Border Crossing

3rd Quarter 2009Issue 13

Welcome to the thirteenth edition of Border Crossing - the electronic newsletter from RSM International covering technical developments in global taxation.

In this issue:

Europe:Implementation of European VAT rules is rapidly approaching

South Africa:South Africa hosts FIFA World Cup 2010

United States:

The battle between taxpayers and the Internal Revenue Service over access to tax computation working papers

Ireland: Key taxation measures in developing a smart economy

United Kingdom: New disclosure facilities in the United Kingdom

Argentina: Transfer Pricing in Argentina

New place of supply rules for services

Until 1 January 1 2010, the place of supply of services is where the service provider is established for VAT purposes (specific rules exist for certain services) unless an exception applies.

As from January 1, 2010, business to business supplies of services (B2B) will be taxed in the country where the recipient of the service is established. For cross border transactions between two Member States, the recipient will be required to account for VAT under the so called “reverse charge mechanism”. The service provider will not charge VAT but the recipient will have to account themselves for the VAT payable on these services in their local VAT returns. This input VAT is deductible in the same VAT return according to the normal rules. As a result of this new ‘basic rule’ for cross border B2B-services, in many cases VAT will no longer have to be charged (and reclaimed). Exceptions are made for certain services (such as restaurant services, services linked to cultural, sports, scientific and educational events, short-term hire of means of transport) which in all cases will be taxable in the country of consumption.

Business-to-consumer supplies of services (B2C) will, in principle, continue to be taxed where the supplier is located.

Listings

With effect from 1 January 2010, businesses that supply ‘basic rule’ services to businesses in other EU countries will have to periodically report these services by submitting a listing electronically to the tax authorities. These services must be broken down by value per VAT number for each service recipient.

Services that are exempt in the recipient’s country should not be included in the listing. Services that are subject to the reverse charge mechanism must be reported and listed in the period in which they are supplied. Consequently, the period in which the services are invoiced is irrelevant. However, the accounting administration or method of invoicing will likely need adaption. Ongoing services should in any event be reported and listed in the last reporting period of the calendar year. The listing obligation does not apply to services supplied to taxpaying consumers outside the EU. In principle, the listings should be submitted monthly, but it is possible to opt for quarterly listing.

Changes to the time of supply rules

The time at which VAT must be accounted for under the reverse charge mechanism will change as of 1 January 2010. As the service recipient is required to account for VAT under the reverse charge mechanism, the relevant accounting moment from a tax perspective will be the moment the service is provided.

In most cases, recipients of services will not know exactly at what moment the services have been completed or the exact value of these services. The customers will usually rely on the invoices issued by the service providers. If these invoices are received after the moment at which the VAT was due, according to the new rule, strictly speaking, the recipients will be too late with accounting for this VAT. Furthermore, the new rule could have a significant impact on businesses that are not entitled to a full deduction of input VAT. Businesses with a right to fully recover input VAT are normally entitled to a full deduction of the VAT accounted for on these services in the same VAT return.

In addition, where these services are supplied on a cross border basis within the European Union, it is possible that mismatches may occur between the VAT accounted for in the VAT returns and the services reported in the listings submitted by the service providers. This could result in enquiries from the tax authorities.

New VAT refund procedure

From 1 January 2010, it will be easier for EU established businesses to reclaim foreign (EU) input VAT. The new procedure also applies to foreign (EU) input VAT paid in 2009. Previously, businesses were required to send a number of documents as well as all original invoices per regular mail to each individual foreign tax authority. This will all change as of 1 January 2010 when the VAT refund claims will have to be submitted to the local Member State where the taxpayer is established through an electronic portal created by the local tax authorities. This procedure should simplify the administrative process significantly, since businesses will no longer have to submit a refund application to each individual foreign tax authority. VAT refunds will be processed more quickly and interest will be paid on late refunds.

Another new aspect is that the refund applications can be submitted electronically. The revised refund procedure applies solely to EU-established businesses. Businesses established outside the EU must continue to apply for their VAT refunds in the country in which the VAT is paid, and they cannot submit their refund applications electronically. The period for submitting claims for VAT refunds will be extended up to 1 September of the year following the calendar year in which the VAT was paid.

