Transfer Pricing – VSTN AMP Post

Transfer Pricing – Advertisement, Marketing and Promotion (“AMP”) Expenses

One of the most controversial issues in the transfer pricing arena which started in the past decade was treating Advertisement, Marketing and Promotion (AMP) expenses of Indian entities as an international transaction. Over the years the tax authorities have been consistently arguing that the excessive AMP spent by an Indian subsidiary lead to an increase in the Brand value of the foreign Associated enterprise (AE) and this is an international transaction and is subject to TP provisions.

The absence of any regulation dealing with AMP issue and the fact that the principle is completely fostered based on judicial pronouncements by various tax forums add to the controversy. The Delhi High Court (“HC”) in the case of Maruti Suzuki India Ltd explicitly held that AMP does not constitute an international transaction and that the use of ‘bright line test’ (BLT) approach as inappropriate for making an adjustment. However, the SLP filed before the Supreme Court against this HC decision is still pending and hence the issue is yet to attain finality. In the interim, apart from BLT, the transfer pricing authorities are adopting various innovative measures to impose adjustments such as:

AMP intensity adjustment –Treating the assessee’s marketing activity as a separate function and factoring AMP intensity in profit rates of comparable companies while benchmarking the import transactions to arrive at the TP Adjustment.
50-50 adjustment – Attributing AMP spend as being incurred equally towards brand development of the foreign AE and towards the benefit of the Indian entity thereby imposing adjustment to recover the 50% of the expenses from the foreign AE. Some cases a profit mark-up is also expected on the cost to be recovered.
Brand building as a service – Treating the AMP spend as a brand building service rendered by the Indian subsidiary to its foreign AE and thereby attributing notional income as a percentage on sales determined on an ad-hoc basis.

Until the issue is decided at the Apex Court, taxpayers are faced with these adjustments every year at the TPO level irrespective of favorable orders in their own case itself before the ITAT.

As businesses expand across borders, navigating complex transfer pricing regulations becomes critical. At VSTN Consultancy, a global transfer pricing firm, we specialize in helping companies stay compliant and competitive across key markets including:

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

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UAE Transfer Pricing Limits

Conditions prescribed for maintenance of TP documentation under the new Corporate tax regime
Explanatory guide on CT law issued

Last week, the UAE MoF had released the much-awaited notification regarding the conditions for maintenance of TP documentation (Local file & Master file) in the form of Ministerial decision no. 97 of 2023. Additionally, an Explanatory guide on the CT law was also published which provides a summary of the meaning and intended effect of each Article of the CT Law.

In our alert we have summarized the key aspects in relation to the decision as well as our analysis on the same. Though the Ministry has been considerate in fixing high thresholds and specifically excluding certain tax neutral transactions from the Local file, the following aspects would need to be taken into consideration:

Arm’s length principle– The thresholds & inclusions/exclusions are specifically in connection with Master file/Local file. The requirement to comply with arm’s length principle would still apply irrespective of these and it becomes the Taxable Person’s responsibility to maintain sufficient supporting documents to substantiate the arm’s length nature of its transactions
Disclosure form– No specific thresholds have been prescribed yet for filing of the Disclosure form. Once the format is notified one may obtain clarity if it requires a Taxable Person to provide details of its transactions/arrangements with all of its Related Parties & Connected Persons
Qualifying Free Zones– The Definition of Taxable Person (Article 11) includes QFZ and hence the thresholds and conditions for maintenance of Local & Master file provided would equally applicable to QFZ. However, the QFZ may need to comply with the arm’s length principle (Article 34) irrespective of the thresholds in order to claim the benefits.
Natural persons– As per the exclusions to Local file, Taxable Persons having transactions with Natural persons need not form part of Local file subject to conditions. In our view, where the Taxable Person is itself a Natural person, Local file will have to be prepared, subject to thresholds & conditions prescribed
Arm’s length principle in other aspects of CT law– In various other sections of the CT law where the arm’s length principle would be applicable (eg: GAAR, Investment Manager Exemption, transfers with a foreign PE etc), sufficient supporting documentation should be maintained to substantiate the arm’s length nature of these transactions
TP documentation guidelines– Further guidance regarding maintenance of TP documentation including specific formats for Local file & Master file are expected from the Authority. This guidance may also need to address where there are multiple entities of the same Group in UAE and whether filing and maintenance of single Master File for the Group would suffice.

Open Attachment…

UAE CT Law – TP updates

Conditions for maintenance of TP documentation

May 2023

Summary of recent developments

A. Ministerial decision no. 97 of 2023 on conditions for maintenance of Transfer Pricing documentation

The UAE Ministry of Finance on 11 May 2023 has issued the much-awaited clarification regarding the conditions for maintenance of transfer pricing documentation (Local file and Master file) in the form of Ministerial decision no. 97 of 2023. It has prescribed certain quantitative thresholds as well as listed the transactions and arrangements which would need to be included and excluded in the Local file. In this alert, we have summarized the key aspects in relation to the decision.

B. Explanatory guide on CT law issued

An explanatory guide on the CT law was published by the Ministry on 12 May 2023. It provides a summary of the meaning and intended effect of each Article of the CT Law. The guide has specifically mentioned that the UAE’s transfer pricing rules are intended to be aligned with the OECD’s internationally accepted transfer pricing standard, and allow Taxable Persons to use relevant guidance as a reference in the application of the arm’s length principle.

Quantitative thresholds

It is to be noted that revenue-based thresholds have been prescribed and the quantum of the transactions with Related Parties and Connected Persons is not relevant.

Local file inclusions

Transactions / arrangements with the following Related Parties and Connected Persons are to be included in the Local file:

Related Party / Connected Person	Description
1. A Non-resident person	Eg: Foreign fellow subsidiaries, PE of foreign related parties in UAE.
2. An Exempt person	Eg: Government entities, Persons engaged in Extractive business who meet the prescribed conditions, Qualifying Public Benefit entities etc., who are exempt from Corporate Tax
3. A Resident Person that has elected for Article 21 of the CT law and meets the conditions prescribed.	This refers to Taxable Persons opting for Small Business Relief, who are treated as not having any Taxable income during a tax period
4. A Resident Person who is taxed at a different Corporate Tax rate from that of the Taxable Person	Eg: Qualifying Free Zone Persons which are charged 0% on Qualifying income. Similarly, where one of the Taxable Persons pays tax and the Related Party is subject to 0% tax where his taxable income is less than the threshold of AED 375,000.

