BDO Transfer Pricing News - Issue 39

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. 

The OECD continued to issue documents for public comment, issuing two consultation documents relating to tax certainty: a Tax Certainty Framework for Amount A and Tax Certainty for Issues Related to Amount A under Pillar One. The documents, issued on 27 May, requested that comments be submitted no later than 10 June. The comments received have now been published.
A central element of Amount A is an innovative tax certainty framework that guarantees certainty for in-scope groups over all aspects of the new rules, including the elimination of double taxation. This eliminates the risk of uncoordinated compliance activity in potentially every jurisdiction where a group has revenues, as well as a complex and time-consuming process to eliminate the resulting double taxation. The Tax Certainty Framework incorporates a number of elements designed to address different potential risks posed by the new rules: a scope certainty review, an advance certainty review and a comprehensive certainty review. 

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.

 A U.S.-based multinational has agreed to pay EUR 1.3 billion, including EUR 520 million in fines and EUR 737 million in unpaid taxes, to settle a long-running tax dispute revolving around allegations that the company had reduced its French tax liability by transferring fees received from its French franchises as royalties paid to a corporate unit in Luxembourg. 

Poland’s President Andrzej Duda signed on 8 June 2022 signed an order extending the deadline for submitting transfer pricing documentation. The deadlines to submit the transfer pricing information return and the declaration that local transfer pricing documentation has been prepared have been extended to 30 September 2022 if the standard deadline expires between 1 January 2022 and 30 June 2022, and by three months if the standard deadline expires between 1 July 2022 and 31 December 2022.
The deadline for the preparation of the master file also has been extended to three months after the extended deadline described above.  

The Portuguese tax authorities on 26 November 2021 published Order No. 268/2021, which among other things introduced changes to the country’s transfer pricing documentation requirements. Under the new rules, taxpayers are required to prepare standard or simplified transfer pricing documentation by the 15th day of the seventh month after the end of the fiscal year -- or 15 July, if the fiscal year coincides with the calendar year.  

The New Jersey Division of Taxation announced June 16 that it will implement a voluntary Transfer Pricing Initiative running from June 15, 2022, through March 2, 2023, that is intended to expedite the resolution of corporate intercompany pricing issues. However, given the specific provisions of the initiative, taxpayers should proceed cautiously. Read the full alert.