Impact on intercompany (management) services

Under the current rules, the fees associated with, for example, management services performed on a cross border basis for the benefit of European affiliates, are not subject to reverse charge VAT since the VAT is charged from the supplier of these services. Under the new rules, European entities receiving cross border management services will generally be required to account for reverse charge VAT with respect to the associated service fees.

For many European affiliates of non EU-based companies, the additional VAT should be recoverable. However, this additional VAT may be an absolute cost for affiliates operating in the financial or educational services industries (which are exempt from VAT) and affiliates that are pure holding companies.

What should you do now?

The VAT experts at RSM firms in the Netherlands and Belgium are of the view that most European companies will be affected by the changes in one way or another but appreciate that the extent to which the changes will impact businesses will vary. However, all businesses will need to assess the impact of the new VAT rules on their businesses and for many the impact will be profound. In order to prepare for and manage these changes while minimising disruption to business, affected businesses will need to, amongst others:

determine the extent to which the businesses receive or provide services both to and from third parties as well as intercompany and create a ‘services footprint’

assess the impact of the VAT changes on the above footprint

review the configuration of billing, accounting and ERP systems, implement any process changes and train staff including both accounts planning and accounts receivable staff

review and where appropriate amend contracts, terms and conditions for sales and purchases of services

identify areas of risk and compliance issues for international operations as a result of the new VAT rules

secure the international budget and resource needed to ensure compliance for 1 January 2010

ensure competiveness after 1 January 2010, by identifying and implementing any VAT efficiencies and opportunities that may result and seek to mitigate VAT costs

It is likely that the VAT package will have a significant impact on most European businesses. Therefore, RSM member firms in Europe would be pleased to assist businesses with any questions that may arise and assist in assessing the impact of the VAT package on the specific situation.

For more information please contact your local RSM VAT adviser or RSM advisers in Netherlands or Belgium

Michel Pierrot or Ferdy de Wijs (RSM Niehe Lancee, Netherlands)T: + 31 23 5300 400

E: mpierrot@rsmniehelancee.nl E: fdwijs@rsmniehelancee.nl

orGert Van den Berg (TCLM Toelen Cats Dupont Koevoets)

T: +32 3 242 83 00

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As per 1 January 2010, a so-called VAT package will be introduced throughout Europe. The VAT package is a substantial reform of European VAT legislation. The reform will fundamentally change areas of VAT law such as the determination of the place of taxation for the supply of services. Furthermore, the new provisions will introduce new reporting obligations and an entirely electronic procedure for recovering VAT paid in Member States other than those in which the business is resident or established. Therefore, given the impact that these rules may have from either a cash flow perspective, an administrative perspective, or both, could be significant.

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Europe: Implementation of European VAT rules is rapidly approaching

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South Africa: South Africa hosts FIFA World Cup 2010

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On 11 June 2010, the FIFA World Cup 2010 will kick off in Johannesburg at Soccer City. The tournament will comprise of 64 matches played in nine host cities, utilising a total of ten venues around the country. It is estimated that approximately 2.7 million spectators will attend the 64 matches over the period of the tournament and the final will have a television audience in excess of 2 billion people.

The hosting of an event of such significance has created huge business opportunities within South Africa. There has been, and currently still is, an enormous amount of infrastructural development taking place around the country.

This is not limited to stadium construction and refurbishment but also to the development of improved municipal transport, precinct upgrading, roads and rail services, airports and safety and security. As a direct result of the World Cup event approximately 80% of South Africa will have access to digital television.

There will naturally be a direct impact on the tourism industry but the economic benefits will not be limited to these areas.

In order to host an event of this nature the South African Government was required, as part of the bid process, to take responsibility for the delivery of 17 guarantees, one of which was that FIFA would be assured of a supportive financial environment.

This guarantee was given effect by the passing into law of the Revenue Laws Amendment Act 20 of 2006 (“The Act”).

