1. 3rd Quarter 2009
Issue 13
Border Crossing
Welcome to the thirteenth edition of Border
Crossing - the electronic newsletter from RSM
International covering technical developments
in global taxation.
In this issue:
Europe:
Implementation of European VAT rules is rapidly
approaching
South Africa:
South Africa hosts FIFA World Cup 2010
United States:
The battle between taxpayers and the
Internal Revenue Service over access to tax
computation working papers
Ireland:
Key taxation measures in developing a smart
economy
United Kingdom:
New disclosure facilities in the United Kingdom
Argentina:
Transfer Pricing in Argentina
2. Europe:
Implementation of European VAT rules is rapidly In addition, where these services are supplied on
a cross border basis within the European Union,
What should you do now?
approaching it is possible that mismatches may occur between The VAT experts at RSM firms in the Netherlands
the VAT accounted for in the VAT returns and the and Belgium are of the view that most European
services reported in the listings submitted by the companies will be affected by the changes in one
service providers. This could result in enquiries from way or another but appreciate that the extent to
the tax authorities. which the changes will impact businesses will vary.
As per 1 January 2010, a so-called VAT package will be introduced throughout Europe. The VAT package is a However, all businesses will need to assess the
substantial reform of European VAT legislation. The reform will fundamentally change areas of VAT law such as the New VAT refund procedure impact of the new VAT rules on their businesses
determination of the place of taxation for the supply of services. Furthermore, the new provisions will introduce and for many the impact will be profound. In
From 1 January 2010, it will be easier for EU order to prepare for and manage these changes
new reporting obligations and an entirely electronic procedure for recovering VAT paid in Member States other established businesses to reclaim foreign (EU) input while minimising disruption to business, affected
than those in which the business is resident or established. Therefore, given the impact that these rules may have VAT. The new procedure also applies to foreign businesses will need to, amongst others:
from either a cash flow perspective, an administrative perspective, or both, could be significant. (EU) input VAT paid in 2009. Previously, businesses
were required to send a number of documents as > determine the extent to which the businesses
well as all original invoices per regular mail to each receive or provide services both to and from
New place of supply rules for services Services that are exempt in the recipient’s country third parties as well as intercompany and create
individual foreign tax authority. This will all change
should not be included in the listing. Services that a ‘services footprint’
Until 1 January 1 2010, the place of supply of services as of 1 January 2010 when the VAT refund claims
are subject to the reverse charge mechanism must
is where the service provider is established for VAT will have to be submitted to the local Member > assess the impact of the VAT changes on the
be reported and listed in the period in which they
purposes (specific rules exist for certain services) State where the taxpayer is established through an above footprint
are supplied. Consequently, the period in which the
unless an exception applies. electronic portal created by the local tax authorities.
services are invoiced is irrelevant. However, the > review the configuration of billing, accounting
This procedure should simplify the administrative
As from January 1, 2010, business to business accounting administration or method of invoicing and ERP systems, implement any process
process significantly, since businesses will no longer
supplies of services (B2B) will be taxed in the country will likely need adaption. Ongoing services should in changes and train staff including both accounts
have to submit a refund application to each individual
where the recipient of the service is established. any event be reported and listed in the last reporting planning and accounts receivable staff
foreign tax authority. VAT refunds will be processed
For cross border transactions between two Member period of the calendar year. The listing obligation
more quickly and interest will be paid on late refunds. > review and where appropriate amend contracts,
States, the recipient will be required to account does not apply to services supplied to taxpaying
terms and conditions for sales and purchases of
for VAT under the so called “reverse charge consumers outside the EU. In principle, the listings Another new aspect is that the refund applications
services
mechanism”. The service provider will not charge should be submitted monthly, but it is possible to opt can be submitted electronically. The revised
VAT but the recipient will have to account themselves for quarterly listing. refund procedure applies solely to EU-established > identify areas of risk and compliance issues for
for the VAT payable on these services in their local businesses. Businesses established outside the EU international operations as a result of the new
VAT returns. This input VAT is deductible in the same Changes to the time of supply rules must continue to apply for their VAT refunds in the VAT rules
VAT return according to the normal rules. As a result country in which the VAT is paid, and they cannot
The time at which VAT must be accounted for under > secure the international budget and resource
of this new ‘basic rule’ for cross border B2B-services, submit their refund applications electronically. The
the reverse charge mechanism will change as of needed to ensure compliance for 1 January 2010
in many cases VAT will no longer have to be charged period for submitting claims for VAT refunds will be
1 January 2010. As the service recipient is required extended up to 1 September of the year following the > ensure competiveness after 1 January 2010,
(and reclaimed). Exceptions are made for certain
to account for VAT under the reverse charge calendar year in which the VAT was paid. by identifying and implementing any VAT
services (such as restaurant services, services linked
mechanism, the relevant accounting moment from efficiencies and opportunities that may result
to cultural, sports, scientific and educational events,
a tax perspective will be the moment the service is Impact on intercompany (management) services and seek to mitigate VAT costs
short-term hire of means of transport) which in all
provided.
