February 2022 Issue
The vagaries of the transfer pricing (TP) landscape have posed numerous challenges for tax regimes across the globe over the past 12 months. At the forefront is the Organisation for Economic Co-operation and Development’s two-pillar plan to reform international taxation rules, alongside the groundbreaking base erosion and profit shifting project. The impact of COVID-19 on benchmarking results and tax authority expectations has also been significant, with many authorities publishing guidance on how the pandemic will influence the future evaluation of taxpayers’ pricing and profits.
FW: What do you consider to be among the key developments in the transfer pricing arena over the last 12 to 18 months? How are regulatory trends influencing the way organisations set out their transfer pricing strategies?
Riley: 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 remains at the forefront of transfer pricing (TP) developments over the past 12 to 18 months. The impact of coronavirus (COVID-19) on benchmarking results and tax authority expectations is also key, with many tax authorities publishing guidance on how they will be taking COVID-19 into account in evaluating taxpayers’ pricing and profits. Global transparency and increased access to information for tax authorities are driving multinational enterprises (MNEs) to reconsider their pricing policies and global operating models, with a special focus on intellectual property structuring. Geopolitical developments and shifts in global trade over the past 18 months are likely to have a bearing on value chains and integrated models. After temporary closures during the pandemic, many tax authorities have reopened and ramped up activity of late. There has been a marked increase in the number of TP inquiries and audits worldwide, and in some jurisdictions, some aggressive pricing adjustments. There have also been some landmark TP litigation cases heard over the past 18 months in the US, Europe and Australia.
Elnaggar: In Middle Eastern countries, the last 12 to 18 months was an important period with many tax changes regarding TP. One of the most prominent changes has been the issuance of new guidelines, as we saw in Saudi Arabia and Jordan, where official guidelines now need to be followed by taxpayers. We also saw tax regulation changes in Egypt where a new law, the Unified Tax Procedures Law, was introduced, which requires mandatory filing of local TP filing and master filing, as well as country-by-country reporting (CbCR) either via a report or notification, and all of them through a new online portal, with huge penalties for non-filing. We saw also mandatory filing for CbCR across many Middle Eastern countries including Saudi Arabia, the United Arab Emirates (UAE), Egypt, Qatar and Oman. There has also been an increase in the number and volume of documents required for TP audits. Finally, most Middle Eastern countries signed multilateral instruments (MLIs) and implemented certain BEPS actions, and are very keen to implement the processes and documentation needed.
Carden: Certainly, the most significant developments in TP and international tax more broadly are the OECD initiatives in Pillar One and Pillar Two, accompanied by ongoing US tax reform efforts. While the OECD proposals are becoming somewhat more concrete, the absence of any legislation implementing these measures has made it very difficult to evaluate the effects of different TP approaches. This has become very challenging to organisations that are beginning to develop their post-COVID-19 operating models, as the financial implications of different functional locations is far from clear. As a result, many MNEs are looking for short-term solutions that facilitate flexibility.
Liu: Over the last 12 to 18 months, significant progress has been made on BEPS 2.0 and it reached an important milestone in October 2021, when the OECD and G20 countries announced their support for a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. BEPS 2.0 represents a significant change to the global tax rules and will have a wide-ranging effect on how multinational businesses operate. On the other hand, there has been more scrutiny of financial transactions during a tax audit since the OECD released its ‘Transfer Pricing Guidance on Financial Transactions’ in February 2020. In addition to the arm’s length nature of the interest rate applied, tax authorities are also interested in areas such as cash pool models and rewards, as well as a group’s treasury function and its remuneration.
Gaspar: The key tax challenges arising from the digitalisation of the economy continue to be the most anticipated TP development. While it will be interesting to see how consensus is sought around it, specifically for Brazil, the TP landscape has seen more practical challenges. Brazil is not a member of the OECD and does not follow its TP guidelines. In fact, Brazil’s TP methods are largely based on fixed margins, which are notable for their simplicity. The prospect of Brazil acceding to the OECD has, in recent years, brought a different element to discussions around the appropriateness of Brazil’s TP methods. Part of the journey to potentially join the OECD led to a joint project between the OECD and the Brazil Revenue Service (RFB) seeking to harmonise their methods. The amount of attention TP has received in recent years, coupled with the fact that it has consistently been highlighted as one of the strategic audit items on RFB’s agenda, has caused companies to seek not only compliance but also careful consideration when it comes to reputation and audit trails when building their business models.
