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Arcotia Hatsidimitris - International Tax Dialogue

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42 – 5. MAINTAINING PROGRESS, TACKLING DELAY<br />

The results of the initial survey show that transfer pricing cases tend to take a long time to resolve<br />

and that major cases can take many years. There are many different challenges to maintaining progress<br />

in a transfer pricing audit or enquiry. Although these vary depending on the complexity of the case,<br />

the experience and skills of the tax administration and the level of co-operation of the business and its<br />

advisers, the impact of delay is normally the same – additional cost for both the tax administration and<br />

the business. The parties in a transfer pricing case may have different views on the causes of the delay,<br />

but feedback from business, advisors and tax administrations suggests that there are some common<br />

themes. This chapter considers specifically the main causes of delay and the methods tax<br />

administrations, business and their advisors find most effective in overcoming them.<br />

Obtaining and managing business records: documentary evidence<br />

Requests for business records<br />

Delay in obtaining business records is one of the aspects of transfer pricing that concern most tax<br />

administrations. A co-operative relationship between a business and a tax administration will<br />

generally ensure that the right business records needed for a transfer pricing audit or enquiry are<br />

provided within a reasonable timescale. However, where that does not happen, tax administrations<br />

need to have effective powers to obtain business records, backed by appropriate sanctions for noncompliance.<br />

Documentation regimes and requirements are covered in Chapter 3, some of which<br />

include specific obligations to maintain transfer pricing documentation. In Denmark, if the taxpayer<br />

has not provided the documentation or if the documentation is insufficient and the taxpayer does not<br />

comply with supplementary information requests, SKAT has the power to estimate the amount of any<br />

transfer pricing adjustment that may be necessary. The estimate must be supported by evidence.<br />

However, the courts are more reluctant to override estimates where the taxpayer has provided<br />

insufficient information to SKAT. The power to estimate the amount of any transfer pricing<br />

adjustment in cases of non-compliance with information requests acts as an incentive for the taxpayer<br />

to comply with such requests.<br />

In countries where MNEs tend to operate through subsidiaries or permanent establishments and<br />

are not headquartered in the country, obtaining access to relevant business records that are not in the<br />

power of the local management can pose a particular problem for tax administrations. The CRA now<br />

regularly involves its lawyers in the early fact finding stages of an audit. This can be helpful, both in<br />

framing requests for business records and in demonstrating a readiness to enforce those requests if<br />

necessary. When the local management of a subsidiary or branch seems unwilling or unable to<br />

comply with an information request, contacting, or even simply signalling a willingness to contact, the<br />

Competent Authority of the country in which the MNE is headquartered and the senior managers of<br />

the MNE can be very effective. In one case Finland needed information from a parent company in<br />

Denmark and contacted their colleagues in Denmark. SKAT undertook its own audit and that helped<br />

close the case in Finland.<br />

Business records: document management<br />

Transfer pricing audits and enquiries are fact intensive and therefore the volumes of documentary<br />

evidence that make up business records can be very substantial indeed. In large cases involving many<br />

transactions, complex business models and supply chains, the volume of relevant documentation can<br />

be overwhelming. There can also be a tendency for tax administrations which lack relevant industry<br />

experience to seek substantially more business records than are really needed, or can readily be<br />

managed. In addition business raised concerns that tax administrations sometimes fail to recognise the<br />

limited resources available in a business to deal with extensive information requests. This underlines<br />

the importance of making any business record information requests focused and pertinent. On the<br />

DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012

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