Perhaps the only story that could surpass the interest generated by the OECD’s taxation of the digital economy saga is Brazil’s path to adoption of the OECD’s transfer pricing guidelines and the arm’s length principle. Years in the making, that story took a big step forward in late December 2022, when the Brazilian tax authorities published draft legislation to align Brazil’s transfer pricing rules with the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. More recently, the tax authorities published rules regarding taxpayers’ election to apply the new transfer pricing regime.
But the digital economy story is not done. Earlier this year, the OECD released a consultation document on Amount B, the less-known second part of Pillar One. BDO’s Global Transfer Pricing team submitted comments on the consultation document, concluding that for Amount B to meet its goals of reduced taxpayer compliance costs and enhanced tax certainty, the Inclusive Framework should broaden the scope of activities that constitute acceptable baseline marketing and distribution activities. Moreover, the two pricing methodologies currently under discussion require much additional work to avoid imposing excessive administrative burdens for MNEs and tax authorities.
In other important news, Germany recently enacted legislation that tightens the country’s transfer pricing documentation requirements by allowing taxpayers only 30 days – rather than 60 under current rules – to comply with auditors’ request for documentation of the arm’s length pricing of intragroup cross-border transactions. The new rule will apply to tax audits that commence after 1 January 2025.
Annual transfer pricing statistics are always interesting, as they provide some insight into otherwise opaque systems. The UK’s HM Revenue & Customs (HMRC) recently released annual transfer pricing and diverted profits tax (DPT) statistics for the year ended 31 March 2022, which show that during the 2021/22 tax year, HMRC settled a record 175 transfer pricing enquiries, and that the time it took to resolve those cases fell slightly, although the average dispute still takes 34 months to resolve. The number of advance pricing agreements (APAs) HMRC agreed with multinationals in the year dropped to just 20, whereas the number of companies applying for an APA increased to a record 40. Interest in APAs is notable, given that it now takes nearly five years on average to finalise an APA in the UK.
- INTERNATIONAL: BDO submits comments to OECD on Pillar One Amount B
- BRAZIL: New guidance on election to apply new transfer pricing rules
- GERMANY: Modernisation of procedural transfer pricing law
- ISRAEL: Transfer pricing form updated
- UNITED KINGDOM: HMRC transfer pricing enforcement activity statistics show impact of COVID
- UNITED STATES: Prepare your transfer pricing policies for the coming inflation storm
Content adapted from BDO Global.