Arcotia Hatsidimitris - International Tax Dialogue

3. GETTING OFF TO A GOOD START – 33
facts. It is becoming increasingly normal practice in tax administrations to use face to face dialogue as
a means of agreeing the scope of and next steps in a transfer pricing audit or enquiry.
Many tax administrations are moving towards real time working of large business enquiries and
audits as a means of working more productively and achieving earlier certainty for tax administrators
and business alike. In relation to transfer pricing this means business having early discussions with tax
administrations about any restructuring and the potential impact on its transfer pricing policies. This
makes it easier to identify cases that would benefit from a joint audit approach with another tax
administration or an Advance Pricing Agreement.
Requests for business records relevant to transfer pricing audits or enquiries
The use of specialists is addressed in Chapter 7 but it is worth mentioning here the value that they
are able to add at this early stage. Where sectoral or industry specialists exist in the tax administration,
their involvement in these meetings can be very helpful.
Sectoral specialists can also help to frame requests for relevant business records. They are often
able to advise, from personal experience, precisely what forms of relevant documentation are likely to
have been produced and so help to ensure that any material requested will both exist and be of value to
the enquiry. The Canada Revenue Agency already involves its sectoral specialists in the process of
constructing information requests at the outset of enquiries. Industry experts also help focus HMRC’s
interventions and provide invaluable assistance in framing information requests and scoping out many
areas of dispute.
Box 3. Example of UK’s use of sector experts
In several transfer pricing cases involving the pharmaceutical industry HMRC used relevant experts
to identify the nature and type of records which the businesses were likely to keep or were required to keep
under industry regulations. This enabled information requests to be far more specifically targeted and
importantly set out using industry ‘jargon’ where necessary. This approach was beneficial to both the taxpayer
and the tax administration. It resulted in far smaller volumes of business records being requested and provided
thus easing both the compliance burden on the taxpayer in terms of locating and providing it and the resource
burden on the tax administration in reviewing it. Equally, it provided for less misunderstanding as to precisely
what was being sought and consequently fewer but highly directed supplementary requests. Consequently, the
time taken to resolve enquiries was significantly reduced.
Whatever the approach to obtaining business records - whether the tax administration makes use
of early dialogue with the taxpayer to inform its information request, or prefers to make an immediate
request for business records – all tax administrations emphasised the importance of obtaining the
transfer pricing documentation held by the business as part of the fact finding process. This is why
many countries specify what contemporaneous documentation needs to be maintained by MNEs and
made available on request.
Generally tax administrations aim to provide guidance to MNEs on the transfer pricing
documentation they should maintain. However, the extent to which specific requirements are spelt out
in tax legislation is more varied. The spectrum ranges from those that have a very prescriptive
approach to those where nothing is prescribed in legislation. Canada, for example, has specific
provisions governing the maintenance and provision of documentation to support the transfer prices
adopted by a business and this is backed up by a penalty regime 1 . In contrast the UK does not have
specific statutory rules governing transfer pricing documentation but does provide guidance about the
maintenance of transfer pricing records and how to ensure that they comply with general obligations to
make accurate returns of income 2 . HMRC’s guidance provides advice on what (1) primary accounting
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012