Asia-Pacific Transfer Pricing Handbook E-Book

Robert Feinschreiber

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Corporate F&A
• Sprache: Englisch

Seitenzahl: 1267

Veröffentlichungsjahr: 2012

Beschreibung

An overarching look at transfer pricing regimes in Asia-Pacific countries and what they mean for foreign businesses A comprehensive guide for companies doing business globally, Asia-Pacific Transfer Pricing Handbook explains the policies and practices that Asia-Pacific countries employ with regards to taxing foreign businesses. The only book that analyzes and guides companies through the often complex transfer pricing rules in place in Asian-Pacific nations, the book explains how authorities in fifteen countries, including ASEAN, India, New Zealand, Japan, and South Korea, tax any company doing business within their borders. Helping foreign companies to properly price their goods and services for global markets, providing defenses for transfer pricing audits, explaining standards for creating comparables that multijurisdictional tax administrations will accept, explaining documentation requirements and timing issues, and creating awareness about inadvertently becoming a permanent establishment, Asia-Pacific Transfer Pricing Handbook is an essential resource for doing business abroad. * Provides comprehensive, accessible information on transfer pricing in Asia-Pacific countries * Covers fifteen Asia-Pacific countries, including all ASEAN countries, giving readers unparalleled exposure to the different transfer pricing arrangements across the region * Explains how companies doing business abroad should price their goods and services for global markets to remain in accordance with the law A complete and comprehensive guide to transfer pricing and its implications for firms and accountants operating in the Asia-Pacific region, Asia-Pacific Transfer Pricing Handbook explains everything foreign companies need to know about doing business abroad.

Leseprobe

Contents

Preface

Part One: Country-By-Country Analysis

Chapter 1: Introduction

Part One: Country-by-Country Analysis

Part Two: Advanced Applications

Chapter 2: Australia’s Risk Assessment Transfer Pricing Approach

Introductory Issues

Transfer Pricing Reviews

Documentation Requirements

Preparation of the Documentation File

Applying the Arm’s Length Principle

Simplified Approach to Doing a Benchmarking Study

Four Steps for Testing International Transfer Prices

Decision Tree

How the ATO Scores Risk

Scoring the Three Levels

Score Graph

Outcome of Transfer Pricing Review or Audit

Audits Taking Place in Low-Risk Situations

Transfer Pricing Review Process

Categorizing the Results of the Transfer Pricing Review

How the Australian Transfer Pricing Audit Procedure Works

Australia’s Four-Step Process for Businesses

Chapter 3: Profit Attribution for a Dependent Agent’s Permanent Establishment in Australia

