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Posts Tagged ‘transfer pricing’

IRS 2015 APA for Transfer Pricing Final Rev Proc 13 Key Differences from 2013 Version

Posted by William Byrnes on August 13, 2015


This morning the US Treasury released the long awaited Advanced Pricing Agreement Procedures.IRS_logo

The 13 principal differences between these final revenue procedures and the proposed version of Notice 2013-79 are:

1. The final revenue procedure clarifies that if APMA requires, as a condition of continuing with the APA process, that the taxpayer expand the proposed scope of its APA request to cover interrelated matters (interrelated issues in the same years, covered issues or interrelated issues in other years, and covered issues or interrelated issues in the same or other years as applied to other countries), APMA will do so with due regard to considerations of principled, effective, and efficient tax administration and only after considering the views of the taxpayer and the applicable foreign competent authority. Further, APMA will communicate to the taxpayer any concerns about interrelated matters and possible scope expansion as early as possible.

2. In the interest of efficient tax administration, rollback years may be formally covered within an APA. A rollback will be included in an APA when a rollback is either requested by the taxpayer and approved after coordination and collaboration between APMA and other offices within the IRS or, in some cases, is required by APMA, after coordination and collaboration with other offices within the IRS, as a condition of beginning or continuing the APA process.

3 The final revenue procedure provides expanded guidance as to when an APA request will be considered complete.

4. The required contents of APA requests that were specified in the Appendix of the proposed revenue procedure have generally been retained.

5. Taxpayers are required to execute consent agreements to extend the period of limitations for assessment of tax for each year of the proposed APA term, and the required consent could be either general or restricted.

6. User fees are increased for APA requests but provides that total user fees may be reduced for multiple APA requests filed by the same controlled group within a sixty-day period. Also, user fee for requests for discretionary LOB relief are increased.

7. The final revenue procedure limits the scope of requests to which mandatory -pre-filing procedures apply to requests involving taxpayer-initiated positions.

8. To ensure that taxpayers have broad access to the U.S. competent authority to resolve disputes under U.S. tax treaties, taxpayers will not be required under the final revenue procedure to expand the scope of a competent authority request to include interrelated issues as a condition of receiving competent authority assistance. Taxpayers may still be required to provide information that will allow the U.S. competent authority to evaluate the appropriateness of the relief sought under the applicable U.S. tax treaty in light of the taxpayer’s positions on interrelated issues.

9. The final revenue procedure clarifies that the U.S. competent authority may consult with taxpayers with respect to certain additional issues that may arise in connection with competent authority requests, such as issues relevant to the determination of foreign tax credits and repatriation payments.

10. The final revenue procedure provides additional guidance on requesting discretionary determinations under the limitation on benefits articles of U.S. tax treaties, including time frames for taxpayers to provide notification of material changes in fact or law and the introduction of a triennial statement procedure to maintain a favorable grant of discretionary benefits.

11. Consistent with the objective of providing taxpayers with broad access to the U.S. competent authority to resolve disputes under U.S. tax treaties, the U.S. competent authority will not condition assistance on the taxpayer’s notification of the U.S. competent authority, or on obtaining its concurrence, with respect to signing a standard Form 870 with IRS Examination.

Similarly, a taxpayer will not be required to obtain the U.S. competent authority’s agreement prior to entering into a closing agreement or similar agreement with IRS Examination, but in these cases the assistance provided by the U.S. competent authority will be limited to seeking correlative relief from the foreign competent authority, thus potentially not eliminating double taxation.

12. The final revenue procedure provides additional information about the process followed by the U.S. competent authority in conducting its review under the simultaneous appeals procedure.

13. The final revenue procedure clarifies and refines the bases on which the U.S. competent authority may decline to accept a competent authority request or may cease providing assistance, consistent with U.S. tax treaty policy that taxpayers should have broad access to the U.S. competent authority to resolve instances of taxation not in accordance with the applicable U.S. tax treaty.

Procedures for Advance Pricing Agreements  Download APA New Procedures Rev Proc 15-40

Procedures for Requesting Competent Authority Assistance under Tax Treaties  Download APA New MAP Procedures Rev Proc 15-41

William Byrnes is the primary author of Lexis’ Practical Guide to US Transfer Pricing which provides 3,000 pages of in-depth analysis and practical examples for the corporate transfer pricing counsel and risk manager.

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Attacking BEPS through the Profit Split Method

Posted by William Byrnes on August 5, 2015


Prof. Jeffery Kadet‘s explains – Why Expansion of the Profit Split Method is Required to Combat BEPS…

Recognizing the reality that multinational corporations are centrally managed and not groups ofJeffrey-M-Kadet-244x300entities that operate independently of one another, the OECD base erosion and profit-shifting project is considering expanded use of the profit-split method.

