Transfer Pricing News - Grant Thornton Indiagtw3.grantthornton.in/assets/Transfer_Pricing_Newsletter... · 2013-07-03 · Transfer Pricing News Welcome to the second edition of Transfer

Transfer Pricing News

Welcome to the second edition ofTransfer Pricing News.

Transfer Pricing News No. 2: August 2012 1

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2 Belgium

3 China

5 Germany

6 India

9 Japan

11 Netherlands

12 United Kingdom

14 Who’s who

This issue contains transfer pricingupdates from a number of countriesacross the globe – a necessity in theglobal economy we all now inhabit. So if you want to know about newdevelopments in transfer pricing aroundthe world this is the place to look.

To find out more about the topicsfeatured in Transfer Pricing News do not hesitate to get in touch with theGrant Thornton transfer pricing team.Their contact details are included on thelast page of this newsletter.

This information has been provided by member firms withinGrant Thornton International Ltd, and is for informationalpurposes only. Neither the respective member firm norGrant Thornton International Ltd can guarantee theaccuracy, timeliness or completeness of the data containedherein. As such, you should not act on the informationwithout first seeking professional tax advice.

Welcome Belgium China Germany India Japan Who’s whoNetherlands United Kingdom


Belgium

Revised thin capitalisation rulesRevised thincapitalisation (thin cap)rules have been

introduced in Belgian tax law from 1 July 2012. Until 30 June 2012, a 7:1debt to equity ratio was in place forinterest paid or attributed to beneficialowners subject to a tax regime whichwas far more beneficial than theBelgian tax regime. Interests paid orattributed that exceeded the applicableratio were to be considered non-deductible for Belgian income taxpurposes.

The thin cap rules have now beenbroadened in two ways:• the debt to equity ratio has lowered

to 5:1• besides interest paid or attributed

to beneficial owners subject to abeneficial tax regime, the rule willalso be applicable to all interestpaid or attributed to affiliatedcompanies.

Interest related to bonds issued bypublic offering or loans granted bybanks and financial institutions areexcluded from the thin cap rule.

In order to safeguard the Belgiangroup financing companies anamendment on the new thin cap rulewill be introduced.

An exception would be applicablefor Belgian companies involved incentralised treasury management (forexample cash pooling). The thin caprules on the 5:1 intercompany debt toequity ratio would be applicable on anet basis (i.e. the positive differencebetween, on the one hand, the interestspaid or attributed on intercompanydebts and, on the other hand, theinterests received related to funds putat the disposal of group companieswithin the frame work of the globalcash pooling agreement).

Example for treasury companies:

Interest paid on interco debt: 50,000.00

Interest received from interco in framework of cash pooling agreement: 10,000.00

Total interco debt: 900,000.00

Paid in capital plus taxed reserves: 100,000.00 (x5 = 500,000.00)

Non-deductible interests: 50,000.00 – 10,000.00 = 40,000.00: (400,000.00/900,000.00) = 17,600.00

It is advisable for Belgian groupcompanies to revise their intercompanydebt – equity ratio in order to avoidfuture adverse tax consequences. Onthe other hand a beneficial exemptionwill be applicable on the thin capregime for group treasury companies.

Georges KeymeulenGrant Thornton BelgiumE [email protected]


mailto:[email protected]


China

China issue Advance PricingArrangement Annual Report (2010)

On 12 April 2012, theState Administration ofTaxation of China (SAT)

issued the China Advance PricingArrangement Annual Report (2010)(the 2010 annual report). This is thesecond advance pricing arrangement(APA) annual report issued by theSAT, after the 2009 annual report wasfirst released. The 2010 annual reporthas followed the same framework witha new chapter on the protection oftaxpayers’ rights (chapter IV) and somerevisions in Chapter III.

New development of China APAprogrammeIn 2010 the Chinese tax authoritiesconcluded and signed four unilateralAPAs and four bilateral APAs. This isthe second fruitful year in whichbilateral APAs were signed. From 1 January 2005 to 31 December 2010,the Chinese tax authorities received 73written requests or formal applicationsfor bilateral APAs. The countriesinvolved include Japan, Korea, theUnited States, Denmark and Singapore.In addition, the SAT has receivednumerous enquiries on bilateral APAsfrom enterprises. It is expected that thenumber of APA applications willcontinue to increase.

