The OECD project on the tax challenges arising from the digital economy, which has kept international tax and transfer pricing practitioners riveted during the past year, has suffered a series setbacks recently. First came the acknowledgement by OECD Secretary-General Matthias Cormann that Pillar One of the OECD’s global tax deal, which would redistribute taxing rights for a portion of the largest corporations’ profits to market jurisdictions, is unlikely to meet the planned 2023 implementation timeline, followed by the UK’s announcement that implementation of Pillar Two in the UK will be delayed so that it applies only to accounting periods beginning on or after 31 December 2023. A few days later, the EU finance ministers failed to agree on the adoption of a directive on the implementation of the Pillar Two Global Anti-Base Erosion (GloBE) rules and the introduction of a global 15% minimum tax for multinationals.
Cormann said the Pillar One rules “most likely will end up with a practical implementation from 2024 onwards.” In fact, the OECD and the Inclusive Framework have continued their work formulating the model rules for implementation of Pillar One, issuing two more documents for public consultation.
While the OECD’s work on the two-pillar framework on the taxation of the digital economy gets most of the attention, the group is also involved in other long-term projects. Case in point: the collaboration with Brazil to align the country’s transfer pricing rules with the international standard represented by the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities. The project, launched in February 2018, is close to fruition, as detailed during a joint event held in Brasilia.
An updated version of the OECD’s transfer pricing guidelines was recently released, consolidating into a single publication the changes to the 2017 edition resulting from, among other items, the report Transfer Pricing Guidance on Financial Transactions, adopted by the OECD/G20 Inclusive Framework on BEPS on 20 January 2020, which has been incorporated into Chapter I and in a new Chapter X. In this issue, we include a report from the Czech Republic on the repercussions of the changes reflected in the new guidelines for Czech entities that benefit from intragroup financing such as cash pooling.
The guidance on the transfer pricing aspects of financial transactions that has been incorporated into the new Chapter X of the OECD guidelines also played a role in a new Draft Interpretation Note on Intra-Group Financial Transactions issued by the South African tax authorities for public comment. The South African transfer pricing community, including BDO, welcomed the draft IN, as intragroup financial arrangements have been a contentious issue for a number of years. The release of the Draft IN also confirmed that this is an area the SARS is likely to scrutinize closely. The Draft IN has now been aligned with Chapter X of the OECD transfer pricing guidelines.
Finally, the UK’s HMRC recently published transfer pricing and diverted profits tax (DPT) statistics for 2020-2021, which include information on additional taxation, duration of engagements and the number of open/settled engagements with taxpayers. The data clearly indicate a trend toward increased compliance activity, with more engagements resulting in longer resolution times and higher tax yields.
- Brazil: Tax authorities unveil plan to align Brazil's transfer pricing rules to international standard
- Czech Republic: New transfer pricing directive
- International: Transfer pricing bytes
- OECD: Pillar One tax rules pushed back to 2024 as technical work continues
- Rethink: Transfer Pricing: The transfer pricing lifecycle: A holistic approach Agreement programme in South Africa
- South Africa: Draft interpretation note on intragroup financial arrangements issued for public comment
- Spain: 2022 tax audit plan and CbC reporting findings released
- United Kingdom: HMRC’s transfer pricing and diverted profits tax statistics – a view on results and indicators
- United States:
- Customs duty refunds on transfer pricing adjustments
- Differences between transfer pricing and financial reporting valuations