Latest news from international tax and transfer pricing

Practical Compliance Guideline issued on Simplified Transfer Pricing Record Keeping Options

The ATO published Practical Compliance Guideline (PCG) PGG 2017/2 on Simplified Transfer Pricing Record Keeping Options for eligible taxpayers that are required to document and record their transfer pricing obligations in accordance with subdivision 284 E of Schedule 1 to the Taxation Administration Act 1953. The PCG provides various simplified transfer pricing record keeping options to reflect the types of transactions or activities the ATO believes are low risk in the context of international related party dealings. The PCG also specifies the criteria for taxpayers to self-assess their eligibility to use one or more of the eight simplification options.

ATO to issue Diverted Profits Tax guidance

The ATO has indicated that it is developing a Law Companion Guideline to provide guidance on some of the new concepts in the Diverted Profits Tax (DPT). In addition, the ATO is developing guidance on the framework that will be established on the administration of the DPT.

OECD and BEPS developments

The Organisation of Economic Co-operation and Development (OECD) released key documents, approved by the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which will form the basis of the peer review of Action 13 Country-byCountry (CbC) Reporting and for the peer review of the Action 5 transparency framework. For further information and additional analysis, refer to this Tax Policy Bulletin. Stakeholders are also invited to provide input on peer reviews of Dispute Resolution (BEPS Action 14) for the Stage 1 peer reviews of Austria, France, Germany, Italy, Liechtenstein, Luxembourg and Sweden. 

In other developments:

• The OECD Platform for Collaboration on Tax released a draft toolkit to help developing countries address the lack of comparables for transfer pricing analyses. The toolkit is part of a series of reports by the Platform to help countries that may have limitations in their capacity to design or administer strong tax systems.

• Her Majesty’s Revenue and Customs (HMRC) published guidance on transfer pricing aspects of cash pooling arrangements. Refer to Tax Insights for further information.

• Key changes are anticipated in transfer pricing administration in China. Refer to Tax Insights for further information.

• The Inland Revenue Authority of Singapore released updated Transfer Pricing Guidelines which incorporate BEPS Actions developments. Refer to Tax Insights for further information.

• Panama introduced changes to transfer pricing legislation. Refer to Tax Insights for further information.

• Brazilian Federal Revenue Office issues final regulations on CbC reporting. Refer to Tax Insights for further information.

• Gabon, Hungary, Indonesia, Lithuania, Malta, Mauritius and the Russian Federation have signed the Multilateral Competent Authority Agreement for CbC Reporting (BEPS Action 13) to enable automatic sharing of information. This brings the total number of signatories to 57.

• Kazakhstan, Côte d’Ivoire and Bermuda have joined the Inclusive Framework on BEPS. Over 1300 relationships are now in place to automatically exchange information between tax authorities, pursuant to the OECD Common Reporting Standard.

• Thailand joined the Global Forum on Transparency and Exchange of Information for Tax Purposes as its 139th member.

Tax administrations have also shared their findings and developed actions on ‘Panama Papers’ at a meeting held in Paris on 16 and 17 January 2017. The meeting included the largest ever simultaneous exchange of information, based on legal instruments under the OECD and Council of Europe Multilateral Convention and tax treaties.

Luxembourg implements OECD CbC reporting obligations and issues new TP circular for the fiscal treatment of intra-group financial transactions

The Luxembourg Parliament passed legislation implementing CbC reporting requirements for Luxembourg entities that are part of a Multinational Enterprise Group (MNE). The new CbC reporting legislation transposes into Luxemburg law part of the three-tiered standardised approach to transfer pricing documentation introduced in Action 13 of the OECD/G20 BEPS project. The Luxembourg CbC obligations require Luxembourg ultimate parent entities controlling an MNE group whose total consolidated group revenue exceeds EUR 750 million to file CbC reports with the Luxembourg tax authorities. Other companies that are members of MNE groups also may have obligations to file CbC reports in Luxembourg. Both Luxembourg MNE group parents and other Luxembourg companies that are members of MNE groups also must comply with notification requirements that have deadlines that are potentially imminent. Refer to Tax Insights for further information. Luxembourg Tax Authorities have also issued a new circular providing guidance for the fiscal treatment of intra-group financial transactions. Effective from 1 January 2017, the Circular follows the application of the arm’s-length principle of the OECD Transfer Pricing Guidelines. All existing transfer pricing rulings are no longer valid from the Circular’s date of effect. For further information, refer to Tax Insights.