Supplementary provisions of renewalIn the newly issued 2010 annual report,the SAT for the first time clarifies thatthe enterprise’s profit level should notbe lower than the median regarding therenewal of APAs. It is required that‘during the term of the APA, if theenterprise’s overall profit level staysbelow the median most of the time,where an arm’s length range is used,the tax authority may no longer acceptan application for renewal of the APA’.

Protection of taxpayers’ rightsAnother important development in the2010 annual report is that it has addeda new chapter on the protection oftaxpayers’ rights. In this chapter, itdefines the confidentiality of taxpayers’information and taxpayers’ freedom ofconcluding an APA. The reportespecially points out: ‘in cases wherethe tax authority and the enterprise failto reach an agreement for an APA, thenon-factual information of theenterprise, such as various suggestions,inferences, ideas and conclusionsobtained by the tax authority duringdiscussions and negotiations shall notbe used in future tax investigations ofthe transactions covered by theproposed APA’. This chapter can beregarded as an indicator that the SATaims to eliminate the concerns of thetaxpayers and encourage them to applyfor APAs.



StatisticsThe 2010 annual report includes theofficial statistics on in-process and signedAPAs for the period from 1 January2005 to the end of 2010. The followingtrends are reflected from the data:• as an effective way to avoid

international double taxation, abilateral APA is becoming more andmore popular among taxpayers

• the number of APAs related tointangible assets or services orfinance is increasing rapidly

• the processing time of most signedAPAs is less than two years, theefficiency is expected to increasegradually in the future

• more than half of the signed APAsapplied the transactional net marginmethod (TNMM) as the transferpricing method, but the applicationof other reasonable methods isencouraged by the SAT.

Some important statistics charts areextracted as follows:

1. Statistics of APAs by calendar yearand phaseThe number of unilateral APAs isdecreasing year by year, while the numberof bilateral APAs is generally increasing.From 2005 to 2008, more unilateral thanbilateral APAs were signed each year.However, the number of bilateral APAsexceeded that of unilateral APAs in 2009for the first time, representing the APAprogramme’s principal component. In2010, the number of bilateral APAs signedwas equal to that of unilateral APAs. Thisindicates that taxpayers are attachingmore importance to bilateral APAs andlooking for ways to resolve bilateralinternational transfer pricing issues andavoid double taxation through the mutualagreement procedure (MAP) process. Italso reflects the SAT’s intensified effort inpromoting the MAP program.

2. APAs by transaction typesPurchase and sale of tangible assetsaccounts for the largest portion (64%) oftransactions covered by accepted

applications and concluded APAs.However, the percentage of acceptedapplications involving the transfer or useof intangible assets and the provision ofservices is increasing significantly, andthe total percentage has exceeded that ofAPAs involving the purchase and sale oftangible assets. It is anticipated that thepercentage of APAs involving types oftransactions other than the purchase andsale of tangible assets will increase yearby year.

3. APAs by processing timeChina’s unilateral APAs were allcompleted in two years or less, with53% completed within one year and47% taking between one and two years.While bilateral APAs generally takemore time, many were completed withinone year (56%); 19% took between oneto two years, 19% took between two tothree years, and the remaining 6% werecompleted in more than three years. It isalso pointed out that the Chinese taxauthorities generally aim to complete the

review and negotiation process within12 months for unilateral APAs andwithin 24 months for bilateral APAs.

4. APAs by transfer pricing methodTNMM is the most commonly usedtransfer pricing method among thesigned APAs (64%), with the secondmost popular transfer pricing methodbeing the cost plus method. The reportalso points out however that theChinese tax authority hopes thatenterprises will cooperate moreeffectively with tax officers during theAPA review and evaluation phase toprovide sufficient information regardingtransactions and prices so that the resaleprice method and the profit split methodmay be more frequently applied in theAPA programme.

