Direct Tax
Organization for Economic Cooperation and Development (OECD) agrees new peer review process to foster transparency on tax rulings
[Excerpts from OECD, 22 February 2021]
In order to maintain and further improve transparency on tax rulings, the OECD/ G20 Inclusive Framework on BEPS, which groups over 135 countries and jurisdictions on an equal footing for multilateral negotiation of international tax rules, approved the process for the BEPS Action 5 peer review of the transparency framework for the years 2021 to 2025.
The new process builds on the first phase of peer reviews covering the years 2017 to 2020, with the most recent statistics gathered from the 124 peer-reviewed jurisdictions showing that so far, 36,000 exchanges on more than 20,000 tax rulings have taken place. Its success was further underlined in the latest peer review undertaken by the Inclusive Framework on BEPS, which found that 81 jurisdictions are fully compliant with the minimum standard.
UN Panel Recommends a Global Corporate Income Tax To Cut Down On Tax Avoidance
[Excerpts from Forbes, 25 February 2021]
The High-Level Panel for the International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI) said a 20% to 30% global corporate tax on profits would “help limit incentives against profit shifting, tax competition and a race to the bottom.”
The panel recommends the creation of a body that collects and disseminates data about corporate profits, where the assets of multinational corporations are located, as well as which entities own them. The panel called such data the ‘bare minimum’ necessity to even begin addressing the issue of tax avoidance and evasion. The minimum tax, the panel notes, should be designed to incentivize sustainable development investment while retaining sufficiently high effective taxation.
Britain’s Cairn hopeful of a solution in USD 1.2 billion-plus tax tussle with India
[Excerpts from The Financial Express, 21 February 2021]
Cairn Energy Plc said, it had discussed multiple proposals with Indian government officials in recent days in an attempt to find a ‘swift solution’ to a long-drawn-out tax dispute with the South Asian nation. In December, an arbitration body awarded the British firm damages of USD 1.2 billion-plus interest and costs, after ruling India had breached its obligations to Cairn under the U.K.-India Bilateral Investment Treaty.
This month, Cairn filed a case in a US district court to enforce the arbitration award, taking an initial step in its efforts toward recovering dues. The US court this week issued electronic summons to the Indian government to file its response to the lawsuit within 60 days or face a judgment by default.
Transfer Pricing
Thailand: Guidance on Transfer Pricing Rules and Related Party Transactions
Background
Director-General of the Thai revenue department has issued two notifications as guidance regarding transfer pricing and related party transactions. The said notifications are applicable for all accounting periods starting on or after 1 January 2021. While most of the provisions are in line with the draft version, some key updates in the regulations have been summarized below:
Intra-Group Services
In case of intra-group services, remuneration will be said to meet at arm’s length requirements if:
- Services are actually rendered;
- Service provider provides economic or commercial value to service recipient;
- An independent entity would have been willing to pay for such services provided by an independent enterprise in comparable circumstances, or would have performed said activities in-house for itself and,
- Amount charged would have been charged and accepted between independent enterprises for similar services
The final guidelines now specifically state that any remuneration for a service that benefits the shareholders or partners of a company or juristic partnership would not be considered at an arm’s length.
Intangibles
Where a controlled transaction is in relation to an intangible property, the following factors need to be considered to determine the arm’s length consideration:
- For the use of intangibles - Consideration to be based on party involvement in development, enhancement, maintenance, protection and exploitation of intangibles, assets used and risks assumed.
- For sale, transfer, or grant of use rights of intangibles - Consideration to be based on benefits, geographical limitations, specifications and the right to develop the intangibles.
Corresponding Adjustment
Other party can be allowed to make corresponding adjustments to a transaction if:
- Tested party has already paid the tax following the official’s adjustment; and,
- Adjusted income/expense has been included in the other party’s tax computation, and that the other party has not concealed information or falsely informed tax authorities of a controlled transaction.
Also, the corresponding adjustment shall have to be in accordance with the applicable tax treaty.
Advance Pricing Agreement
In case of cross-border related party transactions, an advance pricing arrangement can be requested between Thailand and other jurisdictions.
The said notification also provides guidance on the process of filing a Transfer Pricing Disclosure Form (TPDF).
Our Comments
MNEs in Thailand meeting the threshold requirements shall have to comply with the Transfer Pricing Documentation and Transfer Pricing laws keeping in mind the guidance provided. The said guidance shall help in preparing Transfer Pricing Documentation(TPD) adhering to Thailand’s transfer pricing laws and assist in negotiating with tax authorities regarding primary and secondary adjustments, entering into Advance Pricing Agreement(APA), defending penalties if any levied, etc.
Source: https://www.rd.go.th/ fileadmin/user_upload/kormor/ newlaw/dg400.pdf
Qatar: Introduces new Transfer Pricing Documentation rules
While the requirement for transactions between related parties to be undertaken at arm’s length existed in accordance with the OECD accepted pricing method, there was no specific provision with regards to filing the TPD with Qatar’s General Tax Authority (GTA).
By way of a webinar, the GTA introduced additional clarification regarding the TPD requirements. The said requirements are applicable from 1 January 2020, for taxpayers with financial year-end as 31 December 2020, where the first submission deadline shall be due on 30 April 2021. The Qatar transfer pricing requirements are in line with OECD three-tiered approach, which are summarized as below:
| Type of form | Applicable entities | Other requirements |
|---|---|---|
| TPDF/Annual Questionnaire | Resident entities and PEs having domestic or international transactions where turnover or total assets in the financial year is more than QAR 10 million. |
|
| Master File and Local File | To be submitted on request by all resident entities and PEs in Qatar where turnover or total assets in the financial year is more than QAR 50 million. |
|
| Country by Country Reporting (CbCR) | The same was already introduced in 2018 to meet one of the minimum standards for a member of the OECD Inclusive Framework. | |
Other important points for consideration:
- The first annual cycle of transfer pricing compliance will begin post submission of April 2021 tax returns and transfer pricing questionnaires. It is expected that audits will commence thereafter;
- No specific penalty for non-compliance with new regulations, however, tax authorities have a right to impose a penalty up to QAR 0.5 million for non-compliance under general tax audit provisions;
- In addition to the above documentation, Qatar GTA may ask for additional information on the intercompany transactions entered into by a taxpayer. The same needs to be submitted within a period of 30 days from the date of request to provide such information.
Indirect Tax
UK VAT – Payment of deferred VAT liability
UK’s HMRC had extended a deferred VAT payment scheme for businesses to deal with the cash crunch caused due to the COVID-19 pandemic. Under the scheme, businesses were allowed to defer the payment of VAT liability due between 20 March 2020 and 30 June 2020. Such businesses are now required to repay the full amount by 31 March 2021. Alternatively, instead of paying the full amount by the end of March 2021, traders can opt for a scheme to make up to 11 smaller interest-free monthly installments. However, such installments must be paid by the end of March 2022.