cases will be taxable in the country of consumption.
Under the current rules, the fees associated with, for It is likely that the VAT package will have a significant
In most cases, recipients of services will not know
Business-to-consumer supplies of services (B2C) will, example, management services performed on a cross impact on most European businesses. Therefore,
exactly at what moment the services have been
in principle, continue to be taxed where the supplier border basis for the benefit of European affiliates, RSM member firms in Europe would be pleased
completed or the exact value of these services.
is located. are not subject to reverse charge VAT since the to assist businesses with any questions that may
The customers will usually rely on the invoices
VAT is charged from the supplier of these services. arise and assist in assessing the impact of the VAT
Listings issued by the service providers. If these invoices are
Under the new rules, European entities receiving package on the specific situation.
received after the moment at which the VAT was
cross border management services will generally
With effect from 1 January 2010, businesses that due, according to the new rule, strictly speaking,
be required to account for reverse charge VAT with For more information please contact your local RSM VAT adviser
supply ‘basic rule’ services to businesses in other the recipients will be too late with accounting for
respect to the associated service fees. or RSM advisers in Netherlands or Belgium
EU countries will have to periodically report these this VAT. Furthermore, the new rule could have a
Michel Pierrot or Ferdy de Wijs (RSM Niehe Lancee, Netherlands)
services by submitting a listing electronically to the significant impact on businesses that are not entitled For many European affiliates of non EU-based
T: + 31 23 5300 400
tax authorities. These services must be broken down to a full deduction of input VAT. Businesses with a companies, the additional VAT should be recoverable.
E: mpierrot@rsmniehelancee.nl
by value per VAT number for each service recipient. right to fully recover input VAT are normally entitled However, this additional VAT may be an absolute cost
E: fdwijs@rsmniehelancee.nl
to a full deduction of the VAT accounted for on these for affiliates operating in the financial or educational
or
services in the same VAT return. services industries (which are exempt from VAT) and
Gert Van den Berg (TCLM Toelen Cats Dupont Koevoets)
affiliates that are pure holding companies.
T: +32 3 242 83 00
3. South Africa:
South Africa hosts FIFA World Cup 2010
On 11 June 2010, the FIFA World Cup 2010 will kick off in Johannesburg at Soccer City. The tournament will comprise (a) the sale of any consumable or semi-durable What is important to note is that excluded from this
of 64 matches played in nine host cities, utilising a total of ten venues around the country. It is estimated that goods; or exemption are officials of SAFA, directors and staff
members of the Local Organising Committee and
approximately 2.7 million spectators will attend the 64 matches over the period of the tournament and the final will (b) any service rendered by that entity which is:
members of a team.
have a television audience in excess of 2 billion people. (i) intrinsic to the staging of the Championship
Players are thus not exempt from taxation in South
(ii) enjoyed or partially utilised at a Africa and are therefore subject to normal taxation
The hosting of an event of such significance has 1. Provisions relating to entities generally exempt Championship site; and principles which will be discussed further later in this
created huge business opportunities within South
Africa. There has been, and currently still is, an The first aspect deals with provisions relating to article.