Rose ZhouGrant Thornton ChinaE [email protected]




Germany

Attribution of profits to permanentestablishments

From 1 January 2013,new German legislationintends to amend section

one of the German Foreign TransactionTax Act (AStG). In particular the newrules concern cross border transactionsbetween head offices and permanentestablishments (PE) for which the arm’slength principle shall be applicable in thefuture.

The new rules will apply to German companies with PEs abroad as well as foreign companies with PEs in Germany. Representatives’ PEs willalso be affected.

The amendment is linked toconsiderations of the OECD regardingthe Authorised OECD-Approach(AOA) which provides guidance for theattribution of profits to PEs. Theattribution of profit is ultimatelyessential to determine which part of theearnings will be taxed by the residentcountry of the PE according to therelevant double tax treaty.

According to the new rules a PEshall be treated as an autonomous andindependent company in relation to theheadquarters and other PEs (separateentity approach).

Despite the fact that a companycannot conclude legally bindingcontracts with its (legally dependent)PE, contractual relationships shall beassumed for the tax treatment of crossborder transactions between head officesand their PEs.

As a result the profit allocationbetween the head office and the PEwhich has been executed currently asprofit split will be changedfundamentally. Examples include:• if a PE provides fictitious services to

its head office in another country thePE may be taxed on the basis ofrevenues including a mark up

• profits could also be taxed at thelevel of the PE although the entirecompany generates losses. The prerequisite of actual realisation of profits would no longer apply.This could lead to cash issues

• the taxable total income of all PEsincluding the head office could differfrom the overall result of the entirecompany (potential consequencesinclude double taxation or doublenon-taxation)

• a so called ‘transfer of functions’may be assumed between PEs of acompany being resident in differentcountries.

Harald MuellerGrant Thornton GermanyE [email protected]




Winds of change in the Indiantransfer pricing regulations

To address the year-on-year rapid escalation intransfer pricing disputes

and to address the current need of‘corporate India’, the Union Budget2012 introduced the dispute resolutionmechanism, the Advance PricingAgreement (APA) scheme. Thismechanism is a significant and welcomechange after the gamut of transferpricing issues that have arisen since the introduction of the regulations adecade ago.

Another surprise in the UnionBudget 2012, is that certain specifieddomestic transactions will now fallunder transfer pricing (TP) regulationsincreasing the compliance burden of thetaxpayer. This article aims to give a briefheads up on these two key amendments.

APAsAn APA will enable the taxpayer toattain certainty in advance with respect todetermining the arm’s length price (ALP)or the manner/methodology in which itshall be determined. APAs would beapplicable for all taxpayers who haveinternational transactions and fall withinthe ambit of Indian TP legislation.

Currently the Budget has onlyencapsulated the broad framework of anAPA. The Central Board of Direct Taxes(CBDT) has been empowered to frame ascheme for APAs. Therefore, the finerdetails of the APA regime will follow.Until such detailed notification andguidelines are issued, the taxpayers willhave to wait to access the APA route.Further the revenue department isprepared with field formations and theAPA directorate is expected to be basedin Delhi with facilitation desks inMumbai and Bangalore.

The key highlights of the APA are asfollows:• the APA route will enable the

taxpayer to use any method otherthan one of the prescribed fivemethods available. This will enablethe taxpayer to negotiate aneconomic method or put across abusiness rationale to explain theproposed transfer price

• the APA can be applied for a periodof five consecutive previous years

• the APA has binding force only onthe taxpayer with whom it is signedand in respect of the relevantinternational transaction vis-à-vis thejurisdictional commissioner ofincome tax

• the APA shall not bebinding/annulled if there is change inlaw or if the taxpayer has signed theAPA with the CBDT based onmisrepresentation of facts. CBDTwill annul in this case by way of anorder

• once the APA is concluded, then thetaxpayer is required to file revisedreturn(s) with the assessing officer(income tax department) who has tocomplete the assessment/reassessment within one year fromthe end of the financial year in whichthe revised return is filed

• there is no threshold prescribed foraccessing the APA route.

