TP Ticker – May 2018
Australia:
Recently, the Australian Tax Office (“ATO”) published draft requirements for the Australian Local File for 2018. These introduce new and modified requirements for local files in Australia such as the need for explaining all lines of business of the taxpayer instead of a mere holistic, high-level description of the overall business. These new requirements especially mean that a simple “roll-forward” of the local file – where the basic contents are unchanged and only updated to current figures – may not be possible.
The ATOs draft requirements can be found online here: https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Transfer-pricing/Country-by-Country-reporting/Local-file-instructions–2017/
Israeli Court Decision on Contract R&D
The Israeli Supreme Court decided about appeals in relation to the calculation of the arm’s-length profit for contract research and development (“R&D”) firms. These appeals were made by Kontera Technologies Ltd. and Finisar Israel Ltd., two Israeli affiliates of multinational enterprises. The Supreme Court decided that the costs for stock-based compensation have to be included in the cost base for calculating the arm’s-length remuneration for these services, if the cost plus method is applied. In the view of the Supreme Court this applies even, if these costs are not deductible for tax purposes.
Newspaper articles about this decision can be found online here: https://www.timesofisrael.com/supreme-court-ruling-increases-tax-burden-on-multinational-rd-units-in-israel/
and here: https://www.haaretz.com/israel-news/business/.premium-supreme-court-strikes-big-tax-blow-against-foreign-r-d-centers-1.6030807
Tax Convention between Singapore and Brazil
On 7 May 2018, Singapore and Brazil signed a comprehensive tax convention for the avoidance of double taxation, covering transactions between associated enterprises in the two countries in Article 9. This agreement is not yet ratified and therefore not effective. Upon ratification by both sides, it will represent the first comprehensive tax convention between the two countries. So far, Singapore and Brazil only have a limited tax treaty in force that covers profits derived from international air and shipping transport.
More information can be found on the website of the Internal Revenue Authority of Singapore here: https://www.iras.gov.sg/irashome/News-and-Events/Newsroom/Media-Releases-and-Speeches/Media-Releases/2018/Singapore-and-Brazil-Sign-Comprehensive-Agreement-for-Avoidance-of-Double-Taxation/
New OECD Discussion Drafts
On 9 May 2018, the OECD published two new drafts for revised chapters of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. These drafts are for the chapters on “Administrative Approaches to Avoiding and Resolving Transfer Pricing Disputes” and on “Special Considerations for Intra-Group Services”. The OECD invites comments on these drafts by 20 June.
More information and the drafts can be found on the OECD website here: http://www.oecd.org/tax/transfer-pricing/oecd-invites-public-comments-on-the-scope-of-future-revision-of-chapter-iv-and-chapter-vii-of-transfer-pricing-guidelines.htm
Procedure for US APA Requests
On 11 May 2018, the Internal Revenue Service (“IRS”) issued a new template for taxpayers that want to request an advance pricing agreement (“APA”). A Word-file of the template, an example, and a comparison with the draft version – which had been made available in September 2017 – can be obtained via email. Taxpayers with pending requests are advised to contact their respective APMA team leaders about whether to use this template.
More information can be found on the website of the IRS here: https://www.irs.gov/businesses/corporations/new-advance-pricing-agreement-apa-under-rev-proc-2015-41-2015-35-irb-263