Argentine transfer pricing rules apply to transactions between an Argentine party and a foreign related entity or any entity domiciled in a tax haven jurisdiction, a jurisdiction considered as non-cooperative, or that is subject to a privileged tax regime.
Argentine transfer pricing rules follow arm's-length rule and follow the OECD guidelines with some divergences.
Arm's-length principles are applied to transactions between related parties under an international agreement.
Australian rules are similar in many respects to the OECD guidelines, with certain differences such as the transfer pricing documentation requirements and the Commissioner's reconstruction powers.
In addition to satisfying transfer pricing documentation requirements, multinational entities with an annual global income of AUD1 billion or more are required to provide the ATO with 3 statements (a master file, a local file and a country-by-country, or CbC, report) within 12 months after the end of their income tax year. These statements require multinationals to report details regarding their international related party dealings, revenues, profits and taxes paid by jurisdiction.
International business-related issues
Controlled Foreign Companies (CFC) and thin capitalization
Beginning in January 2019, the Austrian government introduced a Controlled Foreign Company Rule. According to this rule, passive income of foreign subsidiaries in low-taxed countries (equal or below 12.5 percent) will be added to the income of the Austrian shareholder, if certain conditions are fulfilled. The CFC rule applies to foreign entities which are controlled by a domestic entity that holds more than 50 percent of the voting rights alone or together with its affiliated companies. These rules only apply to non-distributed profits of the CFC arising especially from the following categories of passive income: interest or any other income generated by financial assets, royalties or any other income generated from intellectual property, dividends, financial leasing, income from insurance and banking, etc. An exemption is available if a CFC carries out substantial economic activity through engagement of staff, equipment, property and buildings, as evidenced by relevant facts and circumstances. If only 1/3 or less of the total income of the foreign entity falls within the categories of passive income as listed above, the foreign entity will not be considered a CFC. In general, tax rules as the substance-over-form-principle, beneficial ownership concept and other anti-abuse rules remain.
Austrian tax law does not provide for specific thin capitalization rules. However, the Austrian courts have developed various principles to determine under which circumstances debt financing from shareholders is to be treated as equity for tax purposes. With regards to an interest deduction, intragroup interest payments by Austrian companies to foreign connected low or non-taxed entities are not recognized for tax purposes.
Double taxation treaties
Austria has signed 100 double taxation treaties with other countries to avoid double taxation of income or gains arising in one territory and paid to residents of another territory. These treaties either grant a credit against Austrian tax for foreign taxes paid on the same income (eg, with the US, UK, Japan and Italy) or exempt foreign-source income.
If there is no applicable tax treaty, the Austrian Ministry of Finance may grant unilateral relief in order to avoid double taxation.
Transfer pricing documentation based on the OECD Transfer Pricing Guidelines (master file, local file, country-by-country report) must be prepared and submitted with the Austrian tax authorities according to the Austrian Transfer Pricing Documentation Law. The size of required documentation depends on the turnover of a corporate entity.
All business transactions between related parties, one of which is a resident while the other is a non-resident, must be effected at arm’s length, or at fair market value. Following from this principle, should a company through a transfer pricing transaction pay more for a service to a non-resident related party than what would be considered at arm’s length in accordance with the Austrian corporate tax law, then the excess amount of the transaction would not be a deductible expense for the resident company for profit tax purposes. In Austria, 5 methods that can be used for establishing whether the business transactions between related parties are agreed at market prices, which are in line with the OECD Transfer Pricing Guidelines (comparable uncontrolled price method, resale price method, cost plus, profit split method, and transactional net margin method).
Business transactions between related parties and prices agreed between them will be recognized for tax purposes and accepted by the tax authorities if the taxpayer has in its possession, and provides upon a request from the tax authorities, details on the method used for determining the transfer prices.
Belgium generally adheres to the OECD transfer pricing guidelines. The arm's-length principle therefore constitutes a basic transfer pricing principle in Belgium. Advance pricing agreements (whether unilateral, bilateral or multilateral) may be obtained.
Brazilian transfer pricing rules apply to transactions between a Brazilian party and a foreign related entity or any entity domiciled in a tax haven jurisdiction or subject to privileged tax regime. In general, Brazilian transfer pricing rules follow arm's-length principles, but deviate significantly from the OECD guidelines as they provide for only certain methods and fixed statutory margins. The legislation allows taxpayer to freely choose the method as there is no best method rule and no functional analysis required.
