MINISTER EXPLAINS HOW TO DETERMINE DOCUMENTATION THRESHOLDS

This is to alert you to a long-awaited public tax ruling from the Minister for Finance and Development dated 24 January 2018 (ref. DCT.8201.1.2018), which clarifies how to determine the thresholds that trigger transfer pricing documentation requirements. The ruling addresses Article 25a of the Personal Income Tax Act and Article 9a of the Corporate Income Tax Act to the extent they apply to:

  1. determination of the documentation thresholds for transactions of one kind or other events of one kind;
  2. determination of the documentation thresholds for transactions with different related parties;
  3. the transfer pricing documentation requirements;
  4. identification of transactions of one kind.

Re. 1). Taxpayers must issue transfer pricing documentation only for those transactions of one kind or other events of one kind which exceed the statutory threshold. The threshold should be applied to each kind of transaction or other event separately. Accordingly, taxpayers are not required to sum up the prices of different kinds of transactions or other events for the purpose of determining if they are caught by the documentation requirements. In effect, a taxpayer does not need to prepare documentation for transactions of one kind or events of one kind if their value does not exceed the statutory thresholds.

Re. 2). The Minister also wrote that when determining the documentation thresholds in transactions with different related parties, the taxpayer must apply each threshold to the total value of transactions of one kind with all his related parties.

Re. 3). TP documentation need not be prepared in the case of other events with independent parties. Transfer pricing regulations apply solely to transactions or other events with related parties.

Re. 4). Taxpayers are under a duty to properly identify which transactions or other events are of one kind. The Minister made a point of noting that it is unacceptable for taxpayers to artificially split transactions (or other events) of one kind to avoid having to prepare transfer pricing documentation. Where TP-relevant aspects of transactions (such as functions, assets, risks, pricing, etc.) are similar, the individual cash flows should be summed up as a transaction or other event of one kind.

If this issue pertains to your business and you are interested in our assistance, please contact your WTS&SAJA consultant or our office.

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