Transfer Pricing Alert

Transcription

1 Transfer Pricing Alert EY Han Young newsletter March 2016

2 Transfer Pricing Current issue. R e p u b l i c o f K o re a. J ap an 2

3 Republic of Korea 2015 Amendments to the Ministerial Regulation of the LCITA: Specific regulations regarding the submission of International Related Party Transaction Integrated Report by multinational enterprises The previous TP Alert (August 2015) covered, among the various 2015 tax reform bills announced by the Korean government on 6 August 2015, the amendment to the Law for the International Coordination of International Tax Affair ( LCITA ) establishing Article 11 regarding submission requirements of the International Related Party Transaction Integrated Report. (Related link: ko/services/tax/transfer-pricing-and-operating-model-effectiveness/tp-alert, August Amendments of the Korean transfer pricing documentation rules following BEPS Action Plan 13 ). Furthermore, the December 2015 TP Alert covered the amendments to the Presidential Enforcement Decree ( PED ) of the LCITA providing guidance specifying applicable entities, filing method and process of the International Related Party Transaction Integrated Report. (Related link: Transfer-Pricing-and-Operating-Model-Effectiveness/TP-Alert, December Amendment of the LCITA and PED: Details of requirements on submission of MNE s foreign transactions ). On 15 February Korea s Ministry of Strategy and Finance ( MOSF ) announced Ministerial Regulations to follow up the amendments to the LCITA and its PED. Since the practical applications of the law are stipulated in Ministerial Regulations, this amendment will be of interest to anybody who is part of the finance department in a multinational enterprise. 9

4 Republic of Korea Main points of the amendment S ub m issio n criteria o f th e Internatio nal R elated Party Transactio n Integrated R ep o rt: PED Article 21-2, which was put into legislation last month, requires entities with annual revenue of more than 100 billion KRW and entities that have foreign related party transaction amount of more than 50 billion KRW to submit the International Related Party Transaction Integrated Report. The new amendment to the Ministerial Regulations specifies that the related party transactions should include transaction of goods, services, and loan transactions. The new submission criteria will be applicable to the fiscal year beginning on or after 1 January Definition of foreign related party for the master file: According to the newly established PED Article 21-2, paragraph 2, subparagraph 2, International Related Party Transaction Integrated Report constitutes of the master file and the local file. The new Ministerial Regulation requires the master file to include information on entities under consolidation for accounting purposes, instead of entities defined as foreign related parties per LCITA. In addition, the amendment makes it clear that in cases where there are two or more entities under consolidation required to submit the master file, the controlling entity (i.e. ultimate parent company) may submit the master file. Master file and Local file templates: According to the newly established PED Article 21-2, paragraph 2, subparagraph 2, International Related Party Transaction Integrated Report constitutes of the master file and the local file. The new amendments to the Ministerial Regulations provide templates of the master file and local file. The new proposed Ministerial Regulations were subject to be implemented on 26 February, and after further consultation and Ministry of Government Legislation review, the results will be announced and the new regulations will be put into place this month. 10

5 Japan Japan is an influential party in the Organisation for Economic Co-operation and Development ( OECD ) s Base Erosion and Profit Shifting ( BEPS ) project and has made significant input into the final reports that were released 5 October The Japanese Ministry of Finance official, Masatsugu Asakawa, has been the chair of the OECD s Committee on Fiscal Affairs, which is responsible for the OECD Transfer Pricing Guidelines. Japan is therefore expected to adopt many of the BEPS recommendations. Accordingly, Japan s 2016 tax reform includes the OECD s three-tiered recommendations for transfer pricing documentation under Action 13 (country-by-country report ( CbCR ), master file, and local file). Key Considerations In light of Japan s 2016 tax reform, the following are key considerations for non- Japanese headquartered companies including subsidiaries of Korean-based comp an i e s. Cb CR : Companies not submitting in a country with a double tax convention with Japan will need to submit a CbCR for fiscal years beginning on or after 1 April Multinational companies ( MNC s) with less than JPY100 billion group revenue for the preceding fiscal year need not submit. The deadline to submit the CbCR is one year following the fiscal year-end of the parent company. Therefore, for a company with a March fiscal year-end, the first fiscal year to be submitted is 31 March 2017 and the deadline to submit is 31 March Items to be reported are as described in the BEPS Action 13 final report. Penalties will be imposed for failure to submit, though these penalties have yet to be determined. The reporting language is Engl i s h. Master file: Companies with less than JPY100 billion group revenue for the preceding fiscal year need not submit. The deadline to submit the master file is one year following the fiscal year-end of the parent company. Therefore, for March year-end companies, the first fiscal year to be submitted is 31 March 2017 and the deadline to submit is 31 March Items to be reported are as described in Annex II to Chapter 5 of BEPS Action 13 Report. Penalties will be imposed for failure to submit, 11

