What is Transfer Pricing?

Transcrição

„Aktuelle Fragen zur Steuerplanung
und zum Transfer Pricing bei
multinationalen Unternehmen“
mit Fallstudien zu Verrechnungspreisen
und Umlagen
Scriptum
Modul 3
Veranstaltung: WS
2016/2017
Prof. Dr. Alfred Storck
Institut für Österreichisches und Internationales Steuerrecht

www.wu.ac.at/taxlaw
1
Agenda
1.
Aktuelle steuerliche Rahmenbedingungen/
Steuerplanung bei MNE
2.
Steuerplanung und rechtliche
Unternehmensstrukturen
3.
OECD Transfer Pricing
4.
Dienstleistungen im Konzern
5.
Unternehmensfinanzierung und Steuern
6. F+E/Immaterialgütern (incl. Konzernmarken
und Steuern
7.
Ausgewählte Betriebsstätten in MNE

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2
Agenda






Transfer Pricing
Art 9 OECD MC/ OECD Transfer Pricing
Guidelines(TPG)
New BEPS Guidance in TP
Österreichische Verrechnungspreisrichtlinien
Transfer Pricing Methods and Comparability
Transfer Pricing and Adjustments

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What is Transfer Pricing?
Price charged by individual entities for goods or
services supplied to one another in
international/multinational
firms.
Transfer pricing legislation
Particular set of tax rules that determine the income
allocation for tax (and other purposes) between the
respective entities of international/multinational
firms.

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4
Approaches to transfer pricing
on an international level

Arm’s length principle – as proposed by OECD and UN


Art 9 OECD MC
Instruments to avoiding transfer pricing disputes
Simultaneous tax examinations
 Safe harbours
 Advance Pricing Arrangements (APAs)


Instruments to resolving transfer pricing disputes
Mutual Agreement Procedures (MAPs)
 Arbitration


Global formulary apportionment –rejected by OECD,
but discussed in EU

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Agenda






Transfer Pricing
Guidelines(TPG)

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6
Article 9(1) OECD MC
Primary Adjustment
1. Where
a) an enterprise of a Contracting State participates directly or
indirectly in the management, control or capital of an
enterprise of the other Contracting State, or
b) the same persons participate directly or indirectly in the
management, control or capital of an enterprise of a Contracting
State and an enterprise of the other Contracting State, and in
either case conditions are made or imposed between the
two enterprises in their commercial or financial relations
which differ from those which would be made between
independent enterprises, then any profits which would, but
for those conditions, have accrued to one of the
enterprises, but, by reason of those conditions, have not so
accrued, may be included in the profits of that enterprise
and taxed accordingly.
Arm`s length principle

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Art. 9 (2) OECD MC
Corresponding Adjustment
Para 2.
Where a Contracting State includes in the profits of an enterprise of that
State —and taxes accordingly — profits on which an enterprise of the
other Contracting State has been charged to tax in that other State and
the profits so included are profits which would have accrued to the
enterprise of the first-mentioned State if the conditions made between
the two enterprises had been those which would have been made
between independent enterprises, then that other State shall make an
appropriate adjustment to the amount of the tax charged therein on
those profits. In determining such adjustment, due regard shall be had
to the other provisions of this Convention and the competent authorities
of the Contracting States shall if necessary consult each other.

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Art 9 OECD-MC
vs Art 7 and Art 11 /12
 Article 7 (PEs) is concerned with “dealings” between parts
of the same legal entity
 Article 9 is concerned with “transactions” between
separate, but related, legal entities
Both Articles are based on
the arm’s length principle
but have a different scope
Art 9 vs. 11(6),12 (4) OECD – MC
 Supplementary to each other
 Same «benchmark»(ALP), but Art 11 and 12 have a broader
scope, e.g. also partnerships, and only deal with
WHT limitations

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9
The OECD Transfer Pricing
Guidelines 2010
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
The arm’s length principle
Transfer pricing methods
Comparability analysis
Administrative approaches
Documentation
Intangible property
Intra-group services
Cost Contribution Arrangements
Transfer pricing of business
restructurings
Annexes: Guidelines for Advance Pricing
Agreements (...)
2010 updates
Updates and current projects BEPS

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The UN Transfer Pricing Manual
1.
2.
3.
4.
An introduction to transfer pricing
Business framework
The general legal environment
Establishing Transfer Pricing
Capability in Developing Countries
5. Comparability analysis
6. Transfer Pricing Methods
7. Documentation
8. Audits and risk assessment
9. Dispute avoidance and resolution
10. Country practices
Appendices

