Transfer Pricing News
Issue 41 - December 2022
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Introduction
The OECD’s project on the taxation of the digital economy continues to generate headlines, most recently with the announcement on 12 December that the EU member states had reached agreement to recommend that the Council of the European Union adopt the proposed Pillar Two directive that would ensure the largest multinational enterprise groups in the EU pay a minimum rate of tax.
Progress on Pillar One also continues, although perhaps at a slower pace. The OECD on Dec. 8 issued a public consultation document on Amount B of Pillar One, an effort to simplify and streamline the process for pricing baseline marketing and distribution activities in accordance with the arm’s length principle. Comments on the consultation document are due on 25 January 2023.
The Court of Justice of the European Union brought to an end a long-standing transfer pricing dispute with its decision that Luxembourg’s advance pricing agreement with Fiat Chrysler for its European financing activities did not constitute illegal state aid. As our article on the case explains, the decision may not bode well for the EC in other state aid cases, as the reference framework in those cases also relied on the interpretation of arm’s length principle neglecting the prevalence of a member states’ implementation and interpretation of that principle.
In other EU news, Germany has introduced legislation to implement the public country-by-country reporting directive into domestic law. The directive entered into force on 21 December 2021, and EU member states have until 22 June 2023 to transpose the directive into national legislation.
As regular readers may know, the UK is in the process of implementing changes to its transfer pricing documentation requirements whereby, for the first time, there will be mandatory documentation requirements in the UK. The proposal follows a familiar formula – local file and master file – but also includes a new feature, the “summary audit trail.” HMRC was due to issue a consultation on this topic in November, but it has yet to be published and it is unclear when the measure will be introduced.
An issue that has frustrated Customs and tax authorities is the coordination of their different functions in the area of transfer pricing. In Shenzhen, China, the Customs and tax authorities jointly issued a notice on a collaborative process that represents a milestone development in China’s taxation and customs practice. Although the collaborative arrangement is limited to Shenzhen at this time, the notice may set a good example for the rest of China.
After a few years of implementation delays, the South African Revenue Service will formally introduce the concept of “associated enterprises” into South Africa’s transfer pricing regulations effective 1 January 2023. Taxpayers must now consider whether they fall into the now broader South African transfer pricing net.
Also a long time in the making, Malta introduced long-awaited transfer pricing rules that will be effective for years commencing on or after 1 January 2024.
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MARK SCHUETTE
Global Transfer Pricing
Centre of Excellence Leader
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Issue 41 - December 2022
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