India



With this backdrop of APA provisionsin the Union Budget 2012, there is foodfor thought on certain key issues, forexample whether:• the APAs would be

unilateral/bilateral• they would encourage a pre-filing

conference• rollbacks would be permitted• there would be APA filing fees• an independent agency to monitor

and implement this would beappointed

• an industry representative wouldalso be a member of the APA officepanel members.

All these factors are yet to beunderstood. However, broadly thescheme should be such that it acts as anoverall progressive catalyst to resolvetransfer pricing disputes.

The detailed APA process is yet tobe notified and the finer aspects are inthe realm of speculation however, there

are certain considerations which thetaxpayer needs to ponder before actuallyfirming up on the APA route. Whilegetting into an APA, the taxpayer wouldneed to provide a great degree ofinformation which would involve notonly information on past positions butalso information regarding the forecastsand future plans of the taxpayer. Howconfidential or protected thisinformation would be is key to whetherthe APA regime’s successful or not. Thetaxpayer needs to gain confidence thatthis will not be shared with the transferpricing officers. Also one will need toconsider the time cost involved in anAPA vis-à-vis regular litigation optionand whether both can go on in parallel.Another important consideration wouldbe the type of transaction and issuesinvolved. In case of high valuetransactions or complex issues, it wouldmake sense for a taxpayer to opt for anAPA especially a bilateral one to ensurethat the foreign country authorities are

also in conformity with the entirearrangement.

Readers can contact the authors ofthis article for examples/case studieshighlighting when it would be advisableto enter into an APA.

Specified domestic transactionsAs mentioned above, another interestingmakeover to the Indian TP regulationsintroduced in the Union Budget 2012, isthat specified domestic transactions willnow be governed by TP regulations.Specified domestic transactions wouldinclude transactions entered into bydomestic related parties or by anundertaking with other undertakings ofthe same entity for the purposes ofsection 40A, Chapter VI-A, section10AA and which exceed a monetarythreshold of Rupees 5 crore in aggregateduring a financial year (approximatelyUSD 900,000).

‘The Act’ already has provisionswhich empower the assessing officer to

disallow expenses or rework thequantum of tax holiday being claimedwhere the transactions are undertakenwith related parties. The proposal seeksto strengthen these provisions bybringing them under the TP provisions.

Companies would have to maintainTP documentation for such domestictransactions between related parties andwould also need to determine theappropriate arm’s length price. Suchregulations would not be unique toIndia. There are many countries thatmandate compliance requirements fordomestic transactions within their TPregimes like the UK, the Netherlands,and Malaysia for example.

With this widening of the TP ambit,TP will not be limited to just the multi-national companies. Many mid-sizedgroups, partnership firms, HinduUndivided Families and even individualswill now have to comply with the TPregulations.



This move by the government isaimed at curbing the tax arbitrageopportunity which was available to ataxpayer in certain cases. On availabilityof such tax arbitrage opportunity, thetaxpayer would accordingly set thetransfer price between its relateddomestic entities. The examples of sucharbitrage opportunity would include thefollowing:• shifting of profits between a loss-

making entity and a profit-makingentity to achieve an overall reducedtax rate

• profit shifting between companiesthat operate units in specialeconomic zones and put the bulk oftheir profits in these to takeadvantage of the tax holidaysapplicable

• profit shifting to an entity enjoyingtax concessions under an incentivescheme could also be achievedthrough pricing of transactions ofsuch entity with another relatedcompany not enjoying such benefits.

This change in law was fallout from athought-provoking Supreme Court caseof Commissioner of Income Tax IV,Delhi, vs GlaxoSmithKline Asia (P) Ltd(SLP (Civil) no 18121/2007) wherein thecourt observed that the domestic TPregulations are limited to cross-bordertransactions only and it should bewidened to include the domestictransactions so as to enable the assessingofficers to ascertain the value oftransactions which are required to beundertaken at market price. Therefore, itwas suggested that the law be amendedto align the provisions governingdomestic transactions between relatedparties with the provisions of thedomestic TP regulation.

