2021 Transfer Pricing in a Nutshell
Borys Ulanenko
Welcoming 2022, let's look at the main events and developments in the transfer pricing world in 2021.
What we've seen:
1. Progress on OECD's Pillar 1 and Pillar 2. While we were not too optimistic in 2020 about the BEPS 2.0 project, we saw a significant shift in the US approach at the beginning of 2021. As a result, In July 2021, 130 countries came to an agreement on changing the international tax rules, with several technical papers published through the rest of 2021. While there are still a lot of disagreements concerning how to best adjust international tax rules, many countries concluded that it is a requirement for them to move from BEPS 1.0 to BEPS 2.0. As of today, the most recent development is the publication of the Pillar 2 model rules for domestic implementation - and the EU followed up almost immediately with the Directive proposal.
2. Implementation of the EU Public CbCR. When the EU first proposed the public CbCR initiative in 2016, it was supposed to come into effect by 2017. However, the initiative was in deadlock until early 2021 because of opposition from some Member States. In 2021, though, the EU moved quickly to implement public CbCR. For most of the taxpayers, the first reporting year would be 2025. Check our recent blog post about, perhaps, one of the most significant tax transparency initiatives.
3. Update of the UN TP Manual. The United Nations' latest edition of its practical manual on transfer pricing for developing countries was released on April 27. It adds new content on financial transactions, centralized procurement functions, guidance on the profit splits, and country practices. While there are no groundbreaking changes in the manual, there is a lot of helpful information and insights into the current practice of many developing countries. The UN also updated its web portal, which houses the manual and other transfer pricing resources.
In 2021, we haven't seen many landmark court cases. As you remember, 2020 was full of interesting court decisions that we analyzed (here, here and here). Perhaps, it just means we would see much more in 2022!
With this, we wish you all Merry Christmas and a Happy New Year! Take care, and let the arm's length principle be with you in 2022!
1. Progress on OECD's Pillar 1 and Pillar 2. While we were not too optimistic in 2020 about the BEPS 2.0 project, we saw a significant shift in the US approach at the beginning of 2021. As a result, In July 2021, 130 countries came to an agreement on changing the international tax rules, with several technical papers published through the rest of 2021. While there are still a lot of disagreements concerning how to best adjust international tax rules, many countries concluded that it is a requirement for them to move from BEPS 1.0 to BEPS 2.0. As of today, the most recent development is the publication of the Pillar 2 model rules for domestic implementation - and the EU followed up almost immediately with the Directive proposal.
2. Implementation of the EU Public CbCR. When the EU first proposed the public CbCR initiative in 2016, it was supposed to come into effect by 2017. However, the initiative was in deadlock until early 2021 because of opposition from some Member States. In 2021, though, the EU moved quickly to implement public CbCR. For most of the taxpayers, the first reporting year would be 2025. Check our recent blog post about, perhaps, one of the most significant tax transparency initiatives.
3. Update of the UN TP Manual. The United Nations' latest edition of its practical manual on transfer pricing for developing countries was released on April 27. It adds new content on financial transactions, centralized procurement functions, guidance on the profit splits, and country practices. While there are no groundbreaking changes in the manual, there is a lot of helpful information and insights into the current practice of many developing countries. The UN also updated its web portal, which houses the manual and other transfer pricing resources.
In 2021, we haven't seen many landmark court cases. As you remember, 2020 was full of interesting court decisions that we analyzed (here, here and here). Perhaps, it just means we would see much more in 2022!
With this, we wish you all Merry Christmas and a Happy New Year! Take care, and let the arm's length principle be with you in 2022!
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What is the EU Directive?
The EU is run by an elected EU Parliament and an appointed European Council. The European Parliament approves EU law, which is implemented through EU Directives drafted by the Commission. National governments are then responsible for implementing the Directive into their national laws. In other words, EU Directives are draft laws that then get passed by national governments and then implemented by institutions within the member states.
What is CbCR?
Country-by-Country Reporting (CbCR) is part of mandatory tax reporting for large multinationals. MNEs with combined revenue of 750 million euros (or more) have to provide an annual return called the CbC report, which breaks down key elements of the financial statements by jurisdiction. A CbC report provides local tax authorities visibility to revenue, income, tax paid and accrued, employment, capital, retained earnings, tangible assets and activities. CbCR was implemented in 2016 globally.
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