The Act sets out special tax measures specific to the 2010 FIFA World Cup and covers the following major areas:

Provisions relating to entities generally exempt from taxes, duties and levies

Tax treatment of certain other entities

Tax treatment of certain individuals

General Provisions

Provisions relating to importation and re-exportation of goods

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1. Provisions relating to entities generally exempt

The first aspect deals with provisions relating to entities generally exempt from taxes, duties and levies. These entities are specifically defined as being FIFA, FIFA subsidiaries and all Participating National Associations excluding the South African Football Association (“SAFA”).

In terms of the Act these entities are regarded as being exempt from all taxes, duties, levies and any other amounts which may be imposed in terms of any other Act.

In addition, such entities will be regarded as diplomatic or consular missions for the purpose of Value Added Taxation (“VAT”) and are not required to register as employers or deduct or withhold employees’ tax.

2. Tax treatment of certain other entities

This part applies to any entity which is:

A commercial affiliate

A licensee

The host broadcaster, a broadcaster or a broadcast rights agency

A merchandising partner

A FIFA designated service provider

A concession operator

A hospitality service provider; or

The nominated FIFA flagship store operator

These entities are defined in detail in the Act but in principle any receipt or accrual to such entity is excluded from gross income for South African tax purposes to the extent that it is derived by that entity from:

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(a) the sale of any consumable or semi-durable goods; or

(b) any service rendered by that entity which is:

(i) intrinsic to the staging of the Championship

(ii) enjoyed or partially utilised at a Championship site; and

(iii) paid for by an individual member of the general public or by FIFA, a FIFA Subsidiary or the Local Organising Committee

This exemption applies only in respect of the sale of goods and services rendered at Championship sites as defined.

In respect of qualifying sales by these entities, VAT will be charged at zero rate.

3. Tax treatment of certain individuals

This part applies to any individual who is not a resident of the Republic of South Africa and who is:

a member of the FIFA delegation

a Championship referee or assistant referee

an official of any participating national association (excluding SAFA)

a FIFA confederation official

a media representative

a staff member of a commercial affiliate

a staff member of a merchandising partner

a staff member of a FIFA designated service provider

a staff member of the host broadcaster, the broadcast rights agency or a broadcaster; or

a staff member of the hospitality service provider.

The abovementioned will have excluded from gross income any receipt or accrual derived from activities connected with the championships.

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What is important to note is that excluded from this exemption are officials of SAFA, directors and staff members of the Local Organising Committee and members of a team.

Players are thus not exempt from taxation in South Africa and are therefore subject to normal taxation principles which will be discussed further later in this article.

4. General provisions

The general provisions provide simply that where amounts are not subject to tax no deductions or allowances will be allowed in respect of any expenses or costs incurred to produce such income.

In addition any amount received by or accrued to a person who is not a resident of the Republic is deemed not to be from a source in the Republic if that amount:

(a) is derived as a result of that person’s sponsoring or broadcasting of the Championship; and

(b) is received or accrued from any goods sold for foreign consumption or services rendered outside the Republic.

5. Provisions relating to importation and re-exportation of goods

Certain qualifying persons will benefit from import-tax relief on certain goods where these are re-exported.

Taxation of Team Members

As stated above the rules providing specific individuals tax exempt status exclude the players participating in the championship. They will thus fall under the normal tax rules applicable in South Africa.

South Africa applies a residence based taxation system (with certain specific source rules in place).

Therefore players who are South African Tax Resident will be taxed in full on their remuneration from matches played.

>> Cont'd

Disagreements over Internal Revenue access to a taxpayer’s tax accrual working papers have been around almost as long as tax audits. Recently, a new chapter was written into the argument. In a decision announced in the middle of August, the First Circuit Court of Appeals held that tax accrual workpapers are not documents protected by the work product privilege and protected from an administrative summons issued by the IRS. Thus striking a blow to a taxpayer’s ability to maintain a veil over their tax computation and potential issues related to positions taken on Federal and State filed tax returns.

To illustrate, consider the following: A Taxpayer utilises a set of internal, “tax accrual working papers” consisting of:

a spreadsheet that contains lists of items in the tax returns that, in the opinion of tax advisors, involve issues on which the tax laws are unclear, and, therefore, may be challenged by the Internal Revenue Service upon audit

computations by advisors and internal staff expressing their judgments regarding the ability to prevail in any litigation over those issues

tax reserve amounts reserved to reflect the possibility that they might not prevail in such litigation

working papers that provide background and support to prior year computations for the account.