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Importance of OECD Transfer
Pricing Guidelines
 Interpretation of Art. 9 MC
 Legally not binding – OECD TPG are “recommendations”
 Give guidance to taxpayers & tax administration on how to
determine the arm’s length price
 Significant practical importance
 for intra group pricings in MNC
 for documentations in MNC
 for price reviews/testings and adjustments in tax audits
 for mutual agreement procedures
 Application in court cases disputed, depending on national
legislation

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ALP and OECD BEPS
Transfer pricing
…The issue of jurisdiction to tax is closely linked with the one of
measurement of profits: once it has been established that a share of an
enterprise’s profits can be considered to originate from a country and that the
country should be allowed to tax it, it is necessary to have rules for the
determination of the relevant share of the profits which will be subjected to
taxation. Transfer pricing rules perform this function.
The internationally accepted principle underlying transfer
pricing determinations is the arm’s length principle, which requires
that for tax purposes, related parties must allocate income as it
would be allocated between independent entities in the same or
similar circumstances…
BEPS report March 2013 chapter 4

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Transfer Pricng under
Arm’s Length Principle
Basic understanding is functional analysis:
 As a result of (proper) Transfer Prices the profits of the
involved associated companies should be in line with “value
creation”, i.e.
 the functions performed,
 the risks incurred and
 the value of tangible and intangible property
(assets) employed.
 In general, the more functions a company performs and the
more risks it bears the more profit or loss potential it should
have.
 Or in other words, a company with “routine functions” and
low risks should get a low, but stable profit.

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Types of Entities along the
Value Chain in a MNE
– An Illustrative Example
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Relation Function – Risk – Reward
here types of Manufactures
80
Relation
Function – Risk – Reward
fully fledged manufacturer
60
here Manufacturing
licensed manufacturer
40
contract manufacturer
toll manufacturer
Profits
20
0
-20
-40
-60
Risk and complexity
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Relation Function – Risk – Reward
here types of Distributors
80
60
40
fully fledged distributor
limited risk distributor
stripped distributor
commission agent
Profits
20
0
-20
-40
-60
Risk and complexity
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Fully Fledged Distributor vs
“Stripped” Risk Distributor (LRD)
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Commissionaire/ Agent
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Arm’s Length Pricing
- Essentials
 Comparison with conditions (not only prices) made
between independent enterprises
 Choice of comparables and Comparability important
 Transfer pricing methods
 Traditional transaction based methods:
 Comparable uncontrolled price method (CUP); Resale price minus
method; Cost plus method
 Transactional profits based methods:
 Transactional net margin method (TNMM); Profit split method;
Other profit based methods - Comparable profits method (CPM)?

Range of arm’s length prices:

Interquartile range versus Median
Transfer Price
Lower
Quartil

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Median
20
Higher
Quartil
Transfer Pricing Methods
Methods (OECD)
Standard Methods
(Traditional Transaction Methods)
Comparable
uncontrolled
Price Method
(CUP/CUT)
Resale
Price
(Minus)
Method
(RPM)
Cost Plus
Method
(Cost+)
Other
Methods
Profit-based Methods
(Transaction Profit Methods)
Transaction
al Net
Margin
Method
(TNMM)
Business valuations
e.g. CF – Method
Profit Split
Method
(PSM)
2 versions
But not
“formulary apportionment”
Priority: since 2010 «most appropriate method»

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OECD Transfer Pricing
and Comparabilty
Comparability Factors (Chapter I Sect. D and
Chapter III)





Characteristics of property and services
Functional analysis
Contractual terms
Economic circumstances
Business strategies
 Recognition of the actual transactions undertaken (so called


empirical approach vs hypothetical)
Nine steps (paras 1.59 -1.63 TPG)
No comparison of «controlled transactions» with other MNC
«controlled transactions»
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Comparisons under ALP
How to do Comparisons with 3rd party transactions?
(TPG chapter III)
 Concrete vs Hypothetical transactions
 Direct vs Indirect (i.e adjustments needed) comparisons
 Internal vs External comparisons
Comparison approach and criteria to be used
depend on TP method employed

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Agenda






Transfer Pricing
Guidelines(TPG)

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BEPS Action 8-10 Oct 2015
Summary to revised chapter I TPG
“In summary, the revisions respond to the mandate to
prevent inappropriate returns to capital and
misallocation of risk by encouraging thoroughness in
determining the actual arrangements between the
associated enterprises, so that pricing takes into account
the actual contributions of those parties, including
risks actually assumed, and by authorising the nonrecognition of transactions which make no commercial
sense”.*
•
Source: Executive Summary page 14
This link to value-creation is achieved by modifying the
3 core elements of the ALP:

Entity-by- entity approach (vs Group impacts)

Contractual arrangements (vs actual conduct)

Comparability (vs hypothetical behaviour)
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Actions 8-10,13
 Accurate delineation of the transaction and the risk
 Location-specific advantages( cost or market based) are
comparability factors
 Group synergies (passive association/implicit support) are
an element of TP
 Updates on guidance to



Intangibles
Low-value adding intra-group services
Cost contribution arrangements
 TP documentation and CbCR
 Action 8-10 and 13 amendments were approved by the
OECD Council on May 23 ,2016, i.e there are
implemented in the TPG (valid immetiately)

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The process for analysing
Transactions– importance of
Value Chain Analysis
Value Chain Analysis
–
Understand how value is created in the Enterprise
–
Identify the key value drivers which
–


Influence the most the Critical Success Factors

Can be held accountable for the Enterprise’s major Risks

Develop, maintain and enhance the Enterprise’s Intangibles
Define roles of the entities in the joint value creation and
responsibilities in respect of related risks
A Value Chain Analysis is a tool for a qualitative assessment of
steps in a company’s value creation and can serve also as a
framework for method selection
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Delineating of the transaction
(new chapter I para 1.33ff)
 Careful delineation of the actual transactions between
associated enterprises
 Compare conditions and the other economically relevant
characteristics of the controlled transactions
 Economically relevant characteristics are
1. Contractual terms
2. Functions performed, taking into account assets
used and risks assumed
3. Characteristics of property/service
4. Economic circumstances
5. Business strategies
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New Risk Framework
- six steps (new chapter I para 1.60)






Step 1: Identify economically significant risks
Step 2: Determine how specific significant risks are
contractually assumed
Step 3: Functional analysis of the parties in relation to the
assumption and management of specific risks
- who performs control and risk mitigation functions
- who carries up-and downside consequnces
- which party has the financial capacity to assume risk
Step 4: Interpret the results of outcomes of steps 2-3 and decide
whether contractual assumption is in line with the conduct
Step 5: when parties assuming risk do not control the risks and
have no financial capacity to assume risk – reallocate the risk
Step 6: price the accurately delineated transactions
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New Guidance on risk: control

Control of risk involves the capability to make decisions
and the performance of that decision-making function
to take on, lay off, or decline a risk-bearing
opportunity, and
 whether and how to respond to the risks associated
with the opportunity

and
 Performing the risk mitigation function or, if outsourced

the capability to set objectives, hire, asses and, if
necessary, fire the party performing the risk
mitigation functions, together with the actual
performance of these functions.
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Group Synergies
new chapter I para 1.158
Revised Section D of Chapter I of the TPG Guidelines dedicates an
entire new section to the topic of ‘MNE group synergies’.
 it should hereby be distinguished between synergistic benefits
deriving solely to being part of a group (i.e., the incidental
benefits) and synergistic benefits deriving from “deliberate
concerted group actions”
 It will no longer be possible to allocate the synergy benefits of
operating as a group to single members (e.g. principal) other
than the ones contributing to such synergy benefits.
 The guidance ensures that pricing methods will need to allocate
profits to the most important economic activities.
Example
 discounts that are generated in supply transactions -because of
the volume of goods ordered by a group entity for a group of
companies- will need to be allocated to these group companies.

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Example Group Synergies and
Group Purchase
Product USD 110 (volume discount for
purchase of 30,000 units)
Price per unit for purchase of 10,000
units = USD 200
Sales 10 000 units
Comp B
Sales 10000 units
Comp C
Independent supplier
Sales 10 000 units
Comp D
Negotiation of price and
volume based discount
Central
Purchasing
Manager/unit
A

Services
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Incidential benefits
new chapter I para 1.157 ff



Paragraph 7.13 of the revised Guidelines to chapter I suggests
that an associated enterprise should not be considered to
receive an intra-group service or be required to make any
payment, when it obtains incidental benefits attributable solely to
its being part of a larger MNE group.
In this context, the term incidental benefits (also “passive
association”) refers to benefits arising solely by virtue of group
affiliation (Group efffect)
Example of such benefits could be a credit rating improvement
deriving solely to being part of a group (see paras. 1.164-1.166)
or the use of the group name merely to reflect the fact of group
membership’ (see para. 6.81).

