The TP Range - April 2019

The TP Range - April 2019

A Note from BDO’s Transfer Pricing Practice

The TP Range covers important changes around the world in today’s transfer pricing climate. The name TP Range is a nod to the U.S. and OECD transfer pricing guidelines, which call for a taxpayer's transfer prices to fall within an arm's-length range of results for most method applications.
In this month’s news, the IRS has released a new standardized model for residual profit split from APMA and proposed regulations for FDII and GILTI. The EU court overturned a 2016 EC decision regarding Belgium’s excess profit exemption ruling. This month also includes updates from Australia, the British Virgin Islands, Colombia, Iceland, and Saudi Arabia. 
BDO USA’s Transfer Pricing Team

U.S. News

APMA Issues New Profit-Split Tool

The IRS has developed a standardized residual profit split model for use in advance pricing agreement applications by the minority of applicants that cannot reliably use a one-sided transfer pricing method. According to a March 1 emailed statement, the IRS APMA program may require that some applicants enter detailed financial data into its new Functional Cost Diagnostic Model spreadsheet as part of the application process. The model prompts applicants to divide the parties costs into those associated with routine functions that can be benchmarked by comparables using the one-sided TNMM, and functions that support unique and valuable contributions.

Read more about the IRS model.


IRS Releases Tax Rules for Foreign-Sourced Income

The IRS released proposed regulations on March 4 explaining how U.S.-based multinationals can receive a deduction on their FDII and GILTI. The regulations provide guidance on the computation of the deductions available under Section 250 of the IRC and to determine FDII, and provide new reporting rules requiring the use of a new form, Form 8993. The regulations also address the 50 percent deduction for GILTI, which, like the FDII deduction, is generally applicable for corporate taxpayers only. However, individuals that make a Section 962 election may take into account the Section 250 deduction with respect to GILTI and the Section 78 gross-up attributable to GILTI.

Read the new rules and BDO's alert on the proposed regulations.


OECD/Global News

EU Court Overturns European Commission Belgian Excess Profit Exemption Ruling

The European Union General Court overturned European Commission decision 2016/1699 that the Belgian excess profit exemption system constituted an illegal state aid scheme. The commission had ordered Belgium to reclaim the aid given to the recipients under its excess profit exemption system from 2005 through 2014, estimated at approximately EUR 700 million in unpaid taxes from multinational corporations in January 2016. The commission has two months to appeal the decision to the EU Court of Justice.

Read more about the ruling.

Country-by-Country News

Saudi Arabia Specifies LF, MF, and CbCR Documentation Requirements

The Board of Directors of Saudi Arabia's General Authority of Zakat and Tax (GAZT) approved a set of transfer pricing bylaws on February 15, 2019, that set transfer pricing documentation requirements into effect. LFs and MFs must be filed if MNEs recorded controlled transactions with an aggregate value exceeding SAR 6 million, or approximately USD 1.6 million, within a fiscal year. The new guidelines require filing for MNEs with a turnover of over SAR 3.2 billion (approximately USD 850 million). Qualifying companies must submit a disclosure form of controlled transactions to the GAZT within 120 days after fiscal year end, and a MF and LF must be prepared and readily available to submit to tax authorities upon request. Along with those items, the taxpayer must also submit an affidavit from a licensed auditor certifying that the MNE’s transfer pricing policy is applied consistently by and in relation to the taxpayer.

Colombia: Deadlines for LF, MF, TP Returns, and CbCRs released

On December 27, 2018, Colombia's Ministry of Finance and Public Credit released Decree 2442 establishing deadlines for LF, MF, transfer pricing returns and CbCRs for fiscal year 2018. The deadlines to submit a transfer pricing return, a LF, and a MF range from July 9 to July 22, and the specific due dates are determined by the last number in a taxpayer's TIN. CbCRs are due between December 10 and December 23, and the specific due dates are also determined by the last number in a taxpayer's TIN. Taxpayers who are not subject to Colombia's transfer pricing rules but are part of an MNE group must comply with the CbCR notification deadlines, which are the same as the transfer pricing return deadlines and are subject to the same late filing and non-filing penalties. The notification file together with filing instructions can be downloaded from the Colombian tax authorities' website and must be sent from the email registered on the taxpayer's Regístro Unico Tributario.

The Colombian Tax Statute (article 260-11) determines penalties for late and non-filing and for inaccurate information in the transfer pricing obligations. The penalty regime has not changed since December 2016.

This summary was provided by Luis Jiménez, BDO Colombia and Luis Braini, BDO Argentina

Iceland: Proposed Amendments to CbC Reporting Rules

Iceland is proposing changes to its CbC rules. The first proposal concerns changing the reporting threshold from ISK 100,000,000,000 in consolidated revenue for a multinational group to EUR 750,000,000. The second proposal is specific to surrogate parent entities. If a surrogate parent company has to file a CbC report in another country, they may not need to file a report in Iceland.

Generally, if the following are true, then the need for the group to file a report in Iceland may be eliminated:

  • A surrogate parent company of a multinational group files a CbC report in a foreign jurisdiction
  • The jurisdiction of the surrogate parent has the same CbC reporting requirements as Iceland.
  • The jurisdiction of the surrogate parent has signed a competent authority agreement authorizing the automatic exchange of CbC reports with Iceland.
  • The foreign jurisdiction of the surrogate parent has not reported a systemic failure to the Icelandic Director of Internal Revenue.
  • The CbCR is submitted to the Iceland Directorate of Internal Revenue by the surrogate parent’s jurisdictional competent authority.
  • A member of the MNE has notified the competent authority of the home jurisdiction that it is the surrogate parent company in accordance with the notification rules.
  • A member of the multinational group that is domiciled in Iceland must provide the Icelandic Directorate of Internal Revenue with identification and tax residency information of its surrogate parent company.

Australia Releases First MLI-Synthesized Texts

The MLI, a multilateral treaty that allows jurisdictions the flexibility required to implement measures related to preventing tax avoidance, entered into force for Australia on January 1, 2019. The MLI will modify bilateral treaties between Australia and France, New Zealand, Japan, Poland, the Slovak Republic, and the UK, among others. The full list of treaties modified by the MLI can be found via the link below. The ATO states on the webpage that updates will be made as they become available. The treaty takes effect with respect to withholding taxes on income derived after January 1, 2019, and for all other taxes for tax years beginning on or after July 1, 2019.

Read more about the impact of the MLI in Australia.


British Virgin Islands Issue CbCR Requirements

The British Virgin Islands International Tax Authority recently issued CbCR requirements by way of Act No. 8 of 2018. CbCR is required for multinational enterprises with at least EUR 750 million in revenue. The new legislation requires constituent entities resident in the islands to register electronically in accordance with Section 38 of CbC law, regardless of whether they have a registration requirement in another jurisdiction with CbCR, or whether they are dissolving or liquidating.

CbCR must be filed no later than 12 months after the last day of the MNE group's reporting fiscal year. Failure to comply with registration requirements could result in a fine of up to USD 100,000, and penalties for failing to comply with any other CbCR requirements may result in penalties up to USD 5,000. The regulations apply for tax years beginning on or after January 1, 2018.

Read the amended CbCR legislation or the full guidance from the Virgin Islands Internal Tax Authority.