Substance and Form may or may not lead to discrepancies, but comparing real facts to projections is a different story. Reality most likely will present departures from estimates, even if prepared on a best efforts basis.
Oleoducto Trasandino Argentina S.A. (an Argentine subsidiary of A&C Pipeline Holding Company, in turn owned by YPF and Empresa Nacional del Petróleo -ENAP-) that operates a transandean oil pipeline transporting crude oil from Argentina to Chile, anticipated to pay an "x" amount to a foreign technology transfer provider and ended up paying "x + n".
Which of the two amounts should control? What are the consequences for withholding tax purposes? What is the treatment of the difference? What implications arise from a deductibility standpoint? Are there any transfer pricing safeguards?
Companies seeking to take a deduction and to get reduced withholding tax under domestic or Treaty law on payments for technology transfer must register an agreement with the Argentine Patent & Trademark Office (INPI).
The registration process requires to meet certain substance and form requirements, including payment of the 0.02% INPI rate on the self assessed expected nominal economic value of the agreement (i.e., for the full term), and then the INPI validates the documentation and is ready to issue a certificate.
Under the Argentine IRS approach, the taxpayer calculated best estimate for the INPI rate, implied a cap to the amount eligible for a reduced withholding tax rate.
The technology transfer agreement registered by Oleoducto Trasandino contained variable retribution based on daily and hourly rates, as opposed to a fixed payment stream.
The company calculated the reduced withholding on the actual amount paid under the agreement, which exceeded the prediction made at the INPI registration stage.
The taxpayer was assessed a tax deficiency using the default withholding tax rate on the gap between the projected versus the actual amount paid.
After confronting the Fisc position, Oleoducto Trasandino was awarded a favorable judgment in all three judicial instances, the most recent by the Federal Supreme Court (in re: Oleoducto Trasandino Argentina SA c DGI, CJSN, April 8, 2008). The tribunals concluded that the forecasted amount must be disregarded and therefore the excess amount is also subject to the reduced withholding tax rate.
The Supreme Court decision was grounded on the lack of a legal requirement to register a new agreement if the actual figures exceed the anticipated amount.
No matter how mandatory and what projections are made at the INPI registration phase, the actual amount paid controls for withholding tax purposes.
Under domestic law, deduction on payments for technical or financial assistance rendered from outside of Argentina is subject to the following cap:
3 percent on the sales or revenue taken as a contractual basis for compensating the advice;
5 percent on the amount of investment effectively made as a result of the advice.
Based on the facts and circumstances of the Oleoducto Trasandino case, the Supreme Court did not address the deductibility issue on technology transfer payments and whether any of these limitations would be applicable.
However, the decision implicitly convalidates compensation policies based on daily and hourly rates for cross border services.
Accordingly, the tax planning lesson is that transfer pricing policies for intra-group services based on variable factors, for example based on time (days, hours) will be deemed acceptable. Those based on percentages (i.e., on sales, revenue, investments) -if the services are rendered from abroad- will be subject to the 3 or 5 percent limitations, as the case maybe.
All posts will be appreciated, as well as comments by phone at +5411 4776 8200, by email at daniel@enterpricing.com or at http://www.enterpricing.net/contactus.htm.
Daniel Rybnik, Partner, EnterPricing
www.enterpricing.com
Tampilkan postingan dengan label services. Tampilkan semua postingan
Tampilkan postingan dengan label services. Tampilkan semua postingan
Selasa, 26 Agustus 2008
Sabtu, 02 Agustus 2008
Check List for Intra Group Services Received in Argentina
Deduction of intra group services charged from outside of Argentina is subject to a high level of scrutiny by authorities, and again, the "form vs susbtance" issue plays a key role.
The following risk-assessment exercise helps estimate the likelihood -from 0 to 100- of a successful deduction of intra group charges received for corporate income tax purposes.
Think about a situation close to you and grade each item from 0 to 10 (0 is total lack of compliance and 10 is fully compliant) and then sum-up all the individual points.
1. Invoices for the services received are issued to the name of the domestic taxpayer contain explicit references to the services rendered and are duly registered in the local accounting and tax records.
2. Compliance with payment requirements required by Argentine Central Bank and IRS regulations (e.g., foreign exchange payment protocols, withholding tax, affidavit signed and sealed by the relevant Treaty competent authority, VAT on imports of services, etc.).
3. Services Agreements (and further amendments) signed in presence of a notary public (on or before its effective date) and apostilled (if signed outside of Argentina), translated to Spanish by a Certified translator and legalized before the Argentine Public Translator Council containing description of services, compensation and further details.
4. Technology transfer agreements registration with the Argentine Patent & Trademark Office (INPI) in cases of core industry services (e.g., those considered Cost of Goods Sold). Add 10 points to your score card if not Technology transfer agreement.
5. Cost sharing agreements allocations not based on pro rata distributions. Add 10 points to your score card if not Cost sharing agreement.
6. A hard copy folder for each service rendered containing at least the following:
Identification (name and position) of the persons involved.
Date of beginning and ending of the service.
Place of performance.
Time incurred by every person involved.
Detailed and complete report for every service provided with date, stamp and signature of a representative of the foreign entity.
Copies of letters, e-mails and minutes of conferences calls or meetings.
All the documentation, work files and other information that were used or prepared with the purpose of rendering the services described in the Agreement.