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BEPS Action 13
“Three Tiered Approach” for
documentation and its objectives
Master File
„High-level-Information“ on MNE
(Businesses,structures,services,
intangibles , financing etc.)
and all TP rulings ,APAs
Usage :for all countries
Local File
Detailed information on
transactions



Country by
Country
Report
„High-levelInformation“
about income
allocation and
risks and
functions.
to provide tax administrations with the information necessary to conduct an informed transfer pricing
risk assessment
to ensure that taxpayers give appropriate consideration to transfer pricing requirements in establishing
prices and other conditions for transactions between associated enterprises and in reporting
the income derived from such transactions in their tax returns and
to provide tax administrations with the information that they require in order to conduct an
appropriately thorough audit of the transfer pricing practices of entities subject to tax in
their jurisdiction
Minimum Standard
Empfehlungen

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BEPS Action 13
documentation and content
Master File MNE

Transfer Pricing
Documentation









> 750 MEuro
Organization
Important drivers of profit
Value chain and markets
Service arrangements
Functional analysis
Restructurings
Business Activity
Intangibles (strategy, type, intercompany
agreements and pricing, transfers)
Financing (organization and pricing
policies)
List of all APAs and other rulings
Local File








Local management /reporting lines
Local organization
Restructurings and IP transfers
Amount of intra-group payments per
type of transaction
Copies of intra-group agreements
Transfer pricing analysis (Functional
analysis,TP methods etc)
APAs and other tax rulings
Reconciliation of financial data
Country-by-Country Reporting (CbCR) mandatory
Standardized templates and instructions for completion
 Information about countries, legal entities, revenues, profit, tax, business
activity etc.
First countries to implement the Three-Tier Approach as of 2016 (e.g., AU, AT, CN,
DK, DE, FK, IE, IT, JP, KR, NL, PL, PT,, Spain, UK, ), others follow on 2017 (e.g.
CH, US ) .Many countries have proposed legislations (e.g. CA,IN,Singapore),



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BEPS Action 13
documentation and content here CbCR
Content
• Information relating to global allocation of MNE’s income and taxes paid
together with indicators of location of economic activity
• Template 1: Financial Data per Country
• Template 2: Activities per Constituent Entity
• Template 3: Additional Information
• Templates should be prepared on consistent basis across MNE and year on
year, does not need consistency with other multinationals
Purpose
Risk assessment
Scope
• Annual template should cover fiscal year of reporting multinational
• Reporting multinational is ultimate parent entity of multinational group
• For MNEs with consolidated revenues of more than 750 MEUR
Timing
• First year to be filed 2016; latest by end 2017; in case country of HQ does
not require CbCR filing for 2016, filing with foreign tax authorities by local
group companies may be required
• Constituent Entity must notify tax authority of identity and residence of
«Reporting Entity»

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BEPS Action 13
CbC Reporting –details
By jurisdiction:
–
–
–
–
–
–
Revenues (related party / unrelated)
Profit (loss) before income tax
Income tax paid (cash basis) and accrued
Stated capital and accumulated earnings
Number of employees
Tangible assets other than cash/ cash equivalents
Countries agree to
By constituent entity :
–
–
Country of organisation / incorporation (if it differs)
Main business activity


Confidentiality

Consistency

Appropriate use
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CbC Reporting
– timeline by OECD
Adoption of domestic legislation
Signing ceremony MCAA
Review of implementation
Filing 2016 CbC report
2015
2016
2017
2018
2019
2020
CbC report 2016 transmission
XML Schema and related User Guide approved

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OECD`s work ahead




Attribution of profits to PEs
Transactional profit splits
Financial transactions
Complete consolidation of TPG
TP toolkits Low Income Countries
•
mandated by the G20 Development Working Group
1. Report on Tax Incentives - delivered
2. Toolkit on Transfer Pricing Comparability
(Including supplementary work on mineral pricing)
3. Report on Indirect transfers of Assets
4. Toolkit on Transfer Pricing Documentation
5. Toolkit on Tax Treaty Negotiations
6. Toolkit on Base Eroding Payments
7. Toolkit on Supply Chain Management
8. Toolkit on BEPS risk assessment
Further revised guidance
Implementation


Hard to Value Intangibles
Low Value Adding Services
The inclusive framework*
standard-setting
reviewing and monitoring
the implementation of the BEPS package
 support implementation
 8 toolkits
 Further guidance on CBCR implementation


*Opening of the Committee on Fiscal Affairs (CFA) to interested and committed countries and jurisdictions
Members participate on an equal footing in the decision-making body (CFA) and the technical working groups

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Agenda






Transfer Pricing
Guidelines(TPG)

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Verrechnungspreisregeln in Ö

