At a recent conference, individuals from the U.S. Treasury were very explicit in their desire to receive comments on the Progress Report on Amount A of Pillar One, which was released by the OECD on July 11, 2022.  Comments are due on August 19, 2022.  The next public consultation is September 12, 2022.

The Progress Report represents the current state of progress on Amount A.  While many issues have been agreed to and the debate has been narrowed for others, work remains to be done by the Inclusive Framework to reach a final agreement on how exactly Amount A will be effectuated. 

Continue Reading Report on the Progress Report on Amount A of Pillar One – Comments Very Much Wanted

In 2018, the IRS reminded exam teams to perform a “diligent penalty analysis” in every transfer pricing case. Since then, we have observed that the agency is increasingly willing to impose penalties, even where reasonable minds differ as to the appropriate transfer pricing. Penalties are often raised late (at the very end of an audit or even after the dispute is in court) and can create an extra liability of hundreds of millions—or billions—of dollars. For all these reasons, it is worth your time to brush up on how these penalties work, as well as what you can do to defend against them.

Continue Reading Turning the Screw: Penalties in Transfer Pricing Disputes

As market participants evaluate their loan portfolios and implement strategies to transition away from the London Interbank Offered Rate (“LIBOR”), they must address not only third-party loans, but related-party loans as well.

Continue Reading LIBOR Phase Out – Tax Implications in the Context of Related-Party Loans

On May 27, 2022, the OECD released two public consultation documents related to the tax certainty aspects of Amount A.  The first, entitled Pillar One – A Tax Certainty Framework for Amount A (the Amount A Draft), proposes new mechanisms for multinational enterprises (MNEs) to obtain certainty on different aspects of Amount A.  The second, entitled Pillar One – Tax certainty for issues related to Amount A (the Related Issues Draft), proposes a mandatory binding dispute resolution mechanism for issues related to Amount A, including transfer pricing and the attribution of profits to permanent establishments (PEs).  Given the potential for Amount A to result in uncertainty, disputes and double taxation, these proposed mechanisms will be of critical importance to in-scope and potentially in-scope MNEs.  Such MNEs should further note that both the Amount A Draft and the Related Issues Draft provide a short two-week public comment period that closes on June 10, 2022. 

Continue Reading OECD Releases Public Consultation Documents on Tax Certainty Aspects of Amount A: Comments Due June 10, 2022

In April, the IRS released a practice unit on country-by-country (or “CbC”) reporting. The purpose of the document is twofold: (i) describe the background of CbC reporting and (ii) provide guidance to IRS personnel on the use of CbC reports “in the IRS high-level transfer pricing risk assessment process.” Although the practice unit repeatedly stresses that the IRS will not audit CbC reports, there is potentially less to this claim than meets the eye.

Continue Reading Less than Meets the Eye: The IRS Practice Unit on CbC Reports

On March 22, 2022, the Internal Revenue Service’s Advance Pricing and Mutual Agreement Program (“APMA”) released its 2021 Announcement and Report Concerning Advance Pricing Agreements (“2021 Annual Report”). The 2021 Annual Report shows that multinationals’ demand for advance pricing agreements (“APAs”) is high and increasing, with APMA receiving 145 APA applications in 2021, a 20% increase from 2020. The report similarly shows that APMA made steady progress in concluding APAs during 2021 with 124 completions, with notable highlights including a substantial increase in completions of bilateral APAs with Germany and a decrease in completions of bilateral APAs with India. Continue Reading APMA’s 2021 APA Annual Report Shows High Demand for APAs by Multinationals and Steady Progress by APMA in Concluding Cases

In a recent Legal Update[1], we discussed the emerging intersection between Tax and ESG and highlighted the various external stakeholders pressuring for greater visibility into the global tax positions of multinational companies (MNEs).  One increasingly vocal stakeholder group is activist shareholders.  Recently, a group of institutional investors of a Fortune 50 company initiated a shareholder proposal calling for the company to publicly disclose where and how much tax it pays around the world.  This is only the latest in what is becoming a regular request by activist shareholders.

Continue Reading Tax Meets ESG: Shareholder Activism Expanding to Tax Transparency

On January 20, 2022, the OECD released the latest version of its OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The 2022 Transfer Pricing Guidelines update the 2017 edition by incorporating guidance released by the OECD over the past few years on the transactional profit split method, hard-to-value intangibles, and financial transactions. Although there is no completely new guidance in the 2022 Transfer Pricing Guidelines, some of the previously released guidance now formally incorporated in the Guidelines is quite significant. This includes new Chapter X on financial transactions, which among other guidance incorporates proposed and controversial changes to the Commentary on Article 9 of the OECD Model Tax Convention.

Continue Reading The 2022 OECD Transfer Pricing Guidelines: Mostly An Update

The European Commission has repeatedly expressed its ambition to implement the Two-Pillar agreement in a coherent and consistent way across Member States. On December 22, 2021, a mere two days after the Inclusive Framework released its Pillar Two package, the EC proposed a Directive to implement Pillar Two for large multinational groups operating in the European Union. The Directive would implement the GloBe Model rules only, leaving Pillar One for another time.

The proposal sets out how the effective tax rate will be calculated per jurisdiction, and includes binding rules that will ensure large groups in the EU pay a 15% minimum rate in every jurisdiction in which they operate. The design elements of the Directive consist of the OECD Model rules and the -still to be released-Commentary and detailed implementation guidance. The Commission proposes that the Directive be finalized by the middle of 2022 and transposed into national law in Member States and effective on January 1 ,2023. The timetable envisaged by the Commission is ambitious and raises an issue with regard to the OECD process. Indeed the explanatory Commentary is not scheduled to be released by the OECD before January or February and the implementation guidance will not be available until then end of 2022 or even early 2023.

It remains to be seen whether the EU is overly ambitious particularly in light of the fact that the US legislation that would implement Pillar Two is delayed and uncertain.

Continue Reading EU Sets Pillar Two In Motion

On December 20, 2021, the OECD released the Model Rules for Pillar Two or the “Global Anti-Base Erosion” (GloBE) Rules.[1] The GloBE Rules are the first step towards implementing the groundbreaking international agreement reached by more than 135 countries announced by the OECD/G20 Inclusive Framework in October 2021.[2] Pillar Two provides for a minimum 15% tax on corporate profits for multinational enterprises (MNEs) with more than EUR 750 million in consolidated revenues. Continue Reading The OECD’s Pillar Two Model Rules Have Arrived