Issue September 2012
We are proud to present to you the latest edition of Transfer Pricing Insights – Deloitte Switzerland's bi-monthly newsletter focusing on Transfer Pricing issues affecting MNCs in Switzerland. It covers Swiss "hot" topics and economic related news as well as the latest Deloitte global edition of the Arm's Length Standard.
Swiss Transfer Pricing Hot Topics
Australian Parliament passes new transfer pricing legislation
On 20 August 2012, the Australian Parliament introduced a new sub-division (815-A) into the Income Tax Assessment Act 1997 to ensure that transfer pricing articles in Australia's double tax treaties can be applied independently of already existing domestic law and confirm the existing practice that tax treaties provide a separate taxing power. Another key feature of the new law is its stipulation that tax treaties should be interpreted consistently with the OECD Transfer Pricing Guidelines. The new transfer pricing legislation confers additional powers to the Australian Tax Office when making transfer pricing adjustments and increases the risk of double taxation for Australian taxpayers.
The companies which are most at risk are those which have Australian operations making losses or very low margins, which have related party funding arrangements or those contemplating business restructurings, with key functions, risks and assets being moved out of Australia.
Further information on this topic will be available in the future editions of the Arm's Length Standard.
Shenzhen Tax Bureau in China closes major transfer pricing case
One of the largest transfer pricing audit cases in China concluded with the Shenzhen Tax Bureau determining the taxable profits of a Chinese toll manufacturing subsidiary based on a net cost plus approach and disallowing the Return on Invested Capital (ROIC) approach of the taxpayer.
The audit focused on the fact that the Chinese manufacturing entity changed its business model from a contract manufacturer (originally compensated on a net cost plus basis) into a toll manufacturer (remunerated based on the ROIC). When making its tax assessment, the Shenzhen Tax Bureau added material costs to the entity's cost base, effectively treating it as a contract manufacturer and disregarding the conversion to a tolling arrangement.
This case highlights the transfer pricing risk posed by changing the transfer pricing policy for an intercompany transaction without making any significant alterations to the corresponding business model. In particular we advise tax payers with subsidiaries in China to verify whether the existing business license indeed covers a different business model before converting the operating model.
For more information on the topic, please click here (page 11).
India publishes rules on Advance Pricing Agreements
On 30 August 2012, the Indian Ministry of Finance issued rules for the conclusion of unilateral, bilateral or multilateral Advance Pricing Agreements (APAs) including relevant forms as well as guidance on the information to be provided. The APA process is open to any taxpayer engaging in international transactions and applications may be filed for new transactions before they will be undertaken or, for ongoing transactions, before the beginning of the relevant fiscal year. The APA filing fees range from USD 20 000 to USD 40 000, depending on the value of the transaction for which the APA is being sought.
Highlights of the new rules include the possibility of a pre-filing consultation with the Authorities on a no-name basis and the possibility for the taxpayer to withdraw the APA application at any time before finalisation of the agreement. In addition, the rules require the taxpayer to submit an annual compliance report to the Tax Authorities for each year covered in the APA. Further, compliance audits will be conducted by the Tax Authorities for each year to verify that the critical assumptions and set of key facts as provided in the APA remain valid.
In case a foreign resident taxpayer wishes to enter into a bilateral or multilateral APA involving India and one or several foreign countries, the APA has to be initiated in those foreign jurisdictions first prior to the Indian Tax Authorities being approached. Given the challenges faced by many foreign tax payers in India, an APA may be a viable option to gain the necessary certainty to avoid later tax disputes.
For more information on the new Indian APA rules, please click here (page 9).
The Arm’s Length Standard
The recent issue of Deloitte‟s global Transfer Pricing newsletter concentrates particularly on:
- Malaysia Issues Revised Transfer Pricing Guidelines and New APA Guidelines
- Legislative Process for Brazil‟s Transfer Pricing Measures Almost Complete
- Transfer Pricing Simplification: Don‟t count on Denmark
These and further topics can be accessed by downloading your copy of the Arm's Lengths Standard here.
We hope that you have enjoyed reading this edition of Transfer Pricing Switzerland Insights. If you have any questions in relation to one of the above topics or you would like to discuss your situation and receive a professional opinion on any Transfer Pricing related topics, please feel free to contact us directly via phone or email.