Local file exclusions

Transactions / arrangements with the following Related Parties and Connected Persons shall not be included in the Local file:

Resident Persons other than those specifically included in points 2, 3, 4 above
A Natural person (Individual), provided that the parties to the transaction / arrangement are acting independently (Also refer below table).
A juridical person that is a partner in an Unincorporated Partnership, provided that the parties to the transaction / arrangement are acting independently (Also refer below table).
A Permanent Establishment of a Non-Resident Person in the State who is taxed at the same Corporate Tax rate applicable to the Taxable Person.

Other specific conditions mentioned are:

Related Party / Connected Person	Conditions for excluding transactions with these parties in the Local file
Individuals	1) Parties will be considered as acting independently where: The transaction / arrangement is undertaken in the ordinary course of business AND The parties are not exclusively / almost exclusively transacting with each other. Eg: If the connected person is a natural person i.e., the major shareholder and provides management services only to the Company, then such services will have to form part of local file. 2) Where one Party is subject to detailed instruction or comprehensive control of the other Party, they will not be regarded as acting independently.
Juridical Person who is a partner in an Unincorporated Partnership

Related Party / Connected Person

Conditions for excluding transactions with these parties in the Local file

Individuals

1) Parties will be considered as acting independently where:

The transaction / arrangement is undertaken in the ordinary course of business AND
The parties are not exclusively / almost exclusively transacting with each other.

Eg: If the connected person is a natural person i.e., the major shareholder and provides management services only to the Company, then such services will have to form part of local file.

2) Where one Party is subject to detailed instruction or comprehensive control of the other Party, they will not be regarded as acting independently.

Juridical Person who is a partner in an Unincorporated Partnership

The Tax Authority will consider all relevant facts and circumstances to determine whether the Persons are acting as if they were independent of each other.

Key Takeaways

The quantitative limits prescribed are aimed at reducing compliance burden for small or micro businesses while ensuring transparency in the intercompany dealings of larger MNE Groups. Common limits have been prescribed for Local file and Master File and they seem to be on the higher side. The threshold of AED 3.15 billion is also aligned with the existing threshold for applicability of Country-by-Country reporting in the UAE.

Though the Ministry has been considerate in fixing high thresholds as well as specifically excluding certain tax neutral transactions from the Local file, the following aspects would need to be taken into consideration:

Arm’s length principle – The above thresholds and inclusions/exclusions are specifically in connection with Master file / Local file. The requirement to comply with arm’s length principle (Article 34) would still apply irrespective of these thresholds and would apply to transactions between Taxable Persons and all its Related Parties and Connected Persons (including tax neutral transactions), unless any further guidance is issued by the Ministry. Hence it becomes the Taxable Person’s responsibility to maintain a sufficient level of supporting documents (e.g benchmarking, policy setting documents, agreements, etc.) to substantiate the arm’s length nature of its transactions, even where the Local file is not required to be maintained.
Disclosure form – No specific thresholds have been prescribed yet for filing of the Disclosure form. Further as the aforementioned exclusions are specifically in connection with Local file, the Disclosure form may possibly require a Taxable Person to provide details of its transactions / arrangements with all of its Related Parties and Connected Persons. More clarity may be achieved once the Authority prescribes the format for the disclosure form.

Qualifying Free Zones

Compliance with transfer pricing rules and maintenance of TP documentation is a precursor for Qualifying Free Zones (QFZ) to claim 0% CT. The Definition of Taxable Person (Article 11) includes QFZ and the compliance of maintenance of Local and Master file is applicable for Taxable Persons. Hence, in our view the thresholds and conditions for Local and Master file will be equally applicable to QFZ. However, the QFZ may need to comply with the arm’s length principle (Article 34) irrespective of the thresholds in order to claim the benefits.

Natural persons

As per the exclusions to Local file, Taxable Persons having transactions with Natural persons need not form part of the Local file subject to conditions. In our view, where the Taxable Person is itself a Natural person, Local file will have to be prepared, subject to the thresholds and conditions mentioned above.

Arm’s length principle in other aspects of CT law

In our earlier alert on the UAE TP regulations, we had highlighted the various other sections of the CT law where the arm’s length principle would be applicable (eg: GAAR, Investment Manager Exemption, transfers with a foreign PE etc). Sufficient supporting documentation should be maintained to substantiate the arm’s length nature of these transactions.

TP documentation guidelines

Further guidance regarding maintenance of TP documentation including specific formats for Local file and Master file are expected from the Authority. This guidance may also need to address where there are multiple entities of the same Group in UAE and whether filing and maintenance of single Master File for the Group would suffice, in order to avoid duplicity / redundancy of filings. The formats are expected to be consistent with the requirement prescribed under OECD guidelines.

Way forward

As per the Decree law, TP requirements will apply for the financial years starting on or after 1 June 2023. With the date fast approaching, it is essential for entities to align their policies as per the arm’s length principle and be equipped to deal with the required compliances.

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

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Transfer Pricing – Corporate Guarantee (CG)

Corporate Guarantee (CG) – TransferPricing aspects

In light of the recent Mumbai Tribunal ruling – Macrotech Developers (Lodha ), the below post explores the technical aspects on CG

OECD Guidelines states a legally binding commitment by guarantor (explicit guarantee) for the obligation of its associatedenterprise (AE) is relevant for TP analysis. Any implicit support (being a member of the Group) does not warrant any compensation.

In the Indian context, though CG partakes the character of a service, for clarity guarantee was included in the definition of internationaltransaction via Finance Act 2012. Indian jurisprudence is divided as some rulings state CG is not an international transaction, but of late Tax Tribunals (ITAT) opine otherwise. Unless proved that CG is a shareholding activity with robust evidence, ITAT does not accept taxpayer’s claim of receipt of CG fees may not be required.

It is noticed that Taxpayers initially contend that CG is not an international transaction, and when litigated by tax authorities’, Taxpayers resort to relying on certain rulings such as Everest Kanto where ITAT has accepted ALP CG fees around 0.5%.

Above is an easy reactive stop-gap approach to minimise adjustment but may not be the correct TP approach, since CG fee in ITAT rulings is based on facts specific to the taxpayer for which the ruling was pronounced and most likely facts will be different from that of the Company. Instead, Companies should proactively undertake benchmarking for CG fees, based on detailed transactional analysis. Hence, Companies should consider adopting an appropriate benchmarking analysis for arriving at the ALP of CG fees. One could adopt any of the below 5 approaches to price CG.:

CUP Method- Fees charged by independent guarantors for guaranteeing comparable loans,
Yield: Spread between interest rates of unguaranteed and guaranteed loans,
Cost: Value of additional risk to guarantor due to guarantee provided – computed through option pricing, credit default swaps
Expected loss: Calculating probability of default and adjusting for expected recovery rate
Capital support: Computing differential capital to make credit rating of borrower and guarantor equal. Computing expected return on such notional additional capital

Robust benchmarking study increases the probability of tax authorities not disputing the issue – providing certainty and also reduces the burden on resources due to tax litigation. This is also seen in the aforesaid ruling, where ITAT overruled DRP directions that relied on judicial precedence of 0.5% as CG fees and upheld the benchmarking undertaken by the taxpayer – 0.35% as CG fees.

