Arcotia Hatsidimitris - International Tax Dialogue

32 – 3. GETTING OFF TO A GOOD START
The way in which a transfer pricing audit or enquiry is opened is a key factor in determining the time
it will take and the quality of the eventual outcome. This chapter describes ways to improve the
opening of transfer pricing audit or enquiries to ensure effective progress.
Fact finding
A successful and effective transfer pricing audit or enquiry is one that is focused and specific and,
as discussed in Chapter 2, the risk identification process plays a critical part in laying the foundations
for that. The next key step is the initial fact finding. Obtaining the right facts at the right time is an
essential part of effective transfer pricing audits and crucial to the eventual outcome.
Feedback from tax administrations and advisers alike suggests that facts and data should be
established before arguments about the application of transfer pricing principles to those facts
commence. Unfortunately it is only too common for both parties to enter into discussion of complex
technical arguments and the detail of transfer pricing methodology before fully scoping the problem
and agreeing which facts need to be established. The experience of advisers suggests that the fact
finding phase of any transfer pricing audit or enquiry should be clearly distinguished from later phases
and should be as collaborative an exercise as possible. Making a clear distinction between fact finding
and the more adversarial stages of an enquiry helps to avoid technical arguments arising before the
issues and facts are properly understood. Premature technical disputes are a regular cause of delay and
wasted effort in transfer pricing enquiries.
All tax administrations emphasised how important it is to be able to access business records
relevant to transfer pricing audits or enquiries. For this report business records are either the
underlying records of account of the business or specific records relevant to the pricing of the
transaction under review and are often a mix of the two. At the stage of opening a transfer pricing
audit or enquiry, tax administrations usually take one of two different approaches. Some issue an
immediate, usually standard, request for relevant business records whilst others open a dialogue with
business and find that an early meeting between the business, its advisers and the tax administration
enables a more targeted request for business records to be made. Countries making a standard request
for business records often find that their request can be facilitated by substantive rules requiring
taxpayers to prepare a defined package of transfer pricing documentation describing the taxpayer’s
related party transactions and supporting the transfer pricing determinations that have been made with
economic analysis. In many countries, failure to prepare such transfer pricing documentation may be
cause for imposition of substantial penalties.
Early dialogue
Whether or not the first step in an enquiry is a formal request for business records, there is a
considerable degree of agreement between tax experts in business, advisers and transfer pricing
specialists in tax administrations about the value of early dialogue. In one case mentioned by advisers,
the focus of the enquiry was business restructuring. The taxpayer invited the tax administration team
to a meeting at which the taxpayer gave a presentation about the commercial background of the
restructuring. The taxpayer provided replies to questions posed in advance of the meeting, together
with supplementary information to answer questions that had not yet been asked. The tax
administration team obtained an understanding of commercial issues and an overview of the facts
much earlier than would have been possible through written enquiries.
Face to face dialogue on transfer pricing issues will generally be a more efficient and effective
way to establish the overall commercial context of the transactions being reviewed and to establish the
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012