The Transfer Pricing Beat: News for the Week of February 1, 2021
Tele2Treasury AB Loses Legal Case Over Exchange Losses
Reporting a loss is normal in transfer pricing. Reporting a loss in court is more difficult as Swedish telecommunications titan, Tele2Treasury AB, well knows. The company lost its most recent legal battle to The Swedish Lower Administrative Court. The issue at hand? Exchange losses. Here’s what you need to know: Between 2011- 2015, Tele2Treasury AB issued loans to its affiliate, Kazakhstan MTS. In September 2015, the loan currency was changed from dollars to tenge, a considerably low-valued currency at the time. A month later, Tele2 and Kazakhstan MTS signed a new agreement. It denominated the loan in tenge and bumped up the interest rate from LIBOR+4.6% to a fixed 11.5%. Tele2 didn’t miss a beat when it came to reporting losses— the company reported 745 million tenge, or $89 million, from September to October of 2015. The Swedish Tax Agency was the first to deny this deduction of losses and ruled that the currency conversion losses didn’t align with the arm’s length principle. Tele2 appealed the ruling to high court and lost. Along with being denied deductions, the Swedish company also got slapped with a 40% tax penalty on unpaid taxes. For Tele2, the legal end is far from sight—it’s already announced that it will appeal the decision.
OECD Releases Updated Guidance on COVID-19 Tax Treaties
Working from home just got a little easier for taxpayers. The OECD has released an updated guidance to address the COVID-19 pandemic’s effect on tax treaties. The takeaway? Telework due to a public health measure imposed or recommended by the government does not create a fixed place of business permanent establishment. The guidance also addresses residency status of companies and employees, employment income, and tiebreaker rules for dual residents.
Rwanda Publishes New Transfer Pricing Regulations
Rwanda is ramping up its transfer pricing regulations. The government published new rules in December 2020, involving related parties engaged in controlled transactions. While generally aligning with the 2017 OECD guidelines, the new rules widen the scope to include “deemed controlled transactions.” A deemed controlled transaction is a transaction between un-related parties that is considered a controlled transaction because one of the participants is a resident in a country that Rwanda believes provides a beneficial tax regime. Here’s what you need to know. Transfer pricing documentation doesn’t need to be prepared by taxpayers with annual turnover less than 600 million Rwandan francs, or $605,143, and whose controlled transactions are less than 10 million Rwandan francs individually or aggregated 100 million francs, which totals $8,283 and $82,836, respectively. And while the country’s tax authority has no requirement to prepare a master or local file, it does mandate the preparation of documentation that illustrates that the conditions of controlled transactions are arm’s length.