Transcript Corporate Social Responsibility and Taxation

The Chamber of Tax Advisers of Russia
International Tax Congress
Moscow
3 February 2012
David Russell QC
TRANSFER PRICING IN ASIA AND
OCEANIA:
PRACTICE, PROBLEMS AND COURT
DECISIONS
Role of Presentation
• General outline of topic
• Full paper available on Chamber website
or [email protected]
The Transfer Pricing
background
• Not necessarily a tax avoidance issue
• Differs from usual tax disputes because
taxpayer is often the meat in the sandwich
• Complex evidentiary issues
• Economic rather than legal analysis
• Difficulty getting consistent result across
all jurisdictions
GlaxosmithKline
• UK and USA, so not tax avoidance
• Difference in functional analysis approach
in both jurisdictions
• USA – value distribution network
• $US 4 billion
Issues
• Interrelationship between domestic law
and international double taxation
agreements;
• The transfer pricing methodology to be
adopted;
• Utility of judicial challenge to transfer
pricing adjustments; and
• Transfer pricing documentation and
administration of the law.
•
Sources of law
• Domestic legislation
• Double Taxation Agreements
– OECD Model Convention Articles 7 and 9
• Are these consistent?
• If not, which prevails?
Transfer Pricing Methodology
• Transactions or relationships?
• Functional Analysis
– What goods or services are being provided?
– GlaxosmithKline in the USA
Methodology (continued)
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•
•
•
Comparable Uncontolled Price
Profit Split (e.g. SNF in Australia)
Transaction Net Margin Method
OECD Guidelines (paper p.20)
OECD
– There are, however, cases where the
traditional transaction methods cannot be
reliably applied alone or exceptionally cannot
be applied at all. These would be considered
cases of last resort. Such cases arise only
where there is insufficient data on
uncontrolled transactions (possibly because
of uncooperative behaviour on the part of the
taxpayer relative to these Guidelines), or
where such data are considered unreliable, or
due to the nature of the business situation.
OECD (Cont.)
– The recognition that the use of transactional
profit methods may be necessary is not
intended to suggest that independent
enterprises would use these methods to set
prices. Instead, transactional profit methods
are being recognised as methods to assist in
determining in cases of last resort whether
transfer pricing complies with the arm's length
principle.
•
OECD (Cont.)
– . In such cases of last resort, practical
considerations may suggest application of a
transactional profit method either in
conjunction with the traditional transaction
methods or on its own. However, even in the
case of last resort, it would be inappropriate to
automatically apply a transactional profit
method without first considering the reliability
of that method.... as a general matter the use
of transactional profit methods is discouraged.
•
OECD (Cont.)
• 3.52
Very few countries have much
experience in the application of the
transactional net margin method and most
consider it experimental and therefore
prefer to use the profit split method in
cases of last resort.
OECD (Cont.)
• 3.56
In all cases, considerable caution
must be used to determine whether a
transactional profit method as applied to a
particular aspect of a case can produce an
arm's length answer, either in conjunction
with a traditional transaction method or on
its own … (Italics supplied)
•
Court Challenges
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•
•
•
CUP
What is truly comparable?
Secret Comparables
Evidence – how to obtain
Documentation
• Multiple jurisdictions
• Common documentary requirements e.g.
PATF
• Requirement for regular updates
Solutions
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•
•
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OECD Article 24
Proposed compulsory arbitration
APAs
Bilateral APAs
Conclusion
• Many governments use Transfer Pricing
not to protect integrity of tax system but as
a revenue grab
• Costs associated with administration of
transfer pricing rules are a major
impediment to international trade
• There needs to be substantial reform in
this area of the law.
THE END