When doing a transfer pricing analysis of financial transactions, we need to assess the borrower’s creditworthiness before setting an interest rate. To evaluate the risk associated with an intragroup financial transaction and determine an arm’s length interest rate for taking credit risk, the lender should evaluate the likelihood of the borrower defaulting, i.e. creditworthiness, and the probability of recovering the loan. This article explores a credit rating model that multinational enterprises often create to determine the creditworthiness of particular units.
In the modern age of large corporations, the business value chain, which usually comprises a range of functions such as devising and implementing a business strategy, research and development, production, marketing, sales and logistics, spans a number of group companies operating in different countries. This apportionment is based on business needs and national rules for permanent establishments. Since an enterprise group involves multiple companies, they conduct intragroup transactions and charge transfer prices, giving rise to tax risks.
In April 2021 the Organisation for Economic Co-operation and Development (“OECD”) published the Third Peer Review Report on Treaty Shopping, which reflects progress in implementing the BEPS Action 6 minimum standard. This standard on preventing the grant of treaty benefits in inappropriate circumstances is one of the four BEPS minimum standards that all members of the OECD/G20 Inclusive Framework have committed to implement (over 125 jurisdictions collaborating on the implementation of the BEPS package). This article explores the main findings of the OECD peer review.
The Cabinet of Ministers’ Rule No. 677 has been amended with effect from 18 February 2021 on ways of applying the profit split method (“PSM”) in analysing transactions between related parties. This article offers a flowchart to help taxpayers evaluate the possibility of using PSM for economic validation of prices applied in their transactions, with a practical example of profit split.
Many multinational enterprises have suffered losses from a drop in demand, a supply chain delay or extraordinary operating costs during the period of Covid-19 restrictions. The allocation of such losses and extraordinary costs between related companies is likely to attract the tax authority’s scrutiny so these issues require special attention. This article explores the allocation of losses and Covid-19 specific costs in the light of the OECD’s Guidance on the transfer pricing implications of the Covid-19 pandemic.
While some taxpayers may face challenges in applying their advance pricing agreements (“APAs”) with the tax authorities under the economic conditions resulting from the pandemic, all existing APAs and their terms should be respected unless a critical assumption is breached. This article provides an overview of how COVID-19 affects APAs in the light of the OECD’s “Guidance on the transfer pricing implications of the COVID-19 pandemic.”
As we carry on exploring the OECD’s Guidance on the transfer pricing implications of the Covid-19 pandemic (the “Guidance”) this article offers an overview of how government assistance programmes affect transfer pricing analysis.
The unique economic conditions arising from Covid-19 and national restrictions have caused certain difficulties in applying the arm’s length principle for transfer pricing analysis. To pick up where we left off in our article Covid-19: transfer pricing impact, this one explores Guidance on the transfer pricing implications of Covid-19 the OECD published in late 2020.
The amended transfer pricing (“TP”) rules effective from 2018 authorise the State Revenue Service (“SRS”) to penalise taxpayers for TP breaches. This article explores when the SRS can impose a penalty and what procedures are in place to keep it in proportion.
An adverse economic environment poses certain difficulties in maintaining transfer pricing (“TP”) policies. However, a global economic crisis does not cancel the requirement that controlled transactions be arm’s length. Following our article on Covid-19 and financial transactions, this one explores some other implications of the pandemic for TP outcomes and provides suggestions for TP analysis.