Transfer Pricing AlertEY Han Young newsletterApril 2016

2Transfer Pricing Alert April 2016

Transfer PricingCurrent issue.M a la y s ia . C a n a d a . T u rk e y

3Transfer Pricing Alert April 2016

TP Current Issues

Malaysia

O n 24 M a rc h 2016, t h e M a la y s ia n I n la n d R e v e n u e B o a rd ( I R B ) a n n o u n c e d pla n s t o in t ro d u c e a C o u n t ry - b y - C o u n t ry ( C b C ) re po rt in g re q u ire m e n t . I n a d d it io n , t h e c u r-re n t lo c a l t ra n s f e r pric in g d o c u m e n t a t io n re q u ire m e n t s w ill b e u pd a t e d t o in c lu d e t h e M a s t e r F ile a n d L o c a l F ile c o n c e pt s , in lin e w it h Ac t io n 13 o f t h e O rg a n is a t io n for Economic Co-operation and Development’s Base Erosion and Profit Shifting pro-j e c t .

T h e C b C re po rt in g a n d n e w t ra n s f e r pric in g d o c u m e n t a t io n re q u ire m e n t s a re e x -pected to be effective in Malaysia from 1 January 2017, with the first filing of the C b C re po rt s b y 3 1 D e c e m b e r 2018 . T h e t ra n s f e r pric in g d o c u m e n t a t io n s u b m is -s io n re q u ire m e n t w o u ld re m a in u n c h a n g e d ; a c c o rd in g ly , t h e t ra n s f e r pric in g d o c u -m e n t a t io n is n o t re q u ire d t o b e s u b m it t e d w it h t h e t a x re t u rn , b u t m u s t b e m a d e a v a ila b le t o t h e I R B w it h in 3 0 d a y s u po n re q u e s t . T h e C b C re po rt s w ill a u t o m a t ic a lly b e s h a re d w it h f o re ig n t a x a d m in is t ra t o rs pu rs u a n t t o t h e M u lt ila t e ra l C o m pe t e n t Au t h o rit y Ag re e m e n t w h ic h M a la y s ia h a s s ig n e d .

Am e n d m e n t s t o t h e c u rre n t le g is la t io n , ru le s a n d g u id e lin e s t o im ple m e n t t h e s e c h a n g e s a re e x pe c t e d t o b e a n n o u n c e d b y J u ly 2016.

Malaysia plans to introduce Country-by-Country Reporting and Master File-Local File documentation requirements

4Transfer Pricing Alert April 2016

TP Current Issues

Canada issues Federal budget 2016-2017 including BEPS Action 13 initiatives

Canada

On 22 March 2016, Federal Finance Minister Bill Morneau tabled his first budget ( B u d g e t 2016) .

T h e k e y t a x m e a s u re s s e t f o rt h in B u d g e t 2016 w it h re g a rd t o t h e in it ia t iv e s a lig n e d w it h t h e e f f o rt s o f t h e G 20 a n d t h e O rg a n is a t io n f o r E c o n o m ic C o - o pe ra t io n a n d Development (OECD) to address base erosion and profit shifting (BEPS) Action 13 c a n b e s u m m a riz e d a s f o llo w s .

Co untry - b y - co untry rep o rting

T h e F e d e ra l G o v e rn m e n t is u n d e rt a k in g t o in t ro d u c e le g is la t io n t o s t re n g t h e n t ra n s -f e r pric in g d o c u m e n t a t io n b y in t ro d u c in g c o u n t ry - b y - c o u n t ry ( C b C ) re po rt in g f o r large multinationals. Budget 2016 confirms that the measure will only apply to mul-t in a t io n a l e n t e rpris e s ( M N E s ) w it h t o t a l a n n u a l c o n s o lid a t e d g ro u p re v e n u e o f € 7 5 0 m illio n o r m o re .

