12. April 2021
Check your transfer pricing agreements, as they apply to your mobile employees worldwide, especially for important people who can be considered an added value to the company. If a foreign unit now needs substance, the labour employed in it must be taken into account with respect to local labour laws, immigration and the proper functioning of the payroll for both local employees and expatriates, whether formal allowances or secondments, homeworkers or business travellers. An Indian court has ruled that reimbursement of the costs that the taxpayer pays to his overseas company for workers under a secondment agreement is not taxable in India. (Global tax update:May 2017/India) The audits of cross-border detachments follow the system described by the Bundessteuergericht (BK) in its decision of 17 October 2001 (see article KPMG German News nr. 1/2002, p. 2 – Article 239). This FTC decision requires qualitative and quantitative analysis. As part of the qualitative analysis, it is determined whether the detachment was exclusively in the commercial interest of the host company or whether the ceding company would also benefit from the sale. If the detachment serves the interests of both companies, the related expenses must be appropriately distributed among them. The crucial question of revenue distribution is whether and to what extent the ceding company and/or the host company (receiving company) have a commercial interest in the detachment. Revenues are adjusted if the income distribution does not correspond to business interest. The regulations should apply to detachments longer than three months.
However, they also apply when an expatriate is assigned to a host company for shorter periods, when these orders are repeated regularly over a longer period of time. The rules do not allow for profit margins for the posting of staff in the defined sense of the term. Two points should be highlighted with respect to new detachments. First, the bad news: the regulations provide stricter analytical guidance to tax authorities, thereby significantly reinforcing the requirements for acceptance of tax-distribution structures. The good news, however, is that the tax authorities have expressly expressed their willingness to enter into pre-price agreements in this area.