Transfer pricing is a term used to describe intra-group pricing arrangements amongst the multinational corporations. Transactions may relate to intellectual property, tangible goods, services, loans or other financing transactions.
Interestingly, Transfer Pricing mechanism is used by many multinational enterprises to reduce the overall tax effect by exploiting gaps and mismatches in tax rules of different jurisdictions.
With increase in cross border transactions amongst multinational corporations and stringent norms imposed by many countries, the risks pertaining to Transfer Pricing has significantly increased. In 2015, Organisation for Economic Co-Operation and Development (OECD) has also introduced Base Erosion and Profit Shifting (BEPS) Actions Plans (one of the Action Plan 13 being Transfer Pricing Documentation and Country by Country Reporting) in order to restrict tax avoidance practice and allocate fair share of tax to respective countries.
In response to these factors, tax authorities around the world have become more aggressive in the transfer pricing arena, introducing stricter penalties, new documentation requirements, increased information exchange requirement.
This intense scrutiny implies significant risks for the unwary and the unprepared, particularly in a complex field such as transfer pricing where each transaction must be analysed under its own unique facts and circumstances.
We can help answer the most important questions?
How we can help you:
Crowe UAE’s transfer pricing practice offers full range of services such as:
Our Value preposition:
Transfer Pricing Whitepaper
In 2017, Qatar signed Organisation of Co-Operation and Development’s (OECD) Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and thereby, committed to align its domestic regulation with global tax rules.
In 2018, it introduced Country by Country (CbC) Regulation and subsequently, it published new income tax law and corresponding Executive Regulation for Transfer Pricing documentation requirements.
In September 2020, General Tax Authority of Qatar (GTA) launched tax portal “Dhareeba” wherein taxpayers are required to file income tax return as well as other declarations. This also mandates the taxpayers to submit Statement on Transfer Pricing subject to certain threshold. The statement requires information such as
Recently, in February 2021, it is learnt that GTA verbally confirmed that afore-mentioned Transfer Pricing declaration to be filed by those taxpayers whose either total value of assets or revenue exceeds the threshold (which is expected to be QAR 10 million equivalent to USD 2.75 million)
Crowe UAE’s comments:
Transfer Pricing is relatively a new regime in Middle East region. While many countries have signed OECD’s BEPS Inclusive Framework, only few countries (like Kingdom of Arabia, Egypt and now Qatar) have introduced 3-tier documentation requirement in a country.
Additionally, Qatar also requires taxpayer to submit statement on Transfer Pricing along with tax return which is added compliance requirement. Since this is the first year of Transfer Pricing compliance in Qatar, it is recommended to take timely action in revisiting existing transfer pricing policy and preparing comprehensive Transfer Pricing documentation to avoid challenges in future.
Bahrain has signed Multilateral Competent Authority Agreement for Country-by-Country Reporting in 2019. Recently, vide publication in official gazette on 28th January 2021, Bahrain ratified Multilateral Competent Authority Agreement for CbCR.
The ratified agreement will come into force from immediately next day of its publication
With this move, it is expected that Bahrain will soon publish CbC Regulation in a country. While most other Gulf Co-Operation Council (GCC) countries have already implemented CbC Regulation, Bahrain too will commence the Transfer Pricing regime soon. Therefore, companies operating in Bahrain are required to proactively re-assess their Transfer Pricing policies and restructure their business model, if required, in order to be compliant with arm’s length policies.
Recently, Malaysia’s Inland Revenue Board (IRB) updated Malaysia’s Transfer Pricing Guidelines.
Previously, Transfer Pricing documentation in Malaysia was not required to be submitted to IRB along with tax return filing. Instead, documentation was required to be submitted within 30 days from the request from IRB to submit the same. IRB
In this context, IRB has updated the guidelines to reduce the number of days to 14 (from 30) in order to submit Transfer Pricing documentation for Transfer Pricing audit cases commending on or after 1st January 2021. Corresponding amendments were also made in penalty provision.
Generally, many taxpayers adopt the approach to prepare the Transfer Pricing documentation only upon request from IRB even though it is supposed to be kept ready while filing tax return. Considering the fact that time limit is reduced to only 14 days, it is recommended to taxpayers to keep their Transfer Pricing documentation ready in order to timely submit (if required) the same.
In our experience, Malaysia’s tax authority generally adopts aggressive approach while scrutinizing the Transfer Pricing case and therefore, non-compliance may entail stringent penalties.
Previously, Canada’s Revenue Agency (CRA) required taxpayer to pay cost recovery charges when applying for the Advance Pricing Agreement (APA). This charge was mainly to cover the estimated expenses of during APA process including travel cost to taxpayer’s location. Subsequently, any excess amount not incurred by CRA was refunded to taxpayer at the end of APA process.
Recently, on 5th February 2021, CRA announced that going forward taxpayers will not be required to pay such cost recovery charges.