W h e re s u c h a n M N E h a s a n u lt im a t e pa re n t re s id e n t in C a n a d a , t h e re po rt w ill b e re -quired to be filed with the CRA within one year of the end of the fiscal year to which the report relates. A Canadian-resident subsidiary may also have a filing obligation w h e re t h e u lt im a t e pa re n t c o m pa n y is a re s id e n t o f a c o u n t ry t h a t d o e s n o t re q u ire C b C re po rt in g , o r if t h e C R A is n o t a b le t o o b t a in t h e in f o rm a t io n t h ro u g h it s in f o r-m a t io n e x c h a n g e n e t w o rk .

A Canadian subsidiary resident in Canada may also have a filing requirement if the e n t it y is a d e s ig n a t e d “ s u rro g a t e . ” R e po rt in g w ill b e re q u ire d f o r t a x a t io n y e a rs t h a t b e g in a f t e r 2015 . F irs t e x c h a n g e s b e t w e e n j u ris d ic t io n s o f C b C re po rt s a re e x pe c t e d t o o c c u r b y J u n e 2018 . B e f o re a n y e x c h a n g e w it h a n o t h e r j u ris d ic t io n , t h e C R A w ill f o rm a liz e a n e x c h a n g e a rra n g e m e n t w it h t h e o t h e r j u ris d ic t io n a n d w ill ensure that it has the appropriate safeguards in place to protect the confidentiality o f t h e re po rt s . I t is e x pe c t e d t h a t t h e d ra f t le g is la t io n w h ic h w ill b e re le a s e d f o r c o m -m e n t s in t h e c o m in g m o n t h s a n d t h e in f o rm a t io n re q u ire d w ill b e c o n s is t e n t w it h the OECD’s Action 13 final report released in 2015.

5Transfer Pricing Alert April 2016

TP Current Issues

Canada

B u d g e t 2016 d id n o t pro v id e a n y c o m m e n t s o n pe n a lt ie s f o r in a c c u ra t e in f o rm a -tion or failure to file. Nor did it include a proposal to change the transfer pricing documentation requirement in relation to both the master file and local file revised t ra n s f e r pric in g d o c u m e n t a t io n s t a n d a rd s a n d re q u ire m e n t s .

R ev ised transfer p ricing guid ance

Budget 2016 reaffirms that transfer pricing on intra-group transactions should re-flect arm’s-length terms and the arm’s- length principle as mandated by section 247 o f t h e I n c o m e T a x Ac t . T h e re is n o pro po s e d le g is la t io n in B u d g e t 2016 re la t in g t o t h e re v is e d O E C D t ra n s f e r pric in g g u id e lin e s o n t h e a pplic a t io n o f t h e a rm ’ s - le n g t h principle. Budget 2016 confirms that the revisions to the OECD transfer pricing g u id e lin e s g e n e ra lly s u ppo rt t h e C R A’ s c u rre n t in t e rpre t a t io n a n d a pplic a t io n o f t h e arm’s-length principle as reflected in its audit and assessing practices.

T h e s e re v is io n s a re t h u s b e in g a pplie d b y t h e C R A a s t h e y a re c o n s is t e n t w it h c u r-re n t pra c t ic e s . T h e C R A w ill n o t b e a d j u s t in g it s a d m in is t ra t iv e pra c t ic e s o n lo w v a lu e - a d d in g s e rv ic e s a s t h e B E P S pro j e c t pa rt ic ipa n t s a re s t ill e n g a g e d in f o llo w - u p work on the development of a threshold for the proposed simplified approach.

Similarly, the BEPS project is continuing to clarify the definition of risk-free and risk-a d j u s t e d re t u rn s f o r m in im a lly f u n c t io n a l e n t it ie s . C a n a d a w ill d e c id e o n a c o u rs e o f a c t io n w it h re g a rd s t o b o t h t h e s e m e a s u re s a f t e r t h e o u t s t a n d in g w o rk is c o m ple t e .