The proposed change is aimed atstrengthening the existing provisions inmost of the tax holiday schemes and alsoprovisions which prohibit excessivepayments to related persons from beingclaimed as tax deduction by putting theonus on the taxpayer to maintain andreport the adherence to the arm’s length

standard. However, with most of theprofit based incentives having beenphased out the amendment seems to bemisdirected leading to unnecessarycompliance burden on the taxpayer.

A noticeable change has also beenproposed in section 40A(2)(b) of ‘theAct’, which proposes to expand therelated persons definition to includecompanies where substantial interest isheld by the same company.

However, it should be noted that thespecified domestic transactions wouldnot be covered by the APA scheme.While the APA regime has beenintroduced with respect to internationaltransactions, the same benefit has notbeen extended in cases of domestictransactions thereby increasing thecompliance burden on companies.

The new provisions with respect todomestic transactions would be effectivefrom 1 April 2012 (after the Finance Billis passed by parliament and it receivesthe Presidential assent). The taxpayerwould need to determine an arm’s length

TP policy applying the prescribed TPmethods and maintain mandatory TPdocumentation. They would also berequired to obtain and file form 3CEBwith the assessing officer. Theamendments also propose a levy of 2%penalty each on non-reporting of atransaction, non-maintenance and non-furnishing of documentation.

With such augmentation in thedecade long TP regulations, it isexpected that tax authorities will now be more pragmatic in assessing thetaxpayers and in consequence thetaxpayers can look forward to reducedlitigation and disputes in India.

Karishma PhatarphekarGrant Thornton IndiaE [email protected]




Transfer pricing legal cases It used to be said thatthere were not manytransfer pricing legal

cases being fought in the Japanesecourts. Following the aggressive transferpricing assessments by the National TaxAgency (NTA), many more cases arenow emerging. The NTA are so far notalways successful.

Court casesAdobe SystemsIn 2008, software provider AdobeSystems won an appeal to the TokyoHigh Court. One of the most importantpoints of this controversy is‘commissionaire’. The NTA had madean assessment using secret comparablesand characterising Adobe’s Japanesesubsidiary as a full-fledged buy-sellsoftware distributer. Adobe took theposition that the proper risk profile fortransfer pricing purposes was amarketing service provider. The NTA’sassessment was upheld by the TokyoDistrict Court, but was overturned bythe Tokyo High Court. Japan’s taxauthority decided not to appeal.

Tribunal casesTakeda Pharmaceutical Co., Ltd.The Takeda case recorded the biggestassessment amount in Japan. The mostimportant point of controversy was if‘control exist in 50:50 joint ventures’. InApril 2012, Takeda received notice thatthe Osaka Regional Tax Bureau (ORTB)had concluded the reinvestigation with adecision to reduce the originalassessment of JPY 122.3 billion intaxable income by the amount of JPY 97.7 billion. As a result, Takedaexpects to receive a refund of JPY 57.1billion, tax and interest combined.

The subject transactions werebetween Takeda and TAPPharmaceutical Products Inc (TAP) a50-50 joint venture between Takeda andAbbott Laboratories. In November2011, Takeda re-opened a suspendedreinvestigation process concerning the

correction notice received in 2006 fromthe ORTB on the Prevacid transactions.The original reinvestigation process hadpreviously been placed on hold so thatTakeda could seek relief through theMutual Agreement Procedure (MAP),however, the MAP did not result in anyagreement between the tax authorities ofJapan and the United States. Takeda hasbeen asserting the legitimacy of theTakeda position to the ORTB.

In May 2012, Takeda submitted anew request for reconsideration to theOsaka Regional Tax Tribunal,petitioning for the cancellation of theportion of the original correction thatstill remains after the conclusion ofORTB’s reinvestigation. The point ofcontroversy ‘50:50 joint venture’ will bediscussed further.

Japan



TDK CorporationOn 1 February 2010 a National taxtribunal decision, reversed JPY 14.1billion of a JPY 21.3 billion revenuereassessment against TDK Corporation(TDK).

