Transfer pricing
Mazars' comments on Transfer Pricing issues
May 2022 - Latest development of APA in China Part II - 2020 APA Annual Report and MAP Review Report
The State Administration of Taxation (“STA”) has made continuous effort in promoting Advanced Pricing Arrangement (“APA”). On 29 October 2021, it published the China APA Annual Report (2020) (“2020 Annual Report”). The report shows that the STA has made continuous efforts to enhance its capability to promote APA cases, and signed record-high unilateral APAs and bilateral APAs. In addition, the Organization for Economic Co-operation and Development (“OECD”) released the Stage 2 peer review report of China relating to the outcome of the peer monitoring of the implementation of the Base Erosion and Profits Shifting (“BEPS”) minimum standard under Action 14 on improving resolution mechanisms (known as “MAP Review Report”).
April 2022 - Latest development of APA in China Part I - Simplified procedures of unilateral APA
The State Administration of Taxation (“STA”) has made continuous effort in promoting Advanced Pricing Arrangement (“APA”). On 26 July 2021, the STA issued STA Public Notice [2021] No.24 (“Bulletin 24”), which sets forth simplified procedures for unilateral APA for enterprises that meet certain conditions. On 29 October 2021, it also published the China APA Annual Report (2020) (“2020 Annual Report”). The report shows that the STA signed record-high unilateral APAs and bilateral APAs in 2020.
August 2021 - Statement on a two-pillar solution to address the tax challenges arising from the digitalization of the economy
The G20/OECD Inclusive Framework on BEPS (“IF”) has, on 1 July 2021, approved the “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalization of the Economy” (the “Statement” or so called “BEPS 2.0”). The Statement is approved by 133 countries and jurisdictions of the 139 countries and jurisdictions comprising the IF, including Hong Kong and China, as of 12 August 2021.
July 2021 - Changes are around the corner: The BEPS 2.0 Pillar 2 update
In November 2019, the OECD released the Global Anti-base Erosion (GloBE) proposal, the so-called Pillar 2 of the BEPS 2.0 project. On 12 October 2020, the G20/OECD Inclusive Framework on BEPS (“IF”) released two detailed “blueprints” in relation to its ongoing work to address the tax challenges arising from the digitalization of the economy (“Pillar 1”) and in relation to the tax rules designed to ensure that large multinational businesses pay a minimum level of tax on profits in all jurisdictions (“Pillar 2”). On 1 July 2021, 130 countries and jurisdictions, constituting vast majority of IF approved the “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalization of the Economy” (the “Statement”). They agreed on a taxing right for market jurisdictions on at least 20% of the profits exceeding a 10% margin of large multinational enterprises (“MNE”) under Pillar 1 and a global minimum tax of at least 15% under Pillar 2.
February 2021 - OECD Guidance on transfer pricing implications of COVID-19
On 18 December 2020, the OECD published Guidance on the transfer pricing implications of the COVID-19 pandemic (“OECD Guidance”) providing guidance to taxpayers when applying the arm’s length principle and applying the OECD 2017 Transfer Pricing Guidelines (“TPG”) for periods impacted by the COVID-19 pandemic.
The OECD Guidance is divided into four sections to highlight challenges that multinational enterprises (“MNE”) may encounter in complying with transfer pricing regulations as a result of COVID-19. COVID-19 may also trigger the need for intragroup debt. This OECD Guidance however does not deal with the transfer pricing of financial transactions, which was covered by another guidance issued by the OECD in February, 2020. Please refer to our Tax Commentaries issued in September and October 2020.
The OECD Guidance includes the following four sections:
1. Comparability analysis;
2. Losses and the allocation of COVID-19 specific costs;
3. Government assistance programs; and
4. Advance pricing agreements.
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The OECD Guidance is divided into four sections to highlight challenges that multinational enterprises (“MNE”) may encounter in complying with transfer pricing regulations as a result of COVID-19. COVID-19 may also trigger the need for intragroup debt. This OECD Guidance however does not deal with the transfer pricing of financial transactions, which was covered by another guidance issued by the OECD in February, 2020. Please refer to our Tax Commentaries issued in September and October 2020.
The OECD Guidance includes the following four sections:
1. Comparability analysis;
2. Losses and the allocation of COVID-19 specific costs;
3. Government assistance programs; and
4. Advance pricing agreements.
Download our Hong Kong tax newsletter to learn more.