(iii) paid for by an individual member of the
enormous amount of infrastructural development entities generally exempt from taxes, duties and general public or by FIFA, a FIFA Subsidiary
taking place around the country. levies. These entities are specifically defined as 4. General provisions
or the Local Organising Committee
being FIFA, FIFA subsidiaries and all Participating The general provisions provide simply that where
This is not limited to stadium construction and
National Associations excluding the South African This exemption applies only in respect of the sale of amounts are not subject to tax no deductions or
refurbishment but also to the development of
Football Association (“SAFA”). goods and services rendered at Championship sites allowances will be allowed in respect of any expenses
improved municipal transport, precinct upgrading,
as defined. or costs incurred to produce such income.
roads and rail services, airports and safety and In terms of the Act these entities are regarded as
security. As a direct result of the World Cup event being exempt from all taxes, duties, levies and any In respect of qualifying sales by these entities, VAT In addition any amount received by or accrued to
approximately 80% of South Africa will have access other amounts which may be imposed in terms of will be charged at zero rate. a person who is not a resident of the Republic is
to digital television. any other Act. deemed not to be from a source in the Republic if
3. Tax treatment of certain individuals that amount:
There will naturally be a direct impact on the tourism In addition, such entities will be regarded as
industry but the economic benefits will not be limited diplomatic or consular missions for the purpose of This part applies to any individual who is not a (a) is derived as a result of that person’s sponsoring
to these areas. Value Added Taxation (“VAT”) and are not required resident of the Republic of South Africa and who is: or broadcasting of the Championship; and
to register as employers or deduct or withhold
In order to host an event of this nature the South a member of the FIFA delegation (b) is received or accrued from any goods sold for
employees’ tax.
African Government was required, as part of the bid foreign consumption or services rendered
process, to take responsibility for the delivery of 17 a Championship referee or assistant referee
2. Tax treatment of certain other entities outside the Republic.
guarantees, one of which was that FIFA would be an official of any participating national
assured of a supportive financial environment. This part applies to any entity which is: association (excluding SAFA)
5. Provisions relating to importation and re-
This guarantee was given effect by the passing into A commercial affiliate a FIFA confederation official exportation of goods
law of the Revenue Laws Amendment Act 20 of 2006
A licensee a media representative Certain qualifying persons will benefit from import-
(“The Act”).
The host broadcaster, a broadcaster or a a staff member of a commercial affiliate tax relief on certain goods where these are re-
The Act sets out special tax measures specific to the
broadcast rights agency exported.
2010 FIFA World Cup and covers the following major a staff member of a merchandising partner
areas: A merchandising partner
a staff member of a FIFA designated service Taxation of Team Members
A FIFA designated service provider provider
1. Provisions relating to entities generally exempt As stated above the rules providing specific
A concession operator a staff member of the host broadcaster, the individuals tax exempt status exclude the players
from taxes, duties and levies
broadcast rights agency or a broadcaster; or participating in the championship. They will thus fall
A hospitality service provider; or
2. Tax treatment of certain other entities under the normal tax rules applicable in South Africa.
a staff member of the hospitality service
The nominated FIFA flagship store operator
3. Tax treatment of certain individuals provider. South Africa applies a residence based taxation
4. General Provisions These entities are defined in detail in the Act but system (with certain specific source rules in place).
The abovementioned will have excluded from gross
in principle any receipt or accrual to such entity is Therefore players who are South African Tax
5. Provisions relating to importation and re- income any receipt or accrual derived from activities
excluded from gross income for South African tax Resident will be taxed in full on their remuneration
exportation of goods connected with the championships.
purposes to the extent that it is derived by that from matches played.