The subject transactions wereelectronic parts transactions with foreignaffiliates in Hong Kong and thePhilippines.

This result was interesting in itself asit’s extremely rare for a taxpayer tosucceed in an appeal to the National taxtribunal on purely transfer pricinggrounds. Additionally, the size of thereduction in favour of TDK was alsosignificant.

Recent transfer pricing assessmentsDetails of some of the adjustments thathave been made by the tax authorities,along with related issues regardingdisputes with the tax authorities, havebeen published from time to time. Thefollowing is a recent and hugelypublicised example.

2010 – Hewlett-Packard Japan, Ltd.Hewlett Packard’s Japanese subsidiary(HP Japan) received a notice ofassessment from the Tokyo regional taxbureau (TRTB) for the two yearsthrough October 2006 for expenses paidto its US parent. TRTB said that it wasnot evident for what services theseexpenses had been paid to its parent andwere presumed to be recognised by theTRTB as a donation (taxable income),and therefore not deductible under thedomestic donation provisions. Theadjustment to income was JPY 47billion.

Toshiya Kimura Grant Thornton JapanE [email protected]




Amendments to the Netherlandslimitation of interest deduction rules

The parliament’s lowerhouse approved a bill tolimit the deductibility of

interest relating to the financing of aparticular category of holdingcompanies for Dutch corporate incometax purposes. Accordingly, thededuction of excessive interest on loans,taken up for investment in participationsqualifying for the ‘participationexemption’ would not be allowed.

The excessive interest is determinedannually by dividing the amount of theparticipation debt by total loans, andmultiplying this amount by the totalannual interest owed. The participationdebt equals the positive differencebetween the aggregate historic cost priceof qualifying investments and the fiscalequity of the taxpayer.

When a holding company also has anactive group financing function, loanswhich are used to actively finance groupcompanies are the exception to this rule.Further exception is provided in the casethat the acquisition price relates toexpansion of operational activities of agroup.

The first EUR 750,000 of excessiveinterest is always deductible in order tolimit the administrative burden.

A grandfathering rule is included inthe bill. Under this rule, taxpayers mayelect to disregard 90% of the acquisitionprice with respect to acquisitions intaxable years that commenced on orbefore 1 January 2006.

The legislation would apply tofinancial years beginning on or after 1January 2013. The Dutch cabinet alsosupports abolishing the Dutch thincapitalisation rules.

Transfer pricing studies includingdebt capacity analysis and interest ratebenchmarking remain necessary tosupport the arm’s length nature ofinterest rates.

Netherlands Advance PricingAgreement (APA) statisticsThe Dutch tax authorities completed248 (205 in 2010) APAs and granted 408(355 in 2010) advance tax rulings (ATRs)in 2011, which was an increase fromprevious years in both cases.

Besides granting 248 APAs, seven(zero in 2010) requests were denied and64 (67 in 2010) requests were eitherwithdrawn or not completed.

Although the Netherlandsconcluded numerous bilateral andmultilateral APAs, unilateral APAsremain in the majority.

The average process time for bothAPA and ATR requests has improved in2011. It took an average of 41 days (47days in 2010) to process an APA and anATR request in 2011. ATR requests canbe handled more quickly than APArequests (with an average process time of36 days). Almost 60% of the combinedAPA and ATR requests is an ATRrequest.

In general, the Dutch tax authoritieshandle requests within two months andthe Netherlands does not charge APAuser fees.

Michiel van den Berg Grant Thornton NetherlandsE [email protected]

Netherlands




Controlled Foreign Companies (CFCs)update

In the April 2012 editionof this newsletter, thedraft CFC legislation that

had been released was outlined. The finalCFC legislation has now been publishedas part of the Finance Bill 2012.

The new gateway test has beensimplified to ensure that the taxpayersare able to identify more easily, whethera foreign subsidiary’s profits are withinthe scope of the new rules. This shouldpotentially benefit a large number ofcompanies, which will not need toconsider other chapters beyond thegateway chapters.

