OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 (OECD Transfer Pricing Guidelines), there are 3 traditional methods and 2 transactional methods to determine an arm length price.
Traditional transaction methods are:
Compared Uncontrolled Price method (CUP)
Resale Price method (RSP)
Cost Plus method (CP)
Transactional profit methods are:
Transactional Net Margin method (TNM)
Profit Split method (PS)
Compared Uncontrolled Price (CUP) method compares price changed for products and services in controlled transaction between related parties, and price that would have been charged if it were a transaction undertaken between independent non-related parties. CUP method can be internal and external. The first one compares prices between distributor an its related customer, and price between the same distributor and its non-related customer. External method determines price between distributor and its related customer, and between another distributor and its independent customer.
Resale Price (RSP) method is based on difference between price at which products were bought and then sold to third party. The resale...
The main connecting factors which are commonly used by States to establish jurisdiction to tax the profits of multinational enterprises are “residence” and “source”, which are linked to concepts of “nationality” and “territoriality” used in public international law.
Notions of residence and source are recognized by both OECD and UN and are reflected in their tax treaty models.
Under residence approach, a state imposes its taxing rights of legal entity or individual based on its relation to the person who derives income.
Under source principle, a state assess legal entity or individual to tax based on its relation to assets that generate income.
All the states use source principle to levy taxes on income generated within state’s territory. Some states invoke residence/nationality principle and thus tax their citizens and residential companies on their worldwide income (the USA, Russia, Finland, etc.). Some states adopted only territorial principle (Hong Kong SAR, Singapore, Malaysia, Panama, Costa Rica, etc.). However, and most of states utilize both principles.
State practice in determining place of residence comprises two main tests: place of...
Double Taxation Agreements (DTAs) are predominantly bilateral in nature. They are concluded on international level under international public law and thus on international level guarantee that they will become a part of domestic law of contracting states after their ratification.
There are two ways how contracting states incorporate DTAs into their domestic legislation: Direct effect incorporation does not require any additional legal procedures, and DTA automatically becomes a part of domestic legislation right after its ratification (the USA, France, Switzerland, Luxemburg). In some jurisdictions a legislative act is required (Austria).
Indirect effect incorporation needs special legislation for incorporation of DTA into its domestic law system (the UK, India).
DTAs override domestic legislation, they prevail over internal laws and regulations. There are three main models of DTAs:
The US Model Treaty (updated in 2016) is used by the USA in negotiations with other states, with inclusion of citizenship and focus on limitation of benefits.
The UN Model Treaty (updated in 2017) is used by developing countries, allocates more taxing rights for source countries.
At the end of July 2018, a draft law on the registration of foreign companies was published in the UK (hereinafter - the Law). The purpose of this Law is to maintain a register of foreign companies since 2021 that own real estate in the UK.
This Law is a “continuation” of the legislation on “persons with significant control”, which was introduced for UK companies in 2016.
New requirements for foreign companies are aimed at combating the use of property located in the UK, for the purpose of laundering money obtained by criminal means. It is planned that the requirement for foreign companies to enter data on their final beneficiaries into a special register will allow to control the use of property for illegal purposes.
It should be noted that the obligation to register will be entrusted not only to companies, but also to partnerships, governments and any other types of legal entities that are legally competent under their domestic law. So, companies can have privileges under certain circumstances, in particular, regarding how “transparent” they are already (here it concerns the companies which shares are quoted on stock exchanges).
In the event that it is...
In September 2017, a significant event for financial institutions around the world took place - the first automatic exchange of information for tax purposes in accordance with the CRS (Common Reporting Standard). The source of information exchange were banks, as well as other financial institutions (pension funds, investment and insurance companies, etc.). The second large group of countries is also joining the process of automatic information exchange in 2018.
CRS provides for an annual automatic exchange of tax information between Member States of the Multilateral Cooperation Convention between the competent authorities on automatic information exchange under the CRS (MCAA Convention).
The exchange of information on accounts of legal entities and natural persons will be made automatically, annually and on the principle of residency (in contrast to the FATCA law, which uses the principle of citizenship).
The essence of the exchange is that banks collect information on financial activities on corporate accounts of the companies, individual accounts of natural persons, private funds and trusts, and then transfer it to the tax authorities of their country, which send this...
The tax authorities of our country (and not only ours) have been trying not for the first year to prove that it is not necessary to work with offshore companies. But business representatives continue to use them for their offshore investments. In this material, let’s talk about the reasons for this “love” and the current trends in the use of offshore companies.
