TP Ticker – April 2019

TJN Tax Avoidance Report

On 20 April 2019, the Tax Justice Network (“TJN”) published a report by Andres Knobel, a lawyer and consultant with the TJN, covering supposed tax avoidance of a major multinational enterprise in the tobacco industry.  The strategies identified in this report mainly cover transfer pricing topics, such as intra-group loans, license, and service fee payments.  While the report purports to treat the “tax avoidance” of the group, it does not evidence that these intra-group transactions are mispriced in violation of the arm’s-length principle, but states with reference to this principle that “it is often not possible to identify suitable price comparators and […] it enables companies to avoid tax”.

The report can be found on the website of the TJN here: https://taxjustice.net/reports/ashes-to-ashes-how-british-american-tobacco-avoids-taxes-in-low-and-middle-income-countries/

EUJTPF Guidance on Profit Split

In March 2019, the EU Joint Transfer Pricing Forum published the report ‘The Application of the Profit Split Method Within The EU’ (“EUJTPF Report”).  Purpose of this report is to examine how the transactional profit split method (“TPSM”) is applied in EU-jurisdictions and facilitate a common approach in its application under the OECD Guidelines.  Besides explaining the TPSM and the conditions for its application, the EUJTPF Report elaborates on how to split profits.  Discussions of unique and valuable contributions, high integration, and shared assumption of significant risks form an important part of the text.  The appendix to the EUJTPF Report contains besides schematics illustrating the selection of the TPSM as most appropriate method and on the mechanics of splitting profits especially an overview about possible splitting factors and their pros and cons.

From our perspective, the EUJTPF Report provides an accessible overview about the TPSM.  For the practitioner, especially Annex 3 – containing the inventory on the possible splitting factors – is a valuable source.  Due to this, it does seem helpful in facilitating a common approach in performing profit splits.  Nevertheless, the report does fall short on its aim to examine the application of the TPSM in practice, as it is largely a conceptual and theoretical work. The EUJTPF Report can be accessed on the website of the European Commission here: https://ec.europa.eu/taxation_customs/system/files/2019-03/report_on_the_application_of_the_profit_split_method_within_the_eu_en.pdf