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Transfer Pricing
Tax developments and M&A and IP planning
Trends in Romanian transfer pricing
Tackling Morocco’s tax challenges
Transfer pricing disputes in Japan
Resolving Cross-Border Tax Disputes PwC’s David Swenson gives us some pointers
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guide to...
Transfer Pricing
Contents 6 Resolving Transfer Pricing Disputes By David Swenson, a principal at PwC’s Washington, DC office 10 Taxing Times Raise Questions for M&A and IP Planning By Lili Kazemi, Chad Zimmerman, Rizwan Syed and Garry Stone from PwC 18 Country profiles Japan By Atsushi Fujieda and Shigeki Minami, partners at Nagashima Ohno & Tsunematsu Morocco By Marc Veuillot, managing partner of CMS Bureau Francis Lefebvre Maroc Romania By Dan Badin, Tax Partner, and Gavriliu Ciprian from Deloitte Tax in Romania
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Introduction The increasingly integrated nature of the global economy and the on-going importance of multinational businesses mean that questions of transfer pricing are some of the most significant tax issues that companies and tax administrations have to manage. With transfer pricing enforcement having risen as a priority for tax authorities around the world over recent years; continued growth in the number and reach of multinational businesses has created a complex web of cross-border commercial transactions, and the world’s tax authorities want to ensure they tax their rightful share of the income. It is important for taxpayers to have an effective strategy for responding to transfer pricing inquiries that can lead to tax adjustments, penalties, interest charges and even negative publicity. Transfer pricing inquiries can be extremely time consuming and involve a commitment of resources for assembling paperwork, preparing responses to inquiries, and negotiating with tax authorities. But there are a variety of options available to help taxpayers overcome transfer pricing challenges, and business executives are well advised to seek the advice of those in the know in understanding their obligations and in order to avoid penalties or bad publicity. That’s why we’ve spoken to leading transfer pricing experts to discuss resolving and avoiding transfer pricing related disputes, TP audit exposure, and the implementation of effective strategies for dealing with TP queries – and we hope our findings, contained within this guide, will help you to navigate the ever more complex transfer pricing landscape.
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Transfer Pricing
Resolving Transfer Pricing Disputes David Swenson is a principal at PricewaterhouseCoopers, LLP (PwC) and is resident in the Washington, DC office
David is the Global Leader of PwC’s Tax Controversy and Dispute Resolution (TCDR) Network, which includes 650+ tax controversy professionals located across 45 countries in PwC member firms. Following a prominent legal career spanning almost three decades, David brought to PwC a wealth of experience in advising multinational corporations on international tax matters. David joined PwC from one of the world’s largest international law firms, where he served as an international tax partner for more than 20 years, and led its U.S. tax controversy and litigation practice and its transfer pricing practice. Cross-border tax disputes in general, and transfer pricing audits and controversies in particular, are increasing rapidly around the world. OECD statistics released in April 2013 show a dramatic surge in tax disputes worldwide over the past five years. For the most recent reporting year (2011), the OECD statistics show a substantial increase in new (and pending) Mutual Agreement Procedure (MAP) cases, providing clear evidence of a significant rise in international tax controversies around the world. As a result, the global system for resolving cross-border tax disputes continues to be under pressure, with few prospects for immediate relief. The current OECD Base Erosion and Profit Shifting initiative, as well as the related
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tax planning debate, are adding to this turbulent environment. It appears clear that these forces, among others, will trigger aggressive enforcement actions by countries worldwide leading to a further surge in international tax audits and disputes. Nations throughout the world have an acute need to raise large amounts of revenue to fund a variety of short-term and long-term obligations, from infrastructure projects and defense initiatives to social programs. Governments must encourage voluntary taxpayer compliance and simultaneously develop tools to ensure compliance through constructive engagements, reporting and documentation requirements, as well as enhanced enforcement activities. Governments are adding resources to audits and other enforcement initiatives and are supporting greater training and education of tax auditors and inspectors. These steps will inevitably lead to further audits in both
developed and emerging countries worldwide. MNCs need to develop coordinated approaches to audits and disputes around the globe, adopt preventative measures (such as pre-filing rulings and enhanced relationships with appropriate revenue authorities), and leverage historic and new alternative dispute resolution techniques to achieve optimal results. PwC’s TCDR Network provides services to assist taxpayers in their efforts to pursue a variety of measures aimed at proactively preventing, efficiently managing, and favorably resolving tax audits and disputes throughout the world, drawing upon our years of experience in this area from across our established global network of tax professionals. Our TCDR services include assistance and advice in the areas of tax audit management, dispute resolution alternatives, global strategic planning of tax audits and disputes, and tax risk identification, evaluation, management, and disclosure. Our professionals combine deep technical understanding, local knowledge, and constructive engagement with government officials to assist taxpayers across the various stages of the international tax dispute life cycle delivering real time, local country guidance, broad tax controversy experience, and global perspective to reach timely and successful results.
