial year 2010. Since that time, the Algerian tax authority has released many updates regarding TP, particularly over the last 12 months. Articles 8, 10, 43 and 44 of the financial law 2017, detail the obligations for the taxpayer and the sanctions available to the authority in the event of non-compliance. Some of the major features applicable to companies operating in Algeria include the obligation to provide TP documentation, not only to large companies registered with the Direction des Grandes Entreprises (DGE) but also to any other eligible company, regardless of size.”

EGYPT

Kamel Magdy Saleh

Deloitte, Saleh, Barsoum & Abdelaziz – Egypt

“2018 has been a landmark year for the Egyptian transfer pricing (TP) landscape. First, the Minister of Finance issued a Ministerial Decree amending some provisions of the executive regulations of the Income Tax Law (2005) that relate to the Egyptian TP regulations. Therefore, some articles of the executive regulations have now been amended as part of an update to the TP guidelines to take into account the Base Erosion and Profit Shifting (BEPS) project recommendations for TP documentation. Second, in September, the Egyptian Tax Authority (ETA) released its updated Egyptian Transfer Pricing Guidelines in draft for experts’ review.”

KENYA

Peter Kinuthia

KPMG East Africa

“The East African region has experienced various developments and changes in transfer pricing (TP) over the last 12 months, largely as a consequence of the rise in multinational enterprises’ activities in the region. On 13 April 2018, the parliament of Rwanda enacted Law No. 016/2018 of 13/04/2018 Establishing Taxes on Income. The new law requires a taxpayer to have TP documentation in place, with detailed TP regulations soon to be published. The law also caps income tax outflows by restricting management, technical and royalty fees paid to non-resident persons at 2 percent of the taxpayer’s turnover,”

UGANDA

Peter Kyambadde

KPMG Uganda

“In July 2017, an amendment to the Tax Procedure Code (TPC) Act introduced a penalty of Ushs 50m for any taxpayer which fails to provide records in respect of transfer pricing (TP) within 30 days of receiving the request. The tax authorities have intensified the profiling of taxpayers by requesting multinationals fill in related-party disclosure forms for the last four years. In October 2017, the tax authorities sent out TP audit commencement letters to the top six players in the coffee sector. Also in 2017, the tax authorities resolved to attach a high TP risk to entities whose management fees are charged based on turnover.”

TANZANIA

David Gachewa

KPMG Advisory Limited

“There has been an increased focus on the appropriateness of the prices of goods and services procured by companies in Tanzania from related entities abroad, following a public address by the president urging the relevant government entities to scrutinise all cross-border transactions between multinational enterprises (MNEs) and companies in Tanzania. The result has been a surge of transfer pricing (TP) focused tax audits by the Tanzania Revenue Authority’s audit teams.”

CONTRIBUTORS

Deloitte Ireland LLP

Deloitte, Saleh, Barsoum & Abdelaziz – Egypt

FIDAL

Glasshouse Advisory Pty Ltd

Grant Thornton Algeria

Grant Thornton Tax & Legal

KPMG

KPMG Advisory Limited

KPMG East Africa

KPMG Uganda

Mazars

McDermott Will & Emery UK LLP

NovioTax

Skadden, Arps, Slate, Meagher & Flom LLP

Studio Tributario e Societario