1. Latin America and the Caribbean Transfer Pricing Workshop Arcotia Hatsidimitris Buenos Aires, Argentina 26 April 2013

2. G20 prioritized transfer pricing as a Domestic Revenue Mobilization issue for developing countries Regular progress updates on these initiatives are provided to the G20

3. WBG/IFC tax simplification in Latin America & the Caribbean ♦ Simplify key business tax administration processes that pose significant bottlenecks to efficiency and effectiveness ♦ Focus on introducing/improving simplified regimes for MSMEs that reduce their compliance costs, match SME capacity with tax regimes, encourage voluntary compliance and deter rent-seeking ♦ Rationalize tax incentives making the regime more effective in terms of actually incentivizing investments that are net creators of jobs and yield positive externalities ♦ Transfer Pricing (Colombia and Honduras) ♦ Tax simplification of sub-national tax regimes, with key objective of reducing compliance burdens and improving competitiveness, particularly for small and micro businesses (planned in Colombia, Jamaica)

4. Many stakeholders to consider TRANSFER PRICING CIVIL SOCIETY advocating for more transfer pricing awareness/ enforcement for developing countries TRADING PARTNERS and TREATY PARTNERS LAC GOVERNMENT Tax auditors, investment policy, competent authority MULTINATIONALS Parent vs subsidiary

5. Civil society and NGOs are focusing on transfer pricing

6. LAC trading partners are focusing on transfer pricing ♦ In 2010 CHINA collected ¥10.272bn (approx. US$1.5bn) as a result of its approach toward transfer pricing issues (PwC) ♦ Unofficial reports indicate that INDIA is estimated to have collected approximately US$9,500m in additional taxes as a result of transfer pricing adjustments during the 2002-2008 period (Deloitte) ♦ UK has reported transfer pricing yields of £519m in 2007/8; £1,595m in 2008/9; £1,039 in 2009/10; and, £436m in 2010/11

7. Developed countries’ governments are focusing on transfer pricing – UK example Estimated UK Earnings: ₤180M Estimated pre-tax profit: 21M UK Tax Paid last yr: 280,000 Estimated UK Earnings: 398M Estimated pre-tax profit: 60M UK Tax Paid last yr: 0 Estimated UK Earnings: 2,572M Estimated pre-tax profit: 837M UK Tax Paid last yr: 3.4M Estimated UK Earnings: 3,963M Estimated pre-tax profit: 77M UK Tax Paid last yr: 1.9M Estimated UK Earnings: 802M Estimated pre-tax profit: 184M UK Tax Paid last yr: 999,000 Source: “The Independent”,2012 Estimated UK Earnings: 1,800M Estimated pre-tax profit: Loss of 59M UK Tax Paid last yr: 0

8. MNEs are focusing on transfer pricing 8 Source: Ernst & Young: 2010 Global Transfer Pricing Survey, p.7

9. 9 Asia-Pacific Parent Companies – 67% vs. 74% say “absolutely critical” or “very important” MNEs are focusing on transfer pricing

10. Transfer Pricing legislation increasing globally 1994-7 1998-2000 2001-2 2003-4 2007-13 2005-7 In order to ensure that their tax policy is not undermined, an increasing number of countries have introduced specific transfer pricing regulations for direct taxation purposes and focused resources on building capacity within their tax administrations.

11. 1992 – 19971998 – 20022003 – 20072008 – 2013 Brazil Mexico Chile Argentina Venezuela Peru Colombia Dominican Republic Costa Rica 1/ Ecuador Uruguay El Salvador Bolivia 1/ Panama Honduras Guatemala Source: CIAT/ITC 2013 Transfer Pricing Repor t 1/ Countries which have established some basic principles in relation to transfer pricing. Transfer Pricing legislation increasing in LAC

12. ♦ Secure and protect the tax base ♦ Attract Foreign Direct Investment and encourage local investment ♦ Avoid economic double taxation ♦ Support a professional and competent workforce ♦ Ensure efficient implementation and effective enforcement of transfer pricing legislation CERTAINTY, CONSISTENCY and TRANSPARENCY for taxpayers and tax officials Balancing Act for a LAC governments 12

