Transfer Pricing News for the Week of April 26, 202126th April 2021
The pandemic has been one big re-evaluation exercise, from priorities to life goals to relationships. As for Ireland, it’s reevaluating its tax treaty policy. Earlier this month, the Department of Finance opened the floor to public consultation on the matter. So, why are the Irish entertaining the idea of a complete policy overhaul? Simple: They recognize that change is, and will continue to be, on the tax horizon. Tax treaties are constantly widening in scope to include anti-abuse actions, which further solidifies the potential move to adapt to OECD recommendations. The consultation also considers how Ireland should conduct tax treaties with developing countries, and if it should take a position on standard issues, like source taxation. Public comments are accepted until May 7th.
One multinational is sending the tax authority packing: Avery Dennison, a global manufacturer and distributor of packing materials, recently won its latest legal battle against the Chilean Tax Authorities. The case revolved around intercompany loan interest rates and distributor margins. The Chilean affiliate, Avery Dennison Chile, provided two loans to its Luxembourg affiliate, one in 2010 and one in 2011. The interest was priced at .79 percent, the 12-month LIBOR rate, for both years. The tax authorities argued the rate was too low, as LIBOR reflects a risk-free rate. As for the distributor margin issue—the tax authority claimed that Avery Dennison Chile S.A.’s intercompany price of goods should have been lower, according to the transactional net margin method. Meanwhile, Avery Dennison argued that its prices were appropriate, using the resale price method. The tax authority also disagreed with several of the selected comparable companies. Ultimately, the tax court decided in favor of the taxpayer. While it’s a celebratory win for Avery Dennison, the case is a clear reminder to taxpayers: Keep your friends close and your supporting documentation closer.
Good things come to those who wait—and those who pay taxes in India. India’s Central Board of Direct Taxes announced amendments to its transfer pricing guidance. And trust us when we say that taxpayers will be happy. The new requirements took effect on April 1st and apply to the master file and country-by-country report. The new guidance requires only one master file to be submitted by the designated entity on behalf of all constituent entities, and the designation form must identify the resident and non-resident constituent entities. As for the country-by-country report—the consolidated group revenue threshold for the financial year has been increased from 55 billion to 64 billion rupees, or $860 million.