Welcome to the July 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 ONESOURCE.
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Australia’s Parliament has adopted a contemporaneous documentation regime where if taxpayers do not have contemporaneous documentation that their transfer pricing is arm’s length, they could face 25% penalties.
The Indian tax authority is backing down from its positions that R&D centers must be seen as creating Indian-based intangibles and that the residual profit split method must be used for an analysis of intercompany royalty rates.
The Indian courts have wrestled with how to evaluate the arm’s length nature of intercompany interest rates. While the Indian tax authority often argues for high interest rates, the courts have insisted on the appropriate considerations of currency of denomination and credit standing of the borrower, which often leads to a determination that the interest rate should be substantially lower under the arm’s length standard.
The IRS cancelled Eaton’s Advance Pricing Agreements (APAs) covering several years and has proposed a very sizeable section 482 adjustments. Eaton asked the Tax Court to rule that APAs were binding contracts but the Tax Court noted that they were administrative determinations, which means that the taxpayer will have to argue that the IRS abused its discretion if it hopes to have the APAs to be held binding.
Question: We establish the markup for our Chinese contract manufacturer using a TNMM analysis that affords this affiliate with a reasonable return to its assets but our financial auditors are noting that the Chinese SAT is arguing for much higher levels of profitability based on a Location Savings Advantage (LSA) argument. Is the SAT’s argument correct in terms of arm’s length pricing, will the argument be accepted by the IRS, or how does one quantify the additional profits from any such LSA?
IFA Congress Copenhagen 2013
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