Further as base rates for loans are moving from LIBOR to ARR, it is vital that Companies relook at pricing policy for intragroup CG fees, to be aligned with latest industry best practices and also from a TP perspective.

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

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Transfer Pricing – SC ruling sap labs

Softbrands SAP Labs Supreme Court (SC) Ruling – Key Takeaways:

Last week, in a landmark verdict in the case of SAP Labs, the SC overturned the HighCourt ( HC ) order in the case of Softbrands. The SC ruled that HC has to decide the appeals by examining whether determination of arm’s length price (ALP) by the Income Tax Appellate Tribunal (ITAT) is based on the Income Tax Act and Income Tax rules. Earlier in the case of Softbrands, the HC ruled that ITAT is the final fact-finding authority and unless the appellant states the perversity as well as demonstrates the perversity of the ITAT order, HC would not interfere in the findings of the ITAT.

While most of us are aware of the decision, in our alert, we have primarily focussed on the key takeaways and considerations of this landmark SC ruling viz.,:

For the cases remanded by the SC in the order, HC will have to adjudicate the cases within 9 months and the appellant will have to present before HC how the ITAT order did not adhere to Income Tax Act and rules in determining the arm’s length price.
Increase in cases before the HC based on the SC ruling. In the event of adverse order for the taxpayer, increase in cash outflow due to interest and penalties.
Impact on refunds and demand.
In existing cases, Two alternatives where appellant is aggrieved by the order of HC – in determination of ALP – Review petition and SLP before SC
Revisit the strategy/Framing of grounds before the ITAT.
Impact on contingent liability – evaluation and FIN 48 related disclosure.
Alternate dispute resolution currently available – APA, Safe harbor (SHR) , MAP,
Expectation from Government of India – enhancement of scope of SHR, hybrid programs, introduction of ICAP (International Compliance Assurance Programme) in India.

VSTN can support taxpayers in:

Understanding the impact on the ruling for the MNE Group.
Performing a health check to identify any gaps or red flags in the existing intragroup transactions and Group’s transfer pricing policy
Outline the strategy to overcome any issues that can arise from a Transfer pricing litigation perspective
Devise risk mitigation plans to reduce the possibility of litigation or transfer pricing adjustments, including use of dispute resolution mechanisms such as Safe Harbour Rules, Advance pricing agreement, as may applicable.

Open Attachment…

SAP Labs/ SoftBrands – SC Ruling

Key Takeaways

April 2023

Background

The Hon’ble Supreme Court (SC) on 19 April 2023 pronounced its order¹ in the case of SAP Labs India, overturning the landmark Karnataka High Court ruling in the case of Softbrands India. It is known that Income Tax Appellate Tribunal (ITAT) is the final fact-finding authority, for Transfer pricing cases. In the Softbrands ruling the High Court (HC) ruled that unless the order of ITAT is perverse and it is demonstrated, substantial question of law does not arise w.r.t. determination of arm’s length price (ALP). In the recent ruling, SC ruled that HC ought to examine whether the arm’s length price has been determined in accordance with the Chapter X of the Income Tax Act, 1961, and it cannot be said that decision of ITAT is final and further held that determination of ALP price is a substantial question of law.

HC and SC Rulings

1. HC Ruling in the case of Softbrands

The HC dealt in detail on determination of ALP, based on various SC and HC rulings, and decided that appeal before it cannot be entertained unless there is a substantial question of law i.e., when there is a perversity in order of ITAT. The HC would interfere with findings of ITAT only if:

Material evidence is ignored / acted on no evidence or inadmissible evidence has been considered,
Drawn wrong inferences from proved facts by applying law erroneously,
Wrongly cast the burden of proof,

HC concluded by stating mere dissatisfaction with the findings of facts of ITAT order is not a valid ground to appeal before the HC based on Section 260A. This resulted in dismissal of multiple cases filed by both revenue and Tax payer.

2. SC Ruling

The question before SC was where ITAT determines the ALP, the same attains finality and HC is precluded from considering the determination of ALP. The SC decided that when determination of ALP is challenged before HC, HC has to consider and examine whether ALP is determined as per the Income Tax Act and it can also examine the question of comparability of companies, selection of filters etc. Thereby SC overruled the HC decision in case of Softbrands. As a consequence, SC remanded back all the cases to the HC and also indicated that these cases needs to be resolved within a time frame of 9 months.

Key Takeaways and Considerations

The following are some of the key takeaways and points to be considered in light of the recent SC ruling:

In the order, SC has stated that HC will have to adjudicate the cases within 9 months from the receipt of the order by the respective HC. The appellant will now have to present before HC on why ITAT has not determined ALP as prescribed under the Income Tax Act and Rules.
Basis our experience, more than 50% of the cases at the ITAT level, are decided in favour of the tax payer and therefore given the recent SC ruling, it will likely open the floodgates of cases earlier settled at the ITAT level, resulting more uncertainty for the taxpayers. Consequently the time line for completion of appeal proceedings would get elongated significantly leading to increased interest and penalties (if adverse) on completion
In terms of Tax demand, even in cases where the ITAT has ruled favourably for the taxpayer, one needs to see the willingness of revenue to process the refund if they take shelter under this ruling and appeal before the HC. In case of unfavourable orders for the taxpayer, they will along with the appeal to the HC also file a stay of demand to the HC (balance 80% as ITAT would have granted stay on payment of 20%) and it is the discretion of the HC to grant the stay.
In case of appellants (who had not filed the SLP before SC) aggrieved by the order of the HC (HC not determining the ALP) in their respective cases, the appellant now has two options. One, filing of review petition before the HC – based on the order of SC. Though this action is legally possible, the extent to which this option will be favourable/successful is dependent on the respective bench. Alternatively, the aggrieved appellant can file a SLP before the SC and may get adjudication on similar lines as that of SAP Labs
During the proceedings before ITAT, the appellant’s at times do not press on certain grounds as part of their approach / strategy. Since HC now has greater responsibility to review the ITAT order in detail on determination of ALP, more onus would now fall on ITAT to adjudicate on all the grounds/aspects in line with ALP prescribed under the Income Tax Act to ensure that HC does not remand back to ITAT (does not strike down the order of ITAT) on not adjudicating on certain aspects. The ITAT orders would, therefore, need to be more comprehensive in addressing all the grounds / issues raised by the appellant. Hence, appellants will have to take more care in presenting the grounds / issues before the ITAT.
Disclosures on contingent liabilities and provisions – Taxpayers have varied level and extent of disclosure of contingent liability in their financial statements. Especially where Fin. 48 compliance is applicable, scrutiny of contingent liability is more important. With the SC ruling, auditor will have to evaluate disclosure of contingent liability or provision for tax liability whether there is favourable/adverse ruling depending on the company specific facts and arguments of the tax payers.

