Arcotia Hatsidimitris - International Tax Dialogue

EXECUTIVE SUMMARY – 9
Executive Summary
The increasingly integrated nature of the global economy and the ongoing importance of
Multinational Enterprises (MNEs) in that economy mean that questions of transfer pricing are some of
the most significant tax issues that MNEs and tax administrations have to manage. These issues are
significant not just because large amounts of tax can be involved but also because they can be complex
and their resolution is dependent on a good understanding of the facts and specific commercial context
of the case. Consequently, the resolution of transfer pricing disputes tends to be resource intensive for
both MNEs and tax administrations.
This report is concerned with the practical administration of transfer pricing programmes by tax
administrations. Technical analysis of how transfer prices should be computed in accordance with the
arm’s length principle is outside the scope of this report. Instead the report focuses on the practical
experiences of a number of FTA member countries and some non-member countries. It also reflects
comments made to the study team by transfer pricing specialists working for major advisory firms and
by tax managers working in business and industry. Drawing on this evidence, the report discusses
ways in which the management of transfer pricing programmes can be optimised, so that transfer
pricing audits and enquiries are conducted efficiently and in a timely manner, for the benefit of MNEs
and tax administrations alike. It is concerned with the practical steps tax administrations need to take
to correctly identify transfer pricing cases that merit audit or enquiry and then to progress those cases
to as early a conclusion as possible.
An initial survey of the current state of play in transfer pricing administration has confirmed that
there is scope for improvement. Although some tax administrations reported that they settle the
majority of their transfer pricing cases within12 months, most do not and the average elapsed time was
around 540 days. Transfer pricing risks are among the largest tax risks that tax administrations are
managing but rates of tax recovery resulting from audits and enquiries vary significantly.
The report identifies the key stages in the conduct of a transfer pricing enquiry.
Successful transfer pricing programmes are based on a clear understanding of these stages and
how best to manage them. More specifically the report finds that:
• Effective risk assessment is an essential first step in the process. A number of techniques for
identifying transfer pricing risk are discussed as are some of the more significant risk
indicators. Tax administrations, business and advisers are all agreed that effective transfer
pricing risk identification is an essential pre-requisite for more cost effective audits and
enquiries that are completed in shorter timescales.
• Once a case has been selected for audit or enquiry the way in which it is opened is key to the
eventual outcome. Early dialogue between the tax administration and the taxpayer is
increasingly common and can be very effective in setting the scope of enquiry and in
establishing the relevant facts. As far as possible, fact finding should be a collaborative
exercise that is conducted to a timetable that has been agreed with the taxpayer. It helps if
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012