Switzerland rejects Corporate Tax Reform in public vote

Swiss voters have rejected the Corporate Tax Reform III, which would have abolished current existing tax regimes, such as the rules for holding or mixed companies. The reform would also have introduced new internationally accepted measures such as the patent box, research and development PwC 4 TaxTalk Monthly March 2017 incentives, a notional interest deduction, and a basis step-up. Refer to Tax Insights from International Tax Services for further information.

Compliance and enforcement of the CRS in the Cayman Islands

The Cayman Islands government recently approved regulatory amendments for compliance with and enforcement of the Common Reporting Standard (CRS) by financial institutions. The clarifications and additions include the notification requirement for Cayman Financial Institutions; CRS policies and procedures; return filing requirements for Cayman Reporting Financial Institutions, including guidance relating to the use of separate jurisdiction reporting; and offenses and penalties for contravening the CRS regulations. Refer to Tax Insights for further information.

German draft bill would restrict deductibility of relatedparty royalties

The German Federal Cabinet agreed on a draft bill that would restrict the tax deductibility of relatedparty royalty payments, under certain conditions. The German government is focused on situations in which the royalty income is taxed as part of a special patent box regime that does not meet the OECD’s ‘nexus’ approach. If the draft bill is enacted, the rule is expected to apply to royalty expenses incurred after 31 December 2017. Refer to Tax Insights for further information.

Release of the 2017 Indian Union Budget

The 2017 Indian Union Budget was released on 1 February 2017. For a comprehensive analysis of the Budget, refer to this PwC publication. The Budget is also expected to affect foreign investors and multinational enterprises. This includes rationalisation of capital gains taxation, benefits for cross-border debt, and initiatives based on the OECD BEPS action plan – refer to Tax Insights for further information. The Budget proposals are also expect to tighten compliance obligations and increase mobility costs – refer to Insights from Global Mobility.

Indian Central Board of Direct Taxes offers opinions on GAAR

The Indian Central Board of Direct Taxes (CBDT) created a Working Group in June 2016 to consider issues regarding the implementation of its general anti-avoidance rules (GAAR). After considering the Working Group’s comments, the CBDT issued a Circular providing its opinions on the GAAR’s applicability and implementation. The GAAR will take effect on 1 April 2017. Refer to Tax Insights for further information.

Papua New Guinea – More budget changes

The Papua New Guinea Parliament passed further taxation changes effective from 1 January 2017. These changes addresses some of the concerns arising from the National Budget in November, but have also added to uncertainty by introducing additional changes that could again be seen as unintended consequences. Refer this PwC publication for further information.

Report on consultation on International Dealings Schedule

The ATO released the International dealings schedule (IDS) consultation report to implement a recommendation from the Inspector-General of Taxation’s 2012 report, ‘Review into the ATO’s management of transfer pricing matters’. Some of the issues discussed include IDS reporting and compliance costs, use of natural business systems in IDS reporting and the impact of tax law changes, including new transfer pricing documentation requirements on the IDS.

Practical compliance guideline for offshore hubs

The ATO released PCG 2017/1, which discusses the ATO’s compliance approach to transfer pricing issues related to the location and relocation of certain business activities and operating risks into a centralised operating model typically involving procurement, marketing, sales and distribution functions (an ‘offshore hub’). The framework set out in this Guideline is aimed to be used by taxpayers to: • assess the compliance risk of the transfer pricing outcomes of hubs in accordance with the ATO’s risk framework • understand the compliance approach that the ATO will likely adopt having regard to the risk profile of a taxpayer’s hub • work with the ATO to mitigate the transfer pricing risk in relation to a hub and have confidence that risk exposure is reduced, and PwC 5 TaxTalk Monthly March 2017 • understand the type of analysis and evidence the ATO would require when testing the outcomes of any hub. The PCG has effect from 1 January 2017 and will apply to existing and newly created hubs.