Tax Talk
Global Developments

Transfer Pricing

Brazil Senate approves new TP rule, enforceable from 1 January 2024

The Brazilian Federal Senate has enforced legislation⁵ addressing the new TP framework in Brazil, aiming it to be at par with guidelines established by the OECD. The Bill, effective as of 1 January 2024, was approved on 10 May 2023 and stemmed from Provisional Measure No. 1,152 (PM 1,152/22).

TP rules integrate global value chains and mitigate double taxation and double nontaxation. Additionally, it facilitates eliminating barriers associated with tax credits recognition in the United States (i.e., foreign tax credits) arising from income tax paid and/or withheld in cross-border transactions involving Brazil.

Key highlights of the new TP regime in Brazil are summarized below:

• Broadens related parties’ ambit by including all cross-border intercompany transactions and introducing the arm's-length principle.
• Implements all TP methods according to the OECD standard and bestmethod rule for intercompany transaction analysis.
• Functions, assets and risks and economic analysis for TP documentation (TPD).
• Applies the Comparable Uncontrolled Price (CUP) method as the MAM when reliable comparables are available for cross-border commodities transactions; Taxpayers may apply other methods based on the appropriate facts and circumstances;
• Selects the tested party based on the most reliable data and best-method rule.
• Elimination of the royalty deductibility limitation and including royalty transactions under the scope of the new TP system.
• A comparable range (interquartile or complete) depending on profit-level indicators.
• Introduces spontaneous, compensatory, and primary adjustment.
• Introduces Mutual Agreement Procedures (MAP) and Advance Pricing Agreements (APA).

Malaysia introduces new TP rules 2023

The Inland Revenue Board of Malaysia (IRBM) released new Income Tax (TP ) Rules 2023 (Rules 2023) on 29 May 2023, replacing the Income Tax (Transfer Pricing) Rules 2012, thereby introduced to align with the revised OECD TP guidelines.

Key amendments introduced by these new rules are summarized below:

• New TP rules are applicable from the year of assessment (YA) 2023 (i.e., any financial year ending on or after 1 January 2023).
• The TPD must be prepared before the due date of furnishing a return. Preparing an ex-ante approach for TPD has been replaced with the preparation of TPD on a contemporaneous basis as per Rule 4 of the Rules 2023.
• The TPD must contain Schedules 1, 2 and 3 of the Rules 2023, comprising of Information about the Multinational Enterprise Group (MNE Group) similar to the Master File, Local File and information relating to cost contribution arrangement under Rule 10, respectively.

Furthermore, arm’s length range has been defined as a range falling between the values of 37.5 percentile to 62.5 percentile of the comparable set. The ALP shall be the median when the tested party margin is ousting the arm’s length range. Under specific circumstances, IRBM can make a TP adjustment to a median or any other point above the median where the price used in a controlled transaction is within the arm’s length range.

The stringent measures and sheer diligence by IRBM while scrutinizing the taxing concerns require taxpayers to maintain proper documentation referring to the updated OECD guidelines for TP compliance to fall at par with transparency obligations. Therefore, a health check on a group of companies’ TP policies can ensure quality compliance with the latest TP laws and regulations to defend against any future objections raised by the IRBM.

5. Bill of Law No. 8 of 2023

Indirect Tax

Poland implements “Plastic Tax” from 24 May

Excerpts from various sources

Poland has implemented the Single-Use Plastics (SUP) Directive introducing new obligations for businesses and bans on plastic products and packaging. Some of the duties/fees imposed by the legislation are as below:

• From 1 January 2024, retail and food service businesses shall charge endusers a fee not higher than PLN 1 per piece on certain food and beverage packaging. The fee will be added to the price of the product.
• In accordance with the Extended Producer Responsibility, producers will also incur costs for introducing SUP products into the market. The maximum annual fee will be 0.2 PLN per kg. or 0.03 PLN per unit of product placed in the market.
• Companies placing SUP products in the market will also incur fees to fund public awareness campaigns related to limiting the use of plastic products.

Consolidation of VAT rates in the Czech Republic to combat public debt

Excerpts from expats.cz.com

To tackle the increasing public debt, the Czechia Prime Minister has announced abolishing of 22 tax exemptions and merging three VAT rates into two. Such a move is likely to raise at least CZK 70 billion. Accordingly, the current VAT rates of 10% and 15% will be merged into just one reduced tax rate of 12%. However, the basic VAT rate of 21% is set to remain. Furthermore, excise duties on cigarettes, tobacco, and cigars will rise by 10% next year and by a further 5% in each of the following three years.

Hungary to hike VAT registration threshold until December 2024

Excerpts from various sources

The EU has granted permission to Hungary to raise its VAT registration threshold from the Forint equivalent of EUR 48,000 to EUR 71,500 per annum until 31 December 2024. Such an increase is estimated to lift 35,000 businesses out of the tax net but will only reduce the VAT revenue by 0.05%.