Should the foreign subsidiary notmeet the conditions under the gateway,then they will have to consider thegeneral CFC provisions. This willrequire the subsidiary to identify theassets and risks of the company in theUK pertaining to the subsidiary andidentify the extent to which significantpeople functions associated with thoseassets and risks are carried out in the UKby the company.

Revision to HMRC manual – grouploss reliefPreviously, the UK tax legislationpermitted claims for relief to be madewithin the 12 month period following anagreement under the Mutual AgreementProcedure (MAP). The legislation didnot clarify whether the ability to amendthe claims is restricted to the party to theMAP, or whether it extends more widelyto encompass, for example, groupcompanies that may wish to revise theirgroup relief claims following MAPconclusion.

The HMRC manuals have beenupdated to confirm that it interprets therelevant legislation widely, and willaccept revised claims for relief by groupcompanies as a consequence of a MAPsettlement, even if the claims relate to aclosed year.

The amendment to the internationalmanual is welcome as it removes anelement of uncertainty for UKtaxpayers. More widely the HMRCmanuals, which are directed atinspectors of taxes but are widely usedby taxpayers as a guide for HMRCthinking, are being reviewed andupdated. We will provide updates infuture editions of this newsletter.

United Kingdom



General Anti Avoidance Rule (GAAR)In December 2010, the UK governmentasked a leading barrister (GrahamAaronson QC) to lead an independentstudy that would consider whether aGAAR could deter and counter taxavoidance, whilst retaining a tax regimethat is attractive to businesses. In hisindependent report, Graham Aaronsonconcluded that a GAAR would deterwholly unacceptable artificial taxavoidance schemes.

The government accepted GrahamAaronson’s conclusion and agreed that a‘broad spectrum’ anti-abuse rule wouldnot be beneficial for the UK tax system.Subsequently the UK governmentannounced in its Budget 2012 that itwould consult on a GAAR targeted atartificial and abusive tax avoidance with

a view to bringing forward legislation inthe Finance Bill 2013. The governmenthas now released a consultationdocument which has been welcomed bymost tax advisors.

The proposed GAAR is envisaged toapply to income tax, corporation tax(including transfer pricing (TP)), capitalgains tax, petroleum revenue tax,inheritance tax and national insurancecontributions but VAT is excluded.

Fundamental to the proposedGAAR is the ‘double reasonablenesstest’ as the key provision that drives theapplication of the GAAR, wherebyarrangements are to be consideredabusive if they ‘cannot reasonably beregarded as a reasonable course ofaction, having regard to all thecircumstances’.

The proposed GAAR does notinclude a provision for a clearancemechanism. Grant Thornton UK believethat the GAAR will not have a majorimpact on TP because the TP rulesalready require taxpayers to price theirtransactions at arm’s length. However itis intended to deter anyone looking tointroduce aggressive tax-driven schemes.

Wendy NichollsGrant Thornton UKE [email protected]




Who’s whoContributors

Georges KeymeulenGrant Thornton BelgiumE [email protected]

Rose ZhouGrant Thornton ChinaE [email protected]

Harald MuellerGrant Thornton GermanyE [email protected]

Karishma Phatarphekar Grant Thornton IndiaE [email protected]

Toshiya Kimura Grant Thornton JapanE [email protected]

Michiel van den BergGrant Thornton NetherlandsE [email protected]

Wendy NichollsGrant Thornton UKE [email protected]

© 2012 Grant ThorntonInternational Ltd. All rightsreserved.

This information has beenprovided by member firmswithin Grant ThorntonInternational Ltd, and is for informational purposesonly. Neither the respectivemember firm nor GrantThornton International Ltd can guarantee theaccuracy, timeliness orcompleteness of the datacontained herein. As such,you should not act on theinformation without firstseeking professional taxadvice.

Grant Thornton InternationalLtd (Grant ThorntonInternational) and themember firms are not a worldwide partnership.Services are deliveredindependently by themember firms.









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Transfer Pricing News - Grant Thornton Indiagtw3.grantthornton.in/assets/Transfer_Pricing_Newsletter... · 2013-07-03 · Transfer Pricing News Welcome to the second edition of Transfer