TP Ticker – May 2019
Economic Effects of US Tax Cuts
On 22 May 2019, the Congressional Research Service (“CRS”) published a research paper on the economic effects of the US’s 2017 tax revision by the Tax Cuts and Jobs Act (“TCJA”). This paper is labelled only as a “preliminary observation” – considering that the tax cuts are still relatively fresh – but still contains a large amount of detailed and interesting information. One of its findings is that “[f]rom 2017 to 2018, the estimated average corporate tax rate fell from 23.4% to 12.1%”. Thomas Semadeni and me already provided a high-level analysis of the impacts of the TCJA’s provisions of transfer pricing for multinational groups with US-presences (in: TPI – Transfer Pricing International 1/2018). Besides somewhat concerning statements on macroeconomic variables in the CRS report, its evaluation of the development of the average corporate tax rate may have some grave transfer pricing indications, if these prove to depict a trend. In the past, the US was generally perceived as a high-corporate-tax country. Tax concerns on transfer pricing were mainly that corporations may use their related-party transactions to shift profits outside to low-tax jurisdictions. With this sharp decline in the corporate tax rate, this perception may change. It may also become relevant for the controlled-foreign-corporation regulations in some non-US jurisdictions.
The CRS report can be accessed online here: https://www.everycrsreport.com/files/20190522_R45736_8a1214e903ee2b719e00731791d60f26d75d35f4.pdf
TP Guidelines on Commodity Trading
On 24 May 2019, the Internal Revenue Authority of Singapore (“IRAS”) published transfer pricing guidelines on commodity marketing and trading activities. It is aimed at helping multinational enterprises with such activities in Singapore in analyzing their economic value, complying with the arm’s-length principle, and fulfilling their respective documentation requirements. It also includes a high-level analysis of Singapore’s infrastructure as a global trading bud, that was developed together with Enterprise Singapore (an organization under Singapore’s Ministry of Trade and Industry). The core section of this guidance focuses on comparability analysis, functional analysis, and the selection and application of the most appropriate transfer pricing method. With this guidance, the IRAS continues its focused work on transfer pricing that has characterized its activities over the last year. It incorporates in simple terms the conceptual background of the OECD Guidelines, which are also contained in Singapore’s more general transfer pricing guidelines. Complex economic or statistical concepts are avoided. This makes the guidance easily understandable on a stand-alone-basis even for practitioners that have no extensive background in economics. It should not only be a helpful resource for commodity traders – either in Singapore or elsewhere – but also for tax administrations of jurisdictions that transact with such a trading hub, helping them to better understand the “opposite sides” view.
The TP guidance is available on the IRAS website here: https://www.iras.gov.sg/irashome/uploadedFiles/IRASHome/e-Tax_Guides/etaxguide_CIT_Commodity%20activities.pdf