Options / Alternative available

Following the ruling of the SC, some of the options available to the taxpayers for dispute resolution and aspects to be borne in mind is provided below:

▶ Advance Pricing Agreement (“APA”):

APA has been touted as the lighthouse of dispute resolution for Transfer Pricing. However, currently there is a significant inventory of APA applications filed with the Indian tax authorities that are yet to be concluded. With this SC ruling, likely that taxpayers are galvanised to opt for APA programme to hedge tax uncertainty and there is a higher inflow of APA applications. Taxpayers have a deadline of close to a year to file APA application for the upcoming financial year and need to weigh the time, efforts, other resources as well as the current outcomes of APA concluded while filing APA application.

▶ Safe Harbour Rules (“SHR”):

SHR was introduced to facilitate dispute resolution at a cost-efficient manner for small taxpayers. Due to lack flexibility of SHR and seemingly high arm’s length considerations for the eligible international transactions, taxpayers were wooed out from SHR. However, of late, the difference between the outcomes under other dispute resolution mechanisms and SHR are narrowing. Considering other aspects such as time, efforts, other resources required and other terms and conditions under the SHR, it might even be beneficial for taxpayers to opt under SHR. Hence eligible taxpayers, especially in case of IT and ITeS where the value of international transactions is less than INR 200 crores, SHR can be considered a worthwhile option.

▶ Mutual Agreement Procedure (“MAP”):

MAP can be invoked when a notice is issued to the tax payer giving rise to demand and taxpayers wants to eliminate double tax taxation due to such transfer pricing adjustments. The time limit for initiating MAP proceedings is 3 years from when the tax liability is crystalised.

Expectations from Government

Following are some of the aspects of current dispute resolution that can be improved to address the dispute resolution requirements by taxpayers:

Introducing highly litigated transactions in SHR with amicable arm’s length consideration and increasing the threshold limits for opting under SHR can significantly de-clutter the new applications for APA programme, which can be reserved for resolution of complex transactions.
In certain instances, it might not be appropriate to set one arms’ length price for a particular transaction, since there would other aspects / factors that decide the arm’s length price, generally in the industry. In such cases formulaic approach can be used arrived at the arm’s length price, which are pegged to key parameters. This approach is currently used in SHR for determining the arm’s length price for Knowledge Process Outsourcing (KPO) services. The formulaic approach can be extended to other eligible transactions, where applicable, and align with commercial realities of the industry, thereby increase adoption of SHR programme. Through the above, SHR can aim to bridge the gap with other dispute resolution mechanisms such as APA.

Alternatively, a new hybrid programme can be developed to resolve disputes for cases / taxpayers where the complexity is more than that of SHR and lower than that of a very complex issue that requires the extensive involvement of APA for dispute resolution. Considering the current crunch in staffing of the APA programme by the revenue, viability of introduction of such a programme may be remote.

International Compliance Assurance Programme (“ICAP”) was introduced by the OECD in 2019 on a pilot mode in 2018/2019. This is multilateral program was started to provide tax certainty for MNEs for both TP and international tax issues. The process starts with MNE Group filing the three-tier documentation and related information on the intra-group transactions. No exhaustive information is sought. MNE Group can also state the jurisdictions for which it wants to opt under the program. In the next step, risk assessment is performed on the information provided. In the last stage, outcomes are communicated to the MNE Group. There is no cost to the taxpayer and the program is time bound – 6- 12 months’ time. Though it does not provide legal certainty as compared to APA, it is a more effective dispute resolution programme. Currently 22 countries are participants of this programme including US, UK, France, Australia, Japan, Netherlands, Denmark, Singapore. If India joins this international tax programme, it will provide taxpayers with a new avenue for dispute resolution.

Conclusion

The SC ruling has a huge ramification on taxpayers and applicable taxpayers will have to evaluate and frame an appropriate strategy for their transfer pricing litigation. Taxpayers will also have to revisit their approach to dispute resolution – to now opt for a dispute resolution or change the dispute resolution mechanism currently opted.

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

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Middle East Transfer Pricing Updates – UAE and KSA

KSA

The Zakat, Tax and Customs Authority of Kingdom of Saudi Arabia (KSA) has issued its directive in extending transfer pricing regulations and introducing advancepricingagreement (APA).

A) Currently, 100% Zakat taxpayers are exempt from Transfer pricing regulations in KSA, except for filing of Country-by-country report (CbCR) where applicable. In July 2022, the Tax authority issued a public consultation on making transfer pricing provisions applicable to Zakat taxpayers. As per the recent directive (unofficial translation), taxpayers paying Zakat Tax will the subject to transfer pricing regulations effective from 01 January 2024. However, this will be applicable in a phased manner and subject to monetary threshold limits as follows:

Phase 1-From 01 Jan 2024

i) Mandatory where value of relatedpartytransactions (RPT) is more than 100 million (mn.) SaudiArabianRiyals (SAR);

ii) Optional where value of RPT is between 100 mn. SAR and 48 million SAR;

iii) Not applicable where value of RPT is less than 48 mn. SAR.

Further investment funds are exempted in Phase1

Phase 2-From 01 Jan 2027

i) Mandatory where value of RPT is more than 48 mn. Riyals;

ii) Not applicable where value of RPT is less than 48 mn. Riyals.

Therefore, taxpayers currently under 100% Zakat tax, subject to the limits, will now have to prepare localfile and masterfile with effect from 01 January 2024, apart from CbCR where applicable.

B) The recent directive made applicable the provisions of APA effective from 01 January 2024. The Transfer pricing regulations was introduced in 2019 in KSA and with the introduction of APA programme it can be expected to cap any likelihood of significant TP disputes.

