BDO Transfer Pricing News

This issue of Transfer Pricing News highlights recent developments that reflect the continued evolution of transfer pricing rules, guidance, case law and compliance obligations across Africa, Asia and Europe. Although the articles address different jurisdictions and fact patterns, they point to a common direction: tax authorities and courts are looking beyond whether intercompany arrangements are grounded in substance, contemporaneous facts and a commercially realistic application of the arm’s length principle. The developments covered fall into three broad categories: expanded domestic transfer pricing reach, updated administrative guidance and documentation requirements, and court decisions testing how the arm’s length principle applies in commercial settings such as guarantees and distressed financing.

In South Africa, proposed changes would extend arm’s length pricing to certain domestic transactions involving companies in special economic zones, underscoring how domestic tax incentives can create transfer pricing concerns when related parties transact on non-market terms.

New guidance in Malta addresses when a legacy arrangement may be considered “materially altered” for purposes of determining when the transfer pricing rules begin to apply. This will be particularly relevant for businesses reviewing pre-2024 intercompany agreements that have been amended or extended or otherwise changed in ways that may bring them within the scope of the rules.

A recent decree in Vietnam introduces transfer pricing compliance changes, including a higher documentation exemption threshold, clarified related-party rules for certain state-owned lenders or guarantors, a benchmarking hierarchy and updated CbCR filing and notification requirements. 

Two recent court decisions address the arm’s length principle in specific commercial contexts. An Italian Supreme Court decision on free intragroup guarantees addresses whether a group company should be remunerated for providing financial support. The case underscores the need to assess whether the guarantee provides an identifiable benefit and whether an independent party would have charged a fee in comparable circumstances. A Luxembourg Administrative Court decision provides guidance on distressed financing arrangements, confirming that amendments, waivers or restructurings should be assessed based on the commercial circumstances at the time the decision is made. The decision reinforces that arm’s length analysis in distressed situations should account for the options realistically available to the parties when they agree to modify existing financing terms.

Taken together, these legislative, administrative and judicial developments show that transfer pricing compliance requires more than technical adherence to rules. Taxpayers should be prepared to demonstrate that related-party arrangements reflect commercial substance, are supported by contemporaneous evidence and remain appropriate as business circumstances, local guidance and judicial expectations evolve.