Arcotia Hatsidimitris - International Tax Dialogue

42 – 5. MAINTAINING PROGRESS, TACKLING DELAY
The results of the initial survey show that transfer pricing cases tend to take a long time to resolve
and that major cases can take many years. There are many different challenges to maintaining progress
in a transfer pricing audit or enquiry. Although these vary depending on the complexity of the case,
the experience and skills of the tax administration and the level of co-operation of the business and its
advisers, the impact of delay is normally the same – additional cost for both the tax administration and
the business. The parties in a transfer pricing case may have different views on the causes of the delay,
but feedback from business, advisors and tax administrations suggests that there are some common
themes. This chapter considers specifically the main causes of delay and the methods tax
administrations, business and their advisors find most effective in overcoming them.
Obtaining and managing business records: documentary evidence
Requests for business records
Delay in obtaining business records is one of the aspects of transfer pricing that concern most tax
administrations. A co-operative relationship between a business and a tax administration will
generally ensure that the right business records needed for a transfer pricing audit or enquiry are
provided within a reasonable timescale. However, where that does not happen, tax administrations
need to have effective powers to obtain business records, backed by appropriate sanctions for noncompliance.
Documentation regimes and requirements are covered in Chapter 3, some of which
include specific obligations to maintain transfer pricing documentation. In Denmark, if the taxpayer
has not provided the documentation or if the documentation is insufficient and the taxpayer does not
comply with supplementary information requests, SKAT has the power to estimate the amount of any
transfer pricing adjustment that may be necessary. The estimate must be supported by evidence.
However, the courts are more reluctant to override estimates where the taxpayer has provided
insufficient information to SKAT. The power to estimate the amount of any transfer pricing
adjustment in cases of non-compliance with information requests acts as an incentive for the taxpayer
to comply with such requests.
In countries where MNEs tend to operate through subsidiaries or permanent establishments and
are not headquartered in the country, obtaining access to relevant business records that are not in the
power of the local management can pose a particular problem for tax administrations. The CRA now
regularly involves its lawyers in the early fact finding stages of an audit. This can be helpful, both in
framing requests for business records and in demonstrating a readiness to enforce those requests if
necessary. When the local management of a subsidiary or branch seems unwilling or unable to
comply with an information request, contacting, or even simply signalling a willingness to contact, the
Competent Authority of the country in which the MNE is headquartered and the senior managers of
the MNE can be very effective. In one case Finland needed information from a parent company in
Denmark and contacted their colleagues in Denmark. SKAT undertook its own audit and that helped
close the case in Finland.
Business records: document management
Transfer pricing audits and enquiries are fact intensive and therefore the volumes of documentary
evidence that make up business records can be very substantial indeed. In large cases involving many
transactions, complex business models and supply chains, the volume of relevant documentation can
be overwhelming. There can also be a tendency for tax administrations which lack relevant industry
experience to seek substantially more business records than are really needed, or can readily be
managed. In addition business raised concerns that tax administrations sometimes fail to recognise the
limited resources available in a business to deal with extensive information requests. This underlines
the importance of making any business record information requests focused and pertinent. On the
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012