UAE

The UAE issued Ministerial Decision No. 68 of 2023 that states when a government entity(ies) conduct business under the License issued, i.e., where government entity is not exempted from UAE Corporatetax, Federal government business and business activities can be treated as single taxable person for the purpose of UAE Corporate Tax. This is aimed to simplify tax compliances for government business activities. This means transfer pricing related compliances will not be applicable for transactions between governmentbusinesses when treated as single Tax Group
Article 51 of UAE corporate tax law provides that taxable persons have to register with Federal Tax Authority, unless exempt under certain cases. The UAE Ministry of Finance has recently issued Ministerial Decision No. 43 of 2023 providing exemption from Tax registration for certain persons viz., government entities, government-controlled entities, as well as extractivebusinesses and non-extractive natural resource businesses. However, these persons will have to meet the necessary conditions specified under the Corporate Tax law in connection with exemption for registration.

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

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Transfer Pricing – UAE MSME Relief

UAE – Small Business Relief for Corporate Tax- Conditions – Impact for transfer pricing

Under the UAE Decree Law on Corporate Tax (Article 21- Small Business Relief) issued in December 2022, it was specified that a Taxable Resident Person may elect to be treated as not having derived any Taxable Income for a Tax Period where:

the Revenue of the Taxable Person for the relevant Tax Period and previous Tax Periods does not exceed a threshold to be prescribed and
the Taxable Person meets all other conditions prescribed.

Today (06 April 2023), the UAE MoF has issued Ministerial Decision No. 73 of 2023 which prescribes the mentioned threshold and other conditions for availing Small Business Relief. The key aspects are as follows:

Revenue in the relevant tax period and previous tax periods is below AED 3 million for each tax period. Revenue can be determined based on the applicable accounting standards accepted in the UAE
There is a sunset clause prescribed (3 years)– the revenue threshold will apply to tax periods starting on or after 1 June 2023 and will only continue till 31 December 2026
Small business relief will not be applicable to Qualifying Free Zone Persons or members of MNE Groups (Groups of companies having operations in more than one country have consolidated Group revenues of > AED 3.15 billion.)
Restriction on carry forward of losses only in periods where small business relief is elected
Any artificial segregation of business to meet the thresholds will be viewed as arrangement subject to the General Anti Abuse Rules

IMPACT FOR TRANSFER PRICING

In case a Taxable Person meets the above conditions, various provisions of the Decree Law will not be applicable, including Article 55 which relates to Transfer Pricing documentation requirements. Persons who opt for Small Business Relief will be exempted from:

The requirement to file a Disclosure form along with the Tax return providing details of transactions with Related Parties and Connected Persons
Maintenance of Local file and Master file
There may not be any requests from the Federal Tax authority to furnish information to support the arm’s length nature of transactions with Related Parties and Connected Persons

The above provisions are meant to support start-ups and other small or micro businesses by reducing their corporate tax burden and compliance costs. However it is to be noted that transfer pricing requirements will continue for all members of larger MNE groups which have consolidated group revenue of > AED 3.15 billion and entities operating in Qualifying Free zones.

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

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Transfer Pricing – Sale and leaseback of IP

Leaseback of tangible assets is a financing arrangement, mainly to freeup working capital as well to be the economic owner of the asset. Leaseback is an option/tool to divest certain risk associated with the asset. In an IP leaseback, IP is sold by the first owner (FO) to another person (second owner/SO). The SO leases back the IP to FO in consideration for royalty payment. While leaseback is familiar to fixed assets, it is viewed skeptically w.r.t. IP.

A recent US ruling in case of Skechers held IP leaseback as a sham transaction, basis its facts. Though the ruling was regarding transactions between domestic entities, ruling is relevant from a transfer pricing perspective as the court analysed from a economic substance perspective.

Skechers USA LLC (Skechers) incorporated Skechers USA Inc.II (SKII), a Delaware Corp.. Skechers transferred to SKII all IP for the domestic market (trademarks, copyrights, patents). SKII leased the rights back to Skechers. Skechers was to pay all of its operating margins in excess of 2% as royalty to SKII. During field audit tax authorities noted:

Post above structuring , ETR was lower by 1.25%, which was the primary objective.
Simple interest on unpaid royalties due to be paid by Skechers. All interest & royalties computed were journal entries for deduction of income for tax purposes.
. No detailed workings were available for royalty, management fees and interest paid and they varied from 1.7% to 3% of domestic sales.
All money transfers between Skechers and SKII began & ended in the same Skechers bank account.

In case of IP leaseback, anything without substance is viewed as entered only for tax purposes and below aspects needs to be evaluated:

Is there a circular movement of funds. Are revenue streams taxed in low tax jurisdictions and expenses are booked in high tax jurisdiction -net reduction in effective tax.
Does the SO have the substance and capability to assume economically significant risks transferred by the FO.
Post IP transfer, is there any change in actual groundwork on the DEMPE activities regarding IP or the course of activities is based on earlier plan / strategy or only minor modifications in reporting just to check the box for review of work by SO. Consequently, if there are no DEMPE activities by SO and all of that is outsourced to the FO.
How is it documented in the intercompany agreement – Is there an economic reasoning/rationale for transfer of IP or is it for purpose of paperreality.
Does the IP transferred have huge market potential and difficult to replicate by competitors. Is the IP transferred during its development–Hardtovalueintangibles (HTVI). Is there significant variance (>20%) between the assumptions made during the transfer from FO to SO and the actual outcomes.

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

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Transfer Pricing – not a compliance

Transfer Pricing not a compliance – reviewed

Transfer Pricing (TP): Beyond being another Tax Compliance

TP rules are part of the tax laws of any country but is more deeply connected with business interests having roots deeper into economic reality. It is often that TP is given importance during mandatory tax filings and maintaining documentation, whereas establishment of appropriate TP policy improves overall business outcomes and maintains tax-efficiency organically.

Impact of TP on businesses is captured below:

During Startup phase of the entity, the structuring and pricing of cross border transactions are decided based on immediate business needs, and are left for course correction at a later stage. Setting-up of TP policy ensures reaping of working capital efficiencies from the beginning, besides having robust documentation during tax scrutiny. TP requires to be aligned with indirect tax aspects such as Customs and FTA to ensure tax efficiencies and create value for the Group.
Treating TP as a post-mortem exercise creates pressure on business resources during tax year end. With technology, Group’s operations and TP outcomes can be monitored on a concurrent basis and systems can be automated to raise flags to take corrective actions during the year itself. Through this working capital can be streamlined for the financial &tax years, taxes can be paid efficiently, and interest/penalties can be minimised. Where Group’s TP policy is aligned with Group’s risk management, TP outcomes would factor business realities and would be resilient to global economic / political/ financial crisis such as COVID, wars, and industry shocks such as supply chain disruption.
Involvement of TP personnel during Statutory audit can help to streamline audit entries on TP and ensure more accurate disclosure of related party transactions. Making suo motto TP adjustments after closure of books would result in additional taxes (secondary adjustment) and create complications during TP audit scrutiny.
Where selected for tax scrutiny, understanding the requirements of tax authority and filing submissions to address their requirements is key to avoid any TP adjustment. Businesses collating and maintaining contemporaneous documentation (intra group charges) would reduce hardship during course of tax scrutiny and ease Group’s resources. Filing of appropriate and complete information before lower tax authorities will reduce risk of higher appellate authorities remanding back to lower tax authorities and can reduce litigation costs.