Odimma: African countries are building up capacity on review of TP transactions in partnership with the Africa Tax Administrators Forum (ATAF) and other non-governmental organisations (NGOs). This has influenced the design of TP rules in different African countries where the benefit test has become the norm in ascertaining the rationale for related-party transactions. The impact of COVID-19 on the African economy has put pressure on tax authorities to generate additional tax revenue to cover the gaps in budget. MNEs are setting up tax teams closer to business locations and some are entering into partnerships with tax advisers who can provide an agile response to regulatory changes with regard to TP.
“Taxpayers should ensure the transparency and consistency of information provided to one tax authority, expecting it to be shared with other tax authorities.”
FW: To what extent are companies using technology, such as data analytics, to plan their transfer pricing policies? Are more companies incorporating technology solutions into their tax processes?
Elnaggar: Due to an increase in TP tax audits and compliance work in the Middle East, many companies started to think about using technology to simplify the process, predominantly for tax compliance. Some multinational companies already use technology in other countries which have had TP regulations for some time and were able to share this experience with their subsidiaries across the region. Very few companies in the Middle East use technology for data analysis to plan their TP policies, though it is being used more widely. We will likely see an increase in technology in the short term, but it will depend on the size of the business and its transaction volume as well as the cost of implementation.
Carden: There is a lot of technology dedicated to modelling the consequences of different TP proposals, which is now critically important for US MNEs in particular because of the complexity of 2017’s tax reform and the changes proposed by the Biden administration and in Congress. However, because of the difficulty in predicting both the regulatory environment and the structure of business operations as the COVID-19 pandemic continues, it is difficult to apply technological solutions to the setting of TP policies given the wide range of potential legal and operational outcomes.
Liu: Currently, many companies use technology mainly for operational TP – incorporating tools into their internal processes to ensure the actual financial results of legal entities in the group are in line with the arm’s length principle and their TP policies. Such information stored in the tool also allows companies to easily extract relevant financials for identifying inconsistencies in processes and managing TP risks as much as possible, and for TP planning, such as valuing the transfer of intangibles. More companies are incorporating technology solutions into tax processes for TP and corporation tax, as well as indirect tax, driven by both internal and external forces. From an internal perspective, cost-cutting pressures call for technology solutions that help achieve standardisation, automation and centralisation. Externally, tax authorities are also investing in technologies and companies must find technology solutions that match or go beyond the capability of tax authorities.
Odimma: The ever-changing TP landscape demands the use of technology for data collation. We are seeing a lot of companies signing up to the tax of the future to ensure there is seamless integration between business results and tax returns. New tax technology companies have sprung up everywhere with different products tailored to ensure MNEs are able to achieve compliance with tax laws.
Riley: From a compliance reporting perspective, MNEs are not only looking at ways to use technology to improve the quality and accuracy of reporting, but also to provide a 360-degree holistic view of their TP positions. From a practical perspective, taxpayers are recognising the need to have their TP systems linked to existing enterprise resource planning (ERP) systems. Disputes are increasingly arising on the grounds of operational TP, where arm’s length polices documented by taxpayers have not been implemented as intended, which is only discovered when pricing is reviewed at or post year-end. Technology being adopted earlier in the TP lifecycle helps to mitigate this risk and ensure policies are applied appropriately to result in arm’s length outcomes. Advancements in technology and an uptick in finance transformation projects will help with the integration of systems and processes for TP. As tax authorities expect MNEs to have strong governance measures in place, MNEs are seeking to integrate their systems in real time. Technology will help integrate data for CbCR, GLOBE positions and VAT and customs, helping tax directors to make better informed decisions. Artificial intelligence connected thinking will also likely have a more important role in the future.
“Certainly, the most significant developments in TP and international tax more broadly are the OECD initiatives in Pillar One and Pillar Two, accompanied by ongoing US tax reform efforts.”
FW: To what extent are tax authorities sharing information and collaborating more frequently on transfer pricing issues? What are the implications for multinational companies?
Carden: There is more information sharing than was typical 10-15 years ago. In the TP area, we see this most frequently in the context of bilateral advance pricing agreements (APAs), which have now become much more common in intangibles-heavy cases due to the combination of increased emphasis on BEPS and development, enhancement, maintenance, protection and exploitation (DEMPE), various anti-hybrid and other measures intended to limit differences in the tax treatment of income items across countries, and far greater scrutiny from NGOs and civil society of the tax posture of large MNEs.
