How transfer pricing regulations are being enforced around the World
RoyaltyRange
Justinas Laniauskas, Manager
Global transfer pricing regulations have undergone significant changes in recent years, as governments around the world have realized the importance of stopping multinational enterprises (MNEs) reduce tax through international profit shifting. A lot of countries have been coordinating their efforts to safeguard the international tax system, which has been enabled by initiatives such as the Base Erosion and Profit Shifting (BEPS) strategy, implemented by the Organisation for Economic Co-operation and Development (OECD). As well as this, individual countries have been enforcing increasingly strict legislations and regulations to ensure that uncompliant MNEs are subject to reviews, audits and penalties.
This April, for example, the Australian Taxation Office rejected an appeal made by Chevron Corporation – the US multinational energy corporation. Chevron had been found to have underpaid its taxes for five years, between 2004 and 2008, and was subsequently presented with a tax bill of AUS $340 million (the equivalent of US $260 million). This is an example of how the tax authorities question the amounts paid in transactions with related parties. In this case, Chevron’s reduction of the taxable income of its Australian subsidiary, Chevron Australia Holdings Pty Ltd, is being questioned. The subsidiary claimed tax deductions based on the interest it paid Chevron Corporation in the US on internal transactions. It is claimed that Chevron did not adhere to Australia’s transfer pricing rules, which state that the amount paid for a transaction with a foreign subsidiary must comply with the arm’s length principle – i.e. it must reflect the price of comparable transaction by unrelated parties.
China has also recently updated its transfer pricing regulations, and has expanded the scope of the special tax adjustment investigation, which can be carried out by tax authorities. On May 1st, 2017, the State Administration of Taxation enforced its Measures for Administration of Special Tax Investigation Adjustment and Mutual Agreement Procedures, which implements the elements of OECD BEPS initiative, such as regulations relating to intangibles, transfer pricing, and mutual agreement procedures, and also new laws on transfer pricing. If a taxpayer in China believes that they may be at risk of being subject to tax adjustment, they are able to use a Special Tax Adjustments Self-Payment Form to make adjustments and top up their tax payments. China’s renewed focus on MNEs and transfer pricing is not just a national program – cities in China, such as Beijing and Shanghai, are also developing transfer pricing investigation teams to ensure complete compliance.
RoyaltyRange ensures that companies, governments and public organizations in more than 40 countries can access high-quality comparables data to help with the transfer pricing compliance and the valuation of intangibles. Our royalty rates database enables organizations worldwide to carry out different types of data analyses while fully complying with the OECD BEPS guidelines.
To find out more about global transfer pricing regulations, or our royalty rates database, contact us at RoyaltyRange today.
Justinas Laniauskas, Manager
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