Accordingly, there is a need to change the mindset how TP is approached: from a compliance tool to being a Business tool generating value.

VSTN can support in streamlining TP policy, thereby easing resources for core competence of business, increasing working capital efficiencies, tax optimization and increasing shareholder value.

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

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Transfer Pricing – Country-by-Country Report (CbC)

Transfer Pricing – Country-by-Country Report (CbC)– Risk Assessment

As the due date for filing of CbC for applicable IndianHQ – FY 2021-22 (AY 2022-23) is approaching i.e., 31 March 2023, it is important to ensure accuracy of information flowing in CbC. However, an even more critical aspect is to understand how CbC will be consumed for risk assessment by tax authorities, which has tax implications across the jurisdictions it has presence. The article aims to broadly touch upon how a CbC can be read, from a risk assessment perspective, and other key points.

With various developments surrounding CbC such as public CbC, transitional CbC Safe Harbour for Pillar Two, it is even more key to analyze CbC of Group to identify any risk flags and streamline the operations from a transfer pricing perspective to pre-empt any tax litigation. Though CbC is a post-mortem exercise, it would aid in course correction for the future years.

How VSTN can support:

Analyze CbC for MNE Groups (outbound and inbound where available) to understand any flags from risk assessment perspective, through:
- Jurisdiction specific insights from analysis of both jurisdictional information and Group information at large.
- Year-on-Year comparison to understand any perceived movement in functions, activities or revenue / profits accruing and follow-on documentation to mitigate any risk of attribution of restructuring.
- Industry specific comparison and insights based on publicly available CbC information.
- Assisting in streamlining the Group’s transfer pricing policy
Transfer Pricing Readiness for transitional CbC Safe Harbour for Pillar Two

Open Attachment…

Country-by-Country Report

Introduction

The Country-by-Country Report (CbC) was introduced through Action Plan 13 of the Base Erosion and Profit Shifting (BEPS) project of Organisation for Economic Cooperation and Development (OECD) and G20 countries. Action Plan 13 – “Transfer Pricing documentation and Country-by-Country Reporting” laid down the objectives of transfer pricing documentation viz., MNE Groups to articulate their transfer pricing positions, aid tax administrations to assess transfer pricing risks and deploy audit resources effectively & undertake audits in a more informed manner. These objectives were to be achieved through the three-tier documentation approach viz., Master File, Local file and CbC.

CbC captures key financial metrics of the Group jurisdiction wise and is aimed to provide insights for tax authorities for effective risk assessment. CbC provides a financial snapshot of the Group for the year across various jurisdictions. Existing data sources for tax authorities such as tax filings do not capture quantitative information at the Group level.

Therefore, it is key to understand how CbC can be harnessed in transfer pricing risk assessment.

CbC Contents

CbC has three parts or Tables. Table 1 captures the quantitative information for each of the tax jurisdiction of the Group, namely:

A. Performance / Results

Revenues
- Total Revenue
- Related Party Revenue
- Unrelated Party Revenue
Profit before Tax

B.Tax liability and outflow

Income Tax paid
Income Tax accrued

C. Capital employed

Stated Capital
Accumulated earnings

D. Substance

Number of employees
Tangible assets other than cash and cash equivalents

Table 2 lists all the entities of the Group and information presented include legal name, tax jurisdiction, entity & tax identification numbers, the main business activity(ies) undertaken

Table 3 is for additional information in connection with Table 1 and 2 i.e., to aid reading of the earlier two tables. For example, note on whether number of employees are full-time equivalent or includes employees working on contract basis.

Reading of CbC

Introduction

Like any other financial document/statement, it is essential to understand the background behind the compliance to maximise insights from the document. The intent of Action Plan 13 was to provide more quality information to tax authorities to carry out transfer pricing assessments effectively. The issue was transfer pricing centred viz., purported manipulation through perceived emphasis on contractual allocation of functions, assets and risks rather than substance. This divorce was addressed through Action 8-10 “Aligning Transfer Pricing outcomes with value creation”. Action Plan 8-10 provided additional detailed guidance on arm’s length principle – to clearly clarify that economic reality should dictate results rather than paper reality, and Action Plan 13 provided tools to tax authorities (through CbC) to assess if arm’s length principle were adhered to.

Weighing scale of Value creation and Outcome

Through the information in Table 1 and Table 2, CbC captures how the Group as a whole, across various jurisdictions, performs various functions, employs assets / resources and generates revenues and in that process creates value. From an economic / transfer pricing perspective, entities driving such value creation should house Group’s residual profits (or losses), while the entities performing routine activities enjoy routine returns. Value creation (or its source – substance) and profitability / returns should be placed on each of sides of the weighing scale to evaluate the arm’s length principle for the transactions within the Group. In the CbC report, profits represent outcomes and will have to be mapped with substance viz., employees / tangible assets and performing relevant functions (captured in Table 2), to understand if profits registered is commensurate with the substance. Using profitability and its ratio(s) with substance related indicators would indicate profits generated can be maintained / sustained in that jurisdiction.

Stepping backwards, in certain instances, mapping revenues with substance might be required. Revenues being recognised based purely on contractual arrangements might be accepted from an accounting perspective but would be inorganic from economic / transfer pricing perspective if it lacks the required substance to generate such revenues. Insights from such mapping can challenge the way Group transacts with its customers in a fundamental way and could result in more than just reallocation of system profits. Concerns at the top-line level, translating to reallocation of revenues, in extreme cases, have other tax implications such as withholding of taxes, and is a serious red-flag for the Group as a whole.

The follow on of the above is piecing together of tax – accrued and paid. Any inverse relationship between profitability and tax accrued across jurisdictions will be flagged within tax authorities. Where the jurisdiction is not a low tax jurisdiction and the lower tax accrued is owing to tax breaks provided by jurisdiction’s government for enticing higher investments, tax losses adjusted or deferred tax adjustments, might not be a major concern. However, in case of converse there is a high possibility that tax authorities perceive that profit shifting is being undertaken by the Group. Material differences between tax accrued and tax paid will a concern for tax authorities which might be investigated.