During the course of an audit by an Independent Auditor, the working papers were reviewed by the auditor with the understanding that the information would be treated as confidential.

Pursuant to various sections of the Internal Revenue Code, the government filed a petition to enforce an IRS summons served on the Taxpayer and its affiliated companies for an examination of the Taxpayer’s tax liability for tax years 1998-2001 and seeking the tax accrual workpapers for its 2001 tax

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year. The Taxpayer refused to produce the requested documents on the grounds that the workpapers were protected by the attorney-client privilege, the tax practitioner-client privilege created by Section 7275 of the Internal Revenue Code, and the work product privilege.

The district court sided with the Taxpayer, finding the tax accrual workpapers protected by the work product privilege, and that the Taxpayer did not waive this privilege when it provided the workpapers to its outside auditors. The First Circuit affirmed the determination that the Taxpayer’s tax accrual workpapers are protected, however vacated the determination that the work-product protection was not waived, and remanded the matter to the district court to assess whether disclosure of the auditor’s working papers would reveal the information contained in the Taxpayer’s workpapers. The circuit court then granted the government’s petition for rehearing en banc, vacated its prior decision and obtained additional briefs from the parties.

The First Circuit held that the Taxpayer’s workpapers are independently required by statutory and audit requirements and that the work product privilege does not apply. The court stated that it is not enough to trigger work product privilege that the subject matter of a document relates to a subject that may be litigated, but rather the privilege is to protect materials prepared for any litigation or trial as long as they were prepared by or for a party to the subsequent litigation. (U.S. v. Textron, No. 07-2631 (1st Cir. 8/13/09).

Taxpayers should maintain close analysis of these dynamic matters and be ready and prepared to make adjustments as necessary.

For further information contact your local tax expert orChad Koebnick

RSM McGladrey (United States) E: chad.koebnick@rsmi.com

T: + 1 612 376 9393 ��

For players who are non-resident the provisions of Sections 47A to 47K of the South African Income Tax Act apply.

In essence these Sections provide for a withholding tax in respect of any entertainer or sportsperson who is not a resident of South Africa and who exercises or will exercise any personal activity in South Africa, whether alone or with any other person for which he or she receives reward.

Where the remuneration is received from a resident of South Africa that resident is responsible for withholding taxation, at a rate of 15% on all amounts received or accrued, and paying this before the end of the month following that in which the liability to the non-resident arose. Once the withholdings tax has been paid the sportsperson has no further South African tax liability.

Should the resident fail to make such payment the sportsperson must within 30 days after the remuneration is received or accrues pay the amount due to the Commissioner himself with the appropriate return.

Where the sportsperson receives payment from a non-resident employer the abovementioned obligation on the sportsperson to pay within 30 days would apply.

The withholdings tax would not be due in respect of payments made by a resident employer to a non resident employee provided that the non-resident is physically present in South Africa for more than 183 days during any 12 month period commencing or ending during the year in which the performance takes place. Such players would be subject to normal taxation in South Africa.

Given all of the above it will however be important to take into account the possible existence of Double Taxation Agreements (“DTA’s”). These would as a general rule supercede any of the normal provisions of the South African Income Tax Act. The standard clause normally contained in DTA’s would result in a sportsperson being taxed in the country in which they perform but this may not always be the case as specific DTA’s might differ.

For further information contact your local tax expert orJohn Jones, Audit & Corporate Taxation Partner

RSM Betty & Dickson (Johannesburg) E: john.jones@jhb.rsmbd.co.za

T: +27 11 329 6000F: +27 11 329 6100

United States: The battle between taxpayers and the Internal Revenue Service over access to tax computation working papers

In certain circumstances, dividends derived from such exempt patent income are also tax exempt. With effect from 1 January 2008, the maximum amount of patent income that would qualify for the exemption is capped at €5 million per calendar year. This exemption can be a useful tax planning tool.