S p o ntaneo us ex ch ange o f tax rulings

T h e B E P S pro j e c t d e v e lo pe d a f ra m e w o rk f o r t h e s po n t a n e o u s e x c h a n g e o f c e rt a in t a x ru lin g s t h a t c o u ld g iv e ris e t o B E P S c o n c e rn s in t h e a b s e n c e o f s u c h e x c h a n g e s .

Budget 2016 confirms the Government’s intention to implement the BEPS mini-m u m s t a n d a rd f o r t h e s po n t a n e o u s e x c h a n g e o f c e rt a in t a x ru lin g s . T h e C R A w ill c o m m e n c e e x c h a n g in g t a x ru lin g s in 2016 w it h o t h e r j u ris d ic t io n s t h a t h a v e c o m -m it t e d t o t h e m in im u m s t a n d a rd .

6Transfer Pricing Alert April 2016

TP Current Issues

Turkey

O n 16 M a rc h 2016, t h e T u rk is h R e v e n u e Ad m in is t ra t io n ( T R A) re le a s e d D ra f t G e n -eral Communiqué no. 3 on Disguised Profit Distribution through Transfer Pricing ( D ra f t C o m m u n iq u e ) o n it s w e b s it e t o im ple m e n t n e w t ra n s f e r pric in g re po rt in g re -q u ire m e n t s f o r m u lt in a t io n a l e n t e rpris e s in lin e w it h re c o m m e n d a t io n s b y t h e O r-g a n is a t io n f o r E c o n o m ic C o - o pe ra t io n a n d D e v e lo pm e n t ( O E C D ) a n d t h e G 20. T h e D ra f t C o m m u n iq u e is o pe n f o r pu b lic c o m m e n t ; c o m m e n t s a re d u e b y 3 1 M a rc h 2016.

B a s e d o n t h e D ra f t C o m m u n iq u e , T u rk is h la rg e m u lt in a t io n a l b u s in e s s e s , a n d T u rk -is h s u b s id ia rie s o f la rg e m u lt in a t io n a ls , n e e d t o a n a ly z e t h e b ro a d e r re po rt in g re -q u ire m e n t s a n d d e v e lo p a n d im ple m e n t re q u ire d c h a n g e s t o t h e ir d o c u m e n t a t io n , policies, and systems for fiscal periods starting as of 1 January 2016.

T h e D ra f t C o m m u n iq u e im ple m e n t s in T u rk e y t h e O E C D ’ s a n d G 20’ s ” s t a n d a rd iz e d 3 - t ie r” a ppro a c h t o t ra n s f e r pric in g d o c u m e n t a t io n u n d e r Ac t io n 13 o f t h e O E C D ’ s Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan). The three tiers of documentation are a master file, a local file, and a Country-by-Country (CbC) re po rt .

Co untry - b y - Co untry R ep o rt( “ Cb C rep o rt” )

F ro m 1 J a n u a ry 2016, t h e D ra f t C o m m u n iq u e re q u ire s e n t it ie s t h a t a re pa rt o f a m u lt in a t io n a l g ro u p w it h a n n u a l c o n s o lid a t e d re v e n u e f o r t h e in c o m e y e a r t h a t e x c e e d s T R Y 2. 03 7 m illio n ( a ppro x im a t e ly € 7 5 0 m illio n ) t o pro v id e t h e T R A w it h a s t a t e m e n t in a f o rm ( t h e C b C re po rt ) d e t e rm in e d b y t h e T R A.

The CbC report may not need to be filed by the Turkish subsidiary of a global group pro v id e d t h a t t h e g ro u p’ s pa re n t e n t it y is in a j u ris d ic t io n w it h w h ic h T u rk e y h a s a n in f o rm a t io n s h a rin g a g re e m e n t f o r C b C re po rt in g in pla c e a n d t h e le g a l re g u la t io n s

Turkish Revenue Administration implements new transfer pricing documentation approach including CbC reporting

7Transfer Pricing Alert April 2016

TP Current Issues

Turkey

re g a rd in g C b C re po rt in g h a v e b e e n pu t in t o f o rc e in t h e re le v a n t y e a r b y t h e a u t h o r-it y o f t h e c o u n t ry w h e re t h e pa re n t h e a d q u a rt e rs is lo c a t e d .