Group having presence in any tax haven jurisdictions and material revenue streams (both from unrelated and related parties) and profits will be red flag for tax administrators.

Group and Jurisdictional level: The micro – macro picture

Reading results from Group and jurisdictional level is required to eliminate both myopia and hypermetropia. Ensuring ratios and other indicators are read wholistically can give insight into level of consistency in activities from a Group perspective as well as tenability from a jurisdictional viewpoint. For example, how revenues or profits are distributed across the group would provide an understanding of where significant profits of the Group rests, and material variation in profitability from arm’s length returns / consideration may be flagged by tax authorities. Reading of Group level indicators / ratios alongside relevant jurisdictional level indicators / ratios can provide deeper understanding of the Group operations or explain / rationalise the skewed ratios at either Group or jurisdictional level, which would otherwise be inexplicable.

Industry alignment

Various industries / sectors / sub-sectors operate in a similar fashion and has business / economic rationale as well as substance. Where the ratios and other analysis seem acceptable but are not in alignment with industry practices (such as supply chain), there is a possibility that tax authorities scrutinise the Group.

Other Key Points

Jurisdictional involvement

Though CbC is the obligation of the ultimate / surrogate parent, it is necessary that entities in the respective jurisdiction provide their inputs or are informed on the relevant CbC information. Mainly because any adverse ratios in a jurisdiction will be queried by the respective tax authorities to the said group entities. Consistency should be ensured in the activities performed by entities in other jurisdictions with those reported. Classic example is where captive subsidiaries performing IT services are disclosed as R&D services in the Group, which might be purely due to accounting positions taken at Group level. Several MNE have commenced automating the process of CbC, a welcome move. Nonetheless, other jurisdictions will have to be involved in initial mapping / setting-up process to ensure correctness of information being populated such as consistency in the positions taken by the Group as a whole.

Public CbC

The European Parliament has adopted public EU CbC reporting, effective by 2024, and EU Member States will have to adopt these reporting rules in domestic tax laws. The intention is to aid tax transparency and deter any corporate tax avoidance and aggressive tax-planning. Once these tax laws are live, CbC of each of the applicable MNE Group will be subject to public commentary and would be important to ensure accuracy of information (at the least) and be analysed from multi-jurisdictional perspective.

Year-on-Year analysis

Comparative charting of CbC of an MNE Group year-on-year throws light on any material movement in activities performed (functions), substance, accruing of revenues / profits between jurisdictions. Especially post the pandemic there might be changes observed in CbC due to business reasons and it might be perceived as reallocation of functions and consequently profits. In such case internal documentation is to be maintained to capture such business reasons as well as why it should not be construed as restructuring, having further tax implications such as exit charges.

Pillar Two – Transitional Safe Harbour

The OECD has provided for a transitional Safe harbour rules w.r.t Pillar Two using CbC data to compute Group’s revenue, income and simplified ETR. During the transitional period these rules lays down simplified mechanism to ascertain if top-up tax is payable or not. Since the safe harbour adopts CbC as the base, ensuring correctness of the CbC – both in form and substance will be even more critical.

Summary

CbC is a crucial document furnished / available with tax authorities across jurisdictions and is far from being yet another routine compliance of collating information. Group (including entities of other jurisdictions) should be cognizant of the implications on the submission of the CbC. Though ensuring arithmetic accuracy is required, understanding ramifications including possibility of any prospective tax litigation is vital.

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

#TransferPricing #TransferPricingFirm#VSTNConsultancy #TaxCompliance #IndiaUAEUSA

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Transfer Pricing ISSUES FOR ROYALTY TRANSACTION

In the attached article we have presented our analysis on royalty payment, which is a highly litigated transaction in the transfer pricing landscape in India. The broad aspects covered in the article are the common issues faced during the assessment proceedings, recommendations on approach for defending royalty and the changing landscape for the transaction in recent times.

Considering the high quantum of adjustments made by the tax authorities, it is essential to be proactive and have robust defence for substantiating the payment of royalty.

How we can support

Support in maintenance of cost benefit analysis documentation to substantiate royalty payment
Performance of CUT search using Global Royalty database to identify comparable license agreements and determine the arm’s length royalty range
Audit Defense before all forums – Transfer Pricing officer, Dispute Resolution Panel, Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal
Analysis of DEMPE functions
Assistance in APA proceedings

Open Attachment…

Transfer Pricing Issues – Royalty Transaction

Royalty is one of the most litigated international transactions in the transfer pricing space in India. Royalty is the consideration paid for right to use intangibles i.e. technology/technical know-how, trademarks, brand names etc. The compensation model adopted could be of various types – Lump sum payment, Running royalty (a fixed percentage of sales/profits, rate per unit), Variable royalty – routine profits in India and balance profits remitted as variable royalty, Staggered royalty (which varies according to the level of sales/profits).

Issues faced during assessment

During the course of assessment proceedings before the Transfer Pricing Officer (TPO) and subsequent forums, the common aspects scrutinised are the need-benefit for carrying out the royalty transaction between the assessee and its Associated Enterprise (AE) and the method of determining the Arm’s Length Price (ALP).

It is observed that taxpayers generally adopt Transactional Net Margin Method (TNMM) as the Most appropriate method (MAM) for benchmarking royalty by aggregating it with other international transactions. Most of the TPOs emphasise on the transaction level testing of the royalty transaction and then decide the allowability of this transaction. There is a request for a separate Royalty benchmarking to be provided by the assessee. As most of the tax payers adopt TNMM, they have two options – either they check with their parent company whether such CUT analysis is available for the relevant year or they proceed to carry out the analysis using Global Royalty databases (Royalty Range, Royalty Stat, ktMINE) which have details of CUT agreements.

The next important aspect raised by the TPO is the need for a well-established company to pay year-on-year royalty where there is no evidence of any additional updates to technology. The expectation has been that when an assessee pays a running royalty there should be some incremental benefit received by the company on a yearly basis.

Also, in case if the Indian entity has an R&D team, the role played by them is scrutinised and also whether any updates/improvements carried out by them are being utilised by other group entities.

Royalty payments made when the Indian company incurs losses is adversely viewed.

Further, in relation to brand royalty, where there is a significant amount of AMP spend in the Indian market by the Indian company, the need for such brand royalty is also questioned as it is viewed that the Indian entity is building the brand of the Foreign entity in India.