Is it legitimate to use offshore structures?
Legislation of Ukraine does not prohibit the use of offshore companies. Of course, we are not talking about the situations where taxes are not paid at all (aggressive tax planning). The settlements with partners from offshore companies will undoubtedly cause questions from the tax service. But, we repeat, there is no ban on this kind of transaction.
Schemes of work with the use of offshore structures
Let’s pay attention to offshore schemes, which have proved to be the most widespread.
Let's start with trading schemes.
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The practical benefit of using this kind of schemes is in a variety of options for optimizing income tax, VAT and customs-related payments in the Ukrainian company. Also, on...
The Government of Sweden has decided to review its policy on gaming by adopting a bill on the legal regulation of gaming, the entry into force of which is planned for January 1, 2019.
The bill was supported by over 90% of the present members of Swedish Parliament. The only political force that voted against was the Left Party (ex-Communists). Nevertheless, it did not affect the final result.
The result of the adoption of this bill was the transition of Sweden to a regulated market of gaming both online and offline. The new rules provide for changes in tax rates, increased requirements for operators and introduction of a licensing system in the country.
The history of the development of gaming business in Sweden is very interesting. The control over gaming has been carried out and is carried out by the only state company Svenska Spel. The state owns all the rights to open and regulate the gaming business, private companies in Sweden are forbidden to make gaming business. The company Svenska Spel regulates the market of lotteries, poker, bingo, as well as the market of land casinos, which belong to its subsidiary company Casino Cosmopol AB. Initially, it was planned to open six...
Many citizens who own residential and non-residential real estate intend to lease it. But they have some questions: is it necessary to register as an entrepreneur in this case, are there any peculiarities in taxation and are there any restrictions?
According to Art. 319, 320 of the Civil Code of Ukraine - the owner owns, uses, disposes of his property at his own discretion and has the right to make any actions with respect to his property that do not contradict the law, including using his property for entrepreneurial activities.
As we can see, the realization of the right to lease his own real estate by a natural person can be carried out both within the framework of entrepreneurial activity (by a natural person-entrepreneur) and outside of entrepreneurial activity (without registration by a natural person-entrepreneur).
We will consider in detail, what is the difference between a natural person and a natural person-entrepreneur, when leasing his own real estate.
The features of taxation of income of a natural person from leasing of real estate is regulated by art. 167, art. 170 of the Tax Code of Ukraine, Resolution of the Cabinet of Ministers of Ukraine No. 1253...
Back in the first quarter of 2018, namely on February 19, 2018, a draft of advisory document was published on the official website of the Organization for Economic Cooperation and Development (OECD), which called on all interested parties to join the discussion on the OECD strategy for combating the loopholes on using the Common Reporting Standard (CRS, Single standard of tax information exchange) in the “citizenship by the investment” (CBI - granting citizenship in exchange for investments) and “residence by the investment” (RBI - granting a residence permit in exchange for investments). To date, more than 70 jurisdictions in the world offer these schemes.
On April 17, 2018, a 96-page document was published on the OECD website (PUBLIC INPUT RECEIVED ON MISUSE OF RESIDENCE BY INVESTMENT SCHEMES TO CIRCUMVENT THE COMMON REPORTING STANDARD), which, in fact, summarized the first results of the discussion and the contents of the official letters to the organization. More than 20 structures were the speakers, including:
AFME office in London (Association of Financial Markets in Europe, it brings together the largest agents in the capital markets in the region);
The existence of account books in paper form is measured not by one millennium. In fact, this is a kind of “database” in which the transactions are registered. With the development of computer technology, when the account books have become digital, it has become more convenient and easier to use them. At the same time, throughout the history, the operations and reporting have been subjected to thorough checks by central authorities.
In our time, cryptography and software algorithms are applied in working with accounting data. Distributed Ledger Technologies (DLT), including Blockchain, is an innovative, effective and secure way of exchanging assets (finance, securities and personal data). Rapidly capturing almost all spheres of business, including healthcare, energy, logistics, telecommunications and the financial sector, DLT contributes to the intensive decentralization of modern business.
Mechanism of Distributed Ledger Technology (DLT)
Distributed Ledger Technology is a decentralized digital register containing blocks that are linked by a network of computer nodes. Thus, Blockchain technology is a decentralized account book, in each block of which the information about...