TP Ticker – August 2018 (2)
French Decree on TPD Requirements
On 29 June, the French government promulgated a decree, decree nr. 2018-554, that clarifies the requirements for a transfer pricing documentation (“TPD”) under French tax law. While the French tax law in Article L. 13 AA of the Fiscal Procedure Code enacts transfer pricing requirements that are overall direct quotations of the respective requirements of the OECD’s Transfer Pricing Guidelines, the new decree not only specifies these requirements but also establishes requirements that go beyond those of the OECD.
This starts with the point that the sequence of the individual sections of a TPD are now required to follow the given order. Building up on this, the contents of the individual sections are further specified, for example by describing specific tables to be included in the TPD and by determining a framework by which transactions are to be classified and. Transactions to be included in the local file of the TPD are those that exceed a transaction value of 100’000 Euro per year. Finally, one of the first new requirements of the French decree is that the tables in the TPD are made available in an electronic format that allows the tax administration the double checking of the taxpayer’s calculations as well as the application of further basic data analytics.
The decree can be accessed on the website of Legifrance in French language here: https://www.legifrance.gouv.fr/eli/decret/2018/6/29/CPAE1817325D/jo/texte
German List on Automatic Exchange
On 2 July, the Federal Central Tax Office published the list of countries and jurisdictions which are subject to automatic exchange of financial information for the assessment period 2017. This automatic exchange covers specific information about accounts with financial institutions in Germany of individuals that are residence of the listed countries. The financial institutions in Germany have to report the information to the Federal Central Tax Office which exchanges it with the tax administrations of the respective countries.
The list can be accessed on the website of the Federal Central Tax Office here: https://www.bzst.de/DE/Steuern_International/CRS/Allgemeine_Informationen/Allgemeine_Informationen_node.html#TeilnehmendeStaaten
US Bulletin on CbCR
On 25 July, the Internal Revenue Service (“IRS”) of the United States informed in a bulletin about several newly available information items on Country-by-Country Reporting (“CbCR”) and in relation to the CbCR form for US-tax purposes, Form 8975. Firstly, the bulletin mentions that the Jurisdiction Status Table, which contains the list of jurisdictions with which the US exchanges CbCR information, was updated. Here, the newest agreements are with Croatia (signed 10 July) and Indonesia (signed 13 June). With a few other jurisdictions, such as France and Germany, are ongoing. Furthermore, this part of the bulletin points out that new resources are contained on the CbCR guidance website of the IRS. This website includes, for example, the model arrangements of the US for CbCR exchange, as updated on 30 June. Secondly, the bulletin points out that a new article on clarifications for Form 8975 was published. This article deals with fiscally transparent, or pass-through, entities as well as with the country codes that have to be used when filling in the CbCR form.
The news bulletin, with links to the more detailed information, can be found on the website of GovDelivery here: https://content.govdelivery.com/accounts/USIRS/bulletins/2011ad2?reqfrom=share#First
Medtronic Court Ruling
On 16 August, the United States Court of Appeals for the Eight Circuit vacated an opinion of the Tax Court in the case Medtronic, Inc. v. Commissioner, No. 17-1866 (8th Cir. August 16, 2018). The case dealt with the profit allocation between Medtronic’s US-operations and its licensed medical device production in Puerto Rico for the taxable years 2005 and 2006 for which the internal revenue service (IRS) proposed an initial adjustment of USD 84 million which was contested by Medtronic. After reexamination, the IRS issued a notice of deficiency amounting to about USD 1.36 billion for both years, resulting in Medtronic filing a suit with the Tax Court.
The Tax Court had found that the comparable uncontrolled transaction (CUT) method proposed by Medtronic as well as the Comparable Profits method proposed by the IRS were not appropriate for determining arm’s-length transfer prices in the given case. Based on its findings, the Tax Court applied the CUT method in a different way from Medtronic resulting in a combined income tax deficiency of about USD 14 million for 2005 and 2006. The IRS appealed.
The Court of Appeals vacated the opinion of the Tax Court and remanded it to further consider the best method. This was based on the Court of Appeals finding that the Tax Court had not sufficiently considered the comparability of the CUT it applied due to it arising out of litigation, including a lump sum payment, including cross-licenses, and lacking certain intangibles that were part of the analyzed license of Medtronic.
The decision of the Court of Appeals to vacate the Tax Court’s opinion can be found here: http://media.ca8.uscourts.gov/opndir/18/08/171866P.pdf