Most of the developed and developing countries have APA mechanism in place wherein taxpayer can enter into an agreement with tax authority in advance for certain period (generally 3-5 years) on Transfer Pricing policy to be adopted. In last many years, APA has remained attractive mechanism for multinational corporation in order to get certainty as well as on saving time and cost on Transfer Pricing matters. Moreover, in today’s scenario wherein most of taxpayers have been severely affected by Covid-19 pandemic and thus, grappling with transfer pricing compliant policy, it is expected that APA mechanism will remain attractive option for taxpayers.
Therefore, CRA’s move to revoke cost recovery charges from taxpayers is a welcome move for those who wish to apply APA soon.
Recently, Tax Court in South Africa upheld the transfer pricing adjustment for taxpayer who failed to prepare Transfer Pricing documentation to justify arm’s length nature of intra-group transactions. We have summarised the facts of the case as under:
Case - ABC (Pty) Ltd v. Commissioner for the South African Revenue Service (14305) (2021) (ZATC 1)
Tax Court’s decision:
On 23rd March 2021, Internal Revenue Service (IRS) issued Announcement 2021-6 providing the Advance Pricing and Mutual Agreement (APMA) program’s 22nd annual report on advance pricing agreements (APAs) for 2020. Report also provided few interesting statistics on APA program for the year 2020 which is as under:
Open APAs as on 31st December 2020
Pending renewals as on 31st December, 2020
Applications revoked/ cancelled
While most of the transactions covered in APA executed in 2020 involve the sale of tangible goods (35%) or provision of services (38%), interestingly, Annual Report mentions that approximately 25 percent of transactions covered in APAs executed in 2020 involve the use of intangible property, which can be among the most challenging transactions in APMA’s inventory.
APA has been one of the most popular program amongst multinational in many developing and developed countries. Saving of litigation cost and time as well as certainty received by multinational on Transfer Pricing policy for 3-5 years (even more in few countries) is a key advantage as to why multinational prefers to opt for APA.
Mauritius Revenue Authority (MRA) has issued a communique dated 26th March 2021 informing taxpayers that due date for filing country by country (CbC) report/ notification for the accounting period ended 31st March 2020 has exceptionally been extended from 31st March 2021 to 20th April 2021.
Extension has been announced as a result of national sanitary lockdown in the country in the country in March 2021.
This relaxation will definitely help the taxpayers in undertaking their CbC compliance on timely basis and without suffering any monetary penalty or other consequences.
On 18th March 2021, Belgian tax authorities have announced the extension in filing corporate tax return for the financial year ended between 31st December 2020 and 28th February 2021 upto 28th October 2021. The extension is on account of difficulties faced by taxpayers due to Covid-19 pandemic.
This extension of deadline is also applicable for filing local file reporting that is required to be submitted in Form 275LF. Submission of local file is required by each Belgian entity of multinational group if any of the following threshold meets:
Extension would help the taxpayers in undertaking their compliance on timely basis. It takes substantial efforts in preparing local transfer pricing documentation, taxpayers would have additional time to collate/ prepare the documentation for this year.
On 19th March 2021, Ministry of Finance has published a Rulebook in Official Gazette of Serbia No. 24 providing arm’s length interest rates for 2021 for intra-group loans.
As per tax regulation of Serbia, in order to determine the arm’s length rate of interest, taxpayers may either (i) adopt interest rates as prescribed by ministry of finance in Rulebook; or (ii) apply OECD method for determining arm’s length interest rates. Taxpayers may need to follow any of this option on consistent basis for all inter-company loans.
Arm’s length prescribed by ministry of finance for 2021 is as under:
Credit/ loan currency
Banks/ Financial leasing company
Short term loan
Long term loan
Crowe UAE’s comments:
Determination of arm’s length price for the financial transactions is much talked topic in recent years. Infact, OECD has released guidance on financial transactions in 2020 wherein they have emphasized on credit rating approach while determining arm’s length interest rates.
In Covid-19 pandemic situation, it is expected that intra-group financing will significantly increase amongst multinational group and therefore, it is recommended to taxpayers to relook their transfer pricing policy of financial transactions.
Zambia Revenue Authority published a Statutory Instrument No. 117 of 2020 to introduce country by country (CbC) reporting regulation to be effective from 1st January 2021. CbC Regulation is applicable for a MNE Group if the consolidated group revenue exceeds Zambia Kwacha 4,795 million (equivalent to EUR 750 million).
Regulation requires two-fold compliances as under:
Required by whom
Filing of notification
On or before last day of Group’s reporting accounting year
Constituent entity tax resident in Zambia
Filing of CbC Report
Within 12 months from last day of Group’s reporting accounting year
Ultimate parent entity or surrogate parent entity
Tax resident constituent entity that is not the ultimate parent entity or surrogate parent entity may also be under the obligation to file a CbC report where
CbC Reporting Regulation in Zambia is mainly in line with OECD requirement and thereby, Zambia has also adopted 3-Tier Transfer Pricing documentation approach of OECD. Further, it is learnt that Zambia Revenue Authority is quite aggressive in scrutinizing the intra-group transactions of multinational group. Therefore, it is recommended for multinational having presence in Zambia to revisit their Transfer Pricing policy of intra-group transactions and maintain robust documentation to demonstrate arm’s length principles.