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The global system for resolving cross-border tax disputes continues to be under pressure, with few prospects for immediate relief
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Transfer Pricing
Taxing Times Raise Questions for M&A and IP Planning The latest OECD developments are creating uncertainties for acquisitions and IP planning, say PwC’s Lili Kazemi, Chad Zimmerman, Rizwan Syed and Garry Stone In a global tax environment that is becoming increasingly contentious, governments and regulators have heightened their focus on perceived tax abuses. The prevailing mood, as reflected in recent multinational publications, is one of skepticism among both regulators and the public at large and recent “calls to action” seem to focus on not only on curtailing actual abuses, but also combating the perception of abuse. The perception is that through the manipulation of the tax rules, businesses are able to shift income from countries where income-producing activities occur to countries with lower income tax rates (or no tax). This results in the shifting of tax burden in the home country from corporations to individual taxpayers. Much of this tax policy debate revolves around tax planning with respect to intellectual property (IP). As a result of this perception, governments are increasingly focused on the area of tax known as transfer pricing. Transfer pricing relates to the manner in which profits are allocated for tax purposes among related parties within a multinational group. For many years, a well-developed set of principles has been commonly agreed upon by most developed and developing countries. In essence, the basic rule is that allocations of profits among affiliates of a multinational company should mimic the way in which unrelated parties would deal with each other at arm’s length. The allocation of income, however, must be based on the economic realities of intercompany transactions. Despite the existence of well-developed regulations, transfer pricing is a prime area for scrutiny as it relates to the cross-border allocation of profits. Through transfer pricing, governments and the public alike see opportunities for multinationals to
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arbitrarily shift profits to favorable tax locations. As such, governments have called for aggressive new rules as well as expanded enforcement to curtail abuses, both actual and perceived. In particular, recent initiatives, some of which are described in this article, can have unintended effects on the business judgments that inform decision-making in business reorganizations and restructurings. Such effects can impact acquisition activity by increasing uncertainty in cash flows (and therefore valuations), limiting post-acquisition opportunities for cross-border planning, and heightening compliance burden. More concretely, recent developments, including the views expressed by the OECD on IP migration and valuation in its ‘Revised Discussion Draft on Transfer Pricing Aspects of Intangibles’ (referred to as the ‘Intangibles Draft’) , as well as the IRS’s recent public statements indicating its adoption of a stricter interpretation of baseline transfer pricing valuation concepts , has upped the ante for taxpayers. Example of IP Migration in an Acquisition Context Company X, a US corporation, has begun developing new products and technology to break into the emerging 3D printing industry. At the same time, Company X has recently acquired Company Y, a foreign headquartered corporation, which has developed an innovative 3D printing software program where consumers can customize objects using web-based software. Before the acquisition, Company X and Company Y had R&D centers within and outside of the US. Intangible assets developed by Company Y’s R&D centers were jointly developed and owned by the respective US and foreign affiliates under an ar-
rangement known as a ‘cost sharing arrangement’ (CSA), which can be thought of as a joint venture between related parties. Transfer pricing rules in most countries allow CSAs, whereby a taxpayer and related foreign affiliates agree to share costs for development of existing and/or future IP pursuant to a CSA. By doing so, the parties to the CSA are able to share the costs (and economic risk) of IP development as well as profits attributable to the jointly-developed IP. Post-acquisition, Company X intends to merge the R&D service centers of the combined companies. Uncertainty – US Domestic Law Standpoint In the scenario described above, the CSA may create challenges for Company X from both a valuations and a compliance perspective. From a valuation perspective, the allocation of profits among Company Y’s affiliates in different jurisdictions may be questioned and revisited by tax authorities. In particular, current US transfer pricing rules allow for a ‘look-back’ period, which grants the IRS broad authority to revisit investments made and profit earned by CSA participants. This is the case even if each party’s share of investment (and resulting profits) was originally allocated on the basis of reasonable forecasts, as expressly required by existing rules. In practice, the profit potential of in-development IP is notoriously hard to predict. Certain types of IP may continue to generate profits far longer than expected, while other IP may unexpectedly fade. In the valuations context, some of the unpredictability around IP may be addressed in selection of discount rates. However, current US transfer pricing rules seem to give the IRS author-
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Recent initiatives can have unintended effects on the business judgments that inform decision-making in business reorganizations and restructurings
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Transfer Pricing
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Divergence in application of rules can have significant impact on a taxpayer’s profitability and tax valuations
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ity to disregard initial evaluations of risk and focus on the end result. Recent public statements by representatives of the IRS seem to indicate that the US will continue to make adjustments to valuations based on hindsight.