Permanent Establishment Concepts in Australia

Profit Attribution Concepts in Australia

The ATO’s Operational Approach

Determining Functional Analysis for a Permanent Establishment

Comparative Analysis for the Permanent Establishment

Application of the Resale Price Method

Application of the Cost Plus Method

Using a Transactional Net Margin Method

Using a Profit Split Method

Toll Manufacturers

Four Examples

Chapter 4: Australia’s Advance Pricing Arrangement Program

Pre-Formal APA Discussions

APA Processing Times

Unilateral and Bilateral APAs

The ATO’s APA Work in Process

APA Issues and Methods

Chapter 5: China Implements Transfer Pricing Procedures

Overview

Regulations

Chapter 1: General Principles

Chapter 2: Reporting and Filing of Related Party Transactions

Chapter 3: Administration of Contemporaneous Documentation

Chapter 4: Transfer Pricing Methods

Chapter 5: Transfer Pricing Audits and Adjustments

Chapter 6: Administrative Guidance Concerning Advance Pricing Arrangements

Chapter 7: Administrative Guidance Concerning Cost Sharing Agreements

Chapter 8: Administrative Guidelines Concerning Controlled Foreign Corporations

Chapter 9: Administrative Guidance Concerning Thin Capitalization

Chapter 10: Administrative Guidance Concerning General Anti-Avoidance

Chapter 11: Corresponding Adjustments and International Negotiations

Chapter 12: Legal Responsibility

Chapter 13: Supplementary Provisions

Chapter 6: Reporting Related Party Transactions in China

Form 1—Related Party Relationships

Form 2—Summary of Related Party Transactions

Form 3—Purchases and Sales

Form 4—Services Form

Form 5—Intangible Assets

Form 6—Fixed Assets

Form 7—Financing

Form 8—Outbound Investment

Form 9—Outbound Payments

Chapter 7: Hong Kong Advance Ruling Cases: Taxability of Profits

Advance Ruling Process

Advance Ruling Case No. 4

Advance Ruling Case No. 8

Advance Ruling Case No. 9

Advance Ruling Case No. 10

Advance Ruling Case No. 11

Advance Ruling Case No. 12

Advance Ruling Case No. 13

Advance Ruling Case No. 16

Advance Ruling Case No. 19

Advance Ruling Case No. 21

Advance Ruling Case No. 23

Advance Ruling Case No. 26

Advance Ruling Case No. 30

Advance Ruling Case No. 34

Advance Ruling Case No. 35

Advance Ruling Case No. 36

Advance Ruling Case No. 37

Chapter 8: Hong Kong Transfer Pricing Guidelines

Double Tax Agreements

Arm’s Length Principle

Associated Enterprises

Appropriate Adjustments

Inland Revenue Ordinance and Case Law

Permanent Establishment Considerations

Applying the Arm’s Length Principle

Four Steps

Functional Analysis

Comparability Analysis

Determining Comparability

Functions, Assets, and Risks

Contract Terms

Economic and Marketing Circumstances

Business Strategies

Global Price Lists

Establishing the Reliability of the Data

Transfer Pricing Methodologies

Sources of Profits and Income

Abusive Tax Schemes

Transfer Pricing Schemes

Transfer Pricing Documentation

Intragroup Services Arrangements

Deduction of Expenditures Paid for Intragroup Service

Determining the Amount of Intragroup Charges

Services Provided by a Permanent Establishment

Chapter 9: Hong Kong Challenges Abusive Tax Schemes

Macroeconomic Issues

Abusive Tax Schemes

Transfer Pricing Schemes

Lack of “Economically Significant Functions”

How the Hong Kong Government Combats Abusive Tax Schemes

Extreme Forms of Tax Abuse

Distinguishing Tax Avoidance from Tax Evasion

How the Reinvoicing Structure Operates

Shifting Intangible Property: The Tax Perspective

Chapter 10: Winning Hong Kong’s Landmark Transfer Pricing Case

Ngai Lik Litigation

Hong Kong’s Advance Ruling Determinations

Hong Kong Issues Transfer Pricing Guidelines

Statutory Provisions

Determination by the Court of Final Appeal

The Commissioner’s Determination

Determination by the Board of Review

Determination by the Court of First Instance

Determination by the Court of Appeal

The Case before the Court of Final Appeal

Deficiencies in the Scheme as to Additional Annual Bulk Discounts Received by Din Wai Electronics Limited

Deficiencies in the Scheme as to Manufacturing Profits

Deficiencies in the Scheme as to the Relevant Years of Assessment

Are the Scheme and the Tax Benefit Still Viable Bases for Section 61A Assessments?

Is There a “Tax Benefit” within the Meaning of Section 61A?

The Narrower Scheme and the Narrower Tax Benefit

Dominant Purpose of the Narrower Scheme

Board of Review’s Approach

Ribeiro’s Dominant Purpose of the Narrower Scheme

Commissioner’s Assessment Power

Commissioner’s Exercise of the Section 61A(2) Power

Board’s Approach to the Exercise of the Section 61A(2) Power

Disposal of the Appeal

Chapter 11: Transfer Pricing Litigation in India

Background

Transfer Pricing Chronology and Administration

Related Parties

Transfer Pricing Method Selection in India

Contemporaneous Documentation in India

Audit Procedures

Penalties

Appellate Procedures

Transfer Pricing Litigation

Vodafone: Hutchison Essar Acquisition

Chapter 12: PE Issues Impact Indian Transfer Pricing

Background

Nexus, Effectively Connected Status, and Permanent Establishment

Four Fact-Based Permanent Establishment Inquiries

Impact of the Morgan Stanley Case

Permanent Establishment Transfer Pricing Litigation in India

Galileo

Hotel Scopevista

WorleyParsons

KnoWerx Education

ICICI Bank

Zimmer AG

Intergrafica

Ranbaxy Laboratories

Development Consultants

Perfitti

Data Software Research

SNC Lavalin /Acres Inc.

Airport Authority of India

Radha Rani Holdings

Mashreq Bank PSC

Mentor Graphics (Noida) Pvt. Ltd.

Millennium Infocom Technologies Ltd.

