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Despite the uncertainty of the last 18 months, one constant has been the importance of maintaining compliant transfer pricing policies. Indeed, the pandemic has only served to heighten pressure on companies to ensure their documentation is accurate, consistent and defendable.

UNITED STATES

Elizabeth Stevens

CAPLIN & DRYSDALE, CHARTERED

“One major recent development is the US’s return to a leading role in negotiations on the Organisation for Economic Co-operation and Development’s (OECD’s) Pillars One and Two. These initiatives would largely affect US companies and would subject a slice of global profits to formulary apportionment rather than the arm’s length principle, as well as implementing a global minimum tax. The Biden administration has offered novel proposals for resolving certain key issues and achieved agreement among the G7 countries on core elements of the overall package, greatly improving the outlook for multilateral consensus in 2021.”

UNITED KINGDOM

Richard Fletcher

BAKER MCKENZIE

“There have been numerous developments in transfer pricing over the last 12-18 months, but most should be considered within the context of a broader tax and economic landscape. For example, the ongoing development of Pillar One by the Organisation for Economic Co-operation and Development (OECD) as part of its efforts to agree upon how to tax the digital economy has made taxpayers think deeply about how transfer pricing strategies will need to change in future. Moreover, the continuing implementation of the OECD’s base erosion and profit shifting (BEPS) initiative has had a profound impact on how intellectual property (IP) is taxed across jurisdictions, and the level and nature of transfer pricing returns due to different constituent entities in a group involved in IP-related activities.”

REPUBLIC OF IRELAND

Neil Casey

KPMG IN IRELAND

“The transfer pricing landscape in Ireland has changed significantly over the last 12 to 18 months. The main change has been the degree of controversy and challenge from international tax authorities for Irish taxpayers. The degree of scrutiny and challenge being experienced has caused taxpayers to reassess their readiness for transfer pricing challenges and the way transfer pricing risk is managed. Furthermore, there is greater readiness and appetite from the Irish tax authority to consider mutual agreement procedure (MAP) as the correct way to resolve disputes and double taxation.”

NETHERLANDS

Yannick Schuerman

NORTON ROSE FULBRIGHT LLP

“The last 12 to 18 months have clearly demonstrated the impact of the Organisation for Economic Co-operation and Development (OECD) guidance on financial transactions. Companies that relied on intercompany financing for their tax planning strategy have been heavily impacted by this development. They had to review and amend their transfer pricing strategies, while enduring more detailed audits and investigations about previous transactions from prior to the guidance being made available. Cash pools and transactions where the lender does not perform decision-making functions to control the risk are among the most frequently required amendments.”

LUXEMBOURG

Oliver R. Hoor

ATOZ TAX ADVISERS S.A.

“Luxembourg companies are often involved in financial transactions, such as debt funding, financing activities, guarantees, cash pooling and so on. Therefore, the adoption of the new OECD guidance on transfer pricing aspects of financial transactions is of particular importance from a Luxembourg transfer pricing perspective and may require a revision of existing transfer pricing documentation. The severe economic downturn resulting from the measures taken by governments in Europe and around the globe to manage the COVID-19 situation may have a significant impact on the economic parameters that are relevant to transfer pricing analysis.”

GERMANY

Yves Hervé

NERA ECONOMIC CONSULTING

“The Organisation for Economic Co-operation and Development’s (OECD’s) Pillar One and Pillar Two initiatives are among the most significant developments. Despite concerns about practical implications on an administrative level, these initiatives are strongly endorsed by the German Ministry of Finance on a political level. Following the G7 Minister of Finance alignment meeting that took place in early June, it now seems likely that the initiatives will translate into international agreements, which will modify international group taxation throughout 2021.”

SPAIN

Eduardo Gracia

ASHURST

“There have been a number of transfer pricing developments which have impacted companies in Spain. First, there was the introduction of the Organisation for Economic Co-operation and Development (OECD) blueprint on Pillar One, which focuses on the allocation of taxing rights in a digitalised economy and seeks to undertake a coherent and concurrent review of the profit allocation and nexus rules but, at the same time, runs the risk of deviating from the arm’s length principle. Second, there is the launch of the OECD Transfer Pricing Guidance on Financial Transactions, although the Spanish Tax Administration had already been applying, to a large extent, the OECD criteria in this area for some time.”

UZBEKISTAN

Timur Zhursunov

PWC

“Transfer pricing has been one of the main areas of focus in Uzbekistan over the last year. The 2020 Tax Code introduced fully fledged transfer pricing provisions, including a definition of related parties, controlled transactions, pricing methods, documentation and reporting requirements, among others. These rules will be effective as of 1 January 2022 and are set to align the Uzbek transfer pricing regulations with Eurasian and global best practice.”

AUSTRALIA

Tracey Murray

PPM INNOVATION PTY LTD

“The past 12-18 months has seen an avalanche of transfer pricing issues that Australian taxpayers need to be aware of and address in terms of their past transfer pricing strategies versus future positions. The primary issues that needs consideration is the impact of COVID-19 on comparability benchmarking, including consideration as to the impact of COVID-19 related government assistance, the impact of COVID-19 on a potential redistribution of functions, assets and risks associated with international related parties (IRP) dealings, the impact of profit and loss distribution, and the impact of the recent Glencore case on the Australian Taxation Office’s (ATO’s) ‘reconstruction’ powers.”

MAURITIUS

Roomesh Ramchurn

MAZARS

“Currently, there is no specific transfer pricing legislation in Mauritius. Nonetheless, as announced in the budget speech for the year 2020/2021, the regulator is working in collaboration with the Ministry of Finance and Economic Development with the view of introducing specific transfer pricing legislation in Mauritius. Numerous anti-avoidance rules under the ambit of transfer pricing are, however embedded in the Mauritian Income Tax Act 1998. These include the arm’s length principle, review and disallowance of excess interest expenses and imposition of a deemed interest in respect of intra-group financing arrangements.”

CONTRIBUTORS

Ashurst

ATOZ Tax Advisers S.A.

Baker McKenzie

Caplin & Drysdale, Chartered

KPMG In Ireland

Mazars

NERA Economic Consulting

Norton Rose Fulbright LLP

PPM Innovation Pty Ltd

PwC