In this edition of the Quantera Global newsletter, you will find the most important national and global developments in tax law that are (closely) related to the transfer pricing world.
Please feel free to contact us if you have any questions.
Quantera Global news, developments, and blogs
- On 8 April 2024, we published a blog in cooperation with our Italian partner Muse Strategy. Tax and transfer pricing professionals often choose to obtain penalty protection documentation in Italy. In our blog, we highlight some of the requirements. You can read the blog here.
- On 23 April 2024, we published a blog highlighting the issues scale-ups face in transfer pricing. You can read our blog here.
Quantera Global specialties
In the past month, we have completed several challenging and interesting projects worth mentioning, including:
- We assisted one of our clients in obtaining an Innovation box ruling from the Dutch Tax Authorities.
- For one of our clients, we performed TP design work in view of setting up a centralised operating model in the EMEA region.
If you would like to know more about these topics, please feel free to contact us.
News from around the world:
Australia
- On 3 April 2024, the Australian Taxation Office (ATO) published the updated Reportable Tax Position (RTP) schedule and instructions for the year 2024. The instructions cover:
- How to fill out Section A of the RTP schedule, which pertains to taxpayers.
- Completing Section B of the schedule, which deals with Category A and B RTPs.
- Completing Section C, which focuses on Category C RTPs.
- Guidelines for completing Section D, which involves making declarations and providing signatures.
- On 17 April 2024, the Australian National Audit Office (ANAO) published its performance audit report “Management of Taxpayers’ Use of Transfer Pricing for Related Party Debt”. The report highlights that the ATO effectively identifies and manages transfer pricing risks associated with related-party debt. It has also established an effective policy framework for managing taxpayers’ use of related-party debt.
Austria
The Federal Ministry of Justice of Austria has released a draft law implementing the EU Directive on public country-by-country Reporting (CbCR), named the Federal Act on the Publication of Country-by-Country Income Tax Information Reports. The draft law closely follows the provisions of the EU Directive on public CbCR. This directive requires EU-based and non-EU-based multinational enterprises (MNEs) operating in the EU with total consolidated revenue exceeding EUR 750 million in each of the last two consecutive financial years to publicly disclose certain income tax information. The bill applies to financial years starting after 21 June 2024, and includes fines of up to EUR 100,000 for non-compliance. Approval from both parliament and the Federal Council is pending.
Bahrain
The Ministry of Industry and Commerce (MoIC) has set the deadline for Country-by-Country (CbC) reporting for the fiscal year 2023. Entities covered by Ministerial Order No. 28 of 2021 must comply with the following guidelines:
- Constituent entities should notify the MoIC by email (es@moic.gov.bh) of the identity and tax residency of their ultimate parent entity (UPE).
- Reporting entities based in Bahrain must submit the CbC report on behalf of the MNE group. They must register with the International Tax Information Exchange System (ITIES) and submit the report using the CbC report form at https://ities.nbr.gov.bh.
The deadline for both filings is 31 December 2024.
Cyprus
On 3 April 2024, the Cyprus Tax Authority published additional “Frequently Asked Questions” (FAQs) to clarify certain provisions of the Income Tax Law in connection with the adoption of the transfer pricing legislation by Cyprus with effect from 1 January 2022.
Estonia
Published on 18 April 2024, Estonian lawmakers have approved new legislation implementing EU directives for public country-by-country reporting and parts of the EU’s Minimum Tax Directive.
- Large groups with revenues exceeding EUR 750 million are now required to publish detailed income tax reports for fiscal years starting on or after 22 June 2024.
- In addition, Estonia has opted to delay certain aspects of the Minimum Tax Directive, including the Income Inclusion Rule and the Undertaxed Profits Rule, but will still need to adopt other provisions to ensure compliance. The legislation, pending the President’s signature, sets a compliance deadline for initial reporting by 30 June 2026.
European Union
- On 10 April 2024, the European Parliament adopted an opinion advocating for an accelerated implementation of the EU Transfer Pricing Directive, targeting a start by 1 January 2025. The Parliament suggested several key changes, including adopting formulary apportionment to combat tax avoidance, aligning with OECD guidelines, standardising of documentation, re-establishing the Transfer Pricing Forum under a new name, and enhancing parliamentary oversight. These proposals are now headed to the Council for further consideration.
- On 10 April 2024, the European Parliament adopted an opinion expressing support for the Proposal for a directive to establish a Head Office Tax (HOT) system for SMEs, suggesting significant modifications. The changes include clarifying the benefits and obstacles for SMEs, expanding the directive’s coverage, reassessing exclusions for international shipping after five years, mandating cooperative audits between Member States, and launching a comprehensive EU-wide informational campaign. The Parliament also called for an accelerated implementation with the directive to take effect from 1 January 2025. This opinion, while not binding, informs the Council’s deliberations on adopting the directive.