6 Japan though these penalties have yet to be determined. The language for the master file i s J ap an e s e o r E n g l i s h. Local file: In the past, because there was no statutory deadline for producing transfer pricing documentation, taxpayers could take as much time as they needed to conduct economic analyses. In general, current practice is to create the transfer pricing documentation after the comparables financial information for the relevant fiscal year becomes available (usually September/October). For December year-end companies, this is roughly six months after the submission of the tax return. Due to the tax reform, MNCs will need to produce the local file on a contemporaneous basis. The deadline is the due date of the tax return (which is two months after the end of the fiscal year, unless the taxpayer is granted an extension to three months). Given the significance of the departure from the current position in the Japanese transfer pricing documentation regulations, the Japanese Government has provided an additional year for companies to prepare. Therefore, for December year-end companies, the first local file needs to be prepared for the fiscal year ending 31 December 2018 and the deadline to prepare is 28 February 2019 (unless an extension is obtained, in such case the deadline to prepare is 31 March 2019). The first local file must be prepared for fiscal years beginning on or after 1 April The local file must be stored for a period of seven years, starting from the day after the filing due date of the final tax return. Contemporaneous Documentation Requirement For Local File As mentioned, an entity will need to prepare the local file by the filing date of the final tax return, which is within 2 months following the fiscal year-end (or 3 months with an extension). This is a very short deadline compared to other countries; for example, the period to prepare the tax return in the US is 9.5 months (with an extension) and 9 months in the UK. The local file is not automatically submitted with the tax return; however, it should be provided when requested by the tax authorities during a tax audit. The deadline for submission of the transfer pricing documentation is 45 days after the request. This deadline is important because after 45 days have elapsed, the tax authorities may use presumptive taxation and may make inquiries of and inspect third parties conducting the same/similar business (secret 12

7 Japan comparables). The tax reform states that an entity is not required to prepare contemporaneous documentation for transactions if the total amount of the transactions with a foreign related party (applied per foreign entity) does not exceed JPY5 billion within the preceding fiscal year (or if there is no preceding fiscal year, the current year). There is also a threshold set out specifically for intangible transactions, which is JPY300 million (also applied per foreign entity). However, although exempted from the contemporaneous documentation obligation, an entity must provide documentation within 60 days if requested. So practically, there is little to distinguish the treatment of transactions that are lower than the relevant threshold; the differences being whether documentation must be produced contemporaneously and whether submission must be made within 45 days or 60 days. In order to prepare themselves against the shortened period for preparation of documentation, non-japanese headquartered companies including subsidiaries of Korean-based companies are recommended a transfer pricing planning study in advance. Also, companies should internally manage the deadlines of the transfer pricing documentation under Action 13 (CbCR, master file, and local file). 13

8 Contacts Transfer Pricing Sang Min Ahn Sang- min. Sung Han Park Won- bo. Dong Hoon Ha Dong- hoon. Hoon Seok Chung Director Hoonseok. kr. ey. com Kyoung Bae Han Director Kyoung- bae. Jae Seong Yun Director Jae- seong. Ki Se Kim Senior Manager Ki- se. Transfer Pricing-Financial Services Organization(FSO) Stella Kim Director Stella. Business Tax Service Min Yong Kwon Min- yong. Dong Chul Kim Dong- chul. Jae Cheol Kim Jae- cheol. Young Ro Bae Executive Director Song Min Oh Executive Director Song- min. International Tax Service Jaewon Lee Jaewon. Kyung Tae Ko Kyung- tae. Yeon Ki Ko Yeonki. Nam Wun Jang Nam- Wun. Financial Services Organization Jong Yeol Park Jong- yeol. Jeong Hun You Jeong- hun. Dong Sung Kim Dong- sung. Transaction Tax Jin Hyun Seok Jin- hyun. Human Capital Danielle Suh Danielle. Min Ah Kim Executive Director Min- ah. 14

9 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust andconfidence in the capital markets and in economies the world over. Wedevelop outstanding leaders who team to deliver on our promises to allof our stakeholders. In so doing, we play a critical role in building a betterworking world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the memberfirms of Ernst & Young Global Limited, each of which is a separate legalentity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about ourorganization, please visit ey.com Ernst & Young Han Young 2016 Ernst & Young Advisory, Inc. All Rights Reserved. A P A C n o This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific ad v i ce. ey.com/kr