7. Compliance with transfer pricing documentation and information requirements:
In particular: Form 742 (six-month period) / Form 743 (annual) / Transfer Pricing Report certified by an independent public accountant and legalized before the Accountants Council / Financial Statements / Transfer Pricing Study using Argentine taxpayer as tested party / Further documentation to sustain transfer pricing policy. Add 10 points to your score card if service provider is not related, deemed related or located in low or nil tax jurisdiction.
8. Detailed list and documentation of refundable expenses: Travel tickets / Hotel expenses / Other accommodation expenses / Mailing expenses / Other refundable expenses.
9. Argentine taxpayer Board of Directors records or equivalent containing the discussion on benefits and approval of Services Agreements and actual services received.
10. Pray (hope it helps!)
What is your total score?
The following score card considers the context of an audit in progress (i.e., it does not evaluate the likelihood of being audited) and high professional standards at the taxpayer defense level:
90-100: Remote risk of deduction related assessment and high chances to succeed in final Court decision
70-89: Possible risk of deduction related assessment and high to medium chances to succeed in final Court decision
50-60: Possible risk of deduction related assessment and medium to low chances to succeed in final Court decision
30-49: Probable risk of deduction related assessment and medium to low chances to succeed in final Court decision
10-29: Probable risk of deduction related assessment and low chances to succeed in final Court decision
0-9: Danger is knocking on the door!
So, what are the chances of taking the deduction in the specific situation you are evaluating? If the possibilities are low, bad news in this case could be worst (e.g., not even partial amounts could be written off and penalties, interest and litigation costs would apply) but also potentially not that bad (e.g., withholding tax paid could be offsetable against the corporate income tax liability under certain circumstances).
The question is whether the price to pay to mitigate the risk justifies the greater costs of a potential challenge.
All posts will be appreciated, as well as comments by phone at +5411 4776 8200, by email at daniel@enterpricing.com or at http://www.enterpricing.net/contactus.htm.
Daniel Rybnik, Partner, EnterPricing
www.enterpricing.com
The following risk-assessment exercise helps estimate the likelihood -from 0 to 100- of a successful deduction of intra group charges received for corporate income tax purposes.
Think about a situation close to you and grade each item from 0 to 10 (0 is total lack of compliance and 10 is fully compliant) and then sum-up all the individual points.
1. Invoices for the services received are issued to the name of the domestic taxpayer contain explicit references to the services rendered and are duly registered in the local accounting and tax records.
2. Compliance with payment requirements required by Argentine Central Bank and IRS regulations (e.g., foreign exchange payment protocols, withholding tax, affidavit signed and sealed by the relevant Treaty competent authority, VAT on imports of services, etc.).
3. Services Agreements (and further amendments) signed in presence of a notary public (on or before its effective date) and apostilled (if signed outside of Argentina), translated to Spanish by a Certified translator and legalized before the Argentine Public Translator Council containing description of services, compensation and further details.
4. Technology transfer agreements registration with the Argentine Patent & Trademark Office (INPI) in cases of core industry services (e.g., those considered Cost of Goods Sold). Add 10 points to your score card if not Technology transfer agreement.
5. Cost sharing agreements allocations not based on pro rata distributions. Add 10 points to your score card if not Cost sharing agreement.
6. A hard copy folder for each service rendered containing at least the following:
Identification (name and position) of the persons involved.
Date of beginning and ending of the service.
Place of performance.
Time incurred by every person involved.
Detailed and complete report for every service provided with date, stamp and signature of a representative of the foreign entity.
Copies of letters, e-mails and minutes of conferences calls or meetings.
All the documentation, work files and other information that were used or prepared with the purpose of rendering the services described in the Agreement.
7. Compliance with transfer pricing documentation and information requirements:
In particular: Form 742 (six-month period) / Form 743 (annual) / Transfer Pricing Report certified by an independent public accountant and legalized before the Accountants Council / Financial Statements / Transfer Pricing Study using Argentine taxpayer as tested party / Further documentation to sustain transfer pricing policy. Add 10 points to your score card if service provider is not related, deemed related or located in low or nil tax jurisdiction.
8. Detailed list and documentation of refundable expenses: Travel tickets / Hotel expenses / Other accommodation expenses / Mailing expenses / Other refundable expenses.
9. Argentine taxpayer Board of Directors records or equivalent containing the discussion on benefits and approval of Services Agreements and actual services received.
10. Pray (hope it helps!)
What is your total score?
The following score card considers the context of an audit in progress (i.e., it does not evaluate the likelihood of being audited) and high professional standards at the taxpayer defense level:
90-100: Remote risk of deduction related assessment and high chances to succeed in final Court decision
70-89: Possible risk of deduction related assessment and high to medium chances to succeed in final Court decision
50-60: Possible risk of deduction related assessment and medium to low chances to succeed in final Court decision
30-49: Probable risk of deduction related assessment and medium to low chances to succeed in final Court decision
10-29: Probable risk of deduction related assessment and low chances to succeed in final Court decision
0-9: Danger is knocking on the door!
So, what are the chances of taking the deduction in the specific situation you are evaluating? If the possibilities are low, bad news in this case could be worst (e.g., not even partial amounts could be written off and penalties, interest and litigation costs would apply) but also potentially not that bad (e.g., withholding tax paid could be offsetable against the corporate income tax liability under certain circumstances).
The question is whether the price to pay to mitigate the risk justifies the greater costs of a potential challenge.
All posts will be appreciated, as well as comments by phone at +5411 4776 8200, by email at daniel@enterpricing.com or at http://www.enterpricing.net/contactus.htm.
Daniel Rybnik, Partner, EnterPricing
www.enterpricing.com
Langganan:
Postingan (Atom)
