Arcotia Hatsidimitris - International Tax Dialogue

2. SELECTING THE RIGHT CASES – 21
Information sources – tax returns, accounts, transfer pricing documentation and questionnaires
The starting point for risk identification is usually a review of the tax returns and accounts of the
relevant MNE. Many countries also require that taxpayers prepare a package of transfer pricing
documentation, including basic factual descriptions of transactions and operations, relevant financial
data, and economic analysis confirming the arm’s length nature of the transfer prices charged. Where
such documentation exists, it can form a basic starting point for a transfer pricing risk assessment. In
some countries it is possible to discuss difficult transfer pricing issues with the tax administration prior
to the filing of the return, which ensures that those issues are identified without any delay 2 .
Some tax administrations require MNEs to supplement their tax return with a completed
questionnaire that provides additional information about transfer pricing. In Denmark, for example,
completion of the questionnaire (Annex 1) is mandatory where related party transactions exceed a
specific monetary limit (currently 5 million DKK = $0.97 million/£0.56 million). Denmark uses the
responses to the questionnaire it requires businesses to complete as the basis for a risk assessment
process that is partly automated. A fuller description of that process is included in Box 1 below.
Others require MNEs to complete a transfer pricing questionnaire only after an initial review of
the tax return and accounts by the tax administration. For example, South Africa also issues
questionnaires (see Annex 2) but only after an initial review of the tax return suggests that there may
be a transfer pricing risk to address. These questionnaires ask for additional information, including
details of transactions with related entities in low tax jurisdictions, to help complete the risk
assessment process. Other countries, for example France, rely solely on their own assessment of
transfer pricing risk based on the accounts, tax returns and other information they can access without
making formal requests to MNEs. Annex 3 provides an overview of the approach that France takes to
transfer pricing cases, focusing particularly on the early stages. From that it can be seen that the
information in the tax return is supplemented by a systematic review of information available from
other sources within the tax administration, such as information provided about any “controlled
foreign companies”, and information available from external sources.
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012