POLICY ASPECTS OF TRANSFER PRICING Isaác Gonzalo Arias Esteban International Cooperation and Taxation Director Regional seminar on multinational taxation & transfer pricing Jun 10-12, 2014 Port of Spain, Trinidad & Tobago

MATURITY BIG INFLUENCE RESOURCES COMPLEXITY GOALS INFORMATION CONTEXT MATURITY BIG INFLUENCE RESOURCES COMPLEXITY GOALS INFORMATION Current guidelines are a good starting point “Tropicalization” is advisable Are there significantly better alternatives?

Artificial transactions Transfer pricing methodology and general principles Arm´s Length Artificial transactions Economic reality Market price

Which should be the situation of exempt income tax taxpayers? Transactions subject to transfer pricing MOST USED All transactions with related parties Transactions with entities established in “Tax Havens” ALTERNATIVES Income level Patrimony Amount of transactions Transactions with persons established in free zones. Which should be the situation of exempt income tax taxpayers?

Associated related parties Parent company and its branches, subsidiaries and PE Branches, subsidiaries and PE among themselves Direct and indirect stock participation Decision-making or control Same members, partners or stockholders participate in the board of directors or decision-making Through kinships or affinity with managers or administrators up to a certain level Trough rights maintained in a trust Corporations domicilied in tax havens or preferential tax systems Distribution of profit Actual management Proportion of transactions (purchase/sales) Price mechanisms used between the parties Exclusive agent Consanguinity and/or afinity

Burden of proof TAX ADMINISTRATION TAXPAYER

Approach for all-inclusive hotels Methods Comparable Uncontrolled Price Resale Price Cost Plus Profit Split Residual profit Split Transactional Net Margin OCDE Innovations So called “6th. Method” “Fix margings” Market price average Approach for all-inclusive hotels Hierarchy Best method rule/no hierarchy Preference of method

Taxpayer obligations TP Return or report Conserve or present Conservation period Frequency Penalties

Which kind of APA exists? What is an APA? Which kind of APA exists? What could be a good negociation period? What about the duration? Does it have cost?

Exemption from transfer pricing system Simplified system for taxing international transactions Exemption from transfer pricing system “Safe harbours” rate of interest Exemption from supporting documents “Safe harbours” methods

The future of transfer pricing legislations Unitary Taxation Approach Country by Country Report Intangibles (new approach) Safe harbours Profit Split Method 6th “Method” BEPS work…

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