This article provides background on why expanded use of the profit-split method is sorely needed. In particular, resource-constrained tax authorities in many countries are unable to administer or intelligently analyze and contest transfer pricing results presented by multinational groups. Most importantly, this article suggests a simplified profit-split approach using set concrete and objective allocation keys for commonly used business models that should be welcomed by multinational groups and tax authorities alike.

Read Prof Jeffery Kadet’s full analysis on SSRN http://ssrn.com/abstract=2593548

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OECD Releases BEPS Proposed Action 8 on Cost Contribution Arrangements & Transfer Pricing

Posted by William Byrnes on May 1, 2015


Logooecd_enPublic comments are invited on a discussion draft which deals with work in relation to Action 8 of the Action Plan on Base Erosion and Profit Shifting (BEPS).

Action 8 (“Assure that transfer pricing outcomes are in line with value creation: Intangibles”) requires the development of “rules to prevent BEPS by moving intangibles among group members” and involves updating the guidance on cost contribution arrangements. The discussion draft sets out a proposed revision to Chapter VIII of the Transfer Pricing Guidelines and is intended to align the guidance in that chapter with the other elements of Action 8 already addressed in the Guidance on Transfer Pricing Aspects of Intangibles released in September 2014.

Interested parties are invited to submit written comments by 29 May 2015 (no extension will be granted) and should be sent by email to TransferPricing@oecd.org in both PDF and Word format. They should be addressed to Andrew Hickman, Head of Transfer Pricing Unit, Centre for Tax Policy and Administration.

Check out William Byrnes’ Lexis’ Practical Guide to U.S. Transfer Pricing, available within LexisNexis, which is updated Book Coverannually to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators and tax professionals, corporate executives, and their non-tax advisors, both American and foreign.  Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel. Chapter 13 covers Cost Sharing Arrangements.

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Advance Pricing Agreements Report released by IRS

Posted by William Byrnes on April 3, 2014


Report Concerning Advance Pricing Agreements (2013)

Highlights excerpted:

In February of 2012, the former APA Program was moved from the Office of Chief Counsel to the Office of Transfer Pricing Operations, Large Business and International Division of the IRS (TPO) and combined with the United States Competent Authority (USCA) staff responsible for transfer pricing cases, thereby forming the Advance Pricing and Mutual Agreement (APMA) Program.  During the last quarter of 2013, new proposed revenue procedures governing APA applications and MAP applications were released for public comment in Notice 2013-79, 2013-50 I.R.B. 653, and Notice 2013-78, 2013-50 I.R.B. 633, respectively. These proposed revenue procedures reflect the changes in APMA’s structure, and more importantly, were informed by the cumulative experience of more than 20 years of APA practice in the United States, which has produced more than eleven hundred unilateral and bilateral agreements since 1991.

During 2013, the APMA Program continued to benefit from the merger and processing efficiencies that began in 2012. For the second year in a row, the number of executed APAs increased (from 140 in 2012 to 145 in 2013). The median completion time fell from 39.8 months in 2012 to 32.7 months in 2013. The increase in efficiency is further illustrated by the fact that the number of executed APAs (145) again surpassed the number of applications filed (111).

Part I of this report includes information on the structure, composition, and operation of the APMA Program; Part II presents statistical data for 2013; and Part III includes general
descriptions of various elements of the APAs executed in 2013, including types of transactions covered, transfer pricing methods used, and completion time.

The 111 APA applications received during 2013, represent a slight decrease from the 126 received in 2012.  Almost 75 percent of the bilateral applications filed in 2013 involved either Japan or Canada.  The APMA Program increased the number of APAs executed in its second year. The 145 APAs executed in 2013 surpassed the previous record of 140 executed agreements set in 2012. Of the 145 agreements executed in 2013, 68 of the agreements (47 percent) were new APAs (i.e., not renewal APAs), an increase from the 57 (41 percent) new APAs executed in 2012.

In 2013, approximately 55 percent of the APAs executed involved transactions between a non-U.S. parent and a U.S. subsidiary; 40 percent of the APAs executed involved transactions between a U.S. parent and a non-U.S. subsidiary; and the remaining 5 percent involved transactions that included either a partnership or a branch. In 2012, approximately 75 percent of the APAs executed involved transactions between a non-U.S. parent and a U.S. subsidiary, while the remaining 25 percent involved transactions between a U.S. parent and a non-U.S. subsidiary.

