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Transfer Pricing Survey Warns On Management Service Fees

by Ulrika Lomas, Tax-News.com, Brussels

20 November 2013


Tax consultancy WTS has published a survey of how management service fees are treated for transfer pricing purposes in 79 countries, and warned that a unified tax treatment proposed by the Organization for Economic Co-operation and Development would still be interpreted differently in different countries.

WTS questions whether the OECD's Action Plan on Base Erosion and Profit Shifting (BEPS) will change the way that charges are treated. According to survey author Jan Boekel: "Where one country could consider the management service charge as base erosion, another country may qualify the same charge as base-protecting."

The survey found that 75 percent of the 79 countries included already have transfer pricing legislation, and that 80 percent have a clear focus on management service charges when it comes to auditing. Further, in many countries such charges are subject to withholding taxes, and they may not be tax deductible.

The survey also found that only 40 percent of the countries included have a developed Advance Pricing Agreement program, showing that different tax authorities do not have the same level of expertise on transfer pricing. There are also differing opinions on the applicability of transfer pricing methods. Maik Heggmair, Head of Transfer Pricing at WTS Germany, adds that this mean that the potential danger of double taxation will remain despite BEPS.

Companies are urged to protect themselves through proper documentation. The survey found that 90 percent of the countries surveyed recommend such documentation, and that 48 percent actually require it. Further, 18 countries require a benchmark study to substantiate that the charge has been at arm's length, while 75 percent of countries recommend this.

WTS says that its survey provides insight into an approach that should be acceptable in at least two thirds of the participating countries.

The OECD, meanwhile, hopes to introduce standardized transfer pricing documentation for use around the world.

TAGS: compliance | tax | tax compliance | Organisation for Economic Co-operation and Development (OECD) | tax authority | multinationals | transfer pricing

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