Transfer Pricing Highlights – August 2013

Thomson Reuters Tax & Accounting Newsletters, ONESOURCE September 9, 2013

Welcome to the August edition of the ONESOURCE Transfer Pricing Newsletter, your monthly source for the latest transfer pricing news. Each edition will feature articles and insight to keep you apprised on current events in the transfer pricing industry, as well as exciting things we are working on at Thomson Reuters ONESOURCE.

We hope you find this piece informative and enjoyable! If there is anything you would like to see featured or addressed, please contact us.


OECD Presented Its Action Plan on Base Erosion and Profit Shifting

The OECD has presented a 15 point Action Plan to combat alleged shifting of income to tax havens. The transfer pricing concerns include questions of which legal entities rightfully deserve the profits from intangible assets and how commissionaire structures reduce taxable income. Two of the action plans address intercompany interest deductions created by hybrid mismatches or high amounts of debt financing.

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IRS Disputes Tyco Debt Interest Deductions

While Tyco notes that the interest rates charged on its intercompany loans are arm’s length, the IRS is disallowing the interest deductions contending that this alleged intercompany debt should be treated as equity. This dispute is similarly to the OECD’s concern about hybrid mismatches in its Action Plan with respect to Base Erosion and Profit Shifting.

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Canadian Tax Court Allows CRA to Amend Filing in C$82.8 Million Transfer Pricing Case

The Canadian Revenue Agency is attempting to disallow intercompany guarantees paid by a Canadian affiliate to its US parent in a case similar to the GE Capital litigation where the taxpayer sustained its deduction despite the fact that the Court accepted the legal standard that affiliates should get the benefits from passive association without a transfer pricing charge. The Court in a preliminary ruling has requested that both the tax authority and the taxpayer view this dispute in terms of what should be the appropriate guarantee fee in light of the facts surrounding the third party loans and the formal guarantee from the US parent.

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IRS Joins Amazon in Request for Judge, Saying Case Designated for Litigation

The IRS has challenged the buy-in payment the US parent received when it entered into a Cost Sharing Agreement with its tax haven affiliate. The economic issues will revisit the controversy in the Veritas decision. The controversy over intangible valuation is related the discussion of intangibles in the OECD’s Action Plan on Base Erosion and Profit Shifting.

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Ask a Transfer Pricing Expert

Question: Our sales efforts in Europe are conducted by commission affiliates and we were wondering what Action 6 in the OECD’s document on Base Erosion and Profit Shifting means with this quote:

  In many countries, the interpretation of the treaty rules on agency-PE allows contracts for the sale of goods belonging to a foreign enterprise to be negotiated and concluded in a country by the sales force of a local subsidiary of that foreign enterprise without the profits from these sales being taxable to the same extent as they would be if the sales were made by a distributor. In many cases, this has led enterprises to replace arrangements under which the local subsidiary traditionally acted as a distributor by “commissionaire arrangements” with a resulting shift of profits out of the country where the sales take place without a substantive change in the functions performed in that country.

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The Eaton Litigation – Implications for Managing Your Transfer Pricing Exposure

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IFA Congress Copenhagen 2013
Copenhagen, DK
August 25 – 30

2nd Annual Africa Transfer Pricing Summit 2013
Johannesburg, SA
September 2-5

ITR Global Transfer Pricing Forum
New York, NY
September 18-19

IBC TP Minds Transfer Pricing Summit Asia
September 25-26

ITR Global Transfer Pricing Forum
October 23-24

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