Although more than 75 percent of covered transactions involve tangible goods and services transactions, the IRS also has successfully completed numerous APAs involving transfers of intangibles.  More than 60 percent of the tested parties in the APAs executed in 2013 involved distribution or related functions, e.g., marketing and product support.

In controlled transactions using the CPM/TNMM, the Operating Margin was the most common profit level indicator (PLI) used to benchmark results for transfers of tangible and intangible property. Per the applicable regulations, Operating Margin is defined as the ratio of operating profits to sales. The Berry Ratio, defined as the ratio of gross profit to operating expenses, was applied as the profit level indicator in 8 percent of the controlled transactions that used the CPM/TNMM. Each other profit level indicator accounted for a smaller share.

For services transactions, the majority of cases applied the Services Cost Method or the CPM/TNMM. The Services Cost Method evaluates the amount charged for certain services with
reference to the total services costs.

For the APAs executed in 2013 that used external comparables data in the analysis, the most widely used data source for comparables was the Standard and Poor’s Compustat database. Other sources were also used in appropriate cases, e.g., where the tested party was not the U.S. entity. The most commonly used sources are:

  • Disclosure
  • Mergent
  • Orbis
  • GlobalVantage
  • Worldscope
  • OneSource
  • Osirus

practical_guide_book

Lexis’ Practical Guide to U.S. Transfer Pricing, 28 chapters from 30 expert contributors led by international tax Professor William Byrnes,  is designed to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign.  Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.

 

 

 

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OECD releases BEPS draft for Tax Challenges of the Digital Economy

Posted by William Byrnes on March 25, 2014


The OECD released Monday, March 24, a discussion draft on the Tax Challenges of the Digital Economy.

In July 2013, the OECD published its Action Plan on Base Erosion and Profit Shifting. The Action Plan identifies 15 actions to address BEPS in a comprehensive manner and sets deadlines to implement these actions. Excerpting from the Report, Action 1 reads as follows:

Action 1 Address the tax challenges of the digital economy

Identify the main difficulties that the digital economy poses for the application of existing international tax rules and develop detailed options to address these difficulties, taking a holistic approach and considering both direct and indirect taxation. Issues to be examined include, but are not limited to, the ability of a company to have a significant digital presence in the economy of another country without being liable to taxation due to the lack of nexus under current international rules, the attribution of value created from the generation of marketable location-relevant data through the use of digital products and services, the characterisation of income derived from new business models, the application of related source rules, and how to ensure the effective collection of VAT/GST with respect to the cross-border supply of digital goods and services. Such work will require a thorough analysis of the various business models in this sector.

The OECD’s March 24 discussion draft on the Tax Challenges of the Digital Economy, after surveying the elements of the new global digital economy, outlines the tax minimization techniques and then provides broad proposals to reduce the BEPS resulting therefrom. Below, I have excerpted and paraphrased the relevant aspects to provide an overview.

Section IV “Identifying Opportunities for BEPS in the Digital Economy” undertakes a general discussion of the common features of tax planning structures that raise BEPS concerns. Section IV then describes the core elements of BEPS strategies with respect to both direct and indirect taxation.  The common features of digital economy tax planning features include:

Eliminating or reducing tax in the market country

  • Avoiding a Taxable Presence
  • Minimizing Functions, Assets and Risks in Market Jurisdictions
  • Maximizing Deductions in Market Jurisdictions

Eliminating or reducing tax in the intermediate country

Eliminating or reducing tax in the country of residence of the ultimate parent

Avoiding withholding tax

Opportunities for BEPS with respect to VAT

  • Remote digital supplies to exempt businesses
  • Remote digital supplies to a multi-location enterprise (MLE)

Section V “Tackling BEPS in the Digital Economy” of the discussion draft examines how work on the actions of the BEPS Action Plan and in the area of indirect taxation will address BEPS issues arising in the digital economy. This section also highlights the particular characteristics of the digital economy that must be taken into account to ensure that the measures developed effectively address BEPS in the digital economy.