Rechtsgrundlagen
§ 8 Abs 1 KSTG verdeckte Einlage (hidden
contribution)
 § 8 Abs 2 KSTG verdeckte Gewinnausschüttung
(hidden dividend)
 § 6 Z 6 ESTG 1988 Fremdvergleich bei Güter und
Dienstleistungen – Analog Art 9 OECD MC (and
same results according to öVPR Tz 14)




VPR 2010 Verrechnungspreisrichtlinien
§ 22 BAO Missbrauch
§ 21 wirtschaftliche Betrachtungsweise
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Verrechnungspreisrichtlinien
2010
Wirksam ab 2010
5 Kapitel
125 Seiten
391 Rz

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Verrechnungspreisrichtlinien 2010
Allgemeines
Rechtsgrundlagen des Fremdvergleichs:
 § 6 Z 6 ESTG 1988 analog Art 9 OECD
 Verdeckte Gewinnausschüttung § 8 (2) KStG
 Verdeckte Einlagen §8(1)KStG
Konkretisierung des Fremdvergleichs:
Die VPR vom 28.Okt 2010 beinhalten Konkretisierungen und
bejahen die Analogie mit Art 9 bei der Bestimmung von
Verrechnungspreisen international tätiger Konzerne ,d.h. die
OECD Verrechnungspreisgrundsätze für multinationale
Unternehmen sind im Grundsatz zu befolgen.
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Verrechnungspreisrichtlinien
2010
TP-Methoden analog OECD
 Methodenwahl analog OECD - aber 5
Vergleichbarkeitsfaktoren werden ggfs enger
ausgelegt
 Bandbreite und Datenbanken analog OECD - ggfs
engere Auslegung
 Regelungen für






Warenverkehr
Dienstleistungen
Lizenzen
Kostenverteilungsverträge
Sonstige: Betriebsstätten, Strukturänderungen

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TP Documentation and CBCR





New legislation enacted on July 14,2016 effective
Jan 1,2016
Content in line with OECD Action 13
Austrian companies above MEURO 50 are subject
to Master/Local file
Special documenation of e.g. local market
conditions, business restructurings
Penalties for failure to provide report or filing
incomplete or incorrect reports up to 50 000
EURO

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Agenda






Transfer Pricing
Guidelines(TPG)

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Methods to determine the arm’s
length price
Traditional Transaction Methods
Comparable Uncontrolled Price (CUP)






Compares the price of goods or services in a controlled
transaction to the price of goods or services in a comparable
uncontrolled transaction in comparable circumstances
The most direct and reliable method
Most useful when internal CUP is available and for transactions
involving commodity-type products
Internal CUPs vs. External CUPs
Relevance of the comparability analysis (with particular reference
to: terms of the transaction, volume of sales, timing of the
transaction)
Adjustments should be possible (difficult/impossible adjustments
include: quality of the product, geographic markets, level of the
market, amount and type of IPs involved in the sale)
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CUP Method: Example
Austrian
Manufacturer
Related
German
Distributor
Internal CUP
Independent
German
Distributor
Austrian
Manufacturer
Independent
Austrian
Manufacturer
Related
German
Distributor
Independent
German
Distributor
External CUP
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length price
Resale Price Method (RPM)






The price of a good/service that has been sold/rendered by an
associated enterprise to an independent enterprise is reduced by
an appropriate “resale price margin”
Useful when product differences are not relevant (e.g.
reseller/distributor and marketing activities)
Internal RPMs vs. External RPMs
Relevance of functional comparability
Reliable accounting and other data are normally required
Adjustments to the resale price margin should be possible
(difficult/impossible adjustments include: where there is a
considerable period of time – characterized by radical changes in
the economy – between the comparable transaction and the one
under review within the group)
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Resale Price Method: Example
Independent
Austrian
Manufacturer
Independent
German
Distributor
Customer
Net sales
200
Costs of goods sold
(120)
Gross Profit
80
Gross margin
Austrian
Manufacturer
80/200 = 40 %
German related
Distributor
Customer
Transfer price
Resale price
10
= Resale price x (1 - 40 %)
(Transfer price)
(6)
= 10 x 60 %
Gross profit
=6
Gross margin
4
4/10 = 40 %

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50
length price
Cost Plus Method (CPM)





The price of a good/service that has been bought/received
by an associated enterprise from an independent enterprise
is increased by an appropriate “mark-up”
Useful when controlled transactions involve services or
semi-finished goods/contract manufacturer/fully fledge
manufacturer
Internal CPMs vs. External CPMs
Reliable accounting are required
Adjustments to the mark-up should be possible
(difficult/impossible adjustments include: situation where
the fully fledge manufacturer uses significant IPs)

