Direct Tax

International tax reform: Release of new tools for the implementation of Amount B relating to the simplification of transfer pricing rules

Excerpts from oecd.org – dated 19 December 2024

The OECD has released a pricing tool and fact sheets to facilitate the understanding and operation of the simplified and streamlined approach to transfer pricing.

Amount B under the Two-Pillar Solution to Address the Tax Challenges of the Digitalising Economy provides for a simplified and streamlined approach to the application of the arm’s length principle to in-country baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries. This includes:

  • The fact sheets provide a highlevel overview of the mechanics of Amount B, including the steps taxpayers and tax administrations should take to apply Amount B.
  • The Pricing Automation Tool has been developed to automatically compute the Amount B return for an in-scope tested party, requiring only minimal data inputs, and is intended to further optimise the administrative and simplification benefits for both tax administrations and taxpayers. The tool will be updated annually to reflect any changes to the pricing matrix and other data points relevant to the application of Amount B adjustment features. As referenced in the Amount B guidance published in February 2024, jurisdictions can choose to apply the simplified and streamlined approach for in-scope transactions of tested parties in their jurisdictions for fiscal years commencing on or after 1 January 2025. The inclusion of jurisdictions in this tool is illustrative and does not mean any particular jurisdiction has adopted or intends to adopt Amount B. The list of jurisdictions implementing Amount B will be maintained separately.

The adoption of Amount B is still under consideration by many Inclusive Framework members as they take time to complete domestic administrative and legislative procedures along with other competing fiscal priorities in 2025/2026.

Amount B is optional, and Inclusive Framework members are encouraged to provide sufficient notice to taxpayers in advance of Amount B coming into effect in their respective jurisdiction.

To facilitate co-ordination, the OECD will maintain a list of countries that have officially confirmed that they will adopt Amount B, including the date of adoption. This list will be maintained on the OECD website and regularly updated as jurisdictions begin to make those formal announcements.

Indirect Tax

New excise duty on liquids for e-cigarettes and other tobaccorelated products, from 1 April 2025

Excerpts from various sources

Spain has enacted Law 7/2024 dated 20 December 2024, as amended by Royal Decree-Law 9/2024, to introduce an excise duty on the consumption of liquids for e-cigarettes, nicotine pouches and other similar products in Spain and the Balearic Islands, except Ceuta, Melilla, and the Canary Islands. The levy will take effect on 1 April 2025 and would impact those who manufacture, import, store, or market such products, including tobacconists, petrol stations, supermarkets, chemists, and variety stores. Products that are sent directly to a bonded or tax warehouse would be placed under a duty suspension arrangement.

China enacts VAT law, will take effect from 1 January 2026

Excerpts from various sources

China is set to transform its VAT legislation with effect from 1 January 2026. The new Law, which was passed on 25 December 2024, maintains the current three-tier tax rate system (13% for general goods sales and imports, 9% for services like transportation, post, telecommunication, water, gas, publication of books etc., and 6% for modern services) while introducing significant policy changes and improvements in alignment with OECD International VAT/GST guidelines. Notably, the law adopts the place of consumption approach to determine the place of supply within China and introduces provisions for refunds of excess input VAT credits.

Greece introduces tax incentives for innovation and corporate transformations

Excerpts from various sources

Greece has enacted Law 5162/2024, titled "Measures for Income Support, Tax Incentives for Innovation and Business Transformation, and Other Provisions", which introduces various incentives for innovation and development, as well as new framework for tax incentives for corporate transformations.

The law inter alia has extended the optional VAT exemption on the sale of new buildings until 31 December 2025, while repealing the stamp duty as of 1 December 2024 (which was previously set to be 1 January 2025) in alignment with the implementation of the digital transaction tax.

Canada mandates large businesses to register for DST by 31 January 2025

Excerpts from various sources

Under Canada’s new 3% Digital Services Tax (DST) rules, businesses with a corporate group that has global consolidated revenues of at least € 750 million and earn Canadian digital services revenue exceeding CAD 20 million from providing online marketplace services, online advertising, social media services, and the monetizing of user data, must register for a DST program account on the Canada Revenue Agency (CRA) portal by 31 January 2025. Affected businesses shall file their first DST return and pay any due tax by 30 June 2025. This initial return must also include DST on qualifying online revenues earned since 1 January 2022.

Transfer Pricing

International Compliance Assurance Programme (ICAP) – Forum on Tax Administration by OECD8

Introduction

ICAP is a voluntary risk assessment and assurance programme to facilitate open and co-operative multilateral engagements between Multinational entities (MNE) groups willing to engage actively and transparently and tax administrations in jurisdictions where they have activities. It supports effective use of transfer pricing documentation by coordinating conversations between an MNE group and multiple tax administrations to provide a faster, clearer and more efficient route to improved multilateral tax certainty9.