Van Oord ACZ India

Tokyo Marine & Fire Insurance Co. Ltd.

Western Union Money Transfer

Cargo Communities Network

Hyundai Heavy Industries

E. Gain Pvt. Ltd.

Infosys International Activities in New York State

Chapter 13: Taxation of Travel Services in India

Sabre

Galileo

Installed Hardwire

Chapter 14: Transfer Pricing in Indonesia

Historical Background

Transfer Pricing Considerations

Special Attachment

Chapter 15: Japan’s Directive on Transfer Pricing Operations

Background

Regulations and the Examples—How They Differ

Operation of the Japanese Transfer Pricing Administrative Guidelines

Chapter 1: Definitions and Basic Policies

Chapter 2: Examination

Chapter 3: Points to Note in Calculating Arm’s Length Prices

Chapter 4: Treatment of Foreign Transferred Income

Chapter 5: Advance Pricing Arrangements

Chapter 16: Selecting the Arm’s Length Price in Japan

Background

Demonstrating the Selection of Arm’s Length Price

Selection of the Method of Calculation of Arm’s Length Price

Case 1: Use of the Comparable Uncontrolled Price Method

Case 2: Use of the Resale Price Method

Case 3: Use of the Cost Plus Method

Case 4: Methods Consistent with the Comparable Uncontrolled Price Method

Case 5: Methods Consistent with the Cost Plus Method

Case 6: Transactional Net Margin Method

Case 7: Contribution Profit Split Method

Case 8: Residual Profit Split Method

Case 9: Adjustment for Differences

Chapter 17: Applying Japanese Intangible Transfer Pricing Methods

Case 10: Intangibles Created by R&D and Marketing Activities

Case 11: Distribution Channels and Quality Control Know-How

Case 12: Know-How Accumulation through Human Resource Business Activities

Case 13: Contributions to Create, Maintain, and Develop Intangible Properties

Case 14: A Company Bearing only the Cost of Creation of the Intangible Properties

Case 15: Intangible Properties for Employees on Loan

Chapter 18: Japanese Profit Split Transfer Pricing Methods

Case 16: Applying the Profit Split Method to a Series of Foreign-Related Transactions

