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The issue of tax and transfer pricing has come sharply into focus over the last few years. Tax authorities across multiple jurisdictions, including the US, Canada and across Europe and Australia, have begun to aggressively focus on transfer pricing arrangements. While transfer pricing has historically been a business issue in most jurisdictions, over the last decade we have seen the practice spread into the political spectrum, particularly as global economic growth has remained somewhat stagnant. With governments the world over looking to balance their budgets in difficult times, the transfer pricing arrangements of big businesses – including the likes of Google, Amazon and Apple – have caught the attention of the public as well as global regulatory bodies.

UNITED STATES

J. Clark Armitage

Caplin & Drysdale

“The most startling transfer pricing development does not involve transfer pricing, at least technically, and it is not in the US. It is the European Commission’s case against Apple under the European Union’s state aid law. Apple secured tax rulings from Ireland many years ago that the European Commission asserts are illegal state aid, so Apple should pay more than $14bn in past taxes and interest; the US Treasury has defended Apple. US companies are watching this case closely. In addition, US transfer pricing litigation, in particular, against Microsoft and Coca-Cola Inc., has grabbed taxpayers’ attention. On a positive note, the US government and India broke their stalemate over competent authority disputes and advanced pricing rulings.”

BELGIUM

Frederik De Graeve

Grant Thornton

“In Belgium, the obligation to prepare and file transfer pricing documentation has been introduced, where before no such obligation existed. Multinational groups with consolidated gross revenues exceeding €750m will need to file a country by country report for financial years started from 1 January 2016. Furthermore, Belgium has introduced the obligation to prepare and file transfer pricing documentation in line with the master file - local file concept.”

NETHERLANDS

Juan Dosal

RSM Netherlands

“The OECD’s base erosion and profit shifting (BEPS) project has provided a new framework for creating more coherent international tax rules, reinforcing the link between the substance requirements and international tax standards and increasing transparency. Resulting from this, on 22 December 2015 the Dutch parliament passed legislation implementing the BEPS final report on transfer pricing documentation and country by country (CbC) reporting. The new legislation was implemented with detailed regulations, which came into force on 1 January 2016.”

LUXEMBOURG

Loek de Preter

PwC Luxembourg

“Luxembourg’s transfer pricing regime has, since 1 January 2015, been based on Article 56 of the Luxembourg Income Tax Law (LITL), which broadly replicates the arm’s length principle wording as set out in Article 9 of the OECD Model Tax Convention. With the BEPS Project text formally adopted into the OECD transfer pricing guidelines at the May 2016 OECD Council, Luxembourg took further action by introducing a draft bill, which was published on 12 October 2016. It now proposes to introduce a further article, 56bis, into the LITL. The article has been designed to explicitly sign some of the key principles set out in the OECD guidelines in their 2016 form into law.”

GERMANY

Markus Brem

GTP GlobalTransferPricing Business Solutions GmbH

“The most significant change is the increase in the general awareness of transfer pricing matters, be it within multinationals, on the part of local tax consulting teams of small and mid-sized consulting firms, or local tax authorities. Of course, in 2016 we have seen the administrative principles on profit attribution to permanent establishments, and we will soon see the new code sections of the Article 90 Tax Procedures Act on transfer pricing documentation with master file, country file and country by country reporting.”

SWITZERLAND

Frédéric Neukomm

Lenz & Staehelin

“The BEPS reports and an increase in transparency related to tax rulings has triggered some rather drastic changes in the way the Swiss tax authorities’ approach to transfer pricing issues. However, to date there have been no legislative changes regarding transfer pricing documentation or requirements. Historically, the Swiss authorities have not had a very sophisticated practice regarding transfer pricing. This is obviously because the low tax environment creates an incentive for groups to determine a transfer pricing policy that would generally be in favour of the Swiss entity.”

