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The Organisation for Economic Co-operation and Development’s (OECD’s) work on Pillar One and Pillar Two, and the broader base erosion and profit shifting (BEPS) agenda, has remained at the forefront of transfer pricing developments over the past 12 to 18 months.

UNITED STATES

J. Clark Armitage

Caplin & Drysdale Attorneys

“The most significant development may be the 2021/22 priority guidance plan with new transfer pricing projects released by the Internal Revenue Service (IRS) and the Treasury. Although transfer pricing regulatory projects have become a recurring part of the IRS’s annual priority guidance plans, the latest plan refers to a series of new projects that suggest that more far-reaching changes could be coming. Like the new US foreign tax credit regulations, we expect that new transfer pricing rules will be aimed at challenging any digital service tax legislation and influencing the Organisation for Economic Co-operation and Development’s (OECD’s) Pillar One efforts.”

CANADA

André R. Bergeron

Gowling WLG

“In June 2021, the government of Canada passed the Budget Implementation Act, which confirmed announced changes to section 247 of the Income Tax Act (Canada) (ITA), specifically putting in place an ‘ordering provision’ which clarifies the sequencing of transfer pricing provisions vis-à-vis other provisions in the ITA. As a result, the first applicable rule is that prices are determined to be arm’s length and the adjusted amount can be used in other sections of the ITA. Prior to this change, there was confusion among taxpayers as communications from the Canada Revenue Agency (CRA) provided contradictory views in technical rulings as to whether specific provisions would apply and, if compliant, whether a transfer pricing adjustment would still be valid.”

BRAZIL

Angélica Santos

CGM Advogados

“Brazil is currently applying for Organisation for Economic Co-operation and Development (OECD) membership and, as one of the results of that, Brazilian federal tax authorities and OECD technical staff have been working together since 2018 to integrate local transfer pricing rules with OECD transfer pricing guidelines. Although current Brazilian transfer pricing rules are, to some extent, inspired by OECD guidelines, there are some differences – for instance the broad concept of ‘related parties’, different methods for imports and exports and fixed pre-determined profit margins, which must be used for the purposes of applying the resale price and cost-plus methods.”

FRANCE

Xenia Legendre

Hogan Lovells (Paris) LLP

“The most significant change is the Organisation for Economic Co-operation and Development’s (OECD’s) Pillar One and Pillar Two project. While it has yet to be implemented, some companies have begun to prepare for life under these new rules. The goal for tax directors is often no longer reducing the effective tax rate, but rather staying above 15 percent and avoiding negative press. The concept of being a ‘good’ tax citizen, specifically not only complying with laws but also paying a significant amount of tax, has become an important consideration for many groups. Tax is now becoming part of the environmental, social and governance (ESG) profile of many companies.”

BELGIUM

Olivier Querinjean

CMS Belgium

“Recent noteworthy developments in the field of transfer pricing in Belgium relate to the coronavirus (COVID-19) crisis, and the Belgian tax authority’s adherence to the Organisation for Economic Co-operation and Development (OECD) Guidance on the transfer pricing implication of the pandemic, published on 18 December 2020. The publication of the Belgian tax authority’s Circular Letter 2020/C/35 of 25 February 2020 on the guidelines for transfer pricing for multinational enterprises and tax authorities can also be considered an important development.”

LUXEMBOURG

Oliver R. Hoor

ATOZ Tax Advisers S.A.

“The current global economic environment might be the single most critical factor from a transfer pricing perspective. While we have seen lockdown measures, quarantine mandates and other restrictions which had a direct impact on a whole range of businesses, the escalating inflation rates and supply chain disruptions are now a concern for many groups. These tendencies are only aggravated by sanctions against Russian natural resources that further fuel inflation in the West and have the potential to result in an energy crisis.”

SWITZERLAND

Hendrik Blankenstein

Tax Partner AG

“Switzerland put in place strong dispute resolution mechanisms to counteract the threat of double taxation. In its international tax policy, it advocates the inclusion of arbitration clauses. Furthermore, the Swiss legislator is committed to strengthening the rights and obligations of the taxpayer with respect to mutual agreement procedures (MAPs). In view of the importance of MAPs, it was somewhat surprising that important procedural issues, such as the rights and obligations of the taxpayer, time limits and the implementation of MAPs, were not legally standardised in Switzerland.”

AUSTRALIA

Liam Delahunty

RSM Australia Pty Ltd

“The last 12 months in Australia has largely been about consolidating from the initial uncertainty caused by the coronavirus (COVID-19). Thankfully, many of the COVID-19-related transfer pricing issues some commentators identified as potential considerations did not come to bear in a significant way for a lot of groups, with Australia generally coping very well from an economic perspective. In large part, aside from ongoing supply chain issues, transfer pricing has largely returned to ‘business as usual’ for a lot of Australian entities, as well as the Australian Taxation Office (ATO), which has now shifted focus back to its compliance activities.”

CONTRIBUTORS

ATOZ Tax Advisers S.A.

Caplin & Drysdale Attorneys

CGM Advogados

CMS Belgium

Gowling WLG

Hogan Lovells (Paris) LLP

RSM Australia Pty Ltd

Tax Partner AG