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51
Cost Plus Method: Example
Independent
Austrian
Manufacturer
Net sales Austrian manufacturer
Costs of goods manufactured (COGM)
Gross profit
Operating expense (OE)
Operating profit (OP)
Total cost-plus mark-up
Independent
German
Distributor
220
(160)
60
(40)
20
= OP / (COGM + OE)
= 20 / (160 + 40)
= 10%
Austrian
Manufacturer
Costs of goods manufactured
Operating expense
Transfer price (internal sales)
German related
Distributor
170
70
= (COGS + OE)
= 264

x
1,1
www.wu.ac.at/taxlaw
52
length price
Transactional Profit Methods
Transactional Net Margin Method (TNMM)




Similar to RPM and CPM, but on a net basis
Looks at the profit that arise from particular transactions
(rather then business lines or the operating income of the
company)
Useful when significant product or functional differences
Not useful when both parties to a transaction make unique
and valuable contributions (e.g. contribute unique
intangibles)

www.wu.ac.at/taxlaw
53
TNMM: Example
Independent
Austrian
Manufacturer
Independent
German
Distributor
Customer
Net sales
Costs of goods sold
Gross Profit
SG&A
EBIT
EBIT %
Austrian
Manufacturer
Transfer price
= Resale price x (1 - 40 %)
= 10 x 60 %
=6
200
(120)
80
70
10
5%
German related
Distributor
Customer
Resale price
(Transfer price)
Gross profit
SG&A
EBIT
EBIT%
10
(6)
4
3.5
0.5
5%

www.wu.ac.at/taxlaw
54
Application of TP Methods and
Profit Level Indicators (PLI)
Application of the TPMs require the selection of a PLI for measurement of the
profitability of both the controlled transaction and the uncontrolled comparables.
PLI
Formula
TPM applied
Applied Entities
Operating profit / Net sales
TNMM
distribution entities
Net Cost Plus Mark-Up
Operating profit / Total cost
TNMM
manufacturing entities, service
entities
Return on Capital Employed
Operating profit / Capital
employed
TNMM
asset intensive manufacturing
entities
Berry Ratio
Gross profit / SG&A
TNMM
routine service providers, pure
distributors
Gross Margin
Gross profit / Net sales
RPM
distribution entities
Gross Cost Plus Mark-Up
Gross profit / COGS
Cost plus
manufacturing entities

www.wu.ac.at/taxlaw
55
55
Operating Margin
length price
Transactional Profit Methods
Profit Split Method (PSM)





Profit are split within all the enterprises generating them
Contribution analysis (split based on functions, assets,
risks) vs. Residual analysis (split based on the sufficient
profit to provide enterprises with basic return)
Split of profit should be on an operating income level (and
not on a gross income level)
Useful in complex situations, when transactions are very
interrelated or when both parties to a transaction make
unique and valuable contributions (e.g. contribute unique
intangibles)
Sometimes used as “sanity check” method

www.wu.ac.at/taxlaw
56
Profit Split Method: Example
 Calculates the profit - either total or residual - from the controlled
transaction and splits those profits based on the contribution of each unit.
 Typically applied where two entrepreneurs contribute significant value
or IP to the final product.
Market Price = 100
Austrian
Manufacturer
TP = 50
German related
Manufacturer
Sales
50
Sales
COGS
20
50
Gross
Profit
30
COGS =
TP
50
SG&A
15
Gross
Profit
EBIT
15
SG&A
30
Customer
100
Remuneration for
Routine Functions
EBIT
20for
Remuneration
+
+
Residual
Profit/Loss
Residual
Profit/Loss
databases to be used
for pricings
Routine Functions

www.wu.ac.at/taxlaw
57
Profit Split Method: Example
Profit split based on salaries:
A-AG
B-AG
Produzent
Vertrieb
Umsatz
Rohwaren
Löhne
Übriger Betr. A.
261
100
-60
-20
Betriebsergebn
is
81
A und B konsolidiert
Umsatz
Rabatte, Skonti
WE
Löhne
Übrige Betr. A.
400
-5
261
-40
-40
Betriebsergeb
nis
54
40 %
60 %

Umsatz
Rabatte, Skonti
Löhne
Übrige Betr. A.
400
-5
-40
-40
Rohwaren
Löhne
Übriger Betr. A.
-100
-60
-20
Betriebsergebnis
135
www.wu.ac.at/taxlaw
58
Residual Profit Split Method: Example
Residual profit split based on salaries:
A-AG
B-AG
Produzent
Vertrieb
A und B konsolidiert
Umsatz
Rabatte, Skonti
WE
Löhne
Übrige Betr. A.
Umsatz
Rohwaren
Löhne
Übriger Betr. A.
253.
8100
-60
-20
Cost Plus 10 %
Restgewinn
18
55.8
Betriebsergebn
is
73.8
400
-5
253.8
-40
-40
Resale Minus 6
%
Restgewinn
24
37.2
Betriebsergebn
is
61.2
Umsatz
Rabatte, Skonti
Löhne
Übrige Betr. A.
Rohwaren
Löhne
40 % Übriger Betr. A.
60 %

