Welcome to the inaugural TP Compass Quarterly Transfer Pricing Newsletter!

The third quarter of 2016 had a number of significant transfer pricing developments; from Apple’s 13 billion Euro bill by the European Commission; to the IRS’s release of internal training material; and the almost daily reports of various countries planning, drafting and finalizing legislation to implement country-by-country reporting.

State Aid:

Ireland and Luxembourg Caught Looking the Other Way?


September provided two more announcements relating to state aid investigations. The first and most discussed is Apple due to the size of the payment the European Commission ruled for Apple to pay Ireland and the very public opposition by the US Treasury department. The second announcement was of the ongoing investigation of the GDF SUEZ Group (change name to ENGIE in 2015). This one also relates to double non-taxation for a company which was facilitated, this time, by the Luxembourg tax authority. Both Apple and GDF SUEZ investigations revolve around transactions that do not pass the arm’s length standard.

One cynical analogy would be that the Luxembourg and Irish tax authorities are akin to that police officer who looks the other way when a crime is taking place. In this case, the double non-taxation rewards to the GDF SUEZ Group and the double non-taxation rewards to Apple is analogous to the ‘loot’ received from a bank heist. For Apple, the transfer pricing related state aid ruling is 13 billion Euros. And the bribe payment could be seen to be analogous to the tax revenue Luxemburg and Ireland received from a different tax base that was a necessity for their respective rulings to facilitate double non-taxation on another profit base.

Another analogy that is less cynical is that the European Commission can be described as the anti-Competent Authority. Through tax treaties, multinational enterprises have a number of avenues using government competent authorities to alleviate that double tax which occurs as a result of transfer pricing reassessments. Whereas the European Commission has taken the role and responsibility of alleviating double non-taxation to the angst of these beneficiary multinational enterprises, triggered by the unfairness of these Advance Pricing Arrangements and rulings when compared to how other companies are taxed in similar circumstances.

An interesting claim by Australians has surfaced that they played a key role in helping the European Commission in the Apple investigation. In March of 2014, just as the EC was losing steam into the investigation, it was discovered that the financial accounts of Apple Sales International, one key entity being investigated by the EC, were in an Australian public registry due to a filing requirement for Apple Australia.

It will be interesting to predict the number of double non-taxation instances revealed as the increased transparency from county-by-country reporting becomes implemented.

For more reading on this topic, click on the titles of the documents below to open:

European Commission Press Release; State Aid: Ireland gave illegal tax benefits to Apple worth up to €13 billion

U.S. Department of the Treasury White Paper: The European Commission’s Recent State Aid Investigations of Transfer Pricing Rulings (PDF Document)

Financial Review: Apple’s tax secrets hidden in Australian filings may have helped the European Commission

Country-by-Country Reporting:

An Experiment in Transparency?


The country-by-country reporting is the third tier of the new OECD transfer pricing documentation standard. This third tier has received the greatest attention and focus by governments, tax authorities and companies. The first two tiers relate to the master file structure that adds specificity to transfer pricing documentation requirements. Whereas, the country-by-country reporting tier is the filing required by multinational enterprises with consolidated revenues of 750 million Euros or more. There have been several countries that have been drafting and finalizing their legislation for the country-by-country reporting. The other two tiers related to the master file structure have largely been ignored in this legislation, likely due to existing legislation that substantially addresses the required information to be incorporated in transfer pricing documentation. The country-by-country filing includes reporting of revenues, profit and loss before income tax, tax paid, income tax accrued, stated capital, accumulated earnings, number of employees, and tangible assets by tax jurisdiction. Other detail required includes the name of the entities resident in each jurisdiction and a summary of business activities.

The interesting aspect of these developments has been the rising political pressure for these country-by-country filings to be made public. The proposal by the European Commission to make public the country by country reporting for EU members and the UK proposed legislation on country-by-country reporting have significantly increased this possibility.

IRS's Release of Internal Training Materials:


The Internal Revenue Service (IRS) released two similarly worded training materials for IRS examiners on other valuation approaches and their suitability on demonstrating the arm’s length standard. The training materials state that valuation approaches may not necessarily achieve an arm’s length result. This training material illustrated this with the acquisition premium valuation approach. Specifically, if the acquisition premium approach calculates the price based on the market in which the stock trades, the price may not reflect the full expected benefits of a specific buyer or seller that would be the arm’s length standard.

Click on the titles below to open the IRS’s pdf documents.

Comparison of the Arm’s Length Standard with Other Valuation Approaches – Outbound

Comparison of the Arm’s Length Standard with Other Valuation Approaches – Inbound


TP Compass Thought Leadership:

Two posts from TP Compass’ Arm’s Length Matters Blog this quarter have been well received and are among the more popular commentaries.

Top 10 Squashable Transfer Pricing Exposures


The following are 10 easy-to-squash transfer pricing exposures. These exposures do not involve any restructuring of business operations, do not require changes to transfer pricing methods, and do not require alternative valuations to be performed. These exposures relate directly to 10 best practices that can cost your company money when not followed.

The Three Transfer Pricing Monkeys of Cost Sharing

Three Monkeys


When establishing and maintaining Cost Contribution Arrangements, you typically will come across one or more of these three transfer pricing monkeys. These monkeys refer to one of three common instances when following the arm’s length principle will get you in trouble with tax authorities. These three monkeys refer to tax incentives, stock option expenses, and funding returns.