Latest news from international tax and transfer pricing

Update on Australian country-by-country reporting Local Files

The ATO has published further guidance on the Australian Country-by-Country (CbC) Local File, including guidance on the electronic filing format; guidance on the provision of international related-party (IRP) agreements within Part B of the CbC Local File; and further details on the administrative concession which permits early filing of Part A of the CbC Local File, instead of providing certain transfer pricing disclosures in the International Dealings Schedule (IDS) of the income tax return. Refer to PwC’s global Tax Insights publication for further information.

Draft ATO guidance on cross-border related party financing

The ATO has released draft Practical Compliance Guideline PCG 2017/D4 which addresses cross-border related party financing arrangements. The guidance sets out a multifaceted framework for how the ATO differentiates risk (according to six colour-coded risk zones) and how it tailors its compliance approach according to the features of the related party financing arrangement, the profile of the parties and the choices and behaviours of the multinational group. Refer to this TaxTalk Alert for further information.

Labor’s multinational tax avoidance package

The Australian Labor Party has announced a series of reforms aimed to target tax avoidance by multinational companies. The package - Their Fair Share - includes measures that will:

·       remove the safe harbour and arm's length debt tests, leaving only the worldwide gearing ratio available for thin capitalisation purposes

·       increase funding for compliance activity by the ATO

·       remove tax advantages and inconsistencies between MEC groups and tax consolidated groups by accepting recommendations in the 2015 Treasury discussion paper

·       restore the $100 million threshold for public reporting by the Commissioner of Taxation of certain tax data for private companies, and

·       appoint a community sector representative to the Board of Taxation.

Australia - Hong Kong Free Trade Agreement

The Minister for Trade, Tourism and Investment has announced the launch of negotiations for the Australia-Hong Kong Free Trade Agreement with the Hong Kong Secretary for Commerce and Economic Development. During the negotiations stakeholders can lodge submissions on the potential opportunities and impacts of a free trade agreement with Hong Kong.

OECD developments

Recent developments from the Organisation of Economic Co-operation and Development (OECD) include:

·       A status update in relation to implementing CbC Reporting under the Base Erosion and Profit Shifting (BEPS) Action 13 minimum standard, through activations of automatic exchange relationships under the Multilateral Competent Authority Agreement on the Exchange of CbC Reports. As of May 2017, there are over 700 bilateral exchange relationships activated with respect to more than 30 jurisdictions committed to exchanging CbC Reports, with first exchanges scheduled to take place in 2018.

·       Details of the jurisdictions which will bilaterally exchange financial account information as required under the OECD's Multilateral Competent Authority Agreement (MCAA) for the Common Reporting Standard (CRS). The relationships shown include those under the framework of Article 6 of the Multilateral Convention and the CRS MCAA, as well as exchange relationships based on bilateral agreements and the EU framework. As of May 2017, there are over 1800 bilateral exchange relationships activated with respect to more than 60 jurisdictions committed to the CRS, with first exchanges scheduled to take place in September 2017.

·       Launch of a disclosure facility on the Automatic Exchange Portal which allows interested parties to report potential schemes to circumvent the CRS.

·       The United Arab Emirates, Lebanon and Kuwait have signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

UN updates its Practical Manual on Transfer Pricing for Developing Countries

On 7 April 2017, the United Nations (UN) released the second edition of its Practical Manual on Transfer Pricing for Developing Countries, which is an update to incorporate aspects of the changes to the OECD Transfer Pricing Guidelines following the OECD/G20 BEPS Project. Refer to PwC’s global Tax Insights for further information.

US Tax Court rejects IRS transfer pricing adjustments

The United States (US) Tax Court in Amazon.com, Inc. v. Commissioner rejected the Internal Revenue Services (IRS) preferred approach to pricing cost-sharing buy-in payments as inconsistent with the arm’s length standard, employing reasoning that has implications for related-party transfers of intangible property in general. Refer to PwC’s global Tax Insights publication for further information.

US IRS provides guidance on collecting foreign tax identification numbers

The US IRS has released a series of Frequently Asked Questions (FAQs) to provide guidance on collecting foreign tax identification numbers (TINs) on beneficial owner withholding certificates (e.g., Forms W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), and W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)). The FAQs were issued in response to comments received from stakeholders on regulations issued in December 2016 that imposed sudden and unexpected burdens on withholding agents regarding their obligation to collect foreign TINs on withholding certificates beginning 1 January 2017. Refer to PwC’s global Tax Insights publication for further information.

‘Brexit’ and implications for income tax accounting

On 30 March 2017, the United Kingdom (UK) Government gave formal notice of its intention to leave the European Union (EU). This notice triggered the process of negotiating the UK’s exit, which is likely to last at least two years. Existing tax reliefs and exemptions that apply to transactions between UK entities and entities in other EU member states might cease to apply when the UK’s exit finally occurs. The tax legislation, if any, that will replace those reliefs and exemptions is unknown at this stage. Refer to this IFRS bulletin which addresses the potential implications for income tax accounting.

New Zealand immigration changes

On 19 April 2017, New Zealand’s Immigration Minister outlined several further proposed and confirmed changes to the country’s immigration rules. The changes are intended to ensure that New Zealand's immigration policy settings achieve the desired outcome of attracting the right people with the right skills to fill genuine skill shortages and contribute to growing the economy. Refer to PwC New Zealand’s Immigration Alert for further information.

India publishes its first Advance Pricing Agreement Annual Report

The Central Board of Direct Taxes of India published the first India Advance Pricing Agreement (APA) Annual Report. The APA Report contains statistics and performance details of the Indian APA programme for the five years of its existence from financial year 2012/13 through to 2016/17. Refer to PwC’s global Tax Insights for further information.

Taxation of certain property sales by non-permanent residents of Japan

The scope of taxation for non-permanent residents (NPR) of Japan increased with effect from 1 January 2017 so that income from the sale of certain personal property located outside of Japan (other than real estate property) is taxable in Japan even if the proceeds are not remitted into Japan. However, an exemption of the capital gains taxation for NPRs introduced in the 2017 Tax Reforms provides some relief for income from the sale of securities outside of Japan from 1 April 2017. Refer to PwC’s global Insights publication for further information.