Arcotia Hatsidimitris - International Tax Dialogue

7. RESOURCES, SKILLS AND USE OF SPECIALISTS – 65
Managing the engagement of external specialists
Tax administrations that bring in external experts to advise and provide expert evidence on a
particular case have to monitor three issues very carefully. First, external experts can be very
expensive – some tax administrations have run up costs equal to several million US dollars in bringing
in an expert; where more than one expert is needed the costs can rise very quickly. Sometimes there
can be a risk that costs suddenly and unexpectedly exceed the planned benefits from a case.
Second, an external expert can often be the crucial witness in a transfer pricing case. Judges who
have been prepared to discuss their approach to contentious transfer pricing cases have said that an
expert witness can bring arguments to life and will often be the one witness to whom they pay the
most attention. It is, of course, vital for a tax administration to be able to assess the strength of its case
and that will often mean having a very clear understanding of the nature and likely weight of expert
evidence. It is, therefore, important for tax administrations to understand the extent to which an
external expert has developed novel or contentious arguments for use in litigation and to gain an
appreciation of how those arguments will play with a Court.
Third, the largest and most complex transfer pricing cases can involve a number of external
experts on each side, particularly when it comes to litigation. Both advice provided and the expert
evidence to be given in litigation can become confusing in these circumstances. Tax officials and
lawyers may be unable to decide easily which expert evidence to follow and how best to develop their
arguments. In HMRC’s experience, this risk is often best met by having an in-house economist who
can evaluate the advice and evidence on offer. An alternative approach is to ask a tax court or tribunal
to agree that each party to litigation can use only one expert witness.
Tax administration perceptions of specialists
Sometimes tax administration auditors need to be convinced of the value of non-tax specialists.
For example, in some instances auditors have challenged the need to involve non-tax specialists, such
as economists, arguing that it would be preferable to provide tax auditors with the necessary expertise
through some form of specialist training. Alternatively, generalist auditors can conclude that transfer
pricing is the preserve of specialists and not something they themselves need to master.
Box 17. South Africa
South Africa experienced some of these difficulties:
In the early days of transfer pricing work in South Africa, economists and tax auditors with no economics
experience or knowledge sometimes struggled to understand one another but both were needed to deliver a
good job. For example, economists can sometimes find it difficult to appreciate the precise nature of the arm’s
length principle. But economists with experience of working in the field of competition and price fixing could be
very useful because they are used to making comparisons with what has happened and what might have
happened in a hypothetical situation. Their skill set was better aligned to transfer pricing work than that of
macro economists. External experts can add real value in some cases, but tax advisers need to be expert too,
albeit in a different way.
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012