400
-5
-40
-40
-100
-60
-75
Betriebsergebnis
80
Resale Minus 6 %
-24
Cost Plus 10 %
-18
Restgewinn
28
www.wu.ac.at/taxlaw
59
TP Bandbreiten, Datenbanken,
Dokumentation,Bandbreiten
Das Unternehmen kann die gesamte Bandbreite
nutzen von Vergleichsdaten nutzen, wenn
Bedingungen uneingeschränkt vergleichbar sind
 Bei eingeschränkter Vergleichbarkeit ist der
interquartile Range zu benutzen
 Bei Steuerprüfungen wir häufig der Median
benutzt

Verrechnungspreis
Unteres
Quartil
Media
n
Oberes
Quartil

www.wu.ac.at/taxlaw
60
Nutzung von Datenbanken,
Dokumentationen
Europäische Vergleichsunternehmen



Zulässig, sofern steuerpflichtiges Unternehmen alles
unternommen hat, um österreichische Gesellschaften zu
eruieren.
Sofern keine lokalen Daten vorhanden, sind
Vergleichsunternehmen aus vergleichbaren (Preisniveau,
Konkurrenzsituation, etc.) Märkten (z.B. D, CH) zu
benutzen ,d.h. z.B. europäische Unternehmen
Verwendung von Daten verbundener Unternehmen ist
gemäss OECD grundsätzlich nicht zulässig

www.wu.ac.at/taxlaw
61
Agenda






Transfer Pricing
Guidelines(TPG)

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62
Art. 9 (2) OECD MC
Corresponding Adjustment
Para 2.
Where a Contracting State includes in the profits of an enterprise of that
State —and taxes accordingly — profits on which an enterprise of the
other Contracting State has been charged to tax in that other State and
the profits so included are profits which would have accrued to the
enterprise of the first-mentioned State if the conditions made between
the two enterprises had been those which would have been made
between independent enterprises, then that other State shall make an
appropriate adjustment to the amount of the tax charged therein on
those profits. In determining such adjustment, due regard shall be had
to the other provisions of this Convention and the competent authorities
of the Contracting States shall if necessary consult each other.

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63
Art. 9 Adjustments
 Primary adjustment in State 1 (based on local law) leads to





economic double taxation
State 2 “shall” make corresponding adjustment
But State 2 is not bound to interpretation of State 1 for the
ALP
If no “automatic” adjustment : mutual agreement procedure
under Art. 25 OECD MC
 Implementation notwithstanding any time limits in
domestic law
 Aiming at elimination of double taxation
 EU Arbitration Convention – solution within 2 years
Corresponding adjustment and
closed tax returns?
Secondary Adjustment?

www.wu.ac.at/taxlaw
64
Secondary TP Adjustment
 Only based on local law – aim integrating TP adjustment in
local books
 Options:
 Repatriation of overpaid amounts
 Requalification of excess amounts

as loan or dividend
 Withholding taxes?
- timing issue ?
 Example Austria

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65
DTC Mutual Agreement
Procedure
Art 25 OECD MC
Taxpayer
Trigger: Taxation not in accordance
with the DTC
Presentation of case within 3 years
(Art 25 (1) OECD-MC)*
Competent
authority A
Competent
authority B
I. Mutual Agreement Procedure
No Agreement
Advisory
Opinion
Agreement
*A complaint does not bar domestic legal proceedings

www.wu.ac.at/taxlaw
66
DTC Mutual Agreement
Procedure
Art 25 MC
 Deficiencies
 No obligation to resolve the dispute, i.e. unrelieved
double taxation may remain
 Contracting States‘ fiscal interest may not want to
reach an agreement
 No time limits
 Parallel to local legal procedures (also CH practise)
 Art 25(5) OECD-MC: Arbitration Process

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67
Art 25(5) MC Arbitration
Taxpayer
No Agreement
on MAP

