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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. 2 - 2019 of the International Transfer Pricing Journal is now available online.

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Number 2 - 2019 contains the following:
Germany/European Union
German Tax Authorities’ First Reaction after the ECJ’s Hornbach Decision – An Attempt to Limit the Damage?
Björn Heidecke, Markus Kircher and Janis Sussick

In summer 2018, the European Court of Justice found that one of the core German transfer pricing laws might not be fully compliant with EU law. Germany’s Ministry of Finance has now issued its first administrative reaction to this court decision. In this article, the authors explain the legal background for the Court’s decision, outline the regulations in the new German administrative guidance and discuss whether the new guidance can help to resolve the uncertainty for taxpayers.

Transfer Pricing, Users’ Participation and Profit Attribution to Digital Permanent Establishments: A Case Study
Raffaele Petruzzi

The recent introduction into the tax legislations of some countries of the definitions of “digital” permanent establishments (PEs) will necessarily generate the issue of assessing how much profit to attribute to a digital PE. This significant issue is still open to discussion and interpretation. This article aims at illustrating the issue by means of a practical example, as well as by providing some preliminary solutions to the issue.

The Cameco Decision: A Welcome Glimpse of Transfer Pricing in the Post-BEPS World
Yongchong Mao and Adam Gotfried

This article contrasts a recent transfer pricing decision of the Tax Court of Canada with the principles set out in the OECD’s Base Erosion and Profit Shifting (BEPS) Actions 8-10. The court decision confirmed the importance of selecting controlled transactions for review with care and precision, emphasized the contractual relationships between associated entities when determining the correct allocation of risk and affirmed the primacy of traditional transfer pricing methods, particularly the CUP method, over the transactional profit methods.

Revised Guidance on the Application of the Transactional Profit Split Method: Evolution or Revolution?
Simone Zucchetti and Caterina Piva

The OECD, in response to the mandate under the BEPS Project of developing rules in order to ensure allocation of profits in line with the actual value creation, recently revised the guidelines provided for the application of the transactional profit split method. This article analyses the new provisions contained in the Revised Guidance 2018 and discusses practical approaches which can be taken in order to apply the method in a reliable manner, and to some extent elucidates the OECD’s thoughts on some particular issues.

Cognitive Biases in Functional Analysis Interviews – Part 1: Introduction and Biases Affecting Selection of the Persons to Be Interviewed
Aditya Pansé

Functional analysis is a vital component of the transfer pricing analysis and functional analysis interviews are a popular way to perform the it. However, functional analysis interviews often suffer from unintentional or inadvertent blind spots on the side of the participants to the interviews, known as “cognitive biases”. This is the first of a series of articles that describe some of the most commonly observed cognitive biases, their effects, and possible ways to avoid the impact of these biases.

Solving Double Taxation outside the Realm of a Mutual Agreement Procedure
Eric Vroemen

As transfer pricing adjustments are expected to increase, so will be mutual agreement procedure requests in order to remedy the resulting double taxation. To forego the downsides of this procedure, this article suggests that a MAP should be preceded by an attempt to obtain an unilateral corresponding adjustment. In the Netherlands, such an instrument is available and is called a pre-emptive MAP request.


Transfer Pricing Compliance Amended

Eduardo O. Meloni

The Argentine transfer pricing legislation underwent some relevant changes in the last year and a half in connection with an overhaul of the income tax and the alignment of the domestic legislation with BEPS Action 13. This article identifies the most relevant changes, with particular focus on transfer pricing compliance matters. It covers 2017 onwards in order to include the country-by-country reporting development.


Double Tax Agreements – More Sword than Shield

Anton Joseph

The recent decision hailed as reaffirming Australia’s right to tax royalties under the Australia-India double tax agreement (DTA) was delivered by the Full Federal Court in the case of Satyam. The decision highlights the role played by the relevant DTA in combination with the Assessment Act to reiterate Australia’s position that it has the right to tax royalties if they are deemed sourced in Australia. The decision was in appeal of the decision of the Federal Court in 2017 in the Tech Mahindra case.


The Bulgarian Proposal for the Introduction of Mandatory Transfer Pricing Documentation

Svetlin Krastanov

On 5 November 2018, the Bulgarian Ministry of Finance published for the first time a proposal for introducing mandatory transfer pricing documentation requirements in the country. This article provides a detailed overview of the proposed new rules and more specifically in which cases the taxpayers will be obliged to prepare transfer pricing documentation, the information that should be included, the deadlines for preparation and updates as well as the sanctions for non-compliance with the requirements. The information in the article is valid as at 5 February 2019. It should be taken into account that the initial proposal could be changed during the legislative process before the final texts are published.

Dominican Republic

TP Regulation Regarding Cost and Distribution Arrangements under Notice 55-18

Mariano Corral

The author examines Notice 55-18 issued by the Dominican Republic’s Directorate General of Internal Revenue that establishes guidance and documentation requirements in respect of the submission of cost sharing and cost contribution agreements, for transfer pricing compliance in the Dominican tax system.


Landmark Ruling on the Tax Administration’s Duty to Respect the Taxpayers’ Choices

Merja Raunio and Matti Urpilainen

The Supreme Administrative Court found in case SAC 2018:173 that the Finnish tax administration did not have the legal right to disregard a taxpayer’s benchmarks and to make reassessments for the years 2006-2008 by applying the transactional profit split method. The taxpayer had not filed incorrect tax returns because it would have been possible for the tax authority to test the arm’s length profitability of intra-group transactions with the transfer pricing methods that the taxpayer had actually used and documented.


A Practical Guide to the Four-Tiered Documentation Approach and Contemporaneous Documentation Requirements in Japan for Foreign Multinationals

Johan Hagelin

As a part of the 2016 tax reform in Japan, the Special Taxation Measures Law (STML) was revised based on the recommendations of the OECD Base Erosion and Profit Shifting (BEPS) Project, and a four-tiered documentation approach was introduced, together with the concept of contemporaneous documentation. Although the rules have been in force for some time, a few of the items have their first submission deadlines in the fiscal year that started or is starting on and after 1 April 2018. The purpose of this article is to broadly describe the four-tiered documentation requirements, clarify the differences between some of the Japanese and the OECD-based requirements, as well as provide practical guidance on the rules to consider for foreign corporations in Japan covered by the documentation submission requirements in articles 66-4-4 and 66-4-5 of the STML or subject to contemporaneous documentation as set out in article 66-4(6) of the STML.


Announcement of New Tax Ruling Practice

Rijkele Betten

The initiative has been taken by the Netherlands State Secretary of Finance to evaluate the Netherlands tax ruling practice. The State Secretary sent a letter to the Chairman of the Netherlands House of Representatives (Tweede Kamer) on 22 November 2018. In this letter, he outlined the new approach to international tax ruling practice. The letter is summarized and commented on in this contribution.


TogliattiAzot: Russian Courts Endorse Simplistic Approach to Transfer Pricing Valuation

Aleksandr Chochiev

The recent judicial decisions in the transfer pricing case of TogliattiAzot, a large Russian producer of chemicals, have become highly controversial. On anything but strong legal grounds, the courts denied the taxpayer the right to use the transactional net margin method. Instead, the courts agreed with the position of the tax authority, which argued that the comparable uncontrolled price method should be used. This case demonstrates that Russian courts so far have been unable to delve into complex transfer pricing problems, opting instead to agree with the point of the tax administration.


Plans Regarding Digital Taxes

Florentino Carreño and Jaume Perelló

In 2018, the Spanish government drafted a proposal for the taxation of digital services. This article discusses several of the issues addressed in that draft and provides an overview of the main features of the new digital services tax.

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