Liu: The additional reporting requirements and mechanisms for exchanging information between tax authorities gives rise to an increasing level of information sharing and cooperation. Tax authorities have more information than ever and become more sophisticated through enhanced collaboration and knowledge sharing, thanks to initiatives such as the international compliance assurance programme (ICAP) and the OECD’s forum on tax administration (FTA). In addition, the number of joint and simultaneous tax audits is on the rise, especially in Europe, making it a difficult landscape for taxpayers to navigate. Taxpayers should ensure the transparency and consistency of information provided to one tax authority, expecting it to be shared with other tax authorities.
Riley: Information is being exchanged under automatic exchange of information frameworks such as the multilateral competent authority agreement (MCAA), as well as in response to requests from treaty partners under ongoing bilateral processes – such as the ICAP, APAs and mutual agreement procedures (MAPs), and under country specific programmes such as the US Foreign Account Tax Compliance Act (FATCA). These requests are seen at the start of and during audits, even where the jurisdiction is not the direct counterparty. The process is used to demand information that tax authorities cannot get from the taxpayer locally, or, on occasion, to get information directly without the taxpayer being aware it has been requested. There has been a notable increase in information exchanges between tax authorities, possibly owing to more bilateral APAs and MAP cases pushing local tax authorities to collaborate more with their foreign counterparts. The exchange of information has a direct bearing on the likelihood and breadth of TP audits. Group entities within an MNE must therefore be coordinated among themselves in terms of information shared with tax authorities, positions taken and arguments presented before tax authorities.
Gaspar: Brazil is part of the G20 and, as such, has been involved in the OECD debates for a long time. While Brazil has adopted some of the recommendations, to the extent they are compatible with the fixed margins model, including MAPs, it is not yet clear whether full alignment with the OECD’s guidelines will be achieved. The way the system is currently designed, based on fixed margins, themes like risks and functions are not as relevant as they are within the OECD environment. Similarly, intangibles are challenging to deal with under a fixed margins approach. Different TP methodologies across countries can materially increase the risk of double taxation. Convergence into a single system is desirable and could lead to more countries abiding by the same set of rules, though TP is naturally prone to differences in interpretation between taxpayers and tax authorities, including amid tax authorities in different jurisdictions. As such, focusing on well-functioning dispute resolution is also key to dealing with this challenge.
Odimma: Tax authorities in Africa are collaborating more through regional and sub-regional organisations like ATAF and the West Africa Tax Administrators Forum (WATAF). General tax issues as they pertain to industries are discussed during these meetings with an agreed common strategy. It is therefore important for MNEs to ensure uniformity of strategy, business processes and transactions among related companies given that tax authorities will review mirror images of the transactions.
Elnaggar: Middle Eastern tax authorities consider TP to be one of the riskiest endeavours for multinational companies, and they are very keen to get the information from taxpayers rather than share the information from their side. However, recently some tax authorities have begun to keep taxpayers updated with any changes and some of have begun to issue guidance for taxpayers. Tax authorities may still not have enough information, especially on countries which only recently implemented TP guidelines.
“Convergence into a single system is desirable and could lead to more countries abiding by the same set of rules, though TP is naturally prone to differences in interpretation between taxpayers and tax authorities.”
FW: How would you describe the level of transfer pricing disputes between companies and tax authorities in recent times? Has there been a rise in audits and investigations?
Liu: There has not only been an increasing number of tax audits over the past 12 to 18 months, but a more rigorous approach has been adopted during tax audits. In addition to requesting more information than ever before and collaborating with other tax authorities, tax authorities increasingly use data experts to gain more insight into taxpayers’ business and tax positions, as well as covering a broader range of issues or even the entire value chain. Court proceedings, on the other hand, take longer due to the constraints imposed by COVID-19.
Gaspar: TP disputes, as with all tax disputes in Brazil, are privileged at the administrative level. It is therefore difficult to track ongoing administrative litigation cases and, when it comes to judicial cases, there are currently very few of these underway. The lack of jurisprudence to guide taxpayers on how to interpret the legislation is an additional source of uncertainty, as either other taxpayers will not know details about TP administrative court decisions, or will they find out about them many years later. This, together with TP being a strategic audit item and one where interpretation may vary, likely points to an increase in audits. MAPs have recently been brought into force in Brazil, which has been greatly welcomed by scholars. However, how it will develop in practice remains to be seen.
