Transfer Pricing Updates · 2018. 4. 27. · Transfer Pricing Updates The updated guidelines...
Transcript of Transfer Pricing Updates · 2018. 4. 27. · Transfer Pricing Updates The updated guidelines...
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What You Need to KNoW about the MalaYsiaN updates to traNsfer priciNg guideliNes iNcorporatiNg the beps actioN plaNs 8 to 10.
TransferPricing Updates
The updated guidelines essentially realign the existing transfer pricing (TP) standards to that of the Base Erosion and Profit Shifting (BEPS) Actions 8 to 10 (Aligning transfer pricing outcomes with value creation) and BEPS Action 13 (Transfer pricing documentation and country-by-country reporting).
The following are the key points from the session by SM Thanneermalai, Managing Director of Thannees Tax Consulting Services at the MIA Transfer Pricing Conference 2017.
Chapter II: arm’s Length prInCIpLes• Transferpriceisacceptableifall
transactionsbetweenassociatedentitiesareconductedatarm’slengthpricewhichwouldhavebeendeterminedifsuchtransactionsweremadebetweenindependentpartiesundersimilarcircumstances.
• Ensuringthatreturnsarealignedtovaluecreationandnottoanentitysolely
On 15 July 2017 the Inland Revenue Board Malaysia (IRBM) announced new updates to the Transfer Pricing Guidelines 2012. The updates, which are an expansion of the existing guidelines, are effective immediately and introduce changes to the following chapters:
Chapter II: The arm’s length principles Chapter VIII: Intangibles Chapter X: Commodity transactions Chapter XI: Documentation
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Transfer Pricing UPdaTes
becauseithascontractuallyassumedrisksorprovidedcapital,andidentifycircumstancesinwhichtransactionscanbere-characterised
• Accuratelydelineateordrawtheresponsibilitylinesofthecontrolledtransactions,toensurethattheactualconductsubstantiallyconformstothetermsofthewrittencontract.
• Focusedandrobustanalysisonfunctions,assetsandrisks(FAR)withemphasisonvaluecreationbetweenaffiliateentitiestoascertainthetransferpricingoutcomes.
• Functionsinvolveallocationofthefunctions,identificationofthepartyundertakingandthecapabilitytoundertake.
• Assetsinvolveidentificationofthepartycontributingandthetypeofassets.
riskswithspecificity.• Step2:Contractualassumptionofrisks• Step3:Functionalanalysisinrelationto
risks• Step4:InterpretingSteps1to3• Step5:Ifdifferencesexist,reallocating
therisksaccordingly• Step6:Pricingthetransaction• Introducesmeasuresthattaxpayers
canconsidersuchasworkingcapitaladjustmentsandrecognitionofBerryRatioasaprofitlevelindicator.
Chapter VII: IntangIbLes• Detailedguidanceonidentification
andcategorisationofintangibles.Inadditiontotradeandmarketingintangibles,thedefinitionofintangibleshasbeenbroadenedtocovergovernmentlicensesandexclusiverights,productionsharingcontracts,
• Risksdealwiththeallocationofriskssupportedbytheactualdecisionmaking.
• IntroductionoftheRiskAnalysisFramework(asix-stepapproach)forthepurposeofaccuratelydelineatingactualtransactionsinrelationtorisks.The6-stepapproachencompasses:
• Step1:Identifyeconomicallysignificant
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Transfer Pricing UPdaTes
complywiththeCountry-by-CountryReportingrequirements
• Taxpayersarenolongerencouragedbutrequiredtomaintaincontemporaneousdocuments.Documentationshouldincludeadescriptionofthemanagementstructureofthelocalentityandlocalorganisationchart,aswellasadetaileddescriptionofthebusinessandbusinessstrategypursuedbythelocalentity.
• ThecomparablesearchesinthedatabasesupportingpartoftheTransferPricingshouldbeupdatedeverythreeyearsratherthanannually.However,financialdataandsuitabilityoftheexistingcomparableshouldbereviewedandupdatedeveryyear.
• Guidanceprovidedondisclosureofmaterialchangesimpactingtransferpricinganalysissuchaschangesinshareholding,changesinbusinessmodelandstructure,changesinbusinessactivities,changesinfinancial/financingstructure,changesinTPpolicyormergerandacquisition.
• Additionalinformationonpricinganalysesisspeltouttoimproveclarity.Pricingpolicyshouldincludeinformationsuchasdetailsontheformulaadopted,howtheformulaisapplied,whodeterminesthepricingpolicy,howoftenthepolicyisrevised,thesampleofdocumentstosupportthepricingpolicy,andresultsofacomparabilitystudytoensurethearm’slengthprice.
• Taxpayersarerequiredtoevaluatethemanagement,allocationandassumptionsofrisksbymakingreferencetotheRiskAnalysisFramework.
• Thechapteralsore-emphasisesthepoweroftheIRBMtoimposepenaltyandthepenaltyisexpectedtoincreaseupto100%in2018. n
licensesthatgranttraderestrictions,powerpurchaseagreement,andcontractstosupplypharmaceuticalproductstogovernmenthospitals.
• IntroductionoftheDevelopment,Enhancement,Maintenance,ProtectionandExploitation(DEMPE)concepttoanalysetransactionsinvolvingintangibles,andtoidentifylegalownerandeconomicownersforallocationofthearm’slengthremunerationwithregardstotheircontributiontowardsthedevelopmentofintangibles.
• Guidanceondeterminationofarm’slengthcompensationforspecifictransactionsandowners,whichincludeR&Dserviceproviders,limitedriskdistributorsperformingAMPactivitiesandlocalcontractmanufacturers.
• Guidanceontransferpricinganalysisinvolvingtheuseandtransferofintangibles,whichincludetransferofrightsinintangibles,transferofcombinationofintangiblesandtransactionsinvolvingtheuseofintangiblesinconnectionwiththesaleofgoodsorperformanceofservices.
• IntroductionofvaluationtechniquesinadditiontoComparableUncontrolledPrice(CUP)andProfitSplitMethod
toestimatethearm’slengthpriceforintercompanytransferofintangibles.
Chapter X: CommodIty transaCtIons• Thisisanewchapterandprovides
taxpayerswithguidanceontheapplicationofCUPmethodoncommoditytransactions.
• Reasonablyaccurateadjustmentsshouldbemadetothequotedpriceforthecommoditytoensuretheeconomicallyrelevantcharacteristics.
• EvidenceofPrice-SettingPolicytobeprovidedbythetaxpayertotheIRBMaspartofthetransferpricingdocumentation
• Incaseofmismatchofpricingdatesbetweenthecontractandactualconduct,theIRBMhasthediscretiontodeterminethepricingdatebasedonevidenceavailabletotheIRBM.Thepricingdatereferstothespecifictimeanddateselectedbythepartiestodeterminethepriceforcommoditytransactions.
Chapter XI: doCumentatIon• IntroducestheMasterFileaspartof
thetransferpricingdocumentationfortaxpayerswhoarerequiredto
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