Global Transfer Pricing

• Qatar – Transfer Pricing declaration form to be submitted

  In 2017, Qatar signed Organisation of Co-Operation and Development’s (OECD) Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and thereby, committed to align its domestic regulation with global tax rules.

  In 2018, it introduced Country by Country (CbC) Regulation and subsequently, it published new income tax law and corresponding Executive Regulation for Transfer Pricing documentation requirements.

  In September 2020, General Tax Authority of Qatar (GTA) launched tax portal “Dhareeba” wherein taxpayers are required to file income tax return as well as other declarations. This also mandates the taxpayers to submit Statement on Transfer Pricing subject to certain threshold. The statement requires information such as

• Information of related party – Basic details including country, main activity of related party, whether any changes in activity of related party during the year,
• Information of transaction - Nature of transactions, transaction currency and amount, methodology applied to justify arm’s length price, declaration as to changes in Group’s Transfer Pricing policy during the year,
• Information on intangibles - Nature of intangible owned by related party and used by taxpayer in Qatar, description of transfer pricing policy adopted by group

Recently, in February 2021, it is learnt that GTA verbally confirmed that afore-mentioned Transfer Pricing declaration to be filed by those taxpayers whose either total value of assets or revenue exceeds the threshold (which is expected to be QAR 10 million equivalent to USD 2.75 million)

Crowe UAE’s comments:

Transfer Pricing is relatively a new regime in Middle East region. While many countries have signed OECD’s BEPS Inclusive Framework, only few countries (like Kingdom of Arabia, Egypt and now Qatar) have introduced 3-tier documentation requirement in a country.

Additionally, Qatar also requires taxpayer to submit statement on Transfer Pricing along with tax return which is added compliance requirement. Since this is the first year of Transfer Pricing compliance in Qatar, it is recommended to take timely action in revisiting existing transfer pricing policy and preparing comprehensive Transfer Pricing documentation to avoid challenges in future.

•   Bahrain – Ratified MCAA for CbCR

 Bahrain has signed Multilateral Competent Authority Agreement for Country-by-Country Reporting in 2019. Recently, vide publication in official gazette on 28th January 2021, Bahrain ratified Multilateral Competent Authority Agreement for CbCR.

The ratified agreement will come into force from immediately next day of its publication

Crowe UAE’s comments:

With this move, it is expected that Bahrain will soon publish CbC Regulation in a country. While most other Gulf Co-Operation Council (GCC) countries have already implemented CbC Regulation, Bahrain too will commence the Transfer Pricing regime soon. Therefore, companies operating in Bahrain are required to proactively re-assess their Transfer Pricing policies and restructure their business model, if required, in order to be compliant with arm’s length policies.

• Malaysia – Time limit reduce to 14 days to submit Transfer Pricing documentation

  Recently, Malaysia’s Inland Revenue Board (IRB) updated Malaysia’s Transfer Pricing Guidelines.

  Previously, Transfer Pricing documentation in Malaysia was not required to be submitted to IRB along with tax return filing. Instead, documentation was required to be submitted within 30 days from the request from IRB to submit the same. IRB

  In this context, IRB has updated the guidelines to reduce the number of days to 14 (from 30) in order to submit Transfer Pricing documentation for Transfer Pricing audit cases commending on or after 1^st January 2021. Corresponding amendments were also made in penalty provision.

  Crowe UAE’s comments:

  Generally, many taxpayers adopt the approach to prepare the Transfer Pricing documentation only upon request from IRB even though it is supposed to be kept ready while filing tax return. Considering the fact that time limit is reduced to only 14 days, it is recommended to taxpayers to keep their Transfer Pricing documentation ready in order to timely submit (if required) the same.

  In our experience, Malaysia’s tax authority generally adopts aggressive approach while scrutinizing the Transfer Pricing case and therefore, non-compliance may entail stringent penalties.

• Canada – Revocation of APA cost recovery charges

  Previously, Canada’s Revenue Agency (CRA) required taxpayer to pay cost recovery charges when applying for the Advance Pricing Agreement (APA). This charge was mainly to cover the estimated expenses of during APA process including travel cost to taxpayer’s location. Subsequently, any excess amount not incurred by CRA was refunded to taxpayer at the end of APA process.

  Recently, on 5^th February 2021, CRA announced that going forward taxpayers will not be required to  pay such cost recovery charges.

  Crowe UAE’s comments:

  Most of the developed and developing countries have APA mechanism in place wherein taxpayer can enter into an agreement with tax authority in advance for certain period (generally 3-5 years) on Transfer Pricing policy to be adopted. In last many years, APA has remained attractive mechanism for multinational corporation in order to get certainty as well as on saving time and cost on Transfer Pricing matters. Moreover, in today’s scenario wherein most of taxpayers have been severely affected by Covid-19 pandemic and thus, grappling with transfer pricing compliant policy, it is expected that APA mechanism will remain attractive option for taxpayers.

  Therefore, CRA’s move to revoke cost recovery charges from taxpayers is a welcome move for those who wish to apply APA soon.

• South Africa – Transfer Pricing adjustment upheld in the absence of Transfer Pricing documentation

Recently, Tax Court in South Africa upheld the transfer pricing adjustment for taxpayer who failed to prepare Transfer Pricing documentation to justify arm’s length nature of intra-group transactions. We have summarised the facts of the case as under:

Case - ABC (Pty) Ltd v. Commissioner for the South African Revenue Service (14305) (2021) (ZATC 1)

Facts:

• Taxpayer is engaged in the business of manufacturing, importing, and selling chemical products
• It has a catalyst division that is focused on manufacturing and selling catalytic converters (catalysts).
• In order to manufacture catalysts, taxpayer imported Precious Group of Metals (PGMs) from its Swiss Group entity. Such PGMs was used in a manufacturing process and thereafter, final products in the form of Catalysts were sold to end customers in South Africa.
• During the audit proceedings, taxpayer failed to product Transfer Pricing documentation and therefore, tax authority conducted its own analysis.
• In fact, tax authority’s in-depth analysis included functions performed, risks assumed and assets employed (FAR analysis) by taxpayer and its related party, analysis of cost base of the taxpayer, performing benchmarking search analysis on database to identify independent comparable companies in similar business activity and adopting Transactional Net Margin Method (TNMM) with Full Cost Mark-up (FCMU) to benchmark the transaction.
• Based on the above analysis, since the taxpayer’s profitability was lower than median, it was concluded that inter-company transactions were not at arm’s length and therefore, tax adjustment was made by authorities.

  Tax Court’s decision:

• Tax Court decided the matter in the favour of tax authority and upheld the adjustment.

  Crowe UAE’s comments:

• It is recommended to prepare and maintain comprehensive Transfer Pricing documentation to substantiate intra-group transactions. In the absence of appropriate documentation, tax authority may conduct its own analysis and most probably may make adverse tax adjustment. Additionally, there is a greater risk of levying penalty for such non-compliance.
• Therefore, it is advisable for taxpayers to revisit their transfer pricing compliance for past years and proactively take steps to prepare robust documentation for future years.