Restoring Taxation on Stateless Income

Measures that will restore taxation in the market jurisdiction

  • Prevent Treaty Abuse (Action 6)
  • Prevent the Artificial Avoidance of PE Status (Action 7)

Measures that will restore taxation in both market and ultimate parent jurisdictions

  • Neutralize the Effects of Hybrid Mismatch Arrangements (Action 2)
  • Limit Base Erosion via Interest Deductions and Other Financial Payments (Action 4 and Action 9)
  • Counter Harmful Tax Practices More Effectively (Action 5)

Assure that transfer pricing outcomes are in line with value creation (Actions 8-10)

  • Intangibles, including hard-to-value intangibles, and cost contribution arrangements
  • Business risks
  • Characterization of transactions
  • Base eroding payments
  • Global value chains and profit methods

Addressing BEPS Issues in the Area of Consumption Taxes

Section VI “Broader Tax Challenges Raised by the Digital Economy” discusses the challenges that the digital economy raises for direct taxation, with respect to nexus, the tax treatment of data, and characterization of payments made under new business models. Section VI also discusses the indirect tax challenges raised by the digital economy with respect to exemptions for imports of low-valued goods, and remote digital supplies to consumers. Thereafter, Section VI lists administrative challenges faced by tax administrations in applying the current rules.

An overview of the tax challenges raised by the digital economy includes:

  • Nexus and the Ability to have a Significant Presence without Being Liable to Tax
  • Data and the Attribution of Value Created from the Generation of Marketable Location-Relevant Data through the Use of Digital Products and Services
  • Characterization of Income Derived from New Business Models
  • Collection of VAT in the Digital Economy

Section VII “Potential Options to Address The Broader Tax Challenges Raised by the Digital Economy” provides a brief framework for evaluating options to address the broader tax challenges raised by the digital economy. This section then provides an overview of potential options that have been received by the Task Force, along with a description of some of the issues that will need to be addressed in developing and evaluating those options.

Modifications to the Exemptions from Permanent Establishment Status

A New Nexus based on Significant Digital Presence

Virtual Permanent Establishment

Creation of a Withholding Tax on Digital Transactions

Consumption Tax Options

  • Exemptions for Imports of Low Valued Good
  • Remote digital supplies to consumers

Submitting Comments to OECD

Interested parties are invited to submit comments electronically in Word on this discussion draft, before 5.00pm on April 14, 2014 to CTP.BEPS@oecd.org.

Persons and organisations who intend to send comments on this discussion draft are invited to indicate by April 7 whether they wish to speak in support of their comments at a public consultation meeting on Action 1 (Address the tax challenges of the digital economy), which is scheduled to be held in Paris at the OECD Conference Centre on April 23, 2014. Persons wishing to attend this public consultation meeting should fill out their request for registration on line as soon as possible but by April 7, 2014.

This meeting will also be broadcast live on the internet and can be accessed on line. No advance registration is required for this internet access.

practical_guide_book

Lexis’ Practical Guide to U.S. Transfer Pricing (William Byrnes & the late Robert Cole (2013)) is designed to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign.  Fifty co-authors contribute subject matter expertise on technical issues faced by tax and risk management counsel.

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OECD releases “transfer pricing comparability data and developing countries” for comment

Posted by William Byrnes on March 16, 2014


On Tuesday the OECD released Transfer Pricing Comparability and Developing Countries (March 11, 2014).  The OECD is seeking stakeholder and public comment until April 11, 2014 and will publicly discuss the contents in two parallel sessions on March 28, 2014, the last day of the Global Forum on Transfer Pricing.  This last day of the Global Forum meeting will be held in conjunction with the Task Force on Tax & Development.  Written comments should be sent to TransferPricing@oecd.org.

Transfer Pricing Comparability and Developing Countriesets out and briefly discusses four possible approaches to addressing the concerns over the lack of data on comparables that have been expressed by developing countries. 

  1. Expanding access to data sources for comparables, including steps to improve the range of data contained in commercial databases, expand developing country access to such databases, and improve access to comparables data in developing countries with a significant number of sizeable independent companies.
  2. More effective use of data sources for comparables, including guidance or assistance in the effective use of commercial databases, the selection of foreign comparables, whether and how to make adjustments to foreign comparables to enhance their reliability, and alternative approaches to finding comparables.
  3. Approaches to identifying arm’s length prices or results without reliance on direct comparables, including guidance or assistance in making use of proxies for arm’s length outcomes, the profit split method, value chain analysis, and safe harbours, an evaluation of the impact, effectiveness and compatibility with the arm’s length principle of approaches such as the so called “sixth method”, which is increasingly prevalent particularly in developing countries in Latin America and Africa, and a review of possible anti-avoidance approaches.
  4. Advance pricing agreements and mutual agreement proceedings, including a review of developing country experiences with the pros and cons of advance pricing agreements and negotiations to resolve transfer pricing disputes, as well as guidance or assistance with respect to mutual agreement proceedings.