entity from:
Cont'd
4. United States:
The battle between taxpayers and the Internal Revenue
Service over access to tax computation working papers
For players who are non-resident the provisions of Given all of the above it will however be important Disagreements over Internal Revenue access to a year. The Taxpayer refused to produce the requested
Sections 47A to 47K of the South African Income Tax to take into account the possible existence of Double taxpayer’s tax accrual working papers have been documents on the grounds that the workpapers were
Act apply. Taxation Agreements (“DTA’s”). These would as a around almost as long as tax audits. Recently, a new protected by the attorney-client privilege, the tax
general rule supercede any of the normal provisions chapter was written into the argument. In a decision practitioner-client privilege created by Section 7275
In essence these Sections provide for a withholding
of the South African Income Tax Act. The standard announced in the middle of August, the First Circuit of the Internal Revenue Code, and the work product
tax in respect of any entertainer or sportsperson who
clause normally contained in DTA’s would result in Court of Appeals held that tax accrual workpapers privilege.
is not a resident of South Africa and who exercises
a sportsperson being taxed in the country in which are not documents protected by the work product
or will exercise any personal activity in South Africa, The district court sided with the Taxpayer, finding
they perform but this may not always be the case as privilege and protected from an administrative
whether alone or with any other person for which he the tax accrual workpapers protected by the work
specific DTA’s might differ. summons issued by the IRS. Thus striking a blow to
or she receives reward. product privilege, and that the Taxpayer did not
a taxpayer’s ability to maintain a veil over their tax
waive this privilege when it provided the workpapers
Where the remuneration is received from a resident computation and potential issues related to positions
For further information contact your local tax expert or to its outside auditors. The First Circuit affirmed
of South Africa that resident is responsible for taken on Federal and State filed tax returns.
John Jones, Audit Corporate Taxation Partner the determination that the Taxpayer’s tax accrual
withholding taxation, at a rate of 15% on all amounts
RSM Betty Dickson (Johannesburg) To illustrate, consider the following: A Taxpayer workpapers are protected, however vacated the
received or accrued, and paying this before the end
E: john.jones@jhb.rsmbd.co.za utilises a set of internal, “tax accrual working papers” determination that the work-product protection was
of the month following that in which the liability to
T: +27 11 329 6000 consisting of: not waived, and remanded the matter to the district
the non-resident arose. Once the withholdings tax
F: +27 11 329 6100 court to assess whether disclosure of the auditor’s
has been paid the sportsperson has no further South 1. a spreadsheet that contains lists of items in the
working papers would reveal the information
African tax liability. tax returns that, in the opinion of tax advisors,
contained in the Taxpayer’s workpapers. The circuit
involve issues on which the tax laws are unclear,
Should the resident fail to make such payment court then granted the government’s petition for
and, therefore, may be challenged by the
the sportsperson must within 30 days after the rehearing en banc, vacated its prior decision and
Internal Revenue Service upon audit
remuneration is received or accrues pay the obtained additional briefs from the parties.
amount due to the Commissioner himself with the 2. computations by advisors and internal staff
The First Circuit held that the Taxpayer’s workpapers
appropriate return. expressing their judgments regarding the ability
are independently required by statutory and audit
to prevail in any litigation over those issues
Where the sportsperson receives payment from requirements and that the work product privilege
a non-resident employer the abovementioned 3. tax reserve amounts reserved to reflect the does not apply. The court stated that it is not enough
obligation on the sportsperson to pay within 30 days possibility that they might not prevail in such to trigger work product privilege that the subject
would apply. litigation matter of a document relates to a subject that may
be litigated, but rather the privilege is to protect
The withholdings tax would not be due in respect 4. working papers that provide background and
materials prepared for any litigation or trial as
of payments made by a resident employer to a non support to prior year computations for the
long as they were prepared by or for a party to the
resident employee provided that the non-resident account.
subsequent litigation. (U.S. v. Textron, No. 07-2631 (1st
is physically present in South Africa for more than
During the course of an audit by an Independent Cir. 8/13/09).
183 days during any 12 month period commencing
Auditor, the working papers were reviewed by the
or ending during the year in which the performance Taxpayers should maintain close analysis of these
auditor with the understanding that the information
takes place. Such players would be subject to normal dynamic matters and be ready and prepared to make
would be treated as confidential.
taxation in South Africa. adjustments as necessary.
