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Transfer Pricing Changes In Foreign Jurisdictions
Transfer pricing (TP) is often viewed as the area which creates the greatest risk for any company. This concern is understandable, as the regulatory landscape governing intercompany transactions is swiftly changing. These changes are partly a result of recent public scrutiny of companies' international structures. Taxand USA highlights a sampling of recent international reforms and variances open for consideration.
The Australian Senate approved a bill that will incorporate into national legislation TP regulations that were previously only relevant to companies operating under an Australian tax treaty.
In addition to introducing 2 new methodologies for calculating the price of commodities and adjusting the applicable rates for related-party loans, the regulations change existing methodologies of determining an applicable transaction price.
Congress recently approved a bill that will not only increase the corporate tax rate and expand the definition of Chilean-source income, but also provide a set of TP rules that generally follows the OECD guidelines.
India continues to propose bills to modify its TP rules. The Finance Act introduced the ability to use advanced pricing agreements. This gave taxpayers and authorities the opportunity to come to agreement in advance of controlled transactions on the appropriate set of criteria for calculating such transactions over a fixed period of time.
Russia's TP guidelines provide that fewer transactions will now be subject to control, while also providing greater detail on which TP methods are acceptable. The regulations reduce scrutiny over many domestic, barter and even some intergroup cross-border transactions, even though many other transactions between unrelated parties can still be controlled.
The majority of governments instituting TP reforms are following the OECD guidelines for defining an arm's-length transaction. Countries that previously had limited or nonexistent TP schemes are instituting regulations that adopt the traditional transaction and even the transactional profit methods, while others like Brazil are instituting regulations that deserve more than a standard OECD TP study. For multinational corporations, this means a comprehensive review is required of the TP strategy to reduce the risk of foreign tax exposures, as well as to potentially maximise opportunities.