Transfer Pricing News - Grant .Transfer Pricing News ... making transfer pricing amendments • the

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  • Transfer Pricing News

    Welcome to the third edition of TransferPricing News.

    Transfer Pricing News No. 3: March 2013 1

    Go to page

    2 Australia

    4 Chile

    5 China

    8 India

    10 Japan

    11 Netherlands

    13 Romania

    14 Russia

    15 South Africa

    19 United Kingdom

    22 United States

    24 Whos who

    This issue contains transfer pricingupdates from a number of countriesacross the globe a necessity in theglobal economy we all now inhabit. So if you want to know about newdevelopments in transfer pricing aroundthe world this is the place to look.

    To find out more about the topicsfeatured in Transfer Pricing News do not hesitate to get in touch with theGrant Thornton transfer pricing team.Their contact details are included on thelast page of this newsletter.

    This information has been provided by member firms withinGrant Thornton International Ltd, and is for informationalpurposes only. Neither the respective member firm norGrant Thornton International Ltd can guarantee theaccuracy, timeliness or completeness of the data containedherein. As such, you should not act on the informationwithout first seeking professional tax advice.

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  • Transfer Pricing News No. 3: March 2013 2


    Australia releases new transferpricing rules

    On 22 November 2012,the Australian treasuryreleased an exposure

    draft for the Tax Laws Amendment(cross-border transfer pricing) Bill 2013:Modernisation of transfer pricing rules(new transfer pricing rules), whichproposes to overhaul Australiasdomestic transfer pricing regime andmore closely align it with theOrganisation for EconomicCooperation and Development(OECD) transfer pricing guidelines formultinational enterprises (MNEs) andtax administrations (OECD guidelines).

    The proposed changes in the newtransfer pricing rules represent thesecond round of transfer pricinglegislative reform. Phase one of thetransfer pricing rules became law inSeptember 2012 but will become non-operative when the new transfer pricingrules are enacted. Highlights of the newrules are discussed in this article.

    The positives: the alignment of the new transfer

    pricing rules with the OECDguidelines, which requires cross-border dealings to be conductedunder arms length conditions

    the introduction of an eight yeartime limit on when the AustralianTax Office (ATO) can make transferpricing amendments, with theexception on consequentialadjustments. This rule replaces thecurrent unlimited time period formaking transfer pricing amendments

    the proposal of thresholds foradministrative penalties arising fromarms length principle uponsatisfying certain criteria

    the availability of consequentialadjustments, which grants the ATOthe power to make a determinationon the consequential adjustmentamount for the disadvantagedentity in cross-border dealings.

    The key impacts: the ability to apply the new transfer

    pricing rules to all cross-bordertransactions, including transactionsbetween third parties. This meansthat all cross-border dealings will besubject to the arms length principle

    the application of significantpenalties to transfer pricingadjustments where the companydoes not maintain contemporaneoustransfer pricing documentation

    aligns the existing transfer pricingregime to the self-assessmenttaxation system operative inAustralia, placing the responsibilityon the companys public officer fordetermining the companys overalltax position arising from all cross-border dealings

    the introduction of specific rulesprovides the ATO the reconstructionpowers to disregard the actualtransaction and arrangements, wherethe actual economic substance of thetransaction differs from the legalform

    the allowance for the use of acombination of methods to identifythe arms length conditions thatoperate between entities dealingcross-border

    the introduction of permanentestablishment (PE) rules, governingboth foreign PEs operating inAustralia and Australian PEsoperating offshore, whichspecifically deals with the attributionof profits with reference made toarticle seven of double taxationagreements.

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  • Transfer Pricing News No. 3: March 2013 3

    What does this mean for thetaxpayer? increased responsibility on the

    public officer to ensure that all cross-border dealings appropriately applythe arms length principle

    increasing complexity anduncertainty for all businesses withcross-border dealings

    the imminent need to preparecontemporaneous transfer pricingdocumentation to avoid potentialsubstantial penalties

    the need to review all transfer pricingprocesses and outcomes, bothprospectively and retrospectively.

