|Inês Frutuoso de Melo|
On the one hand, financial operations and management fees are expected to be deeply scrutinised, as recent court decisions on these subjects show that the tax authorities have been mainly focusing on this type of transaction. In particular, in 2012, a Portuguese arbitration court issued a decision regarding the application of a comparable uncontrolled price method for benchmarking the interest rate applied in cash-pooling transactions. Moreover, the mark-up applied on the sales and general management costs allocated to a Portuguese branch has been recently touched upon in another court case. It is therefore patent that both the Portuguese tax authorities and the courts are taking considerable steps towards a deeper knowledge and analysis of inter-company transactions.
On the other hand, recent changes to fundamental OECD texts recommend a closer look on transactions involving intangibles. The recent amendments to chapter VI (intangibles) of the OECD transfer pricing guidelines encourage tax authorities to go further in this area. An increasing substance over form approach within the transfer pricing field may be seen as a window of opportunity, leading to discuss not only how much each group company should receive but, especially, which entities should be entitled to intangible related returns. The revised OECD text, which is expected in 2014, focuses on key functions. Thus, legal or economic ownership is only the starting line. Determining which entity/person effectively undertakes the most significant functions regarding the development, enhancement, maintenance and protection of the intangible and has the control over its related risks is crucial to properly allocate the related profits.
With the tax authorities focusing their attention on transfer pricing and intangibles being highlighted as a major area of concern internationally, MNEs are highly recommended to prepare defensive transfer pricing documentation to keep their head above water. Also, seeking advance pricing arrangements may be a way forward to manage transfer pricing risk.
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