The TP Range - March 2019

A Note from BDO’s Transfer Pricing Practice 

This issue of TP Range covers important changes around the world in today’s transfer pricing climate.
This month’s major theme is updates, clarifications, and revisions to transfer pricing rules and publications, both at the OECD and UN level, and among individual jurisdictions.  The OECD recently released its 2018 report on preferential regimes, and the UN continues to make progress updating its manual on transfer pricing practices in developing countries. Tunisia has added APA rules to its tax legislation, and Morocco has provided clarifications to its APA legislation. Panama and the Ivory Coast have also made changes to their transfer pricing regimes.
BDO USA’s Transfer Pricing Team


OECD/Global News

OECD Releases New Publication on Preferential Regimes

The OECD has released a new publication, Harmful Tax Practices — 2018 Progress Report on Preferential Regimes, which contains results demonstrating that jurisdictions have delivered on their commitment to comply with the standard on harmful tax practices, including ensuring that preferential regimes align taxation with substance.  The assessment of preferential tax regimes yielded new conclusions regarding 57 tax regimes.  A key conclusion from the results is that all IP regimes, with one exception are now either amended or abolished to comply with the OECD’s nexus approach.  According to the report, this means that jurisdictions are no longer able to shift income from IP assets without having undertaken the corresponding R&D activity to create the IP.

Read the 2018 progress report.

UN Tax Committee Plans to Update Transfer Pricing Manual for Developing Countries

The Committee of Experts on International Cooperation in Tax Matters recently released a report summarizing progress made and additions under discussion for the next edition of the United Nations Practical Manual on Transfer Pricing for Developing Countries. Areas of discussion and revision to the current manual include: revisions to the transactional profit-split method; centralized procurement functions; comparability issues; a general update of the manual and updates and revisions to specific chapters, including Part D on country practices; the relationship between transfer pricing and customs valuation; and more. The subcommittee responsible for the document will also update manual chapters that cover transfer pricing in a global community, the general legal environment, audits and risk assessment, and establishing transfer pricing capabilities in developing countries.  The current draft of the manual was issued on September 11, 2017.
Read the latest version of the UN Manual.

EC Orders UK and Gibraltar to Recover Revenue Lost from Passive Income Exemptions

In its decision on Gibraltar’s taxation issues, the EC competition authority concluded that the individual treatment granted to five Gibraltar companies receiving royalty and passive interest income constitute unlawful state aid.  This decision has ordered the UK and Gibraltar to recover approximately EUR 100 million in tax revenue owed on previously non-taxed shares in royalty and passive interest income.  In Article 6 of its decision the EC states that the UK must implement the decision within four months from the date of notification.  The decision comes before the UK’s impending withdrawal from the EU and only applies until the UK ceases to be a member state.

Read more about the EC’s decision.

European Union Issues Warnings to Countries on Blacklist

The EU has informed six countries that their tax legislation has failed to keep them off the 2017 EU Blacklist, which monitors noncooperative jurisdictions. To be taken off the blacklist, the countries must meet fair taxation standards by not offering preferential regimes or allowing profit to be realized without any real economic activity occurring in their respective jurisdictions. The blacklist anticipates that EU member states will become compliant either by reinforcing transaction monitoring, by increasing audit risk for taxpayers benefitting from the regime, or by increasing audit risk for taxpayers using arrangements involving the jurisdiction.
Learn more about the EU Blacklist.

Country-by-Country News

Panama Adopts New Rules for IP-related Tax Exemptions

Panama has adopted a new transfer pricing law on December 26, 2018, to align more closely with OECD guidelines.  Law No. 69 covers intercompany transactions occurring in current and future free trade zones or special economic areas, such as the Panama-Pacific Special Economic Area and the City of Knowledge Business and Technology Park.  The law also clarifies the requirements for income derived from IP assets that qualify for a tax exemption, and the way to calculate such income.  Under Law No. 69, taxpayers must establish the relationship between their IP-related activities and income that qualifies for preferential treatment, and also must be able to show costs or expenditures incurred by a taxpayer conducting R&D activities in Panama that result in the creation of the qualifying intangible asset. Examples of qualifying intangible assets include IP protected by a patent or registration, and software protected by copyright.  Qualifying taxpayers are recommended to keep appropriate documentation as evidence of the connections between income derived from IP, costs related to R&D, and expenses corresponding to the IP produced.
Read more about Law 69 (available in Spanish).
In addition, Panama signed the MCAA on the automatic exchange of CbC reports on January 4, 2019.  This agreement was opened for signature by the OECD in 2016 to aid countries in the implementation of its BEPS project.  As of January 28, 2019, 76 countries have agreed to share CbC reports with each other.
Read more about Panama’s signing of the MCAA.

Ivory Coast Implements Penalty for Use of Tax-Preferred Countries

The Ivory Coast’s 2019 Budget Law was recently modified to distinguish between non-cooperative countries and privileged countries, as well as define tax-preferred countries. According to Article 18, non-cooperative countries are those provided for in the previous tax schedule of the 2018 Budget Law, while Article 38 specifies that tax-preferred countries are defined as territories in which income or money derived from the corporate income is taxable at a rate that is less than half the tax that would have been collected in the Ivory Coast if such income was taxable there.  With respect to CbCR requirements, countries with privileged tax regimes under the EU blacklist are now liable for a penalty of XOF 5,000,000 (approximately USD 8,500) if no declaration is made in 2018, and up to XOF 2,000,000 (approx. USD 3,400) per mistake or omission, without prejudice to the other sanctions provided for by law.  These measures were released January 7, and are effective beginning January 2.
This summary was provided by Hady Drame, Managing Partner & ILP, BDO Francophone West Africa
Read more about the 2019 Budget Law (available in French).

Morocco Requires TP Documentation, Clarifies Procedures for APAs

On December 14, 2018, the Moroccan tax authorities instituted a measure requiring companies with direct or indirect ties to companies outside Morocco to make their transfer pricing documentation available to tax authorities.  In addition, Morocco also provided clarifications to its APA rules, introduced in the Budget Law of 2015. Companies in Morocco that conclude an APA agreement with the Moroccan tax authorities benefit from a legal guarantee against the risk of a pricing adjustment from the tax authorities.
This summary was provided by Nadif Salaheddine, Senior Tax Partner, BDO Sarl (Morocco)

Tunisian Budget Law Introduces New Transfer Pricing Rules

The government of Tunisia has introduced new transfer pricing rules for financial years beginning on or after January 1, 2020, to comply with the OECD’s BEPS Action Plan.  The 2019 Tunisian Budget Law redefines tax havens as “tax regimes of favor,” or territories where the CIT is less than 50 percent of the CIT that would be due in Tunisia.  Inter-dependent companies with gross annual turnover that equals or exceeds TND 20 million must electronically submit an annual transfer pricing declaration along with their annual CIT declaration, and are advised to provide documentation of their transfer pricing policies at the start of a detailed tax audit. The new rules also establish an annual CbCR declaration, to be submitted electronically within 12 months after the end of the financial year, and allow Tunisian resident companies with foreign related parties to enter in to APAs.
This summary was provided by Khaled Mnif, Partner, BDO Tunisia.