Case 17: Excluding Transactions from the Profit Split Method

Case 18: Calculation of the Profit to Be Split

Case 19: Differences in Labor Costs Impact the Residual Profit Split Method

Case 20: Treatment of Market Fluctuations

Case 21: Calculation of Basic Profit

Case 22: Factors for Splitting the Residual Profit

Chapter 19: Japanese Guidelines Address Diverse Transfer Pricing Issues

Case 23: Determining Whether Services Provide Commercial Value

Case 24: Multiple-Year Considerations

Case 25: Establishing the Target Profit Margin

Case 26: Critical Assumptions

Chapter 20: Malaysia Advance Ruling Guidelines

General Facets of the Advance Ruling Procedure in Malaysia

Binding Nature of an Advance Ruling

Scope of the Advance Ruling Request

Circumstances in Which Malaysia Tax Authorities Will Not Issue an Advance Ruling

Circumstances in Which the DGIR Can Decline to Issue an Advance Ruling

Notice Requirements

Advance Ruling Application Procedure

Advance Ruling Application Form

Information Request Requirement

Issuance of the Advance Ruling

Advance Ruling Finality and Disclosure

The DGIR Can Withdraw the Advance Ruling

Situations in Which the Advance Ruling Ceases to Apply

Fee Structure

Internal Procedure

Chapter 21: Malaysia Transfer Pricing Guidelines

Introductory Provisions

Malaysian Transfer Pricing Procedure

Application of the Arm’s Length Principle

Malaysia’s Transfer Pricing Regime

Comparability and Transfer Pricing

Transfer Pricing Alternatives

Comparable Uncontrolled Price Transfer Pricing Method

Resale Price Transfer Pricing Method

Cost Plus Transfer Pricing Method

Additional Transfer Pricing Methods

Profit Split Transfer Pricing Method

Residual Analysis Example

Transactional Net Margin Method

Intangible Property

Transfer Pricing Services Regulations

Documentation

Malaysia Issues Advance Rulings Guidelines

General Facts about of the Advance Ruling Procedure in Malaysia

Binding Nature of an Advance Ruling

Scope of the Advance Ruling Request

Advance Ruling Application Procedure

Advance Ruling Application Form

Information Request Requirement

Issuance of the Advance Ruling

Advance Ruling Finality and Disclosure

The DGIR Can Withdraw the Advance Ruling

Situations in Which the Advance Ruling Ceases to Apply

Fee Structure

Internal Procedure

Chapter 22: New Zealand Transfer Pricing Developments

New Zealand Transfer Pricing Guidelines

Initial Developments

Arm’s Length Principle and the Pricing Methods

Basics of the Transfer of Intangible Property

Profit Split Method and the Joint Ownership of Intangible Property

Profit Split Method

Residual Profit Split Analysis

Transactional Net Margin Method

Market Penetration Techniques

Australia’s Four-Step Process to Ascertain the Arm’s Length Approach

Documentation

Documentation and the Burden of Proof Rule

Inland Revenue Seeks to Ascertain the Risks to the Revenue

Retention of Records

Transfer Pricing in Countries without a Double Tax Agreement

Intangible Property Audits

Trade Intangibles and Marketing Intangibles

Ascertaining the Arm’s Length Amount for Intangible Property

Ascertaining the Ownership of Intangible Property

Factors in Ascertaining the Nature of Intangible Property

Terms and Conditions of the Intangible Property Transfer

Valuing Intangible Property

Non-Owner’s Marketing Activities

Applying the Profit Split Method to Intangible Property

Intangible Property Planning

Chapter 23: Philippine Transfer Pricing Regulations

Scope of the Philippine Provisions

Philippine-Specific Provisions

Chapter 24: Singapore Implements Advance Pricing Arrangement Procedure

Objectives of the Supplementary Circular

What the Supplementary Circular Provides

Minimum Information Requirements

Considerations for Accepting the APA

Pre-Filing APA Process

Formal APA Submission Procedures

APA Review and Negotiations: Considerations and Requirements

APA Roll-Back

Discontinuation of the APA Process

Nonsubmission of the APA Application

Insufficient Level of Support during the APA Process

Absence of Communication

Effective Date

Chapter 25: Singapore Transfer Pricing Consultation Process

Background

Objectives of the Transfer Pricing Consultation

Issuance of the Transfer Pricing Questionnaire

Transfer Pricing Consultation

Transfer Pricing Questionnaire

Chapter 26: Singapore Transfer Pricing Guidelines

Key Concepts and Arm’s Length Principles

Three-Step Approach

Comparison of Economically Significant Functions

Comparable Uncontrolled Price Method

Transfer Pricing Method Selection

Transfer Pricing Documentation

Mutual Agreement Procedures

Advance Pricing Agreements

Comments

Chapter 27: Singapore Transfer Pricing Guidelines for Related Party Loans and Services