Hungary
Hungarian tax authorities plan to focus on transfer pricing in 2024, using newly collected data for audits. They will focus on related-party transactions in the automotive and pharmaceutical industries, check compliance with APAs, and investigate intra-group manufacturing and financial transactions involving related companies.
Italy
On 5 April 2024, the Italian Supreme Court ruled on the following case:
- Company Y (Italy) made a loan to its Dutch subsidiary, Company X, at an interest rate of 3.90%, which the Italian tax authorities considered to be below market value and adjusted the interest rate to 6.81%, thereby increasing the Italian taxable income. After unsuccessful appeals to lower tax commissions, Company Y escalated the dispute to the Supreme Court. The court then referred the case back to the Regional Tax Commission, demanding a thorough justification for the adjusted rate and a detailed review of the evidence, criticising the previous findings as insufficient.
Liechtenstein
The Liechtenstein government has adopted a consultation report proposing amendments to several laws aimed at enhancing international tax cooperation. These laws include the Act on the International Automatic Exchange of Information in Tax Matters (AEOI Act), the FATCA Act related to the agreement with the United States, the agreement on tax cooperation with Austria, and the Act on the International Automatic Exchange of Country-by-Country Reports (CbCR Act). These modifications aim to align with the recommendations from the Global Forum on Transparency and Exchange of Information for Tax Purposes, aiming to secure a top rating in the Financial Center Strategy 2025
The Netherlands
On 5 April 2024, the Minister of Economic Affairs published a letter addressing issues surrounding the Tax Plan 2024. During the deliberations on the Tax Plan, the government agreed to introduce alternative measures in response to the concerns and objections, particularly regarding the 30% ruling, the abolition of dividend tax exemptions, increases in tax rates in box 2 and 3, and banking levies.
Luxembourg
On 18 April 2024, the Luxembourg government published an amended list of jurisdictions for report exchange under the Common Reporting Standard (CRS). Liberia, Moldova, Montenegro, and Uganda were removed from the list, while Georgia and Ukraine were added.
OECD
- On 25 April 2024, the OECD/G20 Inclusive Framework on BEPS released an updated Consolidated Commentary to the Global Anti-Base Erosion Model Rules, incorporating Agreed Administrative Guidance documents since 14 March 2022. This update follows the publication of three sets of Agreed Administrative Guidance in February, July, and December 2023, which introduced safe harbours and provided clarification on the GloBE Rules for Multinational Enterprise (MNE) Groups and tax administrations. The Illustrative Examples document, originally published on 14 March 2022, was also updated on 25 April 2024, to include examples developed for the subsequently published Agreed Administrative Guidance sets, serving illustrative purposes.
- On 25 April 2024, the OECD published a consolidated commentary merging the March 2022 commentary on the Pillar 2 global anti-base erosion (GloBE) rules with the subsequent administrative guidance issued by the comprehensive framework up to December 2023. The commentary, titled ‘Tax Challenges Arising from the Digitalisation of the Economy – Consolidated Commentary to the Global Anti-Base Erosion Model Rules (2023)’, aims to address the tax challenges posed by the digital economy.
- On 30 April 2024, the OECD released the Tax inspectors without borders (TIWB) Annual Report 2024. The report highlights the initiative’s progress, jointly managed by the OECD and the United Nations Development Program, in enhancing tax revenue collection in developing countries.
Poland
The EU Directive on public country-by-country reporting (EU Directive 2021/2101) was adopted on 16 April 2024. This legislation will take effect 14 days after publication and will apply to tax reporting for financial years beginning after 21 June 2024.
Slovakia
The Ministry of Finance has issued new guidelines outlining the transfer pricing documentation requirements for 2023. These guidelines categorise the documentation into three types:
- Full scope, which requires both a master file and a local file to demonstrate alignment with market conditions;
- Basic documentation, which includes a master file and an optional local file that does not require evidence of market conditions; and
- Simplified documentation, which follows a structured form.
Transfer pricing documentation must be submitted within 15 days upon request from the tax authority or the financial directorate. Requests for the 2023 documentation can be made from 3 April 2024, the day after the tax return filing deadline.
United Kingdom
On 11 April 2024, a ruling was published regarding a 2009 acquisition financed with $4 billion in loan notes. The involved entity claimed tax deductions for interest payments on these loans. The UK tax authorities (HMRC) challenged these deductions, arguing under the transfer pricing rules that the loans did not meet the arm’s length principle and were primarily intended to secure tax advantages. The legal dispute escalated past several courts, with the Court of Appeal ruling against the deductions, specifically under the unallowable purpose rule, while not supporting the arm’s length principal challenge.