Odimma: With increased TP skills, the number of TP disputes has increased. Issues include non-compliance with local documentation rules, methodology adopted and the validity of transactions as a deductible expense prior to arm’s length justification. Some other tax authorities target the low-hanging fruit, such as failure to submit relevant TP documentation. These penalties are punitive. The issue of comparative transactions has continued to dominate TP disputes in recent times.
Elnaggar: The number of TP disputes increased significantly over the last year. Many tax authorities are aware that it is easy for them to collect more revenue with less effort compared to the tax audits they performed previously for other audit areas, and they are even quicker when it comes to finalising the audit results. TP audits in Middle Eastern countries can now be very painful and thus taxpayers must be well prepared.
Riley: TP audits were effectively paused at the start of the COVID-19 pandemic. Though the number of audits during the early stages of COVID-19 may have been lower than previous years, tax authorities have certainly been making up for lost time after reopening. The OECD’s 2020 MAP statistics show an increase in inventory even though many MAP cases were resolved. This is a result of the rise in audits and the quantum of adjustments being sufficiently material for taxpayers to seek relief. Given the complexity of the overlay of recent economic developments, tax audits are becoming more challenging to navigate and taking longer to settle, putting a strain on in-house teams. Tax authorities are involving a broader range of specialists – including economists, valuation experts and industry specialists, among others – and are seeking extensive TP data and evidence from MNEs.
Carden: We have not seen an increase in the number of disputes, but we have seen an increase in their complexity and the time it takes to reach resolution. In the TP area, this is increasingly a result of divergent interpretations and applications of the OECD’s DEMPE risk control framework, which was first articulated in the 2015 Report on BEPS Actions 8-10. Countries are taking inconsistent views of the importance of these rules and, moreover, the increased emphasis on functional control creates more disagreement over the relative importance of different functions. This is leading to highly factual audits that also often involve subjective disagreements about the relative importance of functions. Both these developments make cases much more difficult to resolve.
“The best way to avoid potential financial and reputational damage is to have proper tax planning in place for transactions with related parties to minimise risk as much as possible.”
FW: In the event of a tax audit or dispute, what options are available to companies looking to resolve issues as efficiently as possible? What steps should be taken to avoid potential financial and reputational damage?
Elnaggar: Available options will vary from country to country. Some countries have audit and TP committees which discuss audit disputes and resolve any issues, while other countries go directly to appeal. Of course, going to appeal can cause parties to incur extra costs from a tax adviser fee perspective, so it is always better to spend more time on tax audits to minimise risk instead of going straight to the appeal process. The best way to avoid potential financial and reputational damage is to have proper tax planning in place for transactions with related parties to minimise risk as much as possible.
Riley: To achieve resolution as efficiently as possible, engaging with the tax authority is critical. During an audit, best practices include responding to information requests with evidence and engaging with tax authorities to help them understand what drives value across the value chain by holding interviews, verifying statements and providing records of commercial decisions taken. It is also important to negotiate and present submissions to tax authorities on contentious positions before conclusion of the review, as well as highlighting alignment with global policies and evidencing consistency on pricing for similar services and transactions around the world. Finally, procedural matters should be managed efficiently and openly. In some cases, it may make sense to finalise the audit and proceed swiftly to initiate a MAP case, particularly for countries with mandatory arbitration. MNEs may also wish to litigate or seek an administrative appeal, which can be adversarial, lengthy and costly.
Odimma: Several options are available to companies that seek to close out TP cases without long legal battles. The first option is for the company to ensure it has the relevant documentation required to justify the pricing of related-party transactions. Secondly, a good tax adviser is required to defend the position and to leverage relationships to bring the tax authorities to the table to discuss transactions without any prejudice. Thirdly, most countries have an alternative dispute mechanism where senior officials not involved in the case can review the findings and hear objections before the matter goes to formal adjudication. A negotiated settlement may also be explored following the decision of the tax authorities’ internal dispute resolution team. Most negotiated settlements are not binding on either party.
Carden: For many MNEs, the competent authority process can be an effective way to navigate disputes that have the potential to result in double taxation. However, because of increasing, and increasingly complex, caseloads, this is not always a quick solution. Outside of the competent authority process, we believe that efficient dispute resolution starts long before the dispute begins. Thorough analysis and documentation, as well as a detailed understanding of the potential tax consequences of adjustments, can allow companies to resolve disputes efficiently by reducing the amount of audit time required and identifying potential paths to resolution that address tax authority concerns while mitigating unexpected financial impact.
Gaspar: When it comes to audit, the best position for the taxpayer is to have prepared in advance. Having a strong internal process analysing transactions in advance, doing thorough work to align the chosen method – in Brazil there is space for choice – with the appropriate legal framework and grounds, and keeping documentation up to date and organised in advance, are key for a smooth process. It is worth emphasising the need for a thorough internal process within the organisation, with clear responsibility and accountability between areas to ensure a proper audit trail along the way on costs, documentation and so on. Also, in-house TP experts can prove fruitful to the extent that regulation must be considered when designing businesses and transactions to ensure compliance. On the reputation side, being transparent about tax affairs has grown from being a nice to have to an imperative, to maintain a social licence to operate.
Liu: MAPs continue to be a useful tax dispute tool, however the number of cases opened and the amounts involved are on the rise, making it difficult and lengthy to reach an agreement. Moreover, MAPs do not often give certainty to taxpayers on future positions, as tax authorities may agree on the amount of assessment, but disagree on the basis of the assessment, for example on the TP methodology applied or the characterisation of parties. Open communication is key to avoiding potential financial damage and taxpayers could make use of cooperative compliance facilities such as horizontal monitoring in the Netherlands, or the tax monitoring system in Russia, to discuss any TP issues on a real-time basis. They should try to open dialogue with tax authorities upfront to explain the overall group operations, group TP strategy and processes, and how a specific country fits into the big picture, which helps put a country’s operations into perspective. Clear communication on the group’s tax strategy to all stakeholders is also important – the UK already requires large businesses to publish an annual statement of their UK tax strategy, and Poland recently followed suit.
“Companies should keep abreast of TP developments in the countries where they operate, as the legal environment changes very fast.”
FW: What essential advice would you offer to multinational companies on maximising tax efficiencies while complying with transfer pricing regulations?
Odimma: Companies should keep abreast of TP developments in the countries where they operate, as the legal environment changes very fast. It is very important to comply with the laws of the country of operation as penalties for non-compliance are high. It is important that companies document the basis of the price of related-party transactions in both the local and master files. This should be reviewed periodically through a self-health check to ensure that policies and documents reflect the actual transactions in the local companies. A culture of continuously, proactively reviewing and updating TP policies is the best way to maximise tax efficiency.
Riley: In light of recent developments, MNEs should review their existing global structures and TP policies, and restructure them if needed, to align with global guidance and ensure a consistent approach across jurisdictions. Shifting certain functions or assets overseas could trigger local tax authority scrutiny and ‘exit charge’ implications under chapter 9 of the OECD guidelines, so it is imperative that MNEs correctly identify and understand all economically significant functions, risks and assets relevant to their global operations before making any such changes. Comprehensive planning and modelling is needed to ensure transactions are not executed without having a map of compliance obligations and potential risks in place. APAs may also be an effective option to manage associated risk more proactively. At a practical level, automating and monitoring systems to ensure the link between form and substance, contractual frameworks, TP documentation and ERP systems, is strongly recommended. Embracing technology and automation to achieve consistency and maximising tax efficiencies is key.
Carden: Right now, the global tax environment is changing rapidly, so while tax efficiency is always an objective, today’s efficient planning may be very inefficient tomorrow. As a result, we suggest identifying structures that are aligned with business strategy and operations but are sufficiently flexible to allow the MNE to adapt to changes to the regulatory landscape. Additionally, we strongly recommend developing a consistent approach to TP around the world, as recent controversy experiences demonstrate that tax authorities are much more focused on overall global outcomes and consistent theories across jurisdictions.
Gaspar: A thorough internal process with roles and responsibilities is highly advisable in the TP space. Further, a clear and public tax strategy narrative and principles can be helpful on the transparency and reputation side. Scrutiny from tax authorities and the general public are likely to continue to increase, especially as countries begin on the path to recovery from the impacts of the pandemic. The next couple of years are going to be hugely exciting in the TP space. From the outcomes of tax challenges arising from the digitalisation of the economy to the potential overhaul in Brazilian TP, practitioners will not have a dull moment. Still, those are two ambitious goals and whether – and when – they will be brought to life, remains to be seen. International tax principles may change and, likely, we will all need to adapt.
Liu: Multinational companies should consider the long-term impact of any TP planning to maximise tax efficiencies. While we cannot predict the future, it is important that any TP planning is flexible enough to adapt to changes in the future. We should also identify trends in the TP world and consider how this impacts the future mindset of tax authorities. This includes aligning TP policies with business operations with regard to substance and risk management and control functions, monitoring the TP guidance issued by leading tax jurisdictions in Europe, such as the levy of withholding tax on royalties for patents registered in Germany even if neither party is tax resident in Germany, and assessing the impact of key developments in the TP arena. For example under Pillar One of BEPS 2.0, even if a group does not yet meet the required threshold, as the current proposal may shape how tax authorities assess all multinational groups in the future.
Elnaggar: Companies must be well prepared for TP audits. They need to have all required information and documents supporting their position in place, checked and double checked either in-house or by an external tax adviser. Companies should have a proper benchmark study and proper local TP file and master file in place for each financial year. It is essential to have good tax planning in place to plan transactions between related parties to either avoid any future risk from tax audits or enhance the process and transactions to put the company in good shape. And they should always remain up to speed with the tax authorities’ guidance and learn from other taxpayers’ issues.
“As TP remains of public and political importance in many countries, there is likely to be greater information exchanges and collaboration between tax authorities, leading to more joint audits.”
FW: What are your predictions for transfer pricing trends over the coming months and years? What developments are likely to shape the way regulators and companies approach this issue in the long term?
Riley: Over the coming months and years, many MNEs will be grappling with defending the impact of the pandemic, particularly those that have a significant change visible to tax authorities, such as reduced operating margins. Remote working arrangements will also continue for the foreseeable future, presenting permanent establishment issues for MNEs. As TP remains of public and political importance in many countries, there is likely to be greater information exchanges and collaboration between tax authorities, leading to more joint audits. Accordingly, demand for APAs and MAPs is expected to increase sharply. The following developments will also shape how regulators and MNEs approach TP. First, the interaction of the Made in America tax plan with the OECD BEPS 2.0 proposals, and the impact this will have on global tax efficiencies. Second, the universal application of the arm’s length principle following the introduction of the new OECD guidance. Finally, process automation and tax technology tools being used to undertake internal data analytics and risk assessments. Against this backdrop, MNEs will be revisiting their global operations to remove anomalies and adopt a consistent approach globally, to be prepared for scrutiny by tax authorities. Buoyed by some notable wins in the courts, tax authorities may be more inclined to dig their heels in when it comes to auditing taxpayers and litigating TP matters, while boards will be seeking greater assurance around their tax outcomes given increased tax authority scrutiny worldwide, and the uncertainty of the international tax landscape.
Carden: As in many other areas of life during the COVID-19 pandemic, the governing thought in TP is to ‘expect the unexpected’. While the OECD Pillar One and Pillar Two projects appear to be moving forward, there is very significant heavy lifting to do before the proposals are translated into individual countries’ tax systems. As countries move forward, the rules that they adopt will likely be influenced by how other countries proceed, as well as by broader domestic political considerations and revenue needs. We are already seeing this trend in the US, with recent foreign tax credit regulations adopting new and more stringent tests for creditability in response to other countries’ implementation of new digital services and similar taxes. Likewise, we expect that other countries, especially those that will be less able to use corporate tax as a source of competitive advantage, to adapt their systems in response to the approach to Pillars One and Two taken by the US and other countries.
Gaspar: The joint project with the OECD has culminated in a preliminary recommendation that Brazil would have to let go of much of its current model to align with the OECD guidelines and that both would not be able to coexist. This conclusion caused a strong reaction from some of the most prominent TP scholars in Brazil, who published a memo proposing a possible compromise in applying the different methods. The outcome of the joint RFB-OECD assessment was published over a year ago, highlighting the objective of implementing a modern, simple and efficient system aligned with the OECD standard. This refreshed system would be expected to maintain simplicity while providing a proper taxable basis for the parties concerned, and to avoid double taxation. To that end, different paths have been identified and explored, from full alignment to partial alignment. The next step in that journey is greatly anticipated by the market and is likely to shape the future of TP in Brazil.
Liu: The new rules under BEPS 2.0 are due to come into effect in 2023. Although significant work on model rules and multilateral instruments will be required, companies should closely follow developments in the coming months, assess the impact of the new rules on their business operations and track implementation on a countrywide level. In addition, we have entered into new territory on financial transactions, including the end of most forms of LIBOR on 31 December 2021 and the increasing popularity of environmental, social and governance (ESG) bonds, the effect of which on financial arrangements may take years to be seen. Companies should consider TP and tax implications on intercompany pricing going forward and prepare documentation to support any decisions made. On the technology side, trends in automation are expected to continue, and multinational companies will look for better TP solutions that require less manual work and present opportunities for further centralisation and standardisation.
Elnaggar: More counties in the Middle East will likely issue TP guidelines, amending their current guidelines to adapt to market changes, and to focus more predominantly on TP tax audits, creating specialised appeal committees for TP within tax authorities. The fully automated collection and filing of TP-related data, as we have seen in other countries, has already started and will likely increase. Also, we expect to see a big move toward technology adoption from taxpayers, either in-house or externally.
Odimma: There is going to be an increase in TP audits in the coming months and years as countries that signed up to the inclusive framework try to align and clean up earlier years. Most countries that signed up to the inclusive framework may renege on the agreement if it does not yield the expected increase in tax revenue. Specifically, the benefit test will play a central role in TP audits over the coming months and years.
Paul Riley is Deloitte’s global transfer pricing leader and global lead tax partner for several Australian-based global clients. He has over 36 years of experience, including 10 years with the Australian Taxation Office. He is experienced in all facets of transfer pricing, including resolving transfer pricing audits and APAs, helping global clients to transition to new transfer pricing documentation and reporting using technology, and analysing and reviewing value chains and IP alignments across numerous industries. He can be contacted on +61 (3) 9671 7850 or by email: pbriley@deloitte.com.au.
Sebastine Odimma is responsible for tax dispute and resolution for Maersk companies within Africa. In this role he supervises the company strategy and approach to tax dispute resolution across entities in Africa. Prior to this, he was responsible for the tax affairs of more than 40 Maersk companies within 20 countries in west and central Africa. He can be contacted on +23 48 18793 9272 or by email: sebastine.odimma@maersk.com.
Hany Elnaggar is head of tax for the Middle East at Nissan. He holds a master’s degree in accounting and VAT certification in the Gulf Cooperation Council (GCC) region. He is also a tax commission member at the Joint Italian Arabic Chamber of Commerce. He is a certified accountant and has more than 20 years of tax experience in various industries in multiple jurisdictions, including GCC, the Middle East, Turkey and many African countries, with extensive experience in direct and indirect tax, international tax planning and transfer pricing. He can be contacted on +20 10 930 22277 or by email: hany-elnaggar@nissan.com.eg.
Fabio Gaspar is an award-winning tax lawyer and lecturer, with 15 years of professional experience. He specialises in tax planning and advice on select jurisdictions and international taxation, with a background in tax litigation and corporate law. He has authored several books and articles and is a frequent lecturer on tax subjects in distinguished forums worldwide. He is currently the country tax manager for Brazil at Shell. He can be contacted on +55 21 3984 8069 or by email: fabio.gaspar@shell.com.
Building on several years of experience as a management consultant with McKinsey & Co. and serving as a law clerk for The Honorable Diane P. Wood of the US Court of Appeals for the Seventh Circuit, Nathaniel Carden specifically concentrates on the tax aspects of ongoing business operations. He works with corporate and other clients across many industries, with a particular focus on life science, healthcare and technology companies. He can be contacted on +1 (312) 407 0905 or by email: nate.carden@skadden.com.
Xin Liu joined Teva in 2020 and is responsible for transfer pricing matters in Europe in all phases of the transfer pricing lifecycle, ranging from planning and compliance to dispute resolution and prevention. Prior to joining Teva, she had nine years of international tax and transfer pricing experience at the Big Four in the UK, with a focus on due diligence reviews and post-acquisition integration from a transfer pricing perspective. She can be contacted on +31 6 1834 6070 or by email: xin.liu@tevaeu.com.
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