Transfer Pricing Guidelines for Related Party Loans

Two Loan Categories

Facts and Circumstances to Determine Comparability Analysis

Transfer Pricing Guidelines for Related Party Services

Direct Charging versus Indirect Charging of Services

Ascertaining the Arm’s Length Fee

Routine Services and the 5% Markup

Cost Pooling Contracts

Strict Cost Pass-through

Documentation

Chapter 28: South Korea Transfer Pricing

Background

Related Party Transfer Pricing Relationships in Korea

Computation of Indirect Ownership

Economic Interest and Control

Transfer Pricing Method Alternatives

Information Requests and Documents

Transfer Pricing Audits

Permanent Establishment, Competent Authority, and Advance Pricing Agreements

Thin Capitalization and Tax Havens

Applying the “Most Reasonable Method” Standard to Determine Arm’s Length Price

Underpayments and Overpayments

Selecting Transfer Pricing Methods

Reporting Methods for Determining Arm’s Length Price

Advance Pricing Arrangements

Sanctions Imposed on Failure to Comply with the Data Request

Penalties

Thin Capitalization Rules

Debt under an Arm’s Length Situation

Anti–Tax Haven Rules

Scope of the “Tax Haven” Jurisdiction

Computation of the Reserved Income Distributed Amount

Gift Tax on Property Located Outside Korea

Mutual Agreement Procedure

International Tax Cooperation

Chapter 29: Sri Lanka Transfer Pricing

Associated Undertakings

Arm’s Length Price

Documentation

Threshold for Applying Sri Lanka Transfer Pricing

Advance Pricing Agreements

Burden of Proof

Implementation

Annex 1: Test of Control—Associated Undertaking

Annex 2: Arm’s Length Pricing Methodologies

Annex 3: Appropriate Pricing Methodology—Factors to Consider

Annex 4: Comparability of an Uncontrolled Transaction—Factors to Consider

Annex 5: Prescribed Documentation

Suggested Supporting Documents

Chapter 30: Taiwan Transfer Pricing

Enactment of the Transfer Pricing Statute

Transfer Pricing Regulations

Chapter 31: Thailand Transfer Pricing

Transfer Pricing Booklet

Part 1: Tax Legislation Impacting Transfer Pricing

Revenue Department of Thailand Departmental Instruction Paw 113/2545

Part 2: Methodologies in Calculating Market Price

Part 3: Process in Establishing the Market Price

Process of Establishing the Market Price

Guidelines on the Determination of Market Price

Chapter 32: Vietnam Transfer Pricing

Expansive View of Related Party Ownership

Transfer Pricing Methods

Documentation Requirements

Compliance Considerations

Part Two: Advanced Applications

Chapter 33: Services Transfer Pricing in Hong Kong and in Singapore

Services Transfer Pricing in Hong Kong and in Singapore: Basic Comparison

Hong Kong Services Transfer Pricing Methods

Shareholder Activity and Stewardship Functions

Financial Services Audit Example

Deduction of Expenditures Paid for Intragroup Services

“Objective Commercial Explanation” Standard

Determining the Amount of Intragroup Charges

Services Provided by a Permanent Establishment

Scope of Activities for Related Party Services in Singapore

Singapore Transfer Pricing Services Guidelines

Direct Charging versus Indirect Charging of Services

Ascertaining the Arm’s Length Fee

Routine Services and the 5% Markup in Singapore

Cost Pooling Contracts

Cost Pooling versus Pass-Through Allocation Alternatives

Documentation

Chapter 34: Permanent Establishment Parameters: Hong Kong versus India

General Permanent Establishment Considerations

Permanent Establishment Considerations in India

Permanent Establishment Considerations in Hong Kong

Chapter 35: Pacific Tax Administrators Coordinate Transfer Pricing Documentation

Background

PATA Provisions

Three Operative Principles

Specific Mandatory Documentation

Chapter 36: Shared Services and Cost Pooling Arrangements in the United States and Singapore

Historical Background

Explanation of the Shared Services Arrangement Provisions

Shared Services Arrangements

Services Cost Method Examples

Singapore Shared Services Arrangements

Chapter 37: South Korea–Japan Bilateral Investment Treaty

Background

U.S. Involvement in BITs

Arbitration

ICSID Arbitration

Treaty Shopping within the Bilateral Investment Treaty Context

Tax Provisions within the Korea–Japan Bilateral Investment Treaty

Chapter 38: China–Taiwan Trade

Taiwan and China: A History Lesson

Economic Considerations

One-China Policy

Economic Cooperation Framework Agreement

Tax Considerations

Choice of Transfer Pricing Method

Functional Analysis

Analysis of the Production Activities

Fact Pattern

Accounting and Tax Operations

Permanent Establishment

Taiwanese–Chinese Electronics Company

Transactional Profit Split Method Criteria

Most Appropriate Transfer Pricing Method

Allocation Key System

Strong Correlation Standard

Selecting among Allocation Keys

APA Process

Chapter 39: Malaysia–Singapore Allocation Keys

Importance of Allocation Keys

Selection of the Real Estate Leasing Example

When the Transactional Profit Split Method Is the “Most Applicable” Transfer Pricing Method

Specialized Services

Applying the Transactional Profit Split Method

Four Allocation Keys Categories

Key Functions

Selecting Potential Allocation Keys

Residential Condominium Leasing Example

Residential Condominium Database

Selecting among Allocation Keys

“Strong Correlation” Standard

Allocation Keys

Transfer Pricing Strategies

Corporate Tax Strategy

Malaysia’s Tax Strategy

Chapter 40: Permanent Establishment Parameters

OECD’s Permanent Establishment Provisions

Consequences of Permanent Establishment Status

Consequences of a Permanent Establishment to Business

Transfer Pricing and Permanent Establishment

Overall Tax Considerations

Potential for the Imposition of Two Levels of Taxation

OECD Approach to Determine Permanent Establishment

Hong Kong Applies the OECD Permanent Establishment Provisions

How Hong Kong Applies the Permanent Establishment Provisions

Common Law Permanent Establishment Criteria

Direct Activities

Agency Relationships

Shareholder Activities in Subsidiaries’ Locations

Presence of Personnel Shifts among Entities

Entirety of the Operations

Declining Businesses

“Preparatory to” and “Auxiliary from” Exemptions

Time Spent

Will the OECD Approach Prevail?