3. Tax treatment of R&D/IP expenditure

3.1 R&D tax credit

In 2004 a new incentive was introduced to encourage companies to carry out R&D in Ireland. The incentive currently provides for a 25% tax credit in respect of qualifying R&D activities by a company in certain circumstances. The credit is available in addition to the corporation tax deduction which should also generally be available, and therefore the effective tax deduction rate is 37.5%. Subject to meeting relevant conditions, the R&D tax credit applies to companies undertaking qualifying R&D activities within the EEA.

A company’s R&D tax credit is calculated based on its incremental R&D expenditure over and above its qualifying R&D expenditure in its ‘base year’ which will remain at 2003 for all future accounting periods. In brief, qualifying R&D means systematic, investigative or experimental activities in a field of science or technology. The incentive also provides for a tax credit for expenditure on buildings and structures used for the purposes of R&D in certain circumstances.

3.2 Tax deduction for intangible asset acquisitions

In 2009 a tax depreciation regime was introduced in respect of expenditure by companies on the acquisition of specified intangible assets. The new relief applies to acquisitions occurring after 7 May 2009 and provides for the capital expenditure to be written off in line with the accounting treatment, or over a fixed period of 15 years (if shorter).

The tax depreciation is available against trading income from the management, development or exploitation of the intangible asset concerned. It applies to intangible assets recognized under

generally accepted accounting practice and the legislation lists the classes of intangible assets in respect of which the regime applies. The list encompasses all expected asset classes including patents, trade marks, brand and domain names, copyright, licences and other forms of authorisation. This regime significantly enhances Ireland as a location of choice for holding IP.

4. Withholding taxes

Ireland has signed double taxation agreements with 51 countries, of which 46 are in force and the remainder are pending ratification. Ireland’s treaty network is continually expanding and negotiations with another 18 countries are either concluded or are very advanced. Most of Ireland’s double taxation agreements provide for zero withholding tax on the payment of royalties. In the remaining treaties, the rate is usually 10% or less. This is important in the context of not eroding the benefit of the 12.5% rate.

5. Conclusion

It’s fair to say that Ireland’s IP tax regime stands up well to international comparison and it provides significant opportunities for companies to develop and exploit IP in Ireland in a tax efficient manner. This is the case whether locating R&D activity in Ireland from the outset with a view to the creation and future exploitation of IP, or when using Ireland as a location for managing and exploiting existing IP. Consideration of this latter option is particularly timely and relevant in the context of the current concerns of many global corporations about their ongoing use of tax havens as IP locations. Mainstream tax opinion is predicting a significant exit from such locations, as corporations seek to avoid damage to their corporate reputations. In many instances, Ireland is an ideal choice of location for the transferred IP, without CFOs and IP decision makers feeling like the man in the bucket!

Ireland: Key taxation measures in developing a smart economy

1. Introduction

An internationally famous politician once said “we contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”. Although this politician was not Irish, successive Irish governments have taken the sentiments to heart in terms of using tax policy to attract foreign direct investment to Ireland. More than 1,300 companies have chosen Ireland as their European base and they’re involved in a wide range of activities in a wide range of sectors including e-business and information communications technologies, finance, pharmaceuticals, medical technologies, insurance and international services.

There is also growing recognition in Ireland of the economic imperative of moving Ireland up the so called value chain and that this involves further investment in R&D and intellectual property (“IP”) exploitation. A recent government initiative recognises that in terms of building a smart economy “a favourable tax environment is an important driver of R&D and commercialisation”. In 2009 and earlier years tax measures were introduced to promote Ireland as a location of choice for IP development and exploitation. Therefore, it is timely to review the current status of Ireland’s current IP tax regime.

It is not necessary to match the location of IP rights with the location of IP development, and therefore IP investment is highly mobile. From a tax perspective, multinationals seeking a suitable IP location will typically seek a jurisdiction with a low tax rate, appropriate tax deductions for IP related expenditure and the absence of significant withholding taxes. Ireland scores highly by international standards under these criteria and this is discussed in more detail below.

2. Taxation of IP derived income

2.1 12.5% or 25%?

