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FEATURED ARTICLESISSUE 30 | JUNE 6, 2013Current Transfer PricingDevelopmentsby members of Duff & Phelps LLCOECD Issues Draft Handbook OnTransfer Pricing Risk Assessmentby Dick de Boer (the Netherlands), Nelly Korsun(New York), Susan Fickling-Munge (Chicago), andJustin Radziewicz (Chicago)On April 30, 2013, the Organization for EconomicCooperation and Development ("OECD") releaseda new Draft Handbook on Transfer PricingRisk Assessment ("Handbook"). The new Handbook,produced by the Steering Committee ofthe OECD Global Forum on Transfer Pricing, isa detailed, practical resource that countries canfollow in developing their own risk assessmentapproaches aimed at (i) reducing "needless debates"among tax authorities, and (ii) effi cientlyusing taxpayer and tax authority resources. 1 Th eHandbook is open to public comment throughSeptember 2013.In a previous publication from the OECD, 2 taxadministrations, businesses, and advisors all agreedthat effective transfer pricing risk identification isessential for quicker, more cost-effective audits andinquiries. To this end, many countries have recentlyfocused significant attention on the means they useto identify and assess transfer pricing risk, as well asthe tools they use for selecting cases for audit.Although the Handbook is written for the tax administrator,it also offers multinational enterprises("MNEs") a framework under which to assesstheir transfer pricing exposure and vulnerability toa transfer pricing audit. Additionally, the Handbookprovides some insights into the OECD's(and therefore that of many member countries')thinking regarding additional steps that MNEscould take to document their intercompany prices.We highlight a few of the factors that could leadto transfer pricing audit risks, as summarized inthe Handbook:Lack of appropriate transfer pricing documentation;Perceived misalignment of profi tability levelscompared to industry standards (though it isnoted that segmented data needs consideration,and "profitability tests" should only be used toassess the "general reasonableness" of a return); 3Recurring losses, "low profi ts," or signifi cantvariations in year-to-year effective tax rates;Considerable transactions with companies inlow-tax jurisdictions;Considerable intra-group services;28
Financial transactions ( e.g. intercompany debt,interest expense) with related parties; and,Payments of royalties, transfers/valuations ofintellectual property, and management fees torelated parties in low-tax jurisdictions.starting point in assessing their own transfer pricingprofile and potential risk for audit. We have seen adecided increase in transfer pricing activity aroundthe world, so accurate self-assessment is more importantthan ever.It is interesting to note that the OECD has theperception that intercompany services transactions,even those involving high value services, are4" often not fully documented " (emphasis ours).In addition, there are numerous references in theHandbook to transactions with low-tax jurisdictions.While the OECD is generally careful to acknowledgethat simply having such transactions isnot, on its face, inconsistent with the arm's lengthstandard, it is clear that such transactions continueto receive greater scrutiny.Th e OECD also points out some situations thatindicate a low level of transfer pricing risk ( i.e. ,a scenario where a MNE has "consistent transferpricing policies which are compliant with thearm's length principle"). 5 Furthermore, the Handbooksummarizes where information can be foundto prepare a transfer pricing risk assessment andsuggests the use of information returns ( e.g. , 5471s/ 5472s in the United States), company websites,public marketing materials, and transfer pricingdocumentation. The burden of providing such informationis on the taxpayers.The information in the Handbook is consistentwith prior guidance from regulators and transferpricing practitioners, and provides MNEs with aChinese Provide Further CommentOn Location-Specific AdvantagesAnd Other TP Issuesby Emily Sanborn (Atlanta)In October 2012, China's State Administrationof Taxation ("SAT") shared its view thatthe OECD Guidelines do not provide sufficientguidance for pressing issues faced specifically bydeveloping countries, such as location-specificadvantages ("LSAs"). 6 On March 11, 2013, ata conference sponsored in part by BloombergBNA, Liao Tizhong, deputy director general ofinternational taxation for the SAT, further expoundedupon the importance of addressingLSAs caused by comparative market conditions.We highlight the key points of his comments below.According to Tizhong, the SAT uses a fourstepapproach to determine whether additionalconsiderations should be examined with respectto LSAs:(1) Identifying whether an LSA exists.(2) Determining whether the LSA generates additionalprofit above the routine return.(3) Quantifying and measuring the additionalprofits arising from the LSA.(4) Determining the transfer pricing method to appropriatelyallocate the LSA additional profits.29
Page 1 and 2: GLOBAL TAX WEEKLYa closer lookISSUE
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Key speakers: John Capasso (Alvarez
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Key speakers: TBA6/27/2013 - 6/27/2
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6/14/2013 - 6/14/2013http://www.con
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THE CYPRUS BAIL-OUT ANDFOREIGN CLIE
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Chair: Jonathan Levy (Partner, Reyn
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IN THE COURTSISSUE 30 | JUNE 6, 201
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