Latest news from international tax and transfer pricing
US tax reform developments
To keep up to date with the latest developments, news and implications of tax reform in the United States (US), visit PwC’s dedicated website. The website is regularly updated, and brings together insights from business specialists across the globe for US inbound and outbound organisations navigating change. Some recent updates to note include:
- Tax reform readiness - International tax provisions have complex state implications.
- Tax reform readiness - What should treasurers do today?
- Treasury and IRS release third notice on toll tax.
- Updated IRS Q&As could immediately impact taxpayers electing to pay toll tax in instalments.
- IRS Notice provides transitional guidance on advance payment rule.
- Third Section 965 Notice on the ‘toll tax’ calls for immediate action.
- Uncertainty around application of the BEAT raises issues for non-US headquartered service companies.
- Summary of key 2017 and 2018 federal tax rates and limits—many changes after tax reform.
- First guidance under amended interest expense limitation clarifies high-profile issues.
- Key tax developments for global companies operating in the USA, including tax reform updates for US inbound organisations and uncertainties on dispositions of partnership interests by foreign persons.
Updated PCG issued on Simplified Transfer Pricing Record Keeping Options
The Australian Taxation Office (ATO) has published an update to Practical Compliance Guideline PCG 2017/2 on simplified Transfer Pricing Record Keeping Options that reflect the types of transactions or activities the ATO believe are low risk in the context of international related party dealings. This update provides the minimum interest rate for small related party outbound loans for the 2018 year.
Australia-France tax treaty
The Australian Federal Treasurer has provided notice that Article 26 (Assistance in Recovery) of the Australia-France double tax treaty entered into effect on 1 April 2018. Article 26 obliges each jurisdiction to take certain action in its own territory to assist the collection of taxes owed to the other.
ATO multinational compliance focus
Australian Taxation Office Deputy Commissioner Mark Konza, in a recent speech, highlighted developments in Australia over the last few years on base erosion and profit shifting (BEPS) and multinational enterprise tax compliance.
Key multinational compliance focus areas for the ATO that were mentioned include:
- transfer pricing in the pharmaceutical industry
- for the energy and resources sector - exploration expenditure, hubs (particularly marketing hubs) and related party financing, the use of derivatives to avoid interest withholding tax and cross currency interest rate swaps
- the fragmentation of business structures to recharacterise income
- the transfer of intellectual property offshore, and
- the manipulation of thin capitalisation calculations.
When it comes to possible developments and issues for the future, it is interesting to note Deputy Commissioner Mark Konza’s comment that “... we are closely watching international developments for signals on further legislative change. Australia’s position is a balance: we do not seek to go out ahead of the international consensus, but nor will we be left behind.”
OECD and BEPS developments
The Organisation for Economic Cooperation and Development (OECD) has released additional guidance on the attribution of profits to a permanent establishment resulting from the changes in the Report on BEPS Action 7 to Article 5 of the OECD Model Tax Convention. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments, and includes examples of a commissionaire structure for the sale of goods, an online advertising sales structure, and a procurement structure. Refer to PwC’s Global Tax Insights for further details.
In other developments:
- The OECD published a new set of bilateral exchange relationships established under the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA) which now includes activations by Panama. The OECD also released the second edition of the Common Reporting Standard (CRS) Implementation Handbook. Refer to PwC’s Global Tax Insights for further information.
- The OECD announced that the Multilateral BEPS Convention will enter into force on 1 July 2018 for Slovenia, Austria, the Isle of Man, Jersey, and Poland which have deposited their instruments of ratification. In accordance with the rules of the Convention, its contents will start to have effect for existing tax treaties from 2019.
- The OECD published new transfer pricing country profiles for Australia, China, Estonia, France, Georgia, Hungary, India, Israel, Liechtenstein, Norway, Poland, Portugal, Sweden and Uruguay respectively. These new profiles reflect current transfer pricing legislation and practices of each country. The profiles of Belgium and Russia have also been updated. Country profiles are now available for 44 countries.
- The Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) and OECD has released a draft practice note that will help developing countries address profit shifting from their mining sectors via excessive interest deductions. Comments are due on 18 May 2018.
- It was announced that the Global Forum on Transparency and Exchange of Information has issued nine peer review reports. Four jurisdictions – Estonia, France, Monaco and New Zealand – received an overall rating of ‘Compliant’. Three others – Bahamas, Belgium and Hungary were rated ‘Largely Compliant’. Ghana was rated ‘Partially Compliant’. Progress for Jamaica was recognised through a Supplementary Report, which attributes a ‘Largely Compliant’ rating.
- The OECD has given an update on the actions to address the misuse of residence/citizenship by investment schemes to ensure that the integrity of the OECD/G20 CRS is preserved.
Singapore’s new transfer pricing rules and guidelines
Singapore has introduced new transfer pricing rules, as well as guidelines on how these rules are to be applied. The rules codify requirements for the preparation of transfer pricing documentation. In addition, new penalties and fines for noncompliance were introduced as part of the legislative package. The detailed rules set out the powers of the Inland Revenue Authority of Singapore to enforce the arm’s-length principle. Refer to PwC’s Global Tax Insights for further information.
China extends preferential income tax policy for integrated circuit enterprises
The Chinese Ministry of Finance, State Administration of Taxation, National Development and Reform Commission, and the Ministry of Industry and Information Technology jointly issued Public Notice on the corporate income tax policy for software and integrated circuit (IC) enterprises. The notice provides incentives to qualified IC enterprises or projects established after 1 January 2018, and to qualified IC enterprises established before 31 December 2017, that have not yet made a profit. Refer to PwC’s Global Tax Insights for further information.
German tax authorities release circular on anti-treaty/ directive-shopping rules
German tax authorities have released a circular addressing the European Union (EU) law compliant interpretation of the German anti-treaty/directiveshopping rules. The Circular responds to recent judgments of the European Union Court of Justice. As a result of this circular, more taxpayers should benefit from the withholding tax reduction under the EU Parent-Subsidiary Directive. Refer to PwC’sGlobal Tax Insights for further information.
European Commission releases State aid opening decision
The European Commission (EC) has made publicly available the non-confidential version of its opening decision in the formal investigation into another EC State aid decision in the area of transfer pricing. If the EC’s approach is confirmed in its final decision, we expect further litigation before the European courts. Multinational enterprises should be aware of the possible impact of the EU State Aid developments on their current fact patterns and plan accordingly. Refer to PwC’s Global Tax Insights for further information.
New Luxembourg IP tax regime
The Luxembourg Government has approved legislative measures necessary to bring Luxembourg’s new intellectual property (IP) regime into force effective from 1 January 2018. The new regime provides an 80 per cent tax exemption on eligible net income for qualifying IP rights. Refer to PwC’s Global Tax Insights for further information.