Since 2003, Ireland has a corporation tax rate of 12.5% for trading profits. For this rate to apply to IP income, the IP activity must constitute a trading

activity (as opposed to being passive in nature) carried on at least partly in Ireland. In addition, to secure the 12.5% rate, the Irish Revenue expect substance to exist in the trading activity. There is no statutory basis for linking substance to the question of whether or not a trade exists. However it derives from Revenue’s natural concern to preserve Ireland’s good international tax reputation and to ensure that Ireland is not regarded as a location for so called brass plate operations. The concern is generally consistent in any event with the CFC requirements of most of the tax jurisdictions of the parents of Irish subsidiaries.

Typically, IP income consists of license fees and royalties but may also include receipts from cost sharing agreements and profit participation. A company that develops IP could license it (to connected or unconnected parties), or a separate company might be set up within a corporate multinational group, to hold the group’s IP and to license it to companies within the group. In either case, the IP could be licensed as a stand alone activity or as part of a wider trade. It could also be linked to the activity of a principal under a contract manufacturing agreement or under a commissionaire structure. With careful planning, it should be possible to structure matters to secure the Irish 12.5% rate in respect of an Irish IP holding entity under the above scenarios.

Where the activity is a trade carried on wholly outside of Ireland or where the activity does not satisfy a trading test, the income is likely to be taxed at 25%.

2.2 Patent income exemption

Patents are a form of IP and are distinguished from other forms of IP such as trademarks, designs, copyright and know how. Irish legislation provides for a tax exemption in respect of income received from a qualifying patent where the patent holder is Irish tax resident. A qualifying patent is a patent in respect of which the “research, planning, processing, experimenting, testing, devising, developing or similar activities leading to the invention” was carried out in the European Economic Area (“EEA”).

� �For further information contact your local RSM expert or

Michael McGivern, Tax Partner FGS, Ireland

T: +353 1 418 2092E: michael.mcgivern@fgspartnership.com

United Kingdom: New disclosure facilities in the United Kingdom

The UK HM Revenue & Customs (HMRC) has recently introduced two disclosure facilities for those holding offshore bank accounts or assets. There is a general facility called the New Disclosure Opportunity (NDO), and another specifically for holders of accounts and assets in Liechtenstein (the Liechtenstein Disclosure Facility).

The disclosure facilities specifically allow those with offshore and UK tax irregularities to disclose them to HMRC in return for a small tax penalty, generally of 10%.

2007 Offshore Disclosure Facility

HMRC ran a similar disclosure facility in 2007, the Offshore Disclosure Facility (ODF).

Prior to the ODF, HMRC won important rulings against the then five big banks requiring those banks to provide the names and addresses of all UK customers with offshore bank accounts and credit cards.

HMRC secured £400 million at a cost of £6.5 million on the ODF from around 30,000 disclosures and made a further £38 million on follow up action on the several thousand enquiries they have opened since. On those cases they have been seeking 30% penalties.

New Disclosure Opportunity

This time around HMRC have just been successful in securing similar notices to those secured prior to the ODF on 308 financial institutions in the UK. They are anticipating around 500,000 names and addresses from that exercise which is ongoing.

The NDO is broadly similar to the ODF, the key details of which are set out below.

NDO Key Features

Dates

Notification:

• Paper: 1 Sept to 30 Nov 2009

• Online: 1 October to 30 Nov 2009

Disclosure - can then be made:

• Paper: 1 Sept 2009 to 31 Jan 2010

• Online: 1 Oct 2009 to 12 Mar 2010

Period covered:

• HMRC will be looking for disclosures going back 20 years to 5 April 2008

What is included?

• Any OFFSHORE DISCLOSURE of UK tax irregularities linked to an offshore bank account(s) or asset(s), and

ALSO

• Any ONSHORE DISCLOSURE of UK tax irregularities (if there is ALSO an OFFSHORE DISCLOSURE)

Penalties

• De minimis - where the tax due is less than £1000, HMRC do not intend to charge a penalty

• 10% penalty

• 20% penalty will apply to those whom HMRC wrote to in 2007 offering the 10% rate but did disclose under the ODF

What if they don’t disclose?