However, by the end of the year 2022, new Transfer Pricing rules were issued, in line with the Arm’s Length Principle of the OECD Guidelines, through a Provisional Measure (No. 1152) that has the same effects of Law, but Congress must ratify and convert it into law within 120 days (60 days, with one postponement). It is important to notice that Brazilian Congress may reject such Provisional Measure, and the rules previously applicable could return into effect.
The new rules will be mandatory as of January 1, 2024, but taxpayers may elect to apply them as early as January 1, 2023. The rules will additionally be applicable for transactions involving goods, commodities, intangibles, cost sharing, services, internal organizations, guarantees and financial transactions.
The prior rules provided for methods inspired by the OECD’s traditional methods (CUP, RPM and Cost Plus), but are mostly based on fixed gross margins, better suited for tangible goods, resulting in burdensome analysis and tax adjustments. The new rules have introduced the possibility of using the TNMM and Profit Split methods.
In addition, federal tax authorities are expected to issue regulations providing further guidance related to the implementation of the new rules.
Arm’s-length principles generally are applied under Canadian tax law to transactions between a taxpayer and any non-resident person with which the taxpayer does not deal at arm’s length. The applicable Canadian rules are similar in many respects to the OECD guidelines, with certain material differences.
Transactions between Chilean entities and their foreign related parties shall be at arm’s length or otherwise the tax authority may be entitled to challenge prices fixed for such transactions and apply a 40-percent penalty tax.
Chile has domestic transfer pricing regulations and also follows the OECD Transfer Pricing Guidelines. standards.
Related party transactions must be conducted on an arm's-length basis. Otherwise, the Chinese tax authorities may make an adjustment within 10 years.
Enterprises reaching certain thresholds must prepare contemporaneous transfer pricing documentation, including a country-by-country report as applicable.
Colombia's transfer pricing regime is based on the OECD guidelines and is applied to transactions between related companies. Taxpayers subject to the transfer pricing regime must consider and follow commercial standards, under which a transaction between related parties must satisfy the conditions that would have been used in comparable transactions with unrelated parties.
The Finnish transfer pricing rules are based on the arm’s-length principle and OECD guidelines. Documentation requirements apply to cross-border transactions with affiliated companies.
The French legislation does not make any specific references to what are acceptable transfer pricing methodologies. In practice, however, the methodologies stated in the OECD guidelines are employed in most cases.
Transactions between affiliated parties will give rise to income adjustments to the extent that such transactions are not conducted at arm's-length. Additionally, transactions with a foreign affiliated party are subject to extensive documentation requirements.
Hong Kong, SAR
The Hong Kong government amended the Inland Revenue Ordinance in July 2018 in order to meet the international standards of transfer pricing developed under the OECD. The main objectives of the amendments are to codify the transfer pricing principles (such as the arm’s length principle), implement certain measures under the Base Erosion and Profit Shifting (BEPS) package and align the existing provisions with international tax requirements. The amendments also cover requirements and exemptions for transfer pricing documentation, including master file, local file and country-by-country report.
The arm's-length principle is applied under Hungarian law to transactions between related entities. Hungarian rules are in accordance with the OECD guidelines.
Transfer Pricing must be conducted on an arm's-length basis and computed using any of the following methods:
- Comparable uncontrolled price method
- Resale price method
- Cost plus method Profit split method
- Transactional net margin method or
- Any other method that takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.
It is possible to enter into unilateral/bilateral advance pricing agreements with the tax authorities.
Transfer pricing rules are applied on an arm's-length basis to transactions involving Irish trading companies. Irish transfer pricing rules follow OECD principles, particularly the 2017 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations). In addition to trading transactions, the transfer pricing rules also apply to certain non-trading transactions as well as capital transactions (where the transaction value/capital expenditure exceeds EUR25 million). Previously, arrangements concluded before July 1, 2010 could have fallen outside the scope of the transfer pricing rules under grandfathering provisions. However, such grandfathering provisions no longer apply. From January 1, 2020, certain legislative amendments were enacted to bring small and medium enterprises (SMEs), as defined, within the scope of the Irish transfer pricing rules but subject to modified requirements (eg reduced documentation requirements) not subject to the transfer pricing rules. Due to the challenges faced by SMEs as a result of the United Kingdom’s withdrawal from the European Union and the COVID-19 pandemic, the rules’ extension to SMEs have not yet been commenced.
Israel applies arm's-length principles to transactions between related entities. The Israeli rules correspond to the OECD guidelines.