Request for Arbitration (after 2 Years)
 If domestic court procedures , 2 years start with
judgement
 Exhaustion/waiver or suspension of domestic remedies
Competent
authority A
II. Arbitration Process
“independent opinion approach“

www.wu.ac.at/taxlaw
Competent
authority B
68
EU Arbitration Convention vs Art 25
A similar, yet different, two-tier procedure is
provided in EU
Art. 25 OECD-MC
EU Arbitration
Convention
All kinds of taxation
not in accordance
with a tax treaty
Transfer pricing
issues only
yes
yes
limited
yes
Time limit
yes
yes
Compulsory solution
yes
yes
Scope
Taxpayer initiative
Taxpayer participation

www.wu.ac.at/taxlaw
69
Advance Pricing Agreements
What is an Advance Pricing Agreement (APA)?
“An APA is an arrangement that determines, in
advance of controlled transactions, an
appropriate set of criteria (e.g. method,
comparables and appropriate adjustments
thereto, critical assumptions as to future
events) for the determination of the transfer
pricing for those transactions over a fixed
period of time.”1
1: § 4.123 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

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70
Case Study 1
Topic 1: Joint Venture (49%/51%) and Transfer Pricing
Facts:
Austrian AG (49%) and German AG (51%) operate a Joint Venture company
in Dubai for the assembling of products and sales of its products in Dubai.
Austrian AG supplies components to the JV for 100 Euro each
A a 3rd party supplier sells similar products to the JV for 120 Euro each
Questions raised by the Austrian tax authorities during an audit:
1. Can Art 9 be applied on the relationship Austrian AG and the JV?
- is the JV an associated enterprise?
2. Can Austrian authorities adjust the TP from 100 to 120 EURO (and
increase profits) with reference to the third party supplier?
- is the third party price comparable?

www.wu.ac.at/taxlaw
71
Case Study 1
Topic 2: Transfer Pricing, ranges and adjustments
Facts:
German based Industrie AG sells its products to Austrian based Distribution AG
(100% sub), which on- sells the products to local and selected international customers.
The Transfer Price between German based Industrie AG and Austrian based
Distribution AG is based on the resale – price- method (RPM) and benchmarked with
European Comparables. This is documented in detail in the TP documentation.
The Benchmark Study provides for a comparable gross margin of 35% (lower quartile)
till 40% (upper quartile) with a median of 37% (no Austrian comparables in the data).
Austrian based Distribution AG applies a margin of von 35 % .
Questions:

Can the Austrian Tax authorities adjust the 35% gross margin and use the 40%
gross margin, because Austrian based Distribution AG realises effective only a 25 %
gross margin. Is such an adjustment acceptable?

Are the European Comparables acceptable to define an arm`s - lenght - price for an
Austrian tax assessment ?

Can the Austrian Tax authorities disregard the resale – price- method (RPM) and
request the application/use of the TMNM method?


www.wu.ac.at/taxlaw
72
Case Study 2
The following graph illustrates the facts.

www.wu.ac.at/taxlaw
73
Case Study 2
Questions:
Techco Austria was confronted with a tax audit in Austria which, as it turned out, put a
particular focus on the group’s transfer pricing.
Please comment in this context on the following questions:

Which entities/companies are under the functional analysis “entrepreneurs”, which
are “routine providers”? Please list the companies under this grouping.

Which TP method can in view of the functional analysis be used to define the Transfer
Prices between Techco Austria and the distribution Subs in the EU? What would be
the typical TP methods to be used towards a sub acting as commissionaire, as lowrisk distributor or as fully- fledged distributor?

Can pan European data be used to define margins for the Resale minus method,
the TNMM method or the cost-plus method and under what conditions?

What TP method is typically be used for the sale of semi- finished products to the
sub in CN?

Why does TechCo Austria needs a license arrangement with the CN sub?

As Techco Austria has ongoing losses while the sales subs outside enjoy “stable”
results

does that mean that the group’s transfer prices are not arm’s length?

What could be the reasons? Please look at the functions of the various entities,
especially routine activities versus entrepreneur.

www.wu.ac.at/taxlaw
74
INSTITUTE FOR AUSTRIAN AND
INTERNATIONAL TAX LAW
Welthandelsplatz 1 Building D3
1020 Vienna, Austria
Prof. Dr. Alfred Storck
Institut für Österreichisches und
Internationales Steuerrecht
Institute for Austrian and
International Tax Law
Tel:
+ 43 1 313 36 5930
Mobile: + 41 79 766 3997
Fax:
+ 43 1 313 36-905930
Email: [email protected]
www.wu.ac.at/taxlaw (Institute)
www.international-tax-law.at (LL.M.
International Tax Law)
www.sfb-itc.at (SFB International
Tax Coordination
www.wu.ac.at/taxlaw

www.wu.ac.at/taxlaw
75

What is Transfer Pricing?

Transcrição

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