I f t h e re is n o t a n y a g re e m e n t o n t h e a u t o m a t ic d is c lo s u re o f C b C re po rt d e t a ils b e -t w e e n T u rk e y a n d t h e t a x a u t h o rit y o f t h e m u lt in a t io n a l e n t e rpris e ’ s h e a d q u a rt e rs o r if t h e le g a l re g u la t io n s re g a rd in g t h e C b C re po rt h a v e n o t b e e n pu t in t o f o rc e in t h e re le v a n t y e a r b y t h e t a x a u t h o rit y o f t h e c o u n t ry w h e re t h e pa re n t h e a d -q u a rt e rs is lo c a t e d , t h e C b C re po rt s h a ll b e pre pa re d a n d s u b m it t e d b y t h e e n d o f the 12th month following the fiscal year by the Turkish resident subsidiary of the m u lt in a t io n a l e n t e rpris e g ro u p ( if t h e re a re m o re t h a n o n e g ro u p c o m pa n y , b y o n e c o m pa n y o n b e h a lf o f t h e o t h e rs ) t o t h e T R A.

M aster F ile

T u rk is h c o rpo ra t e t a x pa y e rs in c lu d e d in a g ro u p o f m u lt in a t io n a l e n t e rpris e s a n d w it h a s s e t s o n t h e b a la n c e s h e e t o f t h e pre v io u s y e a r- e n d a n d n e t s a le s re v e n u e in t h e in c o m e s t a t e m e n t a m o u n t in g t o T R Y 25 0 m illio n a n d a b o v e , w ill b e o b lig e d to prepare the “Master file” by the end of the second month following the filing deadline of corporate tax return and submit the file to the Tax Authority or those a u t h o riz e d f o r t a x in s pe c t io n if re q u e s t e d .

The Master file shall consist of an overview of the multinational group’s business o pe ra t io n s , t ra n s f e r pric in g pra c t ic e s , o rg a n iz a t io n a l s t ru c t u re , it s in t a n g ib le s a n d intercompany financial activities, its financial and tax positions, and a description o f t h e g ro u p’ s b u s in e s s e s .

L o cal F ile

As pa rt o f t h e re po rt in g , it is e x pe c t e d t h a t e a c h e n t it y w ill n e e d t o pro v id e a lo c a l file, consisting of three different components including Appendix 2 transfer pricing f o rm , Appe n d ix 4 t ra n s f e r pric in g f o rm a n d t h e a n n u a l t ra n s f e r pric in g re po rt , a n d provide its group master file designed in accordance with the local requirements.

8Transfer Pricing Alert April 2016

Contacts

Transfer Pricing

Sang Min Ahn Partner 02. 3787. 4602 Sang- min. ahn@ kr. ey. com

Sung Han Park Partner 02.3787.6355 Won- bo. jung@ kr. ey. com

Dong Hoon Ha Partner 02. 3770. 0936 Dong- hoon. ha@ kr. ey. com

Hoon Seok Chung Director 02. 3770. 0924 Hoonseok. chung@ kr. ey.com

Jae Seong Yun Director 02. 3787. 4265 Jae- seong. yun@ kr. ey. com

Ki Se Kim Senior Manager 02. 3770. 0918 Ki- se. kim@ kr. ey. com

Kyoung Bae Han Director (Vietnam,Ho Chi Minh ) +84 8 3824 5252 (ext. 8305) k y o u n g . b a e . h a n @ v n . e y . c o m

Transfer Pricing-Financial Services Organization(FSO)

