Transfer Pricing News for the Week of March 15, 202115th March 2021
Zambia Introduces New Country-by-Country Reporting Rules
Zambia’s new country-by-country report regulations, titled Statutory Instrument (SI) No. 117 of 2020, went into effect on January 1st, 2021, and align with the OECD’s BEPS Action 13. As for the fine print: a tax resident ultimate- or surrogate-parent entity is required to submit a country-by-country report if the consolidated revenue tops 4.795 million Zambia Kwacha ($218,130,000 U.S.). The report must be filed within 12 months of the group’s last day of the reporting financial year, and as in other countries, it provides the tax authority with a company’s financial nuts and bolts in each jurisdiction the multinational operates. This looks like naming each constituent entity and the country of tax residence, showing the nature of each entity’s business, and identifying if the country of incorporation differs from the tax residence. While Zambia hasn’t yet signed on the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports, it’s taking steps in the right direction to enforce compliance. Until then, constituent entities will have to file their own country-by country report with the Commissioner-General, which means it’s critical that country-by-country reports echo the information found in the local and master files.
The Netherlands Focus on Transfer Pricing Mismatches
The days of transfer pricing mismatches are numbered—at least in the Netherlands. The Dutch government held an online consultation earlier this month to discuss the application of the arm’s-length principle. The goal? To come to a unilateral solution on international mismatches and resulting double non-taxation. The initiative began in April 2020, when the Dutch-established Advisory Committee on the Taxation of Multinationals submitted a report with suggestions on how to revise the Dutch Corporate Income Tax. If enacted, Dutch corporate taxpayers involved in international related-party transactions are going to have to take a hard look at their inner-workings. The consultation report provides that if a transaction isn’t arm’s length, a downward adjustment of the tax base will only be applied if there is a corresponding upward adjustment of the counterparty. And it’s on the taxpayer to show that the corresponding adjustment is reasonable. The consultation is open for commentary until April 2nd and is expected to take effect on January 1, 2022.
The IRS Is Watching MNEs’ Use of Government Assistance
From stimulus packages to extended unemployment to bailouts, the U.S. government has made a valiant effort to keep the nation’s head above water during the pandemic. The IRS is homing in on companies’ transfer pricing treatments of government assistance and distribution of COVID-related costs. John Hughes, director of the IRS’s Advance Pricing and Mutual Agreement Program, considers it a “burgeoning issue” as it becomes more of an issue in cross-border tax disputes. Multinationals are having difficulty accounting for government assistance, like wage subsidies, when it comes to calculating arm’s-length rage. So, how can MNEs’ demonstrate that they’ve been using government assistance appropriately? It boils down to effort. Tax authorities want to see businesses trying to find reasonable allocation of income, even in the most unreasonable times.