ITALY

Aldo Castoldi

Deloitte

“Transfer pricing regulations are constantly being amended and updated in various jurisdictions, but the wave of changes triggered by the completion of BEPS Actions final reports on transfer pricing matters, and more specifically that on Action 13 – transfer pricing documentation and country by country reporting – have definitely been the most significant. Indeed, most European countries have promptly adopted the new three tier documentation package recommended by the OECD as the new standard for transfer pricing documentation, including an absolute novelty like the so-called ‘country-by-country reporting’ which most countries have introduced for MNEs with a turnover equal or in excess of €750m starting from financial year 2016.”

UKRAINE

Olga Trifonova

PwC Ukraine

“Even though the OECD based transfer pricing rules are rather new in Ukraine – having come into force in September 2013 – they have already been amended several times. A short while ago, certain important amendments were adopted which became effective in January 2015. In particular, the thresholds for controlled transactions were increased, along with penalties for non-compliance, control over transfer pricing for VAT purposes was dropped and the deadline for filing transfer pricing documentation was extended. In addition, in 2016 the form of a report on controlled transactions – which is a return notifying the tax authorities about controlled transactions – was extended with profit level indicators to be included.”

AUSTRALIA

James Nethersole

Nexia Australia

“Transfer pricing has been at the forefront of the business news in Australia and following the release of the 2015 BEPS reports, the government has responded with the introduction of a suite of new laws related to international tax and transfer pricing. Similarly to the UK’s response, these new measures include taking unilateral action in new legislation specifically targeting the artificial avoidance of a permanent establishment (PE), known as the Multinational Anti-Avoidance Law (MAAL). Broadly, the MAAL seeks to recharacterise structures and transactions by multinational groups which are seen to artificially avoid creating a PE in Australia by the use of ‘low value service companies’ which, in substance, contribute to the conclusion of contracts with local customers.”

TAIWAN

Ming Chang

Deloitte Taiwan

“Over the past 12 months, there have been two significant transfer pricing (TP) developments. One was the enforcement of stricter TP audits by the Taiwan tax authorities. The second was the proposed amendment to the Taiwan TP regulations and the potential impact it would create on the preparation of TP documentation in accordance with the Base Erosion and Profit Shifting (BEPS) Action Plans, especially Action Plan 13. Although there have not yet been any specific timelines regarding the release of the amendment draft, Taiwan multinational enterprises (MNEs) should still be aware of these changes and their potential effects on their business strategy and tax compliance costs.”

KENYA

Peter Kinuthia

KPMG Kenya

“Kenya is a member of the G20/OECD inclusive framework on BEPS. Kenya and Uganda have completed phase one of the Global Forum’s exchange of information on request, which is a review examining the legal and regulatory framework. The Global Forum has finalised and published the phase two review examining the implementation of the framework in practice. Phase two for Uganda is currently ongoing, though Kenya was found to be largely compliant. In 2016, Kenya signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAATM).”

TANZANIA

Tom Philibert

EY

“The release of the final OECD reports on Base Erosion and Profit Shifting (BEPS) is probably the most significant transfer pricing development in a long time. The final report on Action 8, 9 and 10 provides detailed and substantially new guidance on transfer pricing aspects of intangibles and on the allocation of risks between related parties. And then, of course, there is the final report on Action 13 that will change the transfer pricing documentation landscape for many multinationals. This will, of course, have a big impact on transfer pricing analyses in the coming years globally, including Africa and Tanzania.”

ZAMBIA

Michael Phiri

KPMG Zambia

“The Zambia Revenue Authority (ZRA) has set up a four man team dedicated to conducting transfer pricing audits. The team has so far conducted transfer pricing audits on two mining companies. The ZRA has also acquired a database to assist them in determining arm’s-length prices.”

CONTRIBUTORS

Caplin & Drysdale

Deloitte

Deloitte Taiwan

EY

Grant Thornton

GTP GlobalTransferPricing Business Solutions GmbH

KPMG Kenya

KPMG Zambia

Lenz & Staehelin

Nexia Australia

PwC Luxembourg

PwC Ukraine

RSM Netherlands