Stella Kim Director 02. 3770. 0980 Stella. kim@ kr. ey. com

Business Tax Service

Min Yong Kwon Partner 02. 3770. 0934 Min- yong. kwon@ kr. ey. com

Dong Chul Kim Partner 02. 3770. 0903 Dong- chul. kim@ kr. ey. com

Jae Cheol Kim Partner 02. 3770. 0961 Jae- cheol. kim@ kr. ey. com

Young Ro Bae Executive Director 02.3770.0936 sunghan.park@kr. ey. com

Song Min Oh Executive Director 02. 3770. 0983 Song- min. oh@ kr. ey. com

International Tax Service

Jaewon Lee Partner 02. 3787. 4601 Jaewon. lee@ kr. ey. com

Kyung Tae Ko Partner 02. 3770. 0921 Kyung- tae. ko@ kr. ey. com

Yeon Ki Ko Partner 02. 3787. 4637 Yeonki. Ko@ kr. ey. com

Nam Wun Jang Partner 02. 3787. 4539 Nam- Wun. Jang@ kr. ey. com

Financial Services Organization

Jong Yeol Park Partner 02. 3770. 0904 Jong- yeol. park@ kr. ey. com

Jeong Hun You Partner 02. 3770. 0972 Jeong- hun. you@ kr. ey. com

Dong Sung Kim Partner 02. 3787. 4238 Dong- sung. kim@ kr. ey. com

Transaction Tax

Jin Hyun Seok Partner 02. 3770. 0932 Jin- hyun. seok@ kr. ey. com

Human Capital

Danielle Suh Partner 02. 3770. 0902 Danielle. suh@ kr. ey. com

Min Ah Kim Executive Director 02. 3770. 1019 Min- ah. kim@ kr. ey. com

EY | As s u ra n c e | T a x | T ra n s a c t io n s | Ad v is o ry

About EYE Y is a g lo b a l le a d e r in a s s u ra n c e , t a x , t ra n s a c t io n a n d a d v is o ry s e rv ic e s . T h e in s ig h t s a n d q u a lit y s e rv ic e s w e d e liv e r h e lp b u ild t ru s t a n d c o n f id e n c e in t h e c a pit a l m a rk e t s a n d in e c o n o m ie s t h e w o rld o v e r. W e d e v e lo p o u t s t a n d in g le a d e rs w h o t e a m t o d e liv e r o n o u r pro m is e s t o a llo f o u r s t a k e h o ld e rs . I n s o d o in g , w e pla y a c rit ic a l ro le in b u ild in g a b e t t e rw o rk in g w o rld f o r o u r pe o ple , f o r o u r c lie n t s a n d f o r o u r c o m m u n it ie s .

E Y re f e rs t o t h e g lo b a l o rg a n iz a t io n a n d m a y re f e r t o o n e o r m o re o f t h e m e m b e rf irm s o f E rn s t & Y o u n g G lo b a l L im it e d , e a c h o f w h ic h is a s e pa ra t e le g a le n t it y . E rn s t & Y o u n g G lo b a l L im it e d , a U K c o m pa n y lim it e d b y g u a ra n t e e , d o e s n o t pro v id e s e rv ic e s t o c lie n t s . F o r m o re in f o rm a t io n a b o u t o u ro rg a n iz a t io n , ple a s e v is it e y . c o m .

© 2016 E rn s t & Y o u n g H a n Y o u n g © 2016 E rn s t & Y o u n g Ad v is o ry , I n c . All R ig h t s R e s e rv e d .

AP AC n o . 05 0003 4 9

T h is m a t e ria l h a s b e e n pre pa re d f o r g e n e ra l in f o rm a t io n a l pu rpo s e s o n ly a n d is n o t in t e n d e d t o b e re lie d u po n a s a c c o u n t in g , t a x , o r o t h e r pro f e s s io n a l a d v ic e . P le a s e re f e r t o y o u r a d v is o rs f o r s pe c if ic a d v ic e .

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