ICAP focuses on developing mechanisms to achieve tax certainty and assurance between MNE and tax administrations, building on the outcomes of OECD/G20 Base Erosion and Profit Shifting (BEPS) Project and establishment of the OECD Inclusive framework on BEPS. It is a tool available to tax administrations to provide greater certainty to MNE groups with respect to their tax risk.

Key drivers of ICAP

  • Providing MNE group with tax certainty, improve tax compliances
  • Mechanism to prevent disputes by having multilateral risk assessment and assurance programme
  • Framework for co-operative compliance, joint audits, tax control frameworks, and differentiated risk management.
  • Enhancing internal collaboration
  • Using information contained in MNE group Country-by-Country (CbC) report, master file and local files provides standardized information for transfer pricing risk assessment.
  • Enables tax administrators to identify and respond to compliance risk in a more efficient way by having huge volume of data.

An MNE group’s suitability for ICAP is considered on a case-by-case basis and MNE groups are encouraged to get in touch with their local ICAP participating tax administration to discuss potential options. Even if an MNE group is headquartered in a jurisdiction that does not currently participate in ICAP, it may still be possible for a suitable tax administration that does participate in ICAP to act as a Surrogate Lead Tax Administration (Surrogate LTA) for the purposes of the MNE group’s ICAP risk assessment.

OECD Forum on Tax Administration (FTA) has released multiple frequently asked questions (FAQs) over a period of time, the summary of the FAQ’s is elaborated below:

  • As per the revamped application timelines, the application for ICAP risk assessment can be made on rolling basis (earlier it was biannual i.e. 31 March and 30 September). The timelines to process the risk assessment would be selection stage: 8 – 12 weeks, risk assessment stage (including issue resolution): 30 – 45 weeks, outcome stage: 6 – 8 weeks. Such timeframe may differ based on other factors viz. number of covered tax administrator, complexity of transactions, unavailability of MNE group/ tax administration staff member, or risk assessment includes issue resolution.
  • Based on the preferences of the transactions and tax administrations the scope for the ICAP risk assessment would be decided by MNE group.
  • ICAP uses CbC reports and other relevant information of the MNE group to facilitate multilateral engagements between MNE group and tax administrations which helps to achieve tax certainty and efficient use of resources. This further enables the tax administrations to have consistent interpretation and treatment of transactions thereby reducing the instances of disputes.
  • Based on the risk assessment undertaken by tax administration, it will issue outcome letters to MNE group along with categorization of risks. Depending on such categorization the tax administration would determine whether to undertake any further enquiries or not.
  • For the purpose of assessing the risk, ICAP generally covers one or two consecutive periods agreed with MNE group.

Other Attributes

  • The list of Tax administrations participating in ICAP is listed on the OECD website.
  • The selection of MNE group for ICAP risk assessment depends on several factors mainly would be the volume and materiality of the MNE groups covered transactions and its willingness to participate in a transparent manner by way of providing required documents.
  • Less documentation are required as compared to documentation required during the course of Advance Pricing Agreements (APA) or MAP. The timelines to conclude a risk assessment is less as compared to APA or MAP.
  • MNE groups are not restricted to further place a request for undertaking a risk assessment process for a later period.
  • MNE groups considering the threshold limits in its respective jurisdiction who are not required to submit CbC report can apply for ICAP risk assessment by submitting report that includes full information as specified in Annexure III to Chapter V of the Transfer Pricing guidelines.
  • External advisors may assist an MNE group during the ICAP risk assessment process. On 29 January 2024, the OECD released the first-published statistics on ICAP since the start of the program in 2018, covering all 20 cases completed by October 2023. No further statistics have been furnished by the OECD since then. Amidst the criticality of the tax certainty in ever changing tax landscape, it would be worthwhile to see the implementation and administration of ICAP risk assessment parameters by the tax administrations.

Transfer Pricing (TP) documentation - Germany

With a view to increase tax audit efficiency and reduce administrative burden for companies the Fourth Bureaucracy Relief Act (BEG IV) with effect from 1 January 2025 requires mandatory submission of the prescribed TP documentation within timelines of 30 days of notification of audit order (earlier 60 days from date of request by tax auditor) The TP documentation would broadly include the following:

  • Local file (applicable if total value of supply of tangible goods exceeds Euro 6 million or if total value of transaction with related parties exceeds Euro 600,000)
  • Transaction matrix (an overview of the business transactions);
  • Master File (applicable if group turnover exceeds Euro 100 million);
  • Records of the extraordinary business transactions.

In case of justified cases the aforementioned submission timelines can be extended.

8. Organization for Economic Co-operation and Development

9. https://www.oecd.org/en/about/programmes/icap.html

Tax Street December 2024