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   January/February 2019  
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International Transfer Pricing Journal
This free e-mail service informs you about the contents of the forthcoming edition of International Transfer Pricing Journal.

Issue No. 1 - 2019 of the International Transfer Pricing Journal is now available online.

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Number 1 - 2019 contains the following:
DEMPE Functions and the RACI Concept – More Clarity or Confusion Ahead?

Claire (Xue) Peng and Martin Lagarden

Intangibles are gaining more and more importance in the global value chain of multinational enterprises. In light of related developments pursuant to the BEPS Project, this article examines some challenging fields of the transfer pricing aspects of intangibles, i.e. identifying the ownership and assessing  contributions to intangibles, which particularly includes the DEMPE concept. Moreover, the article outlines considerations and challenges in view of the practical application of the RACI model in a value chain or value contribution analysis, or in other transfer pricing documentation elements, and argues that the model should be applied with prudence in business practice.
Corresponding Adjustment and Its Interaction with the Mutual Agreement Procedure under Article 25 of the OECD Model

Pitambar Das

Primary transfer pricing adjustments under article 9(1) of the OECD Model in the case of associated enterprises trigger economic double taxation as the same income has already been subject to taxation in the hands of the associated enterprises in other contracting states. The author examines the existing relief mechanism of economic double taxation under article 9(2) of the OECD Model and its interaction with article 25 thereof to find out its effectiveness and suggests possible measures to remedy the shortcomings.

European Union
Digital Economy and Profit Allocation: The Application of the Profit Split Method to the Value Created by a “Significant Digital Presence”
Alessandro Simone Samari
The European Commission recently released a comprehensive legislative proposal laying down a new set of tax rules applicable to the digital economy. The proposal at issue also provides a set of rules concerning profit attribution to a “significant digital presence” (a new concept of permanent establishment intended to establish a digital taxable nexus in the European jurisdictions). The EU legislator opted for the profit split method (adapted in a consistent manner to reflect the way value is created in digital activities). The aim of this article is to understand how the new proposed EU rules concerning profit attribution to a “significant digital presence” will work and then try to evaluate their suitability and efficiency. To this end, the article studies and compares three highly digitalized business models. Based on such analysis, the author proposes both theoretical and practical solutions aimed at making the proposed EU provision on profit attribution to a “significant digital presence” applicable and efficient.
Hub Structures in Light of BEPS Actions 8-10
Antonino Ferraro

Globalization has led MNEs to reconsider their strategic approaches from a centralization perspective, enhancing new hub structures. In light of recent literature and the OECD Guidelines issued in July 2017, this contribution tries to define the different types of such structures, depending on the functions performed, assets owned, and risk managed.

Ex Post Facto Considerations in Transfer Pricing of Hard-to-Value Intangibles: Practical and Methodical Issues with the HTVI Approach
Johan Hagelin

The OECD Transfer Pricing Guidelines released in July 2017 contain updates from the BEPS Final Reports on Actions 8-10 (Aligning Transfer Pricing Outcomes with Value Creation) following the work by the OECD to align domestic rules affecting cross-border activities, strengthen international tax standards and improve transparency. The new additions to the Guidelines include a definition of hard-to-value intangibles, as well as a discussion on asymmetric access to information for taxpayers and tax administrations in valuations of such intangibles, among other things. It is concluded in the Guidelines that, due to this asymmetry, ex post facto results should provide presumptive evidence for tax administrations of the reliability of ex ante projections made by the taxpayer at the time of a transaction, referred to as the HTVI approach. Although argued by the OECD to be consistent with the arm’s length principle, the approach raises a number of questions related to its compatibility with the existing transfer pricing regime developed by the OECD, as well as its application in general. This article explores the purpose of the HTVI approach, evaluates the guidance so far released on the topic and identifies potential issues that may arise from its usage.

European Union
The European Commission’s Arm’s Length Standard: Relationship and Compatibility with the Arm’s Length Principle under Transfer Pricing
Ruth Bonnici

The European Commission’s Decisions on State aid have sparked an international uproar, especially in regard of the Commission’s methodology and conclusions. In this article, the author seeks to provide insight into the Commission’s most contentious and sustained pronouncement, namely that an autonomous arm’s length standard is embedded within the main State aid provision enshrined within the Treaty on the Functioning of the European Union. The author looks into the nature of the Commission’s arm’s length standard, its definition and implications.

The French Supreme Administrative Court Provides Useful Clarifications on the Deduction of Government Subsidies from the Cost Base in Applying Cost-Based Transfer Pricing Methods
Caroline Silberztein and Benoit Granel

In a decision dated 19 September 2018 (Philips France SAS), the French Supreme Administrative Court ruled that, in the context of contract R&D services provided by a French taxpayer and charged at cost-plus to a foreign associated enterprise, the deduction of government subsidies from the cost base does not by itself suffice to characterize a transfer of profits abroad.

This decision, which is final, as it cannot be appealed, puts an end to the Philips France SAS litigation case that started in 2014 with a contrary decision by a French Administrative Tribunal. It provides useful clarifications on the application of the cost-plus method and clarifies the rules concerning the burden of proof in transfer pricing matters.

The New Italian Transfer Pricing Provision Concerning Unilateral Corresponding Adjustments
Aurelio Massimiano and Mirko Severi

On 30 May 2018, the Revenue Agency published the regulation implementing the new rules on unilateral corresponding adjustments. The article discusses the specifics of the regulation, highlighting the opportunities arising from the new procedure and the most critical aspects.

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