• Penalties of at least 30% and rising to 100%, plus an increased risk of prosecution, are likely to apply to defaulters who are caught and who do not use the NDO

Liechtenstein Disclosure Facility

HMRC have negotiated two groundbreaking agreements with the Liechtenstein authorities. The first agreement is a Tax Information Exchange Agreement (TIEA) which provides for either party to disclose tax related information on quite liberal bases after 31 March 2015 and on cases of criminal fraud prior to that date.

The second agreement is a Memorandum of Understanding (MOU) providing for the Liechtenstein

authorities to set up a five year Tax Assistance and Compliance (TAC) programme and HMRC in the UK to set up a five year disclosure facility.

The TAC programme is very interesting as it will require financial intermediaries in Liechtenstein to review their clients and identify cases where their clients might have tax liabilities in the UK. They must then engage with those clients and those clients will be required to demonstrate to the financial intermediary that they are cooperating with HMRC or are not liable to tax. If they do not demonstrate this, the financial intermediary will be required to cease acting or implement some sort of sanction yet to be published. The TAC will be supported by specific legislation in Liechtenstein.

The TAC provides some really interesting points not least what the process for financial intermediary’s internal audit of clients might look like.

The HMRC Liechtenstein Disclosure contains some of the same principles as the NDO but there are some significant differences and the platform to disclose is somewhat different involving a “bespoke personal service”. This suggests a more rigorous process than the NDO which amounts to a series of forms (although HMRC has the right to audit the information within those forms).

Liechtenstein key feature

Dates

Notification and Disclosure:

• Assets held at 1 August 2009, 1 Sept 2009 to 31 March 2015

• Assets held after 1 August 2009, 1 December 2009 to 31 March 2015

Additional dates

Once notified by the financial intermediary, the person has 18 months to demonstrate co-operation with the UK. Disclosure deadline:

• 7 months where the 40% composite rate is use • 10 monhs in other cases

Period covered:

• HMRC will be looking for disclosures going back 10 years to 5 April 2009.

What is included? –

• Any OFFSHORE DISCLOSURE of UK tax irregularities linked to a Liechtenstein offshore bank account(s) or asset(s), and

ALSO

• Any ONSHORE DISCLOSURE of UK tax irregularities, if there is ALSO an OFFSHORE DISCLOSURE

Penalties

• 10% penalty

Other key feature

• Scope to apply a composite rate of 40% in lieu of ALL taxes

Disclosure facilities in other countries

The US has just extended its own disclosure facility to 15 October 2009. Anyone looking to make a disclosure under the UK facility should think also about disclosure elsewhere, as the UK authorities will share information disclosed to them with other countries where they hold specific agreements.

Conclusion

There is no doubt that HMRC will expect a full and complete disclosure of ALL liabilities on UK and offshore matters. Therefore, all those effected should conduct a review of their taxation affairs at the earliest possible opportunity. It may be appropriate to look at restructuring a business to ensure that exposure to penalties is reduced.

For further information on disclosure facilities or areas of concern on tax issues, please contact your local RSM expert or

Gary Ashford, RSM Bentley Jennison, UKT: +44 774 815 2007

E: gary.ashford@rsmbentleyjennison.com

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Introduction

Since the late nineties, Argentina has taken serious steps towards adapting its income tax legislation and transfer pricing regulations to internationally accepted principles such as arm’s length valuation, comparability, and the best method rule.

Although without making any specific reference to the OECD Transfer Pricing Guidelines, Argentina has put its legislation, to a great extent, in line with the rules and principles of this organisation.

However, some difficulties arose when the Tax Administration had to enforce these standards contained in the law. Argentina follows the French civil law tradition in which case law plays a secondary role as source of law. It has been suggested that the lack of relatively stable case law resulted in the precise meaning of the international tax regime’s standard-based norms, such as the arm’s length approach, remain uncertain to the taxpayer.

Argentine regulations may look, at a first glance, like the criteria the multinational companies are used to following in the rest of the world, but there are important gaps that deserve a second look.

