Arcotia Hatsidimitris - International Tax Dialogue

22 – 2. SELECTING THE RIGHT CASES
Box 1. The transfer pricing risk assessment process in Denmark
• The risk assessment process in Denmark has a three-step approach.
• The first step involves a comprehensive identification of risk areas. The second step is a computer
based process bringing together tax information and details from publicly available data bases. The
third step involves a review of tax returns and accounts to look for indications of transfer pricing risk.
Step 1: Overall risk areas
• In the first step trends and topical issues in transfer pricing are reviewed with a view to identifying
specific risk areas, e.g. ‘loss-making companies’ or transfers of intellectual property’. Looking at the
detail of the approach:
Transfer pricing leaders are asked to think about the full range of risk areas.
A group of transfer pricing specialists are brought together to evaluate and prioritise the
identified risks by reference to four factors:
• How much tax is at risk because of each specific risk?
• What is the danger that the risk will spread within the MNE and to other MNEs?
• Are the relevant tax rules known to tax payers and easy to follow?
• How can the risk best be managed?
Step 2: IT based
A prioritised list of risks is drawn up and forms the basis of a work program for the year. Most
casework will be carried out on a project basis focusing on a specific risk area. For a number of
years the key risk areas have been similar, with the main ones being loss-making companies
and transfer of intellectual property.
• The second step of the risk assessment process involves an IT process where taxpayer data held by
the tax administration is combined with publicly available data (e.g. Amadeus) to narrow down the
population of companies to be subjected to further consideration.
• For example, equity funds are known to be a high risk area. A comprehensive search of the Internet
identifies a list of all companies bought or sold by equity funds in the past 10 years. The list has
been developed by a university and is publicly available. Financial data for all of the companies on
the list are found in Amadeus and criteria are then applied to narrow down to a manageable size the
population of companies that might be suitable for audit.
• Using multiple indicators of risk can be helpful in identifying cases for audit in that the actual number
of risks can of itself be a way of prioritising cases. With equity funds such multiple indicators could
be large changes in interest payments, size of interest payments, dividends payments or country of
ultimate owner. Other examples include legal form and structure, branches, activity description,
nature and size of income, loss deduction, dividends or tax exemptions.
At the end of Step 2 there are lists of companies marked either ‘potentially suitable for audit’ or ‘not
suitable for audit’. All the ones marked ‘potentially suitable for audit’ will move on to Step 3.
Step 3: Manual intervention
• The third step is an examination of the tax returns and financial data of the companies to see if they
should be subject to a transfer pricing audit. The step will lead to a list of companies suitable for
audit – prioritised in case resources limit the number of audits that can be opened.
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012