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Transfer Pricing Tidbits

Kitty Miv, Editor
24 March, 2021

With everything that's been going on in terms of COVID and Brexit, it's been a while since we looked at transfer pricing specifically, but with international tax and anti-avoidance matters still high on the agenda pretty much everywhere, this seems like a good place to start this week.

In Ireland, for example, the Finance Department has launched a consultation (running until April 16) on proposed changes to the transfer pricing regime, focusing on the attribution of profits to branches of non-resident companies.

The proposed changes would extend transfer pricing rules to the taxation of branches in Ireland, in line with the Authorized OECD Approach (AOA).

The AOA seeks to ensure that profits from intra-group dealings are attributed to a permanent establishment, or branch, that would have been earned if the branch or PE were a legally distinct and separate enterprise from the head office. These profits are determined with reference to the profits that would been earned by an unrelated party undertaking the same or similar functions under the same or similar conditions.

Meanwhile, in Bahrain, regulations have recently been enacted to introduce an obligation for multinational entities to submit a country-by-country report.

The obligation has been introduced for fiscal periods ending on or after January 1, 2021. These reports must be filed within 12 months of the end of the fiscal year. As such, the first reports, for companies whose fiscal year follows the calendar year, would be required to be filed by January 1, 2022.

This applies to Bahrain-headquartered multinationals whose group consolidated turnover was BHD342m or more in the preceding year. Bahrain intends to exchange CbC reports with countries under the Multilateral Competent Authority Agreement on the Exchange of CbC reports.

In Poland, meanwhile, the focus is also on transfer pricing documentation, with the Government attempting to clarify the situation with regard to transactions undertaken with entities with links to 'tax havens', following the introduction of new rules in this area earlier this year.

Specifically, under the new rules, taxpayers must determine whether the entity with which they are undertaking the transaction is located in a tax haven, and also, where the transactions are worth more than PLN500,000 in a year, whether the transaction was in fact carried out for the financial benefit of a beneficial owner situated in a tax haven. This is presumed to be the case if the entity with whom the taxpayer enters into transactions makes settlements with a tax haven entity, the provisions prescribe, unless that presumption is rebutted.

Polish authorities have proposed changes to the rules to reduce the burden of proof required from income taxpayers to rebut that presumption.

And last but not least, in the UK, the emphasis is also on clarifying and strengthening transfer pricing documentation requirements, with a new consultation launched this week.

The UK Government announced that it is considering the introduction of a mandatory requirement for MNEs within CbC reporting groups to provide HMRC with a copy of the master file upon request and to keep (and produce on request) a local file.

HM Revenue & Customs explained that the intention is for multinationals to be required to keep documentation to articulate and support the transfer pricing positions taken in their tax returns, as described in the OECD standardized approach. In addition, HMRC is considering whether to require certain in scope businesses to include with their annual tax return details about material cross-border transactions with associated enterprises.

The consultation also looks at whether the UK should introduce an obligation for businesses to file an international dealings schedule, to further support HMRC to target its enforcement activities.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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