2012 global transfer pricing tax authority survey...we are pleased to introduce our 2012 global...

2012 global transfer pricing tax authority survey Perspectives, interpretations and regulatory change

We are pleased to introduce our 2012 global transfer pricing tax authority survey. As always, it is a pleasure to provide the insights of tax authorities in a wide range of transfer pricing jurisdictions — 50 in all. We hope you fi nd this survey instructive and of practical use in dealing with your organization’s transfer pricing issues in the countries represented here. Please do not hesitate to contact us or your current Ernst & Young transfer pricing contact with any feedback or questions.

Welcome

Thomas BorstellDirector — Global Transfer [email protected]+49 211 9352 10601

John HobsterHead of Global Accounts — Transfer [email protected]+44 20 7951 6438

Americas Asia-Pacifi c EMEA (Europe, Middle East and Africa)

Argentina 14

Brazil 16

Canada 18

Chile* 22

Colombia 24

Ecuador 26

Mexico* 28

Peru* 30

United States 31

Venezuela* 34

Contents

Executive summary 4

Key recommendations 5

Survey overview 6Australia 38

China* 41

India 43

Indonesia 45

Japan 47

Korea 49

Malaysia 51

New Zealand 53

Singapore* 55

Taiwan 57

Thailand* 59

Vietnam 60

Austria 66

Belgium 69

Czech Republic* 72

Denmark 74

Egypt* 76

Estonia 77

Finland 79

France 81

Germany 84

Hungary 86

Israel 89

Italy* 90

Kazakhstan* 93

Kenya 95

Latvia 97

Lithuania 99

Netherlands 101

Norway 103

Poland 105

Portugal* 107

Romania 109

Slovak Republic 111

South Africa* 113

Spain 115

Sweden 117

Switzerland 119

Turkey 122

United Kingdom 124

Tax authorities continue to increase their transfer pricing staffi ng. Taxpayers should not be complacent about their transfer pricing risk.

1

The increasing geographic scope of documentation requirements and Organisation for Economic Co-Operation and Development (OECD) developments impose an increasing benchmarking burden. Nonetheless, tax authorities at least claim to be pragmatic with respect to the acceptance of comparables from other markets.

3

The documentation burden is growing, but taxpayers can take heart in the fact that a broad consensus exists with respect to the arm’s-length principle and its application, even down to years of testing and statistical measures employed. Method selection has become more fl exible, with an almost universal acceptance of net profi t-based methods.

2

Few tax authorities coordinate the enforcement of transfer pricing standards with the enforcement of indirect tax standards. The key exceptions are Estonia, Latvia, Peru, Portugal and Venezuela.

4

Just because taxpayers do not engage in perceived high-risk transactions, such as restructurings or cost-sharing arrangements, they cannot afford to ignore the need to put transfer pricing on a fi rm footing. Tangible goods transactions are still ranked as one of the primary target transactions by many tax authorities.

5

Penalties have become more frequent and more onerous. The particular danger areas are Argentina, Brazil, China, Colombia, Ecuador, Finland, Hungary, Indonesia, Italy, Kazakhstan, Malaysia, Mexico and Venezuela, either because of their high penalty rates, willingness to impose penalties or both.

7

The availability of Advance pricing agreements (APAs) continues to expand, providing a potentially effective means to manage transfer pricing risk. Many countries have committed to the swift resolution of transfer pricing issues, but processing times remain long, particularly for two signifi cant trading partners, the United States and Canada.

9

Tax authorities target high-margin industries and transactions with major trading partners rather than tax havens specifi cally.6

Even when penalties are not imposed, the risk of double taxation remains an important incentive to put transfer pricing on a rational basis. Relief from double taxation remains time-consuming and, in exceptional circumstances, uncertain.

8

Executive summary

4 2012 global transfer pricing tax authority survey

Key recommendations

Taxpayers should recognize that they need more resources with increased geographic reach and some non-traditional skills. For example, experience with bargaining theory would help to deal with what the OECD calls “options realistically available.”

Companies should pursue tax certainty and evaluate APAs and rulings more than ever to better manage the growing geographic footprint of transfer pricing requirements,as well as the additional risk of adjustments and penalties.

Companies should continue to adopt new approaches to consistent global documentation and benchmarking to remain effi cient and cost-effective when preparing transfer pricing documentation.

52012 global transfer pricing tax authority survey


Since the fi rst edition of this survey in 1995, we have seen a remarkable increase in the number of countries introducing transfer pricing laws. We have also seen the spread of transfer pricing rules from the developed markets of North America, Western Europe and Australia to the developing markets of Africa, Asia and Eastern Europe. For example, since our last survey in 2009, the Dominican Republic, Ireland, Italy, Romania, Russia and Vietnam have signifi cantly enhanced their existing requirements or introduced new ones.

We have also witnessed revisions to the OECD Transfer Pