Monday, January 4, 2016

Transfer Pricing Moves Ahead & OECD and G20 Broaden Intra-Group Services Provisions

This Post was Contributed by Robert Feinschreiber and Margaret Kent.  Transfer pricing methodologies are beginning to spread far beyond the narrow confines of section 482.

Consider two very recent examples:

1.       Argentina had enacted revenue raising measures designed to penalize companies that would shift profits from Argentina to a tax haven. Argentina used an OECD BEPS transfer pricing rationale in enacting these anti-tax-haven provisions. Most Argentinian enterprises that make use of tax havens use Panama for that tax haven purpose, in part because of the commonality of language. Panama sued Argentina, arguing that the Argentinian tax restrictions are an artificial trade constraint. Panama brought suit at the World Trade Organization (WTO). Other countries are now involved. Panama won the initial round at the WTO, but Panama has joined the OECD’s Global Forum, a measure that would ultimately bring the country into compliance with the OECD’s Transfer Pricing Guidelines. Panama’s attack is similar to the attack on DISC before GATT three decades ago.

2.       The plaintiffs in a class action suit based on the 1934 SEC Exchange Act argued that the defendant, Hutchinson Technology, through Bank of America and Merrill Lynch, violated SEC rules. The rules in question involve valuation rules emanating from transfer pricing concepts, i.e., the Proxy failed to disclose “the range, median and mean revenue and EDITPA multiples,” paragraph 47. The case was filed November 30, 2015 in Minneapolis. The plaintiffs asserted that omission is material, and the Proxy is misleading.

3.       Remember, worldwide transfer pricing rules begin across 82 countries beginning January 1, 2016.    

Additionally, the OECD and the G20 finalized the BEPS program in late 2015, which substantially updated the services transfer pricing rules and deleted the pre-existing 2010 guidance. The new OECD and the G20 provisions addressed the transfer pricing intra-group services provisions that arise when one member of a multinational enterprise group provide services for other members of the group. Click here for more information on these changes.

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