Transfer Pricing in Latin America

In a recent discussion, PricewaterhouseCoopers' John Salerno joined the editors of Practical Latin American Tax Strategies to talk with ADM's Robert Frable and Sony's Marc Lewis about their tax operations in Latin America, their new procedures for dealing with FIN 48 and transfer pricing procedures. Following is and excerpt from the interview with Marc Lewis, the second in a series of excerpts from that exclusive interview:

Strategies: You had mentioned earlier some of the benefits of taking a regional approach to managing the Latin American tax burden. Is there anything specifically that you have been doing within your company to regionalize the approach to tax planning?

Lewis: Transfer pricing is probably a good way to illustrate a regional approach. It is important for a company to be consistent about its transfer pricing both regionally and globally, and I think it is important for many reasons. A regional approach is a good approach for transfer pricing because it forces you to look at things on a 50,000 foot level in the Americas, for instance. There are requirements now in pretty much every country, and you ask yourself, if I’ve got limited resources in my department, how am I going to tackle this kind of project.

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Implementation Regulations for the New Enterprise Income Tax Law of China

Excerpt from Practical China Tax and Finance Strategies by Fuli Cao (Jones Day)


In December, the long-awaited new Enterprise Income Tax (EIT) Regulations were finally released. They define resident enterprise, reduce the tax rate and eliminate taxes on certain kinds of dividends. Many uncertainties still remain.


The EIT Law and the New EIT Regulations made major changes and clarifications, including the following:

• Defined “resident enterprise” as an enterprise either established under the law of China or effectively managed in China.


• Confirmed transfer pricing rules.


• Introduced controlled foreign corporation rules.


• Introduced thin capitalization rules.


• Reduced the regular income tax rate from 33 percent to 25 percent.


• Introduced a 20 percent tax rate for small-scale enterprises earning small profit.

More changes and clarifications:

Retrospective Adjustments of Intercompany Prices for Goods Sold into Russia

Excerpt from Russia Eurasia Executive Guide by Kurban Nepesov and Natalia Volkovskaya (KPMG)

In general, transfer pricing in Russia is not particularly complex, although for those importing goods from a related party, the balancing act between Russian customs and their local tax inspectorate can be challenging -- the two authorities are driven by opposing fiscal interests. For example, an increase of intercompany prices at which the Russian subsidiary purchases goods from its foreign affiliate should in principle lead to an increase of customs duty and import VAT and, therefore, to a decrease of its Russian profits tax liabilities (as the increased expense erodes the margin) for the importer. Thus, adjustments to established intercompany prices can lead to disputes with either the Russian customs or tax authorities -- or both!

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Managing Tax Risk in Latin America

In a recent discussion, PricewaterhouseCoopers' John Salerno joined the editors of Tax Strategies to talk with ADM's Robert Frable and Sony's Marc Lewis about their tax operations in Latin America, their new procedures for dealing with FIN 48, and transfer pricing procedures. This excerpt from that interview takes a look at their strategies surrounding FIN 48:

Strategies: What has your overall experience been in managing the implementation of FIN 48 in the region?

Lewis: It is hard to say that the Latin American region presents something that is unique within FIN 48 implementation versus some of the other regions but I think one thing to consider is how much reliance a taxpayer can place on the availability of Competent Authority or APA relief. To a certain extent, it is dependent upon how active the Competent Authority is between different countries and how active the APA programs are between different countries. Latin America, Mexico and probably some others have pretty robust activities. However, in other countries, it is just building up, so I do not think you are at the same level as you see in some of the countries in Europe, Japan and other places where you can rely upon a Competent Authority or APAs in the assessment of uncertain tax positions.

Frable: FIN 48 was an interesting experience with this being the implementation year. I think everybody was surprised at how much time they ended up spending on the implementation. It took away from your day-today responsibilities. I think it is going to get better; tax departments, controllers and even outside auditors had to work through a learning curve.

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