Direct Tax
Tunisia deposits its instrument for the ratification of the Multilateral BEPS Convention
Excerpts from OECD.org, dated 23 August 2023
Tunisia deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS Convention), which now covers around 1850 bilateral tax treaties, underlining its strong commitment to prevent the abuse of tax treaties and BEPS by multinational enterprises. The BEPS Convention will enter into force on 1 November 2023 for Tunisia.
On 1 August 2023, around 1200 treaties concluded among the 82 jurisdictions that have ratified, accepted or approved the BEPS Convention have already been modified by the BEPS Convention. Around 650 additional treaties will be modified once all Signatories have ratified the BEPS Convention.
Transfer Pricing
OECD: Public Consultation Document on Baseline Distribution12
The Organisation for Economic Co-operation and Development (OECD) released an updated public consultation document (the document) on 17 July 2023 that reflects further development of the first consultation document released in December 2022. The document simplifies the transfer pricing mechanism of certain baseline marketing and distribution activities.
Scope of Amount B
Amount B will affect the companies selling tangible goods in a wholesale model to unrelated parties characterized as a routine or limited risk distributor. It does not include transactions in nature of the distribution of services or commodities, retail sales and nondistribution activities. The document provides that a distributor carrying both wholesale and retail distribution is deemed to carry out solely wholesale distribution if its annual net retail sales do not exceed 20% of total annual net sales.
Transactions in Scope
According to the Consultation Document (‘document’), a qualifying transaction will be subject to Amount B if it satisfies the specified scoping criteria:
- Economically relevant characteristics must enable reliable pricing using a one-sided transfer pricing method with the distributor, sales agent, or commissionaire as the tested party.
- The tested party’s ratio of operating expenses to annual net sales should fall within a range of 3% to 30%, or 50% under Alternative B.
- Non-distribution activities are excluded unless they can be separately evaluated and priced.
The document proposes Alternative A and Alternative B as scoping criteria. Alternative B is more stringent than Alternative A, by focusing more on “baseline” distributors without making “non-baseline contributions” that cannot be priced.
Distributors engaged in non-distribution transactions can be part of Amount B’s scope provided they can be separately priced by maintaining segmentation provided the proportion operating expenses (non-distribution activities) does not exceed 30% of the total costs.
Pricing Mechanism
The best and most appropriate method (MAM) suggested for pricing under Amount B is the Transaction Net Margin Method considering industry, geography, and functional and assets of company. The CUP method using internal comparable is considered as MAM over TNMM in exceptional circumstances. Return on sales is selected as net profit indicator for pricing the transactions.
OECD has set forth a pricing matrix for generally applicable pricing model based on three industry classification and five bands of operating expenses and assets. The range of arm’s-length results derived from the pricing matrix is between 1.50% and 5.50%. Outliers are adjusted to the midpoint of this range.
Geographic variations are addressed through a modified approach, classifying jurisdictions based on data availability and risks. The three-step process in Amount B uses a Berry ratio cap-and-collar approach (range of 1.05 -1.50) to rectify ROS discrepancies for fair remuneration.
Documentation
The documentation for Amount B can be relied on the existing local file and master file framework.
Taxpayers seeking to apply Amount B for the first time should include in its documentation, a consent to apply Amount B for a minimum of three years, unless transactions are no longer in-scope during that period or there is a significant change in the taxpayer’s business.
Our Comments
In comparison to the earlier version of the consultation document, this document provides technical clarity on Amount B with respect to scoping criteria, pricing method along with different parameters, and many more. It is more pertinent to monitor ongoing developments of Pillar One and Pillar Two in the coming months for reasons not limited to that Amount B is not subject to revenue threshold resulting in applicability to majority of the business transactions qualifying as in-scope transactions. OECD shall approve and publish final Amount B report for incorporation in OECD guidelines by January 2024.
Indirect Tax
Saudi Arabia confirms eighth wave of e-invoicing from 1 March to 30 June
Excerpts from various sources
Zakat, Tax and Customs Authority (ZATCA) has confirmed the eighth wave of taxpayers to join Phase 2 (Integration Phase) of mandatory e-invoicing in Saudi Arabia between March to June 2024. These would be taxpayers with an annual income between SAR 40 million and SAR 50 million in either 2021 or 2022.
Poland enacts mandatory e-invoicing legislation
Excerpts from various sources
The Polish President has signed the law amending the VAT Act for mandatory use of the National Electronic Invoicing System (KSeF) from 1 July 2024 onwards. Accordingly, businesses with a seat or fixed establishment in Poland will be obliged to issue VAT e-invoices for B2B transactions.
Increase in VAT audits of nonresident digital service providers by the Danish Tax Agency
Excerpts from various sources
There has been a rise in the VAT audits initiated by the Danish Tax Agency (DTA) aimed at non-resident digital service providers. To identify noncompliant taxpayers, the DTA has been gathering information from credit card providers, banks, and other financial institutions about online purchases made by Danish B2C consumers using their personal credit cards.
Luxembourg enacts new reporting requirements for Payment Service Providers
Excerpts from various sources
The law introducing certain record-keeping and reporting requirements for Payment Service Providers (PSPs) has been published in the Official Journal of the Grand-Duchy of Luxembourg. With this law, from 1 January 2024 onwards, all PSPs providing payment services in the EU shall be required to record and disclose transactional data on cross-border payments on a quarterly basis.