Transfer Pricing
United States: Announcement and report concerning advance pricing agreement5
The Internal Revenue Service released its 25th annual Advance Pricing Agreement (APA) report, which discusses the experience, structure, and activities of the Advance Pricing and Mutual Agreement (APMA) program. The highlights of the report are as under:
- The total number of APAs executed in 2023 was 156 (4 unilateral, 130 bilateral, and 2 multilateral) as against 167 applications that were filed.
- In 2023, the percentage of APA renewals executed was 47% as compared to 55% in 2022.
- More than half of the APAs executed in 2023 involved transactions between non-US parents and US subsidiaries.
- Most of the transactions covered in APAs executed in 2023 involve selling tangible goods or providing services. 18% of the transactions involve the use of intangible property, which can be among the most challenging transactions in APMA’s inventory.
- In 2023, the most commonly used Transfer Pricing Method (TPM) for both the sale of tangible property and the use of intangible property continued to be the comparable profits method/transactional net margin method. It was used for 80% of these types of transactions.
- The Operating Margin (OM) continued to be the most common profit level indicator (PLI) used to benchmark results. It was used in 60 percent of the cases.
- The median time required to complete an APA decreased in 2023 to 42 months (versus 43.4 months in 2022).
Netherlands implements EU Public CbCR Directive6
The Dutch Government has finalized legislation to implement the European Union (EU) Public Country-by-Country Reporting (CbCR) directive in the Netherlands. The summary of the directive is as follows:
- The first year of reporting will be the financial year beginning 22 June 2024.
- The directive applies to the EU Ultimate Parent Undertakings (UPU) or standalone undertakings and Non-EU UPU’s doing business in the EU through a medium- or large-sized subsidiary undertaking or qualifying branch with a consolidated net turnover of EUR 750 million for each of the last two consecutive financial years.
- The information to be disclosed
must be reported on an aggregated
basis and must include the following
information:
- Name of the UPE
- Covered financial year
- Currency used
- Subsidiaries located in the EU
- Nature of the activities
- Number of employees
- Revenues
- Profit or loss before tax
- Income tax paid
- Income tax accrued
- Accumulated earnings
- The directive contains an option that allows companies to not publish information that would be detrimental to the entity's competitive position. The omitted information must be made public in a subsequent report no later than five years after the date of the original omission.
- Both filing of the report in the Dutch Trade Register and website publication are required within 12 months after the end of the financial year. The report is required to be available on the website for at least five years.
Indirect Tax
Saudi Arabia extends E-invoicing requirement to 10th group of taxpayers from October 2024
Excerpts from various sources
The Saudi Arabia Zakat, Tax, and Customs Authority (ZATCA) has announced that taxpayers residing in Saudi Arabia with a taxable turnover exceeding SAR 25 million during the calendar years 2022 or 2023 will be included in the 10th wave of Phase 2 e-invoicing integration. ZATCA will notify affected taxpayers to prepare to link and integrate their e-invoicing systems with ZATCA's e-invoicing platform, Fatoora.
ZATCA has further clarified this phase, outlining the requirements such as issuing e-invoices in a specific format, including additional fields on invoices, and storing e-invoices with a QR code.
Cyprus extends temporary zero VAT on specified goods, and reduces 5% VAT for the purchase or construction of residences
Excerpts from various sources
Cyprus has decided to extend the temporary application of a zero VAT rate on specific goods until 30 June 2024. These goods, previously subject to the standard VAT rate of 19% or the reduced rate of 5%, include essentials such as bread, milk, eggs, baby food, feminine hygiene products, diapers, as well as coffee, sugar, meat, vegetables, and certain roots and tubers.
In addition, the Cyprus Parliament has passed a law allowing taxpayers to apply for a reduced 5% VAT rate for the purchase or construction of a residence within one year of acquiring the property.
Poland announces new deadlines for e-invoicing mandate
Excerpts from various sources
In April 2024, the Polish Ministry of Finance and the National Tax Administration has confirmed a new timeline for the implementation of B2B e-invoicing as follows:
- Effective 1 February 2026 - for entrepreneurs established in Poland with sales value exceeding PLN 200 million per annum in 2025.
- Effective 1 April 2026 - for all other taxpayers.
The project initially scheduled for 1 July 2024 has been postponed stating errors on the KSeF (e-invoicing) platform.
Sweden clarifies VAT treatment of Non Fungible Tokens (NFTs) associated with digital work
Excerpts from various sources
In March 2024, the Swedish Tax Authority published a ruling relating to NFTs, defining them as a unique record on a blockchain signifying the ownership of a specific asset. According to the Authority, a NFT linked to a digital work comprises the following components:
- The ownership of the digital work associated with the NFT;
- The NFT itself; and
- The assignment or transfer of copyright, in rare circumstances.
Addressing the two components, the ruling clarifies whether there are single or multiple transactions for VAT purposes. Considering the intrinsic interdependency of the transfer of ownership of digital work and its NFT, both transactions cannot be separated and should be objectively treated as a new digital service.
In instances of copyright, an evaluation of whether the copyright is tied to the NFT is necessary to determine the nature of the transaction.