Transfer pricing expert Dr. Gary Stone of PriceWaterhouseCoopers has > analyzed < the OECD paper, available at http://www.pwc.com/en_GX/gx/tax/newsletters/pricing-knowledge-network/assets/pwc-oecd-comparability-data-developing-countries.pdf   Dr. Stone is the global leader of the Transfer Pricing Group of PricewaterhouseCoopers (PwC).  Dr. Stone is based in Chicago and has directed and performed numerous analyses of intercompany pricing and economic valuation issues for Fortune 500 size companies.  Dr. Stone is a contributing co-author to Lexis’ Practical Guide to U.S. Transfer Pricing.

practical_guide_book

Lexis’ Practical Guide to U.S. Transfer Pricing (William Byrnes & the late Robert Cole (2013)) is designed to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign.

The U.S. rules are presented along with ideas on how to apply them in a common-sense fashion in a multi-jurisdictional world.  A few of the highlights in the latest update to the treatise include:

  • The most important development in U.S. transfer pricing in the year ended in July 2013 is the strengthening of the IRS’s capability to enforce the U.S. transfer pricing rules.
  • We examine Transfer Pricing Operations’ three groups: the Advance Pricing and Mutual Agreement group (APMA), the Transfer Pricing Practice, and the International Practice Networks (IPNs).
  • We note the 2014 budget proposal, carried over from 2013, of the Obama administration limiting the shifting of income through intangible property transfers, which would expand the scope of intangible property for purposes of IRC Sections 367(d) and 482 to include ”workforce in place, goodwill, and going concern value.”
  • We discuss the new ”Rapid Appeals Process,” which is available for controversies that have arisen in an LB&I audit. It contemplates that Appeals, the examination team, and the taxpayer will discuss the case jointly in a single preopening conference in an effort to resolve the outstanding issues before the case is considered further by Appeals.

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OECD transfer pricing documentation and country-by-country reporting released as discussion draft for public comment

Posted by William Byrnes on January 31, 2014


Yesterday (January 30, 2014) the OECD released an initial draft of revised guidance on transfer pricing documentation and country-by-country reporting for comment by interested parties.

Action 13 of the BEPS Action Plan released on July 19, 2013 calls for a review of the existing transfer pricing documentation rules and the development of a template for country-by-country reporting of income, taxes and economic activity for tax administrations.

The OECD Announcement stated that its Committee on Fiscal Affairs believes that it is essential to obtain input from stakeholders on this Discussion Draft to advance the work.  Specific issues on which comments would be appreciated are noted in the draft.

The OECD requests that comments be submitted in writing to transferpricing@oecd.org by February 23, 2014.

A public consultation event will be held at the OECD in Paris at the end of March 2014 with specifically invited persons selected from among those who provide written comments. An open discussion of the draft with all interested persons will take place at a future date to be determined in April or May.

practical_guide_book

Transfer pricing rules are an inescapable part of doing business internationally, and the LexisNexis Practical Guide to U.S. Transfer Pricing provides an in-depth analysis of the U.S. rules. This product is designed to help multinationals cope with the U.S. transfer pricing rules and procedures, taking into account the international norms established by the Organisation for Economic Co-operation and Development (OECD). It is also designed for use by tax administrators, both those belonging to the U.S. Internal Revenue Service and those belonging to the tax administrations of other countries, and tax professionals in and out of government, corporate executives, and their non-tax advisors, both American and foreign.

Posted in OECD, Transfer Pricing | Tagged: , , | Leave a Comment »

Practical Guide to U.S. Transfer Pricing coordinating author speaks …

Posted by William Byrnes on August 1, 2013


practical_guide_bookWilliam Byrnes has been appointed a primary author for his sixth Lexis title.  

Read Professor Byrnes’ comments at http://www.tjsl.edu/news-media/2013/9861

 

For the 2013 OECD policy initiative regarding multinational’s transfer pricing, see “Addressing Base Erosion and Profit Shifting” available at http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/addressing-base-erosion-and-profit-shifting_9789264192744-en

 

and the more recently published “Action Plan on Base Erosion and Profit Shifting”: http://www.oecd.org/ctp/BEPSActionPlan.pdf

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Transfer Pricing course begins March 28

Posted by William Byrnes on March 7, 2011


Dates:  Video-conference course starting March 28 ending 10 weeks later in late May

Medium – Wimba live lectured webcam video-conference and LexisNexis blackboard course-ware

Enrollment Contact: Associate Dean William H. Byrnes – wbyrnes@tjsl.edu

or call +1 (619) 961-4211

includes access to full online international tax library of databases such as IBFD, CCH, Checkpoint, RoyaltyStat, EdgarStat, LexisNexis, Westlaw, amongst many others.

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