Admitted transfer pricing methods

The applicable methods are: the comparable uncontrolled price, resale price between independent parties, cost plus, profit split and transactional net margin method. According to the law, there is no preferred method but the “best method”, which is the one that best reflects the economic reality of transactions, has the best information in quality and quantity and requires the lowest level of adjustments.

Argentina:

Transfer Pricing in Argentina

However, if transactions at stake include export of goods that qualify as publicly traded commodities with the involvement of an international broker, other than the actual recipient of goods, then the “best method” shall be the trading value of the goods in the public market on the date in which the goods are shipped. Only if the prices agreed upon with the international broker are higher than the effective trading value, the former will be considered as the actual value of the transaction.

Moreover and although the best method rule applies, it becomes evident in audits that the AFIP (Tax Office) prefers the use of traditional methods as opposed to the use of transactional methods.

The tested party

Argentine standards establish that the party to be analysed should always be the local company. In many cases, multinational groups believe that they are in compliance with transfer pricing regulations because they have a global transfer pricing study. This study would not be enough in order to comply with local regulations.

Documentation requirements

There is no specific type of documentation required. Taxpayers may use any piece of evidence in order to support the pricing policies. In a relatively recent case against a pharmaceutical company, the National Tax Court (NTC) reaffirmed that companies subject to transfer pricing regulations must produce comprehensive documentation and solid transfer pricing analysis for transactions.

In regard to this:

Documentation should not only be contemporaneous but it should exist at the due date for filing the returns and report. Documents should be made available to examiners upon request and be kept in file until expiration of the statute of limitation period for the relevant tax

To be accepted as evidence, documentation should meet all formal requirements such as being in Spanish language duly translated by a certified translator (if applicable)

In other judicial precedent the AFIP considered an intercompany loan to be equity on the grounds that certain formalities (entering a written contract, signing before a notary public, obtaining the Apostille according to The Hague convention, etc.) were not met

The taxpayer must submit complete information about the foreign related party and documentation, if any, even if no transaction has taken place between the parties

Definition of Related Party

The concept of related party exceeds the one of the OECD guidelines, as a result of which the following cases also fall under the transfer pricing legislation:

Whenever a local company enters into any kind of transaction with another company located in a tax haven, even if the two companies are not related parties

When a party provides the other with technological property or technical knowledge which represents the base of its activities, and such party conducts its business based on those

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When a party performs an activity of significance only in relation to the other party or its existence is only justified in relation to the other party and situations such as single-provider or single-client relations

When a party substantially provides the funds required to perform the commercial activities of the other party

When a party bears the losses or expenses of the other

When directors, officers or administrators of one party receive instructions or act on behalf of another

Use of Secret Comparables

Although there is no reference in the Law to such possibility, the AFIP makes use of secret comparables (i.e. taxpayer information obtained in its own audits that is not available to the public). The NTC supported the Tax Office’s position in a recent case.

Conclusion

As transfer pricing legislation in Argentina continues to evolve and become more and more complex, at the same time disputes begin to arrive in the Courts. Until the legal system begins to produce case law that may show taxpayers and the Tax Office how they are expected to behave, the best recommendation for any company would be always the four “P”s rule: proper planning prevents problems.

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For further information, please contact your local RSM expert orJorge Perez, Estudio Torrent Auditores, Argentina

T: +54 11 5031 1150 E: jorge.perez@torrent.com.ar

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Global International Tax Contacts

Americas Chad KoebnickT: +1 612 376 9393E: chad.koebnick@rsmi.com

Mark Kral (Transfer Pricing)T: + 1 704 442 3831E: mark.kral@rsmi.com

Jerry Wise (Canada)T: +1 514 934 3400E: jwise@rsmrichter.com

EuropeRudolf WinkeniusT: 31 23 530 04 00E: rwinkenius@rsmniehelancee.nl

Caroline Walenkamp T: +31 23 530 04 00E: cwalenkamp@rsmniehelancee.nl

Asia PacificRob ManderT: + 61 2 9233 8933E: rob.mander@rsmi.com.au

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© RSM International Association, 2009

Editor Gillian HawkesPR & CommunicationsRSM InternationalT: +44 20 7601 1080 E: gillian.hawkes@rsmi.com

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