    It is unclear whether the government hasestimated the full impact that thesechanges will have on both the Australianand international business community.

    Grant Thornton Australia haspresented a submission to theAustralian treasury outlining its viewson the new transfer pricing rules.However, judging from pastexperience, no significant changes areexpected to be made to the proposedlegislation before it is passed into law.

    MNEs operating in Australia need tobe prepared.

    If you would like to discuss any issues raised in thisarticle please contact:Jason CasasGrant Thornton AustraliaE

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  • Transfer Pricing News No. 3: March 2013 4


    Transfer pricing is oneof the items contained inthe recent amendments

    to Chilean tax law. The Chileanauthority decided to use the OECDrules for transfer pricing matters, toregulate transactions with relatedparties.

    The transfer pricing methods thatare taken into consideration are:comparable uncontrolled price, resaleprice method, cost plus method, profitsplit method and the transactional netmargin method.

    In order to clarify the meaning ofrelated parties, the law established thefollowing definitions: one party that participates directly

    or indirectly in the management,control, equity, benefits, or incomesof the other party

    person or persons that participatedirectly or indirectly in themanagement, control, equity,benefits or incomes of both parties,with the understanding that all ofthem are interrelated.

    PEs are considered to be related withtheir headquarters, or with any otherestablishments of the same headquarters.Transfer pricing studies can be used bythe taxpayer in order to justifyexpenses, but in any such case thetaxpayer must have the originaldocuments with which the method hasbeen applied or the studies developed ifthe Chilean internal revenues servicerequires them.

    The Chilean internal revenuesservice can refuse prices, values andprofit when they do not correspond tomarket prices and apply a tax of 35%on the difference as well as a fine of5% of said difference.

    The amendment of the Chilean taxlaw also allows taxpayers to enter intoadvance pricing agreements (APAs).These agreements last three years andare renewable. The taxpayer and theinternal revenues service can withdrawwithout effecting the agreement, whenthe circumstances taken into accountto make these arrangements havechanged.

    If you would like to discuss any issues raised in thisarticle please contact:Alfonso IbanezGrant Thornton ChileE

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  • Transfer Pricing News No. 3: March 2013 5


    2011 APA annual report issuedOn 26 December 2012,the State Administrationof Taxation of China

    (SAT) issued the China advance pricingarrangement annual report (2011) (the2011 annual report). As the third APAannual report released by the SAT, itfollows the framework of the 2009 and2010 reports while updating thestatistics through 31 December 2011.Other additions include statisticsrelated to APA renewals signed in2011 and industries covered by signedAPAs, revisions which list the factorsthat the tax authorities might prioritisein an APA request, and the newlyincluded chapter SAT contacts (byprovince) for APA requests intendedto facilitate taxpayers in the submissionof APA requests.

    New contents in the 2011 annualreportNew development of the China APAprogrammeIn 2011, the Chinese tax authoritiesconcluded and signed eight unilateralAPAs (including four renewals) and fourbilateral APAs. From 1 January 2005 to31 December 2011, the Chinese taxauthorities received 99 written requestsor formal applications for bilateral APAs(including 21 agreed APAs). There are15 countries involved including Japan,Korea, the United States, Denmark andSingapore. In addition, the SAT hasreceived numerous enquiries on bilateralAPAs from enterprises. It is expectedthat the number of APA applicationswill continue to increase.

    Numbers and processing times ofrenewalsAmong the eight unilateral APAs signedin 2011, four of them were renewals.The processing time for renewals hasbeen shortened and most of them werecompleted within one year.

    Industries covered by signed APAsThe report illustrates industries coveredby signed APAs in 2005 through 2011.APAs from manufacturing industries arestill the majority of the total signedAPAs, accounting for 88% with theother industries only accounting for12%.

    Priority of APAs requestDue to the high number of APAapplications, in additi