Arm's-length principles generally apply to international transactions between related entities. Italian tax rules make reference to the OECD guidelines.
When a corporation sells to, purchases from, provides services for or carries on other transactions with a foreign related person with which it has a special relationship, and its taxable income is less than the amount calculated under arm’s-length principles, these transactions will be deemed to have been conducted at arm’s-length prices, and the differential amount either will be included in, or will not be deductible from, the taxable income of the corporation.
According to the Luxembourg transfer pricing legislation, transactions between related parties (both located in Luxembourg as well as where 1 party is taxed in a foreign jurisdiction) must be governed by the arm's-length principle. This obliges the taxpayer to report in its tax return either an upward or downward adjustment of profits whenever transfer prices do not reflect the arm's-length principle. The Luxembourg tax authorities may request from the taxpayer all facts relevant for verifying a tax liability. Therefore, the taxpayer should provide all necessary supporting documentation to facilitate the task of tax authorities.
The circular L.I.R. n° 56/1 – 56bis/1, published by the Luxembourg tax authorities on December 27, 2016, focuses on the transfer pricing requirements for intermediary, intragroup financing activities in Luxembourg. A strong emphasis is put on the analysis of the risks assumed by the companies performing intragroup financing transactions. Companies should perform an analysis to determine the necessary capital at risk using the accepted methodologies in this area. These companies must have the financial capacity to assume such risks. Furthermore, the circular provides that, in order to be able to control the risks, the company performing intragroup financing transactions should comply with specific substance requirements.
Moreover, a company may request an advance pricing agreement (APA) from the Luxembourg tax authorities. An administrative fee will apply depending on the complexity of the matter.
Mexico has transfer pricing rules. Acceptable transfer pricing methods include the comparable uncontrolled price method, the resale price method, the cost-plus method, the profit-split method, the residual profit-split method and the transactional net-margin method. In certain cases, specific appraisals are used. Transactions between related parties are subject to greater scrutiny, and there are several informative tax returns on related parties transaction that must be filed. It may be possible to reach transfer pricing agreements in advance with Hacienda. These agreements may apply for a period of up to 5 years, such agreements are not available for Maquila regime companies since 2022.
Beginning in 2016, certain Mexican taxpayers must file additional transfer pricing documentation, including a Master File and Country-by-Country reports, as recommended by Action 13 of the Base Erosion and Profit Shifting report.
The 2022 reform included changes in definitions to increase the scope of transfer pricing adjustments; to compare the financial information of similar companies (single year/same year); to include detailed information for capital adjustments; to expand function, risk and asset analysis of the foreign entity; and to clarify the use of the interquartile range.
Interest deductibility rules
Interest deductions may be disallowed under 2 scenarios: in case of the thin cap rule and in case of a net interest in excess of 30 percent of the EBITDA tax.
If the debt-to-equity ratio exceeds 3 to 1 on loans with foreign related parties, the interest triggered by the exceeding proportion of the loan are non-deductible under the thin cap rule. There are some exceptions to these rules, based on the type of activities that would be funded in Mexico.
Net interest against a Mexican taxpayer that exceeds 30 percent of a taxable EBITDA will not be deductible. The first MXP20 million (USD1 million) of annual interest per group is fully deductible. A carry-forward of the non-deductible interest is provided for up to 10 years.
Arm's-length principles are generally applied under Mozambican law to transactions between related entities. The transfer pricing rules (TPR) were largely inspired in OECD guidelines, though there are a few deviations from the OECD model.
The TPR applies to taxpayers subject to IRPC and IRPS with residence or domicile in Mozambique who carry out transactions with related parties regardless of whether such related parties are resident or non-resident in Mozambique. It also applies to different types of transactions accomplished between permanent establishments (eg, branch offices, work sites, mines, quarries, any fixed place of business) of non-resident entities in Mozambique and other related entities regardless of whether they are residents or non-residents in Mozambique.
Per the IRPC Code, the tax authorities may proceed with the necessary corrections for assessing the profits for tax purposes whenever (i) by virtue of special relations between the taxpayer and other entity, different conditions from those which would normally be agreed between independent entities have been established, and (ii) as a result of those conditions, the profits for accounting purposes are different from those that would have resulted had such special relations not existed.
Arm's-length principles are applied under Dutch law to transactions between related entities. Dutch transfer pricing rules are in accordance with OECD guidelines. As of January 1, 2022, new anti-avoidance rules apply that aim to eliminate transfer pricing mismatches arising from a difference in the application of the arm’s-length principle.
