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Issues around transfer pricing (TP) are top of mind for the tax departments of many multinational organisations. In light of increasingly stringent and complex regulatory developments, with the Organisation for Economic Co-operation and Development’s (OECD’s) base erosion and profit shifting (BEPS) project in the vanguard, organisations must dedicate sufficient resources to ensuring they achieve compliance with TP rules. But compliance is an increasingly resource-intensive activity – at a time when multinationals may face challenges allocating sufficient resources to tax planning. However, failure to reach these exacting standards can have serious repercussions and leave organisations in dispute with tax authorities across multiple jurisdictions.

UNITED STATES

Caplin & Drysdale Attorneys

“A key US transfer pricing (TP) development is the publication of the 3M Tax Court decision. That decision, which was joined by the slimmest possible majority of Tax Court judges, found in favour of the Internal Revenue Service (IRS) in a Brazilian blocked income case. The court required the US taxpayer to include in income arm’s length royalties from its Brazilian subsidiary rather than the lower maximum royalties permitted to be paid under Brazilian law. The decision stands for the proposition that TP trumps inconsistent foreign law.”

CANADA

Gowling WLG

“On 28 March 2023, the Canadian government introduced its most recent budget which reaffirms its intention to implement the two-pillar plan for international tax reform agreed to by the members of the Organisation for Economic Co-operation and Development (OECD)/Group of 20 (G20) Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in October 2021. Pillar One ensures that the largest and most profitable multinational enterprises (MNEs) pay income tax based on the location of their users and customers.”

UNITED KINGDOM

KPMG

“UK businesses face a perfect storm of regulatory changes, greater scrutiny from stakeholders, and a challenging macroeconomic environment. These all directly impact transfer pricing (TP). Tax authorities globally are becoming increasingly coordinated in their approach, which is playing out through the base erosion and profit shifting (BEPS) 2.0 project, and are being more forensic in their enquiries – HM Revenue and Customs (HMRC) is no different. New legislation effective from April 2023 means UK taxpayers that are part of a multinational group must prepare TP documentation – the first codification of the rules in the UK.”

LUXEMBOURG

ATOZ Tax Advisers S.A.

“A large part of the controlled transactions involving Luxembourg companies are financial transactions. Therefore, the single most important development impacting transfer pricing (TP) over the last 12 to 18 months was the interest rate policy of central banks in the Western world. Numerous interest rate hikes adopted since 2022 completely changed the interest rate environment at a record speed. Arm’s length interest rates are significantly higher today than they were at the end of 2021.”

AUSTRALIA

Ashurst

“We have seen several significant developments affecting transfer pricing (TP) and impacting how organisations implement tax planning strategies. These include the continued implementation of the Organisation for Economic Co-operation and Development’s (OECD’s) Pillar One recommendation, which aims to reallocate income to market jurisdictions, and an increased focus from the Australian Taxation Office (ATO) on TP enforcement, through compliance guidance on matters such as intragroup financing and the movement of intangibles.”

SAUDI ARABIA

KPMG in Saudi Arabia

“Transfer pricing (TP) regulations were introduced in the Kingdom of Saudi Arabia in February 2019. However, these regulations only applied to corporate taxpayers. Companies that are subject to zakat have been excluded from the TP regulatory scope. In recent months, however, the Saudi tax authorities have expanded the scope of the TP regulations. In September 2022, it was announced that financial funds would be included, starting in 2023. Furthermore, in March 2023, the TP regulations were modified to include zakat-paying entities, beginning in 2024.”

REPUBLIC OF GUINEA

Grant Thornton

“No significant changes have been made to Guinean transfer pricing (TP) legislation in the past 18 months. The latest reforms date back to 2019 through the Finance Law for 2019. However, since the new tax law applicable from 1 January 2022, we have seen the introduction of several limitations on the deductibility of expenses related to royalties, headquarter costs and so on, within related entities.”

TANZANIA

TP&Tax

“The laws governing transfer pricing (TP) in Tanzania include the Income Tax Act, 2004 and the Tax Administration (Transfer Pricing) Regulations, 2018. Over the last 18 months, there have been several changes to these laws with a focus on minimising the potential loopholes for base erosion and profit shifting (BEPS) outside Tanzania, such as the percentage of shareholding in the definition of associate changing from 50 percent to 25 percent to widen the net for taxpayers falling within the scope of TP. The penalty for non-compliance with the arm’s length principle was reduced from 100 percent of the TP adjustments to 100 percent of the tax effect from the TP adjustments.”

CONTRIBUTORS

Ashurst

ATOZ Tax Advisers S.A.

Caplin & Drysdale Attorneys

Gowling WLG

Grant Thornton

KPMG

TP&Tax