5 th international conference cyberspace, brno, 30/11-1/12/2007 e-commerce and transfer pricing:...
TRANSCRIPT
5th International Conference Cyberspace, Brno, 30/11-1/12/2007
E-commerce and E-commerce and Transfer Pricing: Transfer Pricing: Some Selected Some Selected
IssuesIssues
Cyberspace 07 – 01/12/07
• Relevance and object of the presentation;
• Scenarios analysed;• The applicability of the arm’s length
principle;• Permanent Establishment: servers and
websites;• Arm’s lengths methods in e-commerce
scenarios.
Agenda
Cyberspace 07 – 01/12/07
Relevance and object of the presentation Transfer Pricing and E-commerce:
MNEs play in the global market of goods and services through a controlled entity
(branch or subsidiary), exploiting technological means (Internet and
Intranets)
Allocation of taxable incomes in lower-tax jurisdictions.
Cyberspace 07 – 01/12/07
Scenarios analyzed • Intra-company transfer pricingIntra-company transfer pricing: an
enterprise provides goods or services through a branch situated in a different country, using an electronic communications network (Internet or Intranet): e-commerce, e-tailing;
• Inter-companies transfer pricingInter-companies transfer pricing: two companies that are part of the same group (holding-subsidiary, subsidiary-subsidiary) and that are located in different jurisdictions enter into an e-commerce transaction directed to trade goods or services.
Cyberspace 07 – 01/12/07
The applicability of the arm’s length principle
Basic principleBasic principle:
the prices set in transactions between associated
enterprises and between an enterprise and its branch
(permanent establishmentpermanent establishment) in a different country must be at at
arm’s lengtharm’s length. Cyberspace 07 – 01/12/07
The applicability of the arm’s length principle (continue)
Article 9 OECD Model tax ConventionArticle 9 OECD Model tax Convention: where “conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.”
Cyberspace 07 – 01/12/07
The applicability of the arm’s length principle (continue)
The ‘behavior’ of the parties involved in the controlled transactioncontrolled transaction and the pricesprices set in their mutual business operations must correspond to the practice between two independent independent
partiesparties
Avoid the illicit transfer of taxable income to a low-tax country or to a tax heaven.
Cyberspace 07 – 01/12/07
Permanent Establishment: servers and websites
Relevance of the topicRelevance of the topic: the income of a branch of an enterprise situated in another country can be taxed there only if such a branch is recognized to be a permanent establishment (P.E.)
of the enterprise.
Therefore, the basic requirement for the applicability of transfer pricing regime is
met.
Cyberspace 07 – 01/12/07
Permanent Establishment: servers and websites (continue)
The perspective of the OECDThe perspective of the OECD: distinction between servers and websites; application of the traditional notion of P.E. application of the traditional notion of P.E.
to e-commerce scenariosto e-commerce scenarios.
Only a physical device or premise can be a P.E. of the enterprise.
Only a server can be deemed to be a Only a server can be deemed to be a P.E.P.E.
Cyberspace 07 – 01/12/07
Permanent Establishment: servers and websites (continue)
Requisites for a server being a P.E.:• It must be fixedfixed: analysis on a case-by-
case basis;• The presence of personnelpersonnel is not
necessary (but it can be a further indicator of the activities performed);
• It must not carry on activities of activities of preparatory or auxiliary characterpreparatory or auxiliary character (e.g.: communication link, advertisement, mirror server, supply information, gather market data).
Cyberspace 07 – 01/12/07
Permanent Establishment: servers and websites (continue)
A server isis a P.E. if:•the conclusion of the contractcontract with the
customer•the processing of the paymentpayment
•the deliverydelivery of the productsare performed automatically through the
server.
An independent ISP ISP is not, usually, agent of the enterprise and therefore it can’t be deemed to
be its P.E.Cyberspace 07 – 01/12/07
Arm’s length methods in e-commerce scenarios
PreferencePreference must be given to the traditional transaction methodstraditional transaction methods
(comparable uncontrolled price; resale price; cost plus). For highly integrated transactions, it can be better the profit
split method (analysis on a case-by-case basis).
Usually the portion of profits attributed to the P.E. is very smallvery small: the operations carried on are automatic and do not
require a complex structure.
Cyberspace 07 – 01/12/07
Davide M. ParrilliInterdisciplinary Centre for Law
& ICT - ICRIK.U.Leuven
Sint-Michielsstraat 63000 Leuven - Belgium
[email protected] http://www.law.kuleuven.be/icri
Thank you!
Cyberspace 07 – 01/12/07