13. “Big picture” considerations: ♦ Do trading partners have transfer pricing rules in place? ♦ Levels of imports and exports and their relative importance in the economy ♦ Level of multinational activity; and performance of companies with foreign affiliates, compared with domestic companies ♦ Inward and outward FDI levels Legal and Administrative considerations: ♦ Are auditors trained, or willing to be trained in this specialized topic? ♦ Is the requisite legal framework in place, or is there willingness to enact it? ♦ Is the organizational framework in place, or is there willingness to make the necessary changes? ♦ Are there domestic and international dispute resolution mechanisms in place? Source : OECD (FTA 2012), and IFC in-country needs assessment analyses LAC Tax Authorities considerations

14. Source: Ernst & Young: 2010 Global Transfer Pricing Survey, p.14 Tax authorities Assessing Transfer Pricing Risk globally

15. Tax return and financial statement analysis: ♦ Transfers of intangibles ♦ Business restructurings ♦ Patterns for loss making ♦ Profitability compared with other industry players ♦ Effective tax rate at group level ♦ Higher than normal debt levels ♦ Related party transactions with low tax jurisdictions ♦ Payments to related non-residents: interest, insurance premiums, royalties, management fees, service fees Source : OECD (FTA 2012), and IFC in-country needs assessment analyses

16. Transfer Pricing Team LTO/Audit Co-operation & management of the Taxpayer Tax Office Awareness & Co-ordination Competent Authority DTT MAP & EOI Government MoF, Treasury, Customs, etc Communicate & Coordinate COURTS Legal System OUTREACH PPD Taxpayers, Representative Business Community Other Jurisdictions International Organizations LAC Tax Authorities: Transfer Pricing is part of a Boarder Environment

17. Establish Overall Tax Policy Working Groups Determine functions and responsibility TA, MoF Devise Compliance Strategy Establish working relationship with stakeholders Prepare Transfer Pricing Plan Primary and secondary legislation in place Set-up Dispute Resolution Mechanisms Secure resources to implement TP plan TP TEAM Set-up the training and mentoring process BUILD CAPACITY Implement Quality Assurance Process Peer Review Apply Risk Assessment to identify audit cases Conduct Audits LAC Tax Authorities: Complex, Time Consuming, Resource Intensive

18. ♦ Publication of reference materials ♦ Pre-implementation assistance Needs assessments Drafting legislation ♦ Implementation assistance Procedures and guidelines Disclosures and risk based assessment Organizational structure Dispute resolution and exchange of information procedures ♦ Training ♦ Communication and outreach WORLD BANK/IFC GTSP approach is tailored to the country

19. ♦ Secure and protect the tax base ♦ Attract Foreign Direct Investment and encourage local investment ♦ Avoid economic double taxation ♦ Support a professional and competent workforce ♦ Ensure efficient implementation and effective enforcement of transfer pricing legislation CERTAINTY, CONSISTENCY and TRANSPARENCY for taxpayers and tax officials Balancing Act for a LAC governments 19

20. Professional and competent workforce Responsible for others in your organization? Knowledge Management taxpayers, industry, case law, rules, regulations Professional Development Plan Training Mentoring Formal qualification International Bodies such as CIAT Network locally, regionally, globally

21. 1st Group (sophisicated regime) Mexico, Brazil, Argentina 2nd Group Ecuador, Venezuela, Chile, Dominican Republic. 3rd Group Colombia, Peru, Uruguay 5th Group (preliminary regime) Costa Rica, Jamaica, Nicaragua, Paraguay, Trinidad & Tobago, Bolivia. 4th Group Panama, Honduras, Guatemala, El Salvador LAC is focusing on transfer pricing CIAT/ITC The Control of Transfer Pricing Manipulation: Level of development ~ measures adopted

22. Transfer Pricing Learning Curve Moving Target CIAT LAC Transfer Pricing Groups 5 ------------- 4 ------------- 3 ------------- 2 ------------- 1

23. CIAT suggestion – regional approach ♦ Marcio Verdi CIAT President 47 th General Assembly suggested a regional approach to address some LAC transfer pricing issues ♦ IFC regional approach –East African Community –Asia –Pacific Island –Central Eastern Europe

24. Prioritizing amongst priorities….