Pursuant to various sections of the Internal Revenue
Code, the government filed a petition to enforce
For further information contact your local tax expert or
an IRS summons served on the Taxpayer and its
Chad Koebnick
affiliated companies for an examination of the
RSM McGladrey (United States)
Taxpayer’s tax liability for tax years 1998-2001 and
E: chad.koebnick@rsmi.com
seeking the tax accrual workpapers for its 2001 tax
T: + 1 612 376 9393
5. Ireland:
Key taxation measures in developing a smart economy
1. Introduction activity (as opposed to being passive in nature) In certain circumstances, dividends derived from generally accepted accounting practice and the
carried on at least partly in Ireland. In addition, to such exempt patent income are also tax exempt. With legislation lists the classes of intangible assets
An internationally famous politician once said “we secure the 12.5% rate, the Irish Revenue expect effect from 1 January 2008, the maximum amount of in respect of which the regime applies. The list
contend that for a nation to try to tax itself into substance to exist in the trading activity. There is no patent income that would qualify for the exemption encompasses all expected asset classes including
prosperity is like a man standing in a bucket and statutory basis for linking substance to the question is capped at €5 million per calendar year. This patents, trade marks, brand and domain names,
trying to lift himself up by the handle”. Although of whether or not a trade exists. However it derives exemption can be a useful tax planning tool. copyright, licences and other forms of authorisation.
this politician was not Irish, successive Irish from Revenue’s natural concern to preserve Ireland’s This regime significantly enhances Ireland as a
governments have taken the sentiments to heart good international tax reputation and to ensure that 3. Tax treatment of RD/IP expenditure location of choice for holding IP.
in terms of using tax policy to attract foreign direct Ireland is not regarded as a location for so called
investment to Ireland. More than 1,300 companies brass plate operations. The concern is generally 3.1 RD tax credit 4. Withholding taxes
have chosen Ireland as their European base and consistent in any event with the CFC requirements In 2004 a new incentive was introduced to encourage Ireland has signed double taxation agreements
they’re involved in a wide range of activities in a of most of the tax jurisdictions of the parents of Irish companies to carry out RD in Ireland. The incentive with 51 countries, of which 46 are in force and the
wide range of sectors including e-business and subsidiaries. currently provides for a 25% tax credit in respect remainder are pending ratification. Ireland’s treaty
information communications technologies, finance,
Typically, IP income consists of license fees and of qualifying RD activities by a company in certain network is continually expanding and negotiations
pharmaceuticals, medical technologies, insurance
royalties but may also include receipts from cost circumstances. The credit is available in addition with another 18 countries are either concluded or
and international services.
sharing agreements and profit participation. A to the corporation tax deduction which should also are very advanced. Most of Ireland’s double taxation
There is also growing recognition in Ireland of the company that develops IP could license it (to generally be available, and therefore the effective tax agreements provide for zero withholding tax on the
economic imperative of moving Ireland up the so connected or unconnected parties), or a separate deduction rate is 37.5%. Subject to meeting relevant payment of royalties. In the remaining treaties, the
called value chain and that this involves further company might be set up within a corporate conditions, the RD tax credit applies to companies rate is usually 10% or less. This is important in the
investment in RD and intellectual property multinational group, to hold the group’s IP and to undertaking qualifying RD activities within the EEA. context of not eroding the benefit of the 12.5% rate.
(“IP”) exploitation. A recent government initiative license it to companies within the group. In either A company’s RD tax credit is calculated based on
recognises that in terms of building a smart economy case, the IP could be licensed as a stand alone 5. Conclusion
its incremental RD expenditure over and above
“a favourable tax environment is an important driver activity or as part of a wider trade. It could also be its qualifying RD expenditure in its ‘base year’
of RD and commercialisation”. In 2009 and earlier linked to the activity of a principal under a contract It’s fair to say that Ireland’s IP tax regime stands
which will remain at 2003 for all future accounting
years tax measures were introduced to promote manufacturing agreement or under a commissionaire up well to international comparison and it provides
periods. In brief, qualifying RD means systematic,
Ireland as a location of choice for IP development structure. With careful planning, it should be possible significant opportunities for companies to develop
investigative or experimental activities in a field of
and exploitation. Therefore, it is timely to review the to structure matters to secure the Irish 12.5% rate in and exploit IP in Ireland in a tax efficient manner.