About the Authors

Index

Praise for Asia-Pacific Transfer Pricing Handbook

“Feinschreiber and Kent offer an especially useful guidebook—Asia-Pacific Transfer Pricing Handbook. The comprehensive information is seasoned with refreshing insights and practice tips essential for multinational businesses.”

Eduardo Goldszal Director of Tax, NCR Corp.

“This book will be a valuable and handy resource for all stakeholders—professionals, revenue authorities, and multinational enterprises. It is extremely timely considering the next decade(s) of growth from Asia and consequent increased flow of goods, services, funds, and intangibles. The transfer pricing regime is also evolving in many Asian countries with focused examination of cross-border transactions by revenue authorities and this book will assist in navigating the same.”

Samir Gandhi Partner, Deloitte Haskins & Sells, Mumbai, India

“This book brings a timely and fresh look at the rapidly changing transfer pricing landscape in the region. Whether you are you implementing a new business model in Asia, documenting your intercompany transactions, or are in the middle of defending your historical filing positions, Asia-Pacific Transfer Pricing Handbook will help you understand local rules and procedures and provide you with valuable and practical insights.”

Horacio Peña Partner & Senior Economist, U.S. & Americas Transfer Pricing Practice Leader, PricewaterhouseCoopers, LLP

“Once again Mr. Feinschreiber has provided us with a go-to guide for transfer pricing. This time it’s a guide to the Asia-Pacific region with an abundance of useful and practical information for the transfer pricing practitioner.”

Stuart Simons Partner, International Tax, Deloitte Touche Tohmatsu, Bangkok, Thailand

“Robert Feinschreiber and Margaret Kent continue to provide comprehensive and up-to-date guidance in the complex and dynamic transfer pricing field. In this book, they focus in a very concrete and useful way on what is certainly the most economically explosive region of the world—Asia.”

Michael Kliegman PricewaterhouseCoopers, LLP

“This book provides practical solutions and guidance to assist multinational corporations (MNC) to effectively mitigate transfer pricing tax exposure. It provides practical solutions with examples that demonstrate the use of “allocation keys” under the Transactional Profit Split method that can provide equitable and consistent results in connection with allocating MNC global profits to affiliates in different tax jurisdictions. I believe the information provided by Feinschreiber and Kent’s book will be valuable to business executives, tax professionals, and tax administrative officers.”

Alexander Pan, PhD, MBA, MBT, CPA Partner (retired), PricewaterhouseCoopers, LLP; University of California, Irvine

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To Steven Feinschreiber and Kathryn Feinschreiber Hagedorn, and to our grandchildren, Alexander, Elizabeth, and Henry, in the hope that they will follow our footsteps.

Preface

Welcome to the Asia-Pacific Transfer Pricing Handbook. This book is the sixth volume of the Transfer Pricing Handbook series, a series that we began 20 years ago with John Wiley & Sons. The first two transfer pricing volumes have a U.S. perspective; the third volume focuses on the rest of the world. The fourth volume looks specifically to transfer pricing methods. The fifth volume examines the 2010 OECD Regulations, OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The sixth volume looks to transfer pricing developments in the Asia-Pacific region, encompassing countries from India and Sri Lanka to Australia and New Zealand, from Japan and South Korea to Singapore and Indonesia. While each country relies heavily upon the OECD transfer pricing provisions, each country stands on its own when it comes to transfer pricing.

Once again, we are pleased to be selected by John Wiley & Sons to be the authors of this comprehensive book on transfer pricing, whether this selection is based on our practical transfer pricing experiences as practitioners during the past 40 years or otherwise. We are grateful to Sheck Cho at John Wiley & Sons for developing and nurturing the transfer pricing project and to Tim Burgard and Stacey Rivera at John Wiley & Sons. We are thankful to Nick Melchior at John Wiley & Sons, Australia, for making this volume a reality. In addition, we owe a debt of gratitude to Natu Patel, then the principal tax official at John Wiley & Sons, for continuing to encourage us to undertake this project despite our extensive international schedule.