The Norwegian transfer pricing rules are based on the arm's-length principle and the OECD guidelines. Documentation requirements apply to cross-border transactions with affiliated companies.
Transfer pricing rules apply for international and local transactions between related parties. The Tax Administration (SUNAT) may adjust the prices of transactions between related parties when they are not consistent to the transfer pricing rules and its results.
Arm's-length principles are generally applied to transactions between related entities. The Polish rules generally follow the OECD guidelines.
Arm's-length principles are applied to transactions between related entities. The Portuguese rules generally follow OECD principles.
Arm's-length principles generally are applied under Romanian law to transactions between related entities. The Romanian rules are similar in many respects to the OECD guidelines, with certain differences. Specific transfer pricing documentation should be prepared by Romanian corporate tax residents for transactions with related parties with annual values exceeding certain thresholds.
Related party and certain unrelated transactions must be conducted on an arm’s-length basis. Russian rules are similar in many respects to the OECD guidelines, with certain differences.
The tax authorities may request transfer pricing documentation within the framework of a transfer pricing audit, but not earlier than June 1 of the calendar year following the year in which the controlled transaction was performed.
Additionally, there are reporting requirements for taxpayers who will be required to submit a notification on controlled transactions. Notifications are to be submitted by May 20 of the year following the reporting calendar year.
From January 1, 2019, only domestic transactions between Russian companies that apply different tax rates of corporate profits tax or special tax regimes shall be subject to the transfer pricing rules, and only if income earned (or cost incurred) from these related party transactions exceeds RUB1 billion per year.
For cross-border related party transactions, a threshold of RUB60 million was introduced for transfer pricing purposes. There was no threshold established for cross-border operations in the period from January 1, 2014 until January 1, 2019.
In December 2017, Russia adopted the law on the tree-tiered approach for transfer pricing documentation in accordance with OECD BEPS Action Plan 13.
This approach applies to multinational enterprises groups (MNE) with a consolidated income of or exceeding RUB50 billion.
Taxpayers should apply the arm's length principle to ensure that the pricing of their transactions with their related parties reflects independent pricing. Taxpayers who meet certain thresholds should prepare and keep contemporaneous transfer pricing documentation to demonstrate that their related party transactions are conducted at arm’s length. The documentation should be available ultimately on the filing due date of the Income Tax Return for the financial year in which the transactions took place.
Singapore has also adopted country-by-country reporting.
Arm's-length principles are generally applied under SA law for transactions between related parties.
SA is a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.
Where the price of an international transaction in which either party to the transaction is a foreign related party is lower or higher than the arm's length price, the tax authority may determine or rectify the tax base and tax amount of a resident (including a domestic corporation and a domestic place of business) based on the arm's length price.
Arm's-length principles generally are applied under Spanish law to transactions between related entities. The Spanish rules are in accordance with OECD guidelines.
The Swedish transfer pricing rules are based on the arm’s-length principle and OECD guidelines. Documentation requirements apply to cross-border transactions with affiliated companies.
Arm’s-length principles generally apply. Switzerland uses the methods published in the OECD Transfer Pricing Guidelines and has no detailed transfer pricing legislation.
Certain transactions between related parties (eg, where there is direct or indirect "substantive management control," material influence or control over a board of directors) must be conducted on "arm's-length" terms.
Turkish tax regime generally adopts arm's-length principles for transactions realized between related entities.
Ukrainian rules are based on OECD guidelines. Arm's-length principles are generally applied under Ukrainian tax law to qualifying controlled transactions.
The following transactions may be qualified as controlled:
- With related nonresidents
- With nonresident commission agents
- With nonresidents registered in low-tax jurisdictions (the list of such jurisdictions is approved by the government)
- With nonresidents of certain legal organizational forms (eg, pass-through entities such as a UK LLP or Danish KS) which do not pay corporate income tax or are not tax residents in the country of incorporation (the list of legal forms is approved by the government)
United Arab Emirates
Not applicable for this jurisdiction.
Arm's-length principles generally are applied under UK law to transactions between related entities. The UK rules generally follow OECD principles.
Arm's-length principles generally are applied under US law to transactions between related entities. The US rules are similar in many respects to the OECD guidelines, with certain material differences.
The arm's-length principle is applied under Zimbabwean law to transactions between related entities. The Zimbabwean rules are similar in many respects to the OECD guidelines, with certain material differences, although the OECD guidelines are used to interpret Zimbabwean law in regard to transfer pricing.