science or technology. The incentive also provides
current status of Ireland’s current IP tax regime. respect of an Irish IP holding entity under the above This is the case whether locating RD activity in
for a tax credit for expenditure on buildings and
scenarios. Ireland from the outset with a view to the creation
It is not necessary to match the location of IP rights structures used for the purposes of RD in certain
and future exploitation of IP, or when using Ireland
with the location of IP development, and therefore IP Where the activity is a trade carried on wholly circumstances.
as a location for managing and exploiting existing
investment is highly mobile. From a tax perspective, outside of Ireland or where the activity does not 3.2 Tax deduction for intangible asset acquisitions IP. Consideration of this latter option is particularly
multinationals seeking a suitable IP location will satisfy a trading test, the income is likely to be taxed timely and relevant in the context of the current
typically seek a jurisdiction with a low tax rate, at 25%. In 2009 a tax depreciation regime was introduced concerns of many global corporations about
appropriate tax deductions for IP related expenditure in respect of expenditure by companies on the
2.2 Patent income exemption their ongoing use of tax havens as IP locations.
and the absence of significant withholding taxes. acquisition of specified intangible assets. The new Mainstream tax opinion is predicting a significant
Ireland scores highly by international standards Patents are a form of IP and are distinguished from relief applies to acquisitions occurring after 7 May exit from such locations, as corporations seek to
under these criteria and this is discussed in more other forms of IP such as trademarks, designs, 2009 and provides for the capital expenditure to be avoid damage to their corporate reputations. In
detail below. copyright and know how. Irish legislation provides written off in line with the accounting treatment, or many instances, Ireland is an ideal choice of location
for a tax exemption in respect of income received over a fixed period of 15 years (if shorter). for the transferred IP, without CFOs and IP decision
2. Taxation of IP derived income from a qualifying patent where the patent holder is The tax depreciation is available against trading makers feeling like the man in the bucket!
2.1 12.5% or 25%? Irish tax resident. A qualifying patent is a patent in income from the management, development or
respect of which the “research, planning, processing, For further information contact your local RSM
exploitation of the intangible asset concerned. expert or
Since 2003, Ireland has a corporation tax rate of experimenting, testing, devising, developing or It applies to intangible assets recognized under
12.5% for trading profits. For this rate to apply to similar activities leading to the invention” was Michael McGivern, Tax Partner
IP income, the IP activity must constitute a trading carried out in the European Economic Area (“EEA”). FGS, Ireland
T: +353 1 418 2092
E: michael.mcgivern@fgspartnership.com
6. United Kingdom:
New disclosure facilities in the United Kingdom
The UK HM Revenue Customs (HMRC) has recently Disclosure - can then be made: authorities to set up a five year Tax Assistance and Period covered:
introduced two disclosure facilities for those holding Compliance (TAC) programme and HMRC in the UK to
• Paper: 1 Sept 2009 to 31 Jan 2010 • HMRC will be looking for disclosures going back
offshore bank accounts or assets. There is a general set up a five year disclosure facility.
10 years to 5 April 2009.
facility called the New Disclosure Opportunity (NDO), • Online: 1 Oct 2009 to 12 Mar 2010
The TAC programme is very interesting as it will
and another specifically for holders of accounts and
Period covered: require financial intermediaries in Liechtenstein to What is included? –
assets in Liechtenstein (the Liechtenstein Disclosure
review their clients and identify cases where their
Facility). • HMRC will be looking for disclosures going back • Any OFFSHORE DISCLOSURE of UK tax
clients might have tax liabilities in the UK. They must
20 years to 5 April 2008 irregularities linked to a Liechtenstein offshore
The disclosure facilities specifically allow those with then engage with those clients and those clients
bank account(s) or asset(s), and
offshore and UK tax irregularities to disclose them to What is included? will be required to demonstrate to the financial
HMRC in return for a small tax penalty, generally of intermediary that they are cooperating with HMRC or ALSO
10%. • Any OFFSHORE DISCLOSURE of UK tax are not liable to tax. If they do not demonstrate this, • Any ONSHORE DISCLOSURE of UK tax
irregularities linked to an offshore bank the financial intermediary will be required to cease irregularities, if there is ALSO an OFFSHORE
2007 Offshore Disclosure Facility account(s) or asset(s), and acting or implement some sort of sanction yet to DISCLOSURE
ALSO be published. The TAC will be supported by specific
HMRC ran a similar disclosure facility in 2007, the legislation in Liechtenstein. Penalties
Offshore Disclosure Facility (ODF). • Any ONSHORE DISCLOSURE of UK tax
The TAC provides some really interesting points not • 10% penalty
Prior to the ODF, HMRC won important rulings irregularities (if there is ALSO an OFFSHORE
DISCLOSURE) least what the process for financial intermediary’s Other key feature
against the then five big banks requiring those internal audit of clients might look like.
