Countries take diverse transfer pricing approaches to financial transactions, profit attributions

By Doug Connolly, MNE Tax

Updated transfer pricing country profiles released by the OECD on August 3 include for the first time information on 20 reviewed countries’ transfer pricing rules applicable to financial transactions and their approach to the attribution of profits to permanent establishments.

In addition to including the expanded information for 17 previously reviewed countries, the latest updates also add three new country profiles for Angola, Romania, and Tunisia. The additions increase to 60 the total number of countries covered in the profiles.

The 17 jurisdictions with updated profiles are Argentina, Australia, Colombia, Costa Rica, Czech Republic, Denmark, India, Japan, Netherlands, New Zealand, Nigeria, Norway, Russia, Slovak Republic, Spain, Switzerland, and Turkey.

The OECD will update over the next year the remaining 40 existing country profiles to include the new information on financial transactions and the attribution of profits.

Financial transactions

Regarding financial transactions, the 20 new and updated profiles now include information detailing whether the country has in place domestic transfer pricing rules specific to financial transactions. It also includes information on any other rules that are relevant for the tax treatment of financial transactions (e.g., interest deduction limitation rules).

Seven of the 20 reviewed countries have specific transfer pricing rules applicable to financial transactions: Argentina, Colombia, Denmark, Japan, Romania, Russia, and Tunisia.

A further 11 countries do not have transfer pricing rules specific to financial transactions but have other applicable rules in place: Australia, Costa Rica, Czech Republic, India, the Netherlands, New Zealand, Nigeria, Norway, Slovak Republic, Spain, and Turkey.

Out of the 20 countries, only two – Angola and Switzerland – have no relevant rules for financial transactions.

Attribution of profits

With respect to the attribution of profits to permanent establishments, the new and updated profiles include information regarding whether the country follows the authorized OECD approach. It also specifies the number of treaties in which the country follows this approach. The profiles further list whether the country follows any other approach.

A slight majority of the reviewed countries – 12 of 20 – follow the authorized OECD approach: Angola, Argentina, Denmark, Japan, the Netherlands, Norway, Romania, Russia, Slovak Republic, Spain, Switzerland, and Tunisia.

Colombia follows the authorized OECD approach in some tax treaties and another approach in other treaties.

Australia, India, and New Zealand follow a different approach than the authorized OECD approach.

Costa Rica, the Czech Republic, and Nigeria neither follow the authorized OECD approach nor have in place another approach.

Information on the attribution of profits approach for Turkey was lacking.