Readers are welcome to contact us to suggest additional topics or suggestions, or to inform us about transfer pricing planning or audit and litigation techniques: e-mail us at [email protected]. Our Web site is TransferPricingConsortium.com.

Robert Feinschreiber

Margaret Kent

Key Biscayne, Florida

August 2012

Part One

Country-by-Country Analysis

Chapter One

Introduction

Transfer Pricing is a central ingredient to trade and commerce, to financing and accounting, and to law and economics. We have selected 15 countries in Asia and the Pacific where these transfer pricing components have grown in importance.

We have divided the Asia-Pacific Transfer Pricing Handbook into two parts: Part One: Country-by-Country Analysis and Part Two: Advanced Applications—complex transfer pricing issues.

PART ONE: COUNTRY-BY-COUNTRY ANALYSIS

For the convenience of the reader, we provide alphabetical country-by-country analysis. We examine these countries in the Asia-Pacific region:

Australia

China

Hong Kong

India

Indonesia

Japan

Korea

Malaysia

New Zealand

Philippines

Singapore

Sri Lanka

Taiwan

Thailand

Vietnam

PART TWO: ADVANCED APPLICATIONS

The Asia-Pacific Transfer Pricing Handbook then examines transfer pricing issues that take place across borders:

Hong Kong and Singapore

India and Hong Kong

Australia, Canada, Japan, and the United States

Singapore and the United States

Japan and South Korea

China and Taiwan

Malaysia and Singapore

Hong Kong and India

Multinational institutions play a major role in the transfer pricing context. These organizations include the Organisation for Economic Co-operation and Development (OECD) and the Association of Southeast Asian Nations (ASEAN), including ASEAN + three. At this time, the OECD has 34 members, only 4 of which are in the Asia-Pacific region: Australia, Japan, New Zealand, and South Korea. Nevertheless, the broader Asia-Pacific group of 15 countries, which are the subject of this analysis, follow OECD principles. Most of the nonmember countries are already on track to become OECD members.

Today the ASEAN pact, including ASEAN + three, have moved slowly in addressing transfer pricing issues. In part, the ASEAN pact and ASEAN + three are reticent because some members do not have their own transfer pricing regimes.

Each country stands on its own, despite the impact of the OECD. In particular, these six developments are notable:

1. Japan took the lead in profit split techniques, and the OECD follows these techniques.

2. China and Vietnam address control issues, which the OECD fails to address.

3. Singapore is applying important techniques for the treatment of services in the transfer pricing context.

4. Hong Kong has developed anti–tax haven techniques and put these rules with its transfer pricing guidelines.

5. India is far ahead in case law developments, leaving the United States behind.

6. Australia is far ahead in developing pre-audit techniques for midsize businesses.

Chapter Two

Australia’s Risk Assessment Transfer Pricing Approach

The Australian Government, through its Australian Tax Office (ATO), issued in March 2005 an international transfer pricing document entitled “A Simplified Approach to Documentation and Risk Assessment for Small to Medium Businesses.” As tax practitioners working in the field of international transfer pricing, it is our position that the ATO’s document is neither simplified nor designed for small and medium businesses. The ATO, in response to this comment, increased the small business threshold. Nevertheless, despite these shortcomings, this document provides multinational taxpayers with a worthwhile risk assessment approach toward transfer pricing issues.

The U.S. taxpayer is cautioned that the ATO transfer pricing review and audit process involves two essentially separate procedures:

1. The ATO pervasively applies the transfer pricing review process, evaluating the business and its transfer pricing activities as an intermediate audit-related step. Many companies can find themselves as being on the ATO’s watch list, but few companies face transfer pricing audits.

2. The ATO rarely audits business for transfer pricing issues, which suggests that a company facing a transfer pricing audit likely can be subject to transfer pricing adjustments and penalties.

INTRODUCTORY ISSUES

The ATO’s transfer pricing simplified approach applies to businesses with an annual turnover of less than A$100 million, which the ATO defines as small to medium businesses. The threshold is based on total transactions, not just on international transactions. Thus, a business having domestic Australian sales of A$5 million and international sales of A$90 million would be within the confines of the small- to medium-businesses parameters. In contrast, a business having domestic sales of A$100 million and international sales of A$5 million would be outside the confines of those parameters. Earlier we suggested that the ATO would be well advised to base the small- to medium-businesses parameter on international transactions standing alone. However, the ATO increased the parameters in 2009, thus alleviating some of the objections that we previously had made.