banks to provide the names and addresses of all UK Penalties • Scope to apply a composite rate of 40% in lieu of
customers with offshore bank accounts and credit The HMRC Liechtenstein Disclosure contains some ALL taxes
• De minimis - where the tax due is less than of the same principles as the NDO but there are
cards.
£1000, HMRC do not intend to charge a penalty some significant differences and the platform to
HMRC secured £400 million at a cost of £6.5 million disclose is somewhat different involving a “bespoke Disclosure facilities in other countries
• 10% penalty
on the ODF from around 30,000 disclosures and personal service”. This suggests a more rigorous
made a further £38 million on follow up action on • 20% penalty will apply to those whom HMRC The US has just extended its own disclosure facility
process than the NDO which amounts to a series
the several thousand enquiries they have opened wrote to in 2007 offering the 10% rate but did to 15 October 2009. Anyone looking to make a
of forms (although HMRC has the right to audit the
since. On those cases they have been seeking 30% disclose under the ODF disclosure under the UK facility should think also
information within those forms).
penalties. about disclosure elsewhere, as the UK authorities
What if they don’t disclose? will share information disclosed to them with other
Liechtenstein key feature
New Disclosure Opportunity • Penalties of at least 30% and rising to 100%, countries where they hold specific agreements.
plus an increased risk of prosecution, Dates
This time around HMRC have just been successful in are likely to apply to defaulters who are caught Conclusion
securing similar notices to those secured prior to the Notification and Disclosure:
and who do not use the NDO
ODF on 308 financial institutions in the UK. They are There is no doubt that HMRC will expect a full and
• Assets held at 1 August 2009, 1 Sept 2009 to 31
anticipating around 500,000 names and addresses complete disclosure of ALL liabilities on UK and
Liechtenstein Disclosure Facility March 2015
from that exercise which is ongoing. offshore matters. Therefore, all those effected should
HMRC have negotiated two groundbreaking • Assets held after 1 August 2009, 1 December conduct a review of their taxation affairs at the
The NDO is broadly similar to the ODF, the key details 2009 to 31 March 2015 earliest possible opportunity. It may be appropriate
agreements with the Liechtenstein authorities.
of which are set out below. to look at restructuring a business to ensure that
The first agreement is a Tax Information Exchange Additional dates
Agreement (TIEA) which provides for either party to exposure to penalties is reduced.
