The Key Elements of a Transfer Pricing Report

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Action 13 of the OECD Action Plan on Base Erosion and Profit Shifting (BEPS) recognises that enhancing transparency for tax administrations by providing them with adequate information to conduct transfer pricing risk assessments and examinations is an essential part of tackling the BEPS problem.

Multinationals with a turnover above €750m in their countries of residence will be required to start using the new Country by Country (CbC) reporting template for fiscal years ending on or after 31 December 2016 with a filing deadline of 31 December 2017.

However, groups with consolidated group revenue less than €750m as at 01/01/2015 will be exempted from filing a CbC report

Therefore, existing standards on TP reporting remain valid for the foreseeable future. This note is a reminder of the key elements of those standards.

A transfer pricing report may be commissioned by an enterprise for a number of reasons, e.g. to set the parameters for a TP policy, to support an existing TP policy or to demonstrate the arm’s length nature of a historical position when there was no TP policy in place.

Whatever the reason for its production, in the initial stages of a transfer pricing audit the tax authority will inevitably ask for this documentation, which will then be examined in considerable detail to determine whether the enterprise’s transfer prices are consistent with the arm’s length position.

A well-constructed TP report will provide all the detail and evidence a tax authority could reasonably require to perform its due diligence obligations.

Whilst the enterprise may have chosen the transfer pricing method and tested party etc. it considers appropriate, the tax authority may challenge those choices. Therefore, the enterprise should be prepared to explain how the profitability of each link in the chain of related-party transactions aligns with its functions, risks, and assets.

The key elements of a well-prepared transfer pricing report are discussed below. More detail can be found in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and by following the embedded links below.

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“Google Tax” may be coming to an MNE near you soon.

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The UK Government introduced a new tax from 1st April 2015, the Diverted Profits Tax (DPT), aimed at multinational enterprises (MNEs) that use contrived arrangements or entities to bypass UK rules on Permanent Establishment and Transfer Pricing.

Where it applies, the normal rate of DPT is 25% of the diverted profit plus any “true-up interest”, and where the taxable diverted profits are ring fence profits in the oil & gas sector, DPT is charged at a rate of 55% plus interest. Read the rest of this entry »

8 Reasons why your Peers don’t read your Technical Posts

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I’ve been blogging on tax-technical matters for about three months now at uktp4u.com and I thought it was time to take a step back to review what I’ve done and see how I can do it better.

This note is the result of that review. It applies to all technical posts (we’re not talking about Journal writing here, that’s an entirely different skill set) and I’d like to share it with you and other technical bloggers. It sets out the 8 key areas you might overlook in the excitement of writing that will prevent your posts from reaching their widest possible audience. Hopefully this will help you improve your technical writing skills.
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Factoring Withholding Tax into the Transfer Pricing of Services.

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This note considers the UK Transfer Pricing implications of Withholding Tax charged on fees for technical services, using India as an example.

WHT is relevant to international companies doing business with associated or independent enterprises in India, even if they don’t have a presence or permanent establishment there. India isn’t the only State which applies a WHT on fees for services, China is another and there are many more. It is a one-way street from the UK viewpoint because UK domestic law does not award a taxing right if the positions were reversed.

It’s a complex area, with many variables, and the application of the rules is dependent on the specific facts & circumstances of each case. The circumstances under which WHT might actually lead to a TP adjustment may be limited, but they can’t be ignored.
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