TP Ticker – January 2019
Tax Strategy Reporting in the UK
On 1 January 2019, the TJN published a report by Andrew Belnap about observed practices of disclosing tax strategies in the United Kingdom. This is a requirement for large firms under the Finance Act of 2016 which have to make these available online and free of charge to the public. The author, a professor of accounting at the University of North Carolina, analyzed reporting from over 600 US-headquartered multinationals and came to the result that, while over 10 percent of these companies directly ignored the legal requirement, in general that publicized tax strategies were brief reflection of a couple of templated forms some companies also provide detailed information about their tax function, including for example location of main intangible properties and the use of advanced pricing agreements.
The report by professor Belnap can be downloaded from the website of the TJN here: https://taxjustice.net/wp-content/uploads/2020/11/Brassneck-and-boilerplate-Tax-Justice-Network-2019.pdf
New Polish TP Documentation Requirements
On 31 December 2019, the Polish Ministry of Finance published new decrees on transfer pricing (“TP”) documentation based on the Corporate Income Tax Act and the Personal Income Tax Act respectively. These came into effect on 1 January 2019, replacing from thereon respective decrees of the Minister of Development and Finance from 2017. The requirements laid down in these decrees are largely consistent with the contents of TP documentation recommended by the OECD TP Guidelines. Nevertheless, the Polish decrees have a slightly different structure, more detailed elaboration on the contents, as well as some peculiar contents, such as the requirement of a sensitivity analysis relating to the assumptions used for the TP analysis. Other local regulations in the area of TP were revised at the same time.
The original texts of the decrees are available on an external online source here: http://dziennikustaw.gov.pl/du/2018/2509/1
and here: http://dziennikustaw.gov.pl/du/2018/2479/1
(For an unofficial English translation, please feel free to contact us directly.)
First Unilateral APA in Hong Kong
On 3 January 2018, KPMG in Hong Kong informed the public that it was involved in the first unilateral advance pricing arrangement (“APA”) concluded by the Inland Revenue Department (“IRD”) of Hong Kong. The IRD itself did not publish any information on its Website and – after being contacted in this matter – informed that such is also not planned. Accordingly, the available information in this topic is currently limited to KPMG’s respective Tax Alert. According to this, the APA relates to royalty and service fee arrangements of KPMG’s client.
Especially in high-tax jurisdictions, APAs have been a successful means of TP risk mitigation for a long time. APAs provide the benefit that – under the conditions outlines in the APA itself – the tax administrations effectively guarantee the TP treatment agreed upon. Typically, the taxpayer will then prepare and submit annual APA reports which usually also provide certain relief from further local documentation requirements (thus, talking the place of the TP documentation for the transaction covered by the APA). In most cases, these are bilateral or multilateral APAs, where the tax administrations of all jurisdictions involved in the intra-group transactions are participating. Still, unilateral APAs are a viable alternative in many situations, such as where the tax risk in the other jurisdiction is considered insignificant or where the respective legal framework does not allow for an APA.
KPMG’s Tax Alert is available online here: https://home.kpmg/cn/en/home/insights/2019/01/tax-alert-1-hk-concluded-first-unilateral-advance-pricing-arrangement.html