NDO Key Features Once notified by the financial intermediary, the
disclose tax related information on quite liberal bases
after 31 March 2015 and on cases of criminal fraud person has 18 months to demonstrate co-operation
Dates For further information on disclosure facilities or areas of
prior to that date. with the UK. Disclosure deadline:
10 concern on tax issues, please contact your local RSM expert or
Notification: 11
• 7 months where the 40% composite rate is use Gary Ashford, RSM Bentley Jennison, UK
The second agreement is a Memorandum of
• Paper: 1 Sept to 30 Nov 2009 • 10 monhs in other cases T: +44 774 815 2007
Understanding (MOU) providing for the Liechtenstein
E: gary.ashford@rsmbentleyjennison.com
• Online: 1 October to 30 Nov 2009
7. Argentina:
Transfer Pricing in Argentina
Introduction However, if transactions at stake include export of In regard to this: When a party performs an activity of
goods that qualify as publicly traded commodities significance only in relation to the other party
Since the late nineties, Argentina has taken serious Documentation should not only be
with the involvement of an international broker, other or its existence is only justified in relation to
steps towards adapting its income tax legislation contemporaneous but it should exist at the due
than the actual recipient of goods, then the “best the other party and situations such as single-
and transfer pricing regulations to internationally date for filing the returns and report. Documents
method” shall be the trading value of the goods in provider or single-client relations
accepted principles such as arm’s length valuation, should be made available to examiners upon
the public market on the date in which the goods
comparability, and the best method rule. request and be kept in file until expiration of the When a party substantially provides the funds
are shipped. Only if the prices agreed upon with the
statute of limitation period for the relevant tax required to perform the commercial activities
Although without making any specific reference to international broker are higher than the effective
of the other party
the OECD Transfer Pricing Guidelines, Argentina has trading value, the former will be considered as the To be accepted as evidence, documentation should
put its legislation, to a great extent, in line with the actual value of the transaction. meet all formal requirements such as being in When a party bears the losses or expenses of
rules and principles of this organisation. Spanish language duly translated by a certified the other
Moreover and although the best method rule applies,
translator (if applicable)
However, some difficulties arose when the Tax it becomes evident in audits that the AFIP (Tax When directors, officers or administrators of
Administration had to enforce these standards Office) prefers the use of traditional methods as In other judicial precedent the AFIP considered one party receive instructions or act on behalf
contained in the law. Argentina follows the French opposed to the use of transactional methods. an intercompany loan to be equity on the grounds of another
civil law tradition in which case law plays a secondary that certain formalities (entering a written
role as source of law. It has been suggested that The tested party contract, signing before a notary public, obtaining Use of Secret Comparables
the lack of relatively stable case law resulted in the the Apostille according to The Hague convention,
Argentine standards establish that the party to be etc.) were not met Although there is no reference in the Law to such
precise meaning of the international tax regime’s analysed should always be the local company. In possibility, the AFIP makes use of secret comparables
standard-based norms, such as the arm’s length many cases, multinational groups believe that they The taxpayer must submit complete (i.e. taxpayer information obtained in its own
approach, remain uncertain to the taxpayer. are in compliance with transfer pricing regulations information about the foreign related party and audits that is not available to the public). The NTC
Argentine regulations may look, at a first glance, like because they have a global transfer pricing study. documentation, if any, even if no transaction has supported the Tax Office’s position in a recent case.
the criteria the multinational companies are used This study would not be enough in order to comply taken place between the parties
to following in the rest of the world, but there are with local regulations. Conclusion
important gaps that deserve a second look.
Definition of Related Party
Documentation requirements As transfer pricing legislation in Argentina continues
The concept of related party exceeds the one of the to evolve and become more and more complex, at
Admitted transfer pricing methods OECD guidelines, as a result of which the following
There is no specific type of documentation required. the same time disputes begin to arrive in the Courts.
The applicable methods are: the comparable Taxpayers may use any piece of evidence in order cases also fall under the transfer pricing legislation: Until the legal system begins to produce case law
uncontrolled price, resale price between independent to support the pricing policies. In a relatively Whenever a local company enters into any kind that may show taxpayers and the Tax Office how they
parties, cost plus, profit split and transactional net recent case against a pharmaceutical company, the of transaction with another company located in a are expected to behave, the best recommendation
margin method. According to the law, there is no National Tax Court (NTC) reaffirmed that companies tax haven, even if the two companies are not for any company would be always the four “P”s rule:
preferred method but the “best method”, which is subject to transfer pricing regulations must produce related parties proper planning prevents problems.
the one that best reflects the economic reality of comprehensive documentation and solid transfer
pricing analysis for transactions. When a party provides the other with technological
transactions, has the best information in quality and
property or technical knowledge which represents
quantity and requires the lowest level of adjustments. For further information, please contact your local RSM expert or
the base of its activities, and such party conducts
its business based on those Jorge Perez, Estudio Torrent Auditores, Argentina
T: +54 11 5031 1150
E: jorge.perez@torrent.com.ar
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