After questioning on these aspects, the TPOs proceed to carry out a downward adjustment on the royalty payment such as:

Ad-hoc disallowance of royalty under Comparable Uncontrolled Price (CUP) method without analysing or providing details of any comparable transactions
Application of CUP method and restricting the royalty rate paid by the assessee to the average royalty paid by the comparable companies identified for benchmarking the other international transactions (eg: sales, purchases). However the royalty paid by these comparables will be limited considering only uncontrolled transactions can be used for comparison and many of these companies might carry out their own R&D activities Further, in certain cases, the comparable rates are adopted by the TPO without proper analysis of nature of payments (Eg: in the instance of cement manufacturing companies, TPOs have considered mining royalties paid by companies to the government towards extraction of limestone, for comparison with royalty paid for technical know-how)
Some TPOs have also resorted to using Other method as against CUP to eliminate the need of providing comparable information by relying on the language – ‘price which has been charged or paid, or would have been charged or paid for the same or similar uncontrolled transactions’ present in the TP regulations.

Approach for defending royalty

Some of the practices which can be followed for defending this international transaction is

Maintenance of adequate documentation (including basis of arriving at royalty rate, details of yearly updates to technology, call logs of queries resolved, benefits derived in terms of increase in sales/profitability etc.).
Though availability of Internal CUPs would be limited, one may still need to check for the same. Considering the data available with TPOs regarding comparable license agreements is limited as accessibility to foreign royalty databases is not available to the TPOs, a CUT search is usually requested from the assessee during the course of assessment or even when the assessee wishes to opt for an APA. While preparing a CUT analysis, various comparability factors are to be considered including nature of Intellectual Property, geographical location, term of the agreements, exclusivity etc. Off late we are given to understand in some jurisdictions, the TPOs have access to Foreign royalty databases.
Value chain analysis to capture the DEMPE (Development, Enhancement, Maintenance , Protection, Exploitation) activities carried out by the parties who contribute to the IP
In instances where TPOs adjust the royalty transaction by stating that the comparable companies do not pay any royalty, one could provide details of research and development expenditure, research facilities etc (as available from the annual reports, websites of comparables) to demonstrate that these companies undertake R&D activities on their account and henceforth the need for payment of royalty does not arise, unlike the assessee who does not perform such activities
In case if the TPO does not provide any comparables, the assessee should contend that it is the onus of the TPO to provide an alternative comparable analysis if the assessee’s benchmarking analysis is rejected.
Evaluating the applicability of other TP methods including the Profit split method, where multiple entities, including the assessee, contribute to DEMPE of IP.

There have been instances when appellate forums have provided relief by allowing the aggregation of royalty transaction under TNMM depending on specific facts. It is essential to be proactive and have robust defence for substantiating the payment of royalty.

Other aspects

Advance pricing agreement (APA) would provide a good avenue to provide certainty in relation to royalty transactions on an amicable basis. Moreover, APA authorities may be more flexible in accepting complex approaches for determining the ALP.

Apart from the conclusion of running royalty for technology and trademark, in recent times, in light of the changing economic landscape there has been a move towards applying variable royalty to compensate the value generated by different parties. A bilateral APA was concluded with UK concerning a variable royalty structure for technology and trademark using the Profit split method[1]. An APA was also signed with Switzerland for a variable royalty structure using Residual Profit split method.

Further, as per APA annual report released by the CBDT, royalty was one of the top transactions covered in the APAs concluded[2].

Changing landscape

One needs to also bear in mind that the business landscape has been changing where competitors tie up/form strategic alliances to bring out new products (e.g Maruti and Toyota) and there is a hybrid cross over of the technology of two Groups- all this would still complicate the royalty payout. Further introduction of new kind of products- eg: EVs in the auto industry where there is a huge amount of investment in R&D and how this cost would be shared in future with those entities who are exploiting the EV technology. In case of new models for sale- like subscription models, how would the royalty be paid to the owner of the IP- there should be alignment with the recognition of revenue.

Considering the dynamic environment, one needs to present the TP analysis after considering all nuances of the transactions including understanding the industry structure.

[1] CBDT Inks Bilateral-APA with UK on variable royalty based on profit-split method | Taxsutra

[2] APA Annual report released by the CBDT for the FY 2018-19

Whether you’re preparing for benchmarking intercompany transactions, or developing robust TP documentation, our team is here to support your international strategy and Compliance.

#TransferPricing #TransferPricingFirm#VSTNConsultancy #TaxCompliance #IndiaUAEUSA

#TPExperts#TransferPricingExperts#GlobalTransferPricingFirm

Transfer Pricing – Advertisement, Marketing and Promotion (“AMP”) Expenses

UAE Transfer Pricing Limits

UAE CT Law – TP updates

Conditions for maintenance of TP documentation

Summary of recent developments

A. Ministerial decision no. 97 of 2023 on conditions for maintenance of Transfer Pricing documentation

B. Explanatory guide on CT law issued

Quantitative thresholds

Local file inclusions

Local file exclusions

Key Takeaways

Qualifying Free Zones

Natural persons

Arm’s length principle in other aspects of CT law

TP documentation guidelines

Way forward

Corporate Guarantee (CG) – TransferPricing aspects

Transfer Pricing – SC ruling sap labs

Softbrands SAP Labs Supreme Court (SC) Ruling – Key Takeaways:

SAP Labs/ SoftBrands – SC Ruling

Background

HC and SC Rulings

1. HC Ruling in the case of Softbrands

2. SC Ruling

Key Takeaways and Considerations

Options / Alternative available

Expectations from Government

Conclusion

Middle East Transfer Pricing Updates – UAE and KSA

UAE – Small Business Relief for Corporate Tax- Conditions – Impact for transfer pricing

Transfer Pricing – Sale and leaseback of IP

Transfer Pricing not a compliance – reviewed

Transfer Pricing (TP): Beyond being another Tax Compliance

Transfer Pricing – Country-by-Country Report (CbC)– Risk Assessment

Country-by-Country Report

Introduction

CbC Contents

A. Performance / Results

B.Tax liability and outflow

C. Capital employed

D. Substance

Reading of CbC

Introduction

Weighing scale of Value creation and Outcome

Group and Jurisdictional level: The micro – macro picture

Industry alignment

Other Key Points

Jurisdictional involvement

Public CbC

Year-on-Year analysis

Pillar Two – Transitional Safe Harbour

Summary

Transfer Pricing ISSUES FOR ROYALTY TRANSACTION

Transfer Pricing Issues – Royalty Transaction

Issues faced during assessment

Approach for defending royalty

Other aspects

Changing landscape

Consult Visionary Solutions Transferpricing Network (VSTN) for your needs.

Global Transfer Pricing Firm