TP Ticker – July 2019
Outcomes of the Project on Aligning Brazil’s TP Rules with the OECD
On 11 July 2029, the OECD and Brazil’s Receita Federal, the federal tax administration issued a statement on the outcomes of their joint transfer pricing project. The project addresses the differences between Brazil’s transfer pricing regulations and the international consensus laid down in the OECD Guidelines. At this time, the project comprised three stages, each of which was concluded with a separate report. The first report outlines the Brazilian transfer pricing regulations and the main differences to the OECD standard. The second report provided a more detailed analysis of the Brazilian transfer pricing system, including its strengths and weaknesses. Finally, the third report – as final deliverable of the project – outlines the general solution for addressing the differences by aiming for full alignment with the international standard.
The joint statement can be found on the website of the OECD here: https://www.oecd.org/ctp/transfer-pricing/oecd-and-brazil-share-outcomes-of-project-to-align-brazil-s-transfer-pricing-rules-to-oecd-standard.htm
Revised Japanese TP Guidelines
On 28 June 2019, the National Tax Agency (“NTA”) of Japan published a revision of the supplement to its administrative guidelines for transfer pricing (“Administrative Guidelines”). Specifically, this revision is a comparison table highlighting the differences between the old version of the schedule and the new version that results from the recent update of the Administrative Guidelines. Besides updates of legal citations and further explanations on the calculation of quartiles according to the Excel and IRS methods, this revision results especially from the inclusion of the Discounted Cash Flows Methods (“DCF Method”). This includes explanation of the method itself and three new application examples.
In our view, it should especially be pointed out that with “DCF Method”, the Administrative Guidelines refer to a transfer pricing method that was newly introduced into the Special Taxation Measures Law Enforcement Order (Article 39-12, Section 8, Number 6). However, while the DCF method that is well known in finance discounts – as the name states – cash flows, the so called “DCF Method” under the Japanese regulations discounts expected profits. It remains to be seen to which degree Japanese tax examiners will in practice except an actual, cash-flow-based DCF calculation. However, as the Japanese tax administration is typically adhering to the OECD Guidelines, we do not expect that non-acceptance should become a major issue, as long as the calculations are performed in a technically appropriate manner.
The revised Schedule Administrative Guidelines in Japanese language can be found on the website of the NTA here: https://www.nta.go.jp/law/jimu-unei/hojin/kaisei/190628/01.htm