with the views expressed in the Intangibles Draft, especially when those views may diverge from the domestic law of the source or residence income of the taxpayer. This is a crucial gap given the multijurisdictional nature of transfer pricing.
In the current business environment, where technology-related intangibles represent an ever-increasing portion of overall enterprise valuations, reallocation of income among related parties to a CSA can have significant tax (and tax penalty) consequences. These consequences can in turn create uncertainty in actual or projected cash flows and result in substantial uncertainty in valuations.
Despite the regulatory language around the arm’s length standard, in its transfer pricing action points, the recent BEPS Action plan cautions that “special measures, either within or beyond the arm’s length principle, may be required with respect to intangible assets [and] risks” to align profit with the related economic activity. Implicit in this statement is a dissonance between arm’s length principle and the OECD’s stated goals. Given the importance of the arm’s length principle as a foundational principle of most transfer pricing rules, and the lack of clear steps outlined by the OECD to resolve this implied dissonance, a possible consequence is even more uncertainty for taxpayers in the context of IP valuation.
Similarly, compliance efforts for transfer pricing can be challenging and penalties for noncompliance are harsh. For example, in the US the penalty associated with a transfer pricing related valuation misstatement of $20 million or more is 40 percent of the underpayment of tax. As a result, the risk of such penalties may further complicate the valuation and compliance burden when considering an acquisition target. Finally, integration into an existing business (e.g., combining Company X and Company Y’s R&D efforts) can be challenging depending on the nature of the CSA arrangement and precedents set by existing operations. Arm’s Length Treatment of Intangibles The OECD’s Transfer Pricing Guidelines are the standard followed by most developed and developing countries that accommodate large multinational enterprises (MNEs). Each of the members of the OECD has endorsed the arm’s length principle as set forth in the 1979 OECD Report and updated in 1995 and 2010. A number of countries have explicitly incorporated the arm’s length principle into their domestic law. On July 30, 2013, the OECD issued the Intangibles Draft which provides insightful guidance on how tax authorities should audit taxpayers with regard to the use or transfer of intangibles. The need for uniformity with respect to the treatment of intangibles became magnified with the commencement of the OECD’s Base Erosion Profit Shifting (BEPS) initiative, which has been endorsed by the G20. The latest development in the BEPS initiative is the promulgation in July 2013 of a highly anticipated 15-step action plan in July of 2013 requiring, inter alia, that measures be taken to: 1) Adopt a broad and clearly delineated definition of intangibles; 2) Ensure profits associated with the transfer and use of intangibles are appropriately allocated in accordance with (rather than divorced from) value creation; 3)Develop rules for transfer of hard-to-value intangibles; and 4) Update guidance on cost contribution arrangements. The OECD work stream on revising the guidelines addressing the arm’s length valuation of intangibles is therefore a key aspect of the new BEPS landscape. However, the Intangibles Draft presents some vague positions on certain key issues, leaving it unclear how a taxpayer should plan to comply
The Intangibles Draft provides some guidance to taxpayers as to certain ‘important functions’ where functional contributions will be correlated with the allocation of an intangible return. Important functions as described by the Intangibles Draft include design and control of research and marketing programs, management and control of budgets, control over strategic decisions regarding intangible development programs, important decisions regarding defense and protection of IP, and ongoing quality control over functions performed that may have a material effect on the value of the IP. Although the Intangibles Draft has substantive requirements from a qualitative standpoint, it leaves ambiguity around a question central to any company seeking certainty regarding IP acquisition planning and restructuring: “How much of each function is enough?” Without providing some factors and/or criteria for the ‘important functions’ test, taxpayers will be left guessing what functions are sufficient to justify an intangible-related return.
Valuing Highly Uncertain IP The OECD’s draft discussion on intangibles states “if independent enterprises would have fixed the price upon a particular projection, the same approach should be used by tax administration in evaluating the pricing . . . without using hindsight.” Indeed, in an acquisitions context, valuations are developed based upon best-available data at the time of acquisition and players decide to enter into deals without the benefit of hindsight. Such guidance by the OECD may reflect a divergence from the “reasonableness of economic outcome” adopted by the IRS particular where the IRS reviews results of a transaction on an ex-post basis. Given the multilateral nature of transfer pricing, divergence in application of rules can have significant impact on a taxpayer’s profitability and tax valuations. Parties entering into an acquisition or restructuring transaction may find themselves in a position where they cannot reasonably rely from a tax certainty perspective upon valuations undertaken for tax purposes based on information that is available at the time of valuation. ‘Important’ Functions: How Much Of Each Function Is ‘Important’ Enough? Once a MNE has entered into any cross-border intercompany transaction involving the valuation or transfer of intangibles (for tax purposes) issues surrounding TP compliance arise with the transfer of intangibles. The primary issue that taxpayers and tax authorities have struggled with regarding IP revolves around the question of how to appropriately allocate the return that is generated by the IP, referred to in the Intangibles Draft as ‘intangible related returns’. The Intangibles Draft states “other members of the owner’s MNE group may have performed functions, used or contributed assets, or assumed risks that are anticipated to contribute value to the intangible and for which they must be compensated under the arm’s length principle”. The question that arises is: “What functions are not only necessary, but also sufficient to support an intangible-related return?”
Additionally, the OECD is silent with regard to how much weight is to be attributed to the performance of one or more of these functions in addition to assuming funding risk. For taxpayers that only fund IP development without bearing any additional risk or controlling the use of the funds, the Intangibles Draft clearly limits the return to the “risk-adjusted rate of anticipated return on its capital invested, but not more”. But if the taxpayer performs other functions and assumes additional risk, the Intangibles Draft does not provide any guidance as to the key question of how much is enough or what is necessary to justify an arm’s length return attributed to IP. Conclusion With the increased scrutiny by tax authorities involving intangible transactions, a potential acquisition target should be analyzed from a broader perspective, especially if a significant amount of the deal’s value is based on existing or future development IP. Ultimately, if a look-back period is eventually adopted by the OECD, the ramifications to the M&A industry could be substantial leading to decreased deals, valuations, and attractiveness of potential targets. At a minimum, it is imperative that dealmakers contemplate a more conservative approach in striking a deal when the tax rules governing the transfer of IP are so uncertain. A judicious method (to evaluating a potential acquisition target) in the current tax environment should begin with an understanding of the IP tax footprint sustainability. Moreover, developing a substantive post-acquisition business model (ie, modeling out the functions and risks to justify the intangible-related returns) for structuring the future transfer of IP is crucial to ensure the success of the acquisition. Failing to perform these steps, could result in a substantial tax costs and/or due diligence issues. Therefore, until more clarity is provided by the OECD, the pragmatic course of action is to develop an in-depth understanding of these potential pit-falls during the due diligence process when valuing a target on an after-tax basis.
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TSIBANOULIS & PARTNERS was formed in 2002 through the merger of Tsibanoulis & Associates (est. 1996) and Bailas & Partners (est.1972). We have joined forces with a common target to respond to ever growing legal needs of the business sector in the most effective way. We are thus able to use the exceptional talent and expertise of our outstanding professionals to ensure responsiveness and innovation in providing legal advice. We work and advise on all business related legal issues, having the advantage of cross-border international transactions experience. We are a law firm of 8 partners, 11 full time associates, 2 of counsel and 6 trainees. We have worked with major corporations, large Greek and foreign banks and investment firms, the Greek State and many public authorities providing ground breaking advice, clear legal solutions within a complex environment. Our target is to act before and go beyond our clients’ needs by helping them shape their goals in a realistic yet imaginative way. Valuing the interface between law, public policy and business, we have built a practice to match regulatory requirements, transparency concerns and financial targets.
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www.tsibanoulis.gr Š Tsibanoulis & Partners 2010 Email: info@tsibanoulis.gr Omirou str. 18, 106 72 Athens, Greece Tel.: +30 21 036 75 100 Fax: +30 21 036 75 164
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Country Focus
Transfer Pricing
Transfer Pricing Disputes in Japan Atsushi Fujieda and Shigeki Minami are Partners at Nagashima Ohno & Tsunematsu
Nagashima Ohno & Tsunematsu, with offices located in Tokyo, New York and Singapore, has earned an extremely strong reputation as a leading tax law firm in Japan, ranked as Tier 1 (Band 1) by a number of well-known legal publishers, including Chambers Asia, The Asia Pacific Legal 500, and the Tax Directors Handbook, and we are highly recommended by Asialaw. Mr. Atsushi Fujieda and Mr. Shigeki Minami as well as Ms. Yuko Miyazaki and Mr. Takashi Saida were named Tax “Best Lawyers” by the Best Lawyers 2013 Tokyo.
The transfer pricing rule was overhauled in 2011 in response to the amendment of OECD Transfer Pricing Guidelines in 2010. The newly introduced “most appropriate method” confirmed and has furthered the prevalence of the transactional net margin method (TNMM). On the other hand, the new rule codified the two-stage residual profit split method (RPSM) possibly with a wider scope of application. The 2013 amendment has adopted the Berry ratios as another net profit indicator, which may help certain distributors.
Nagashima Ohno Tsunematsu’s transfer pricing practice, led by Mr. Fujieda, covers every aspect of transfer pricing, including general advice, auditing, APA and, with special emphasis, disputes. Enriched by Mr. Fujieda’s more than 20 years of experience in the field, the firm has been involved in a number of ongoing administrative appeals and litigation matters for various clients. The firm’s advice extends to local issues as well as international issues. The firm’s recent achievements include cancellation of a correction in the amount of more than USD 100 million for a Japanese pharmaceutical company.
Turning to enforcement, the Japanese tax authorities have tended to apply the RPSM to large Japanese companies to allocate considerably low operating margins to their non-Japan subsidiaries, resulting in a recalculation of a very large amount of income for the Japanese parent. The
The following highlights summarize the recent transfer pricing trend in Japan.
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trend has received a significant blow when Takeda Pharmaceutical Company Limited, the largest Japanese pharmaceutical company, has achieved cancellation of a correction in the amount of JPY 24.6 billion by the National Tax Tribunal in March 2013 and finally resulted in the cancellation of the full amount of JPY 122.3 billion (approximately USD 1.3 billion) in the two-stage administrative appeals processes. Another focus by the Japanese tax authorities has been on restructurings, whereby risks and functions originally assumed by Japanese entities are removed and transferred to non-Japanese entities. Faced with similar restructurings, the Japanese tax authorities may seek a way to impose, so to speak, an “exit tax” on corporate tax payers on a theory backed by Chapter IX of the 2010 OECD Guidelines. Nagashima Ohno & Tsunematsu has experience in effectively every method of transfer pricing in each aspect of the enforcement, administrative and court appeals processes.
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One focus by the Japanese tax authorities has been on restructurings
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Country Focus
Transfer Pricing
Morocco: Dealing Effectively with the Challenges of Transfer Pricing Marc Veuillot is the managing partner of CMS Bureau Francis Lefebvre Maroc. The 20-strong team he leads provides assistance to international groups in terms of transfer pricing policies, and drafts transfer pricing documentation for Moroccan entities which perform intercompany transactions. As one of the leading legal and tax advisory firm in Morocco, CMS Bureau Francis Lefebvre Maroc negotiates tax settlements with the Moroccan tax administration that include transfer pricing issues In Morocco a company faces transfer pricing issues during pre-acquisition tax audits, during the defence of the interests of a taxpayer in the framework of a tax audit and during negotiation with the Moroccan tax administration. CMS Bureau Francis Lefebvre Maroc provides assistance on all of these issues. Article 7 of Finance Act 40-08 for the fiscal year 2009 introduced an obligation for businesses which are taxable in Morocco to supply the tax authority with documents and information relating to transactions between a Moroccan entity and a non-resident entity of the same group. This obligation is now provided in article 214 (III) of the Moroccan Tax Code. Nonetheless, such documents and information need only be remitted to the tax authority on its express request. Article 213 (II) of the Moroccan Tax Code also refers to the possible transfer of profits realized by two associated companies located in Morocco. In this context, we recommend justifying the prices applied between two affiliated companies located in Morocco in the transfer pricing documentation. In Morocco, the definition of ‘dependent businesses’ is very wide in scope, and the Moroccan tax authority considers that transfer pricing control applies both to transactions between parent companies and subsidiaries (ie direct connection) and to transactions between sister companies (ie indirect connection). The Moroccan tax administration can require a Moroccan entity to provide transfer pricing documentation, even if the latter is not subject to a tax audit. Under article 214 (III) of the Moroccan Tax Code, documents relating to transfer pricing must be sent
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at the request of the authority (in the form of a given notice) within 30 days of receipt of that request.
(ii) the transfer pricing impacts of group’s reorganization operations.
The documentation must be consistent and meet the Moroccan tax requirements in terms of transfer pricing. The Moroccan Tax authorities are entitled to adjust taxable profits by bringing in the profits it considers to have been indirectly transferred by means of increases or reductions in purchase prices or sales prices.
Transfer pricing issues impact Mergers and Acquisition operations, especially when those operations concern two Moroccan entities of the same group. Indeed, transfer pricing documentation requirements for associated companies only concern transactions performed between a Moroccan entity and an affiliate located abroad. However, Article 213 (II) of the Moroccan Tax Code refers to the risk of transfer of profits between associated companies located in Morocco.
In its Circular Note n°717, the Moroccan Tax Administration refers to the OECD principles to explain the concept of “transfer of profits”. Therefore, a transfer pricing documentation must prove that the prices are consistent with the arm’s length principle as described by the Moroccan tax administration and the OECD. In this context, CMS Bureau Francis Lefebvre Maroc has advised clients concerning (i) the content of a transfer pricing documentation to be delivered to the Moroccan tax administration and
In this context, the merger of two Moroccan companies of the same group will lower the transfer pricing risks as the transactions performed between both companies (if any) would disappear. We advise Moroccan businesses which have relationships of dependency with businesses established outside of Morocco or in Morocco, and enter into transactions with them, to prepare documentation in advance. CMS Bureau Francis Lefebvre Maroc is the leading tax advisory firm in Morocco (legal 500; Chambers; IFLR 1000). It also benefits from the expertise and support of CMS Bureau Francis Lefebvre in Paris and may at any given time rely, when handling cases that require specific expertise, on one of the members of the CMS network, consisting of major European commercial business and tax law firms. Through the CMS network, CMS Bureau Francis Lefebvre has the expertise to work on the transfer pricing documentation for international groups involving entities located in several countries.
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The merger of two Moroccan companies of the same group will lower the transfer pricing risks
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Country Focus
Transfer Pricing
Transfer Pricing Trends in Romania Dan Badin, Tax Partner, and Gavriliu Ciprian, Senior Tax Manager in Transfer Pricing Services, both work for Deloitte Tax in Romania
Deloitte in Romania provides a full range of tax services, through its specialists having in-depth knowledge of tax rules and regulations, as well as of the market environment. The firm has a team of 12 fully-dedicated specialists working on transfer pricing issues for various multinational companies. Tax Partner, Dan Badin, explains what gives the firm the competitive edge: “Our main advantage over competitors in the transfer pricing area is represented by the quality of our deliverables, which has been acknowledged and recommended by our clients and the Romanian tax authorities.” “The high quality of our work and our capacity to provide tailor-made solutions to our clients have been recognized through the award “Central Europe Transfer Pricing Firm of the Year”, granted by International Tax Review in 2012.” Senior Tax Manager, Gavriliu Ciprian, comments on the firm’s ability to assist senior executives on transfer pricing issues on both international and local issues. “Our team comprises of specialists who have the practical and theoretical expertise
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necessary in order to assist multinationals on transfer pricing issues on international as well as local issues,” he says. “Our assistance is recommended by the economic and fiscal knowledge of our team and by the broad experience that we have gained by assisting a significant number of international clients in dealing with issues in this area before and/ or during a TP audit. During the aforementioned TP inspections, we have also gained a significant experience in dealing with the tax authorities.” “Our affiliation to a strong network of offices that can provide cross-border assistance represents an important advantage within the international projects.” The two executives have witnessed emerging trends within the last 12 months, as they explain:
“Following the international trend, the Romanian tax authorities have enhanced their TP audits. As a result, the amount of additional income taxes levied by the tax authorities in the recent years has been on an increasing trend.” “During transfer pricing audits, we have also observed the shift from verifying formal aspects of the transfer pricing documentation to challenging the pricing methodologies or the overall position of the taxpayer subject to TP audit.” Dan Badin comments on how the firm can assist prospective clients in identifying where transfer pricing audit exposure exists within their business. “Deloitte is specialised in providing assistance services in order to identify and/or mitigate the transfer pricing exposure of our clients. In this regard, we provide such services before a TP audit (e.g. assistance in applying for an APA, preparation of benchmark studies for new intra-group transactions) or during an inspection (e.g. preparation of transfer pricing documentation, review of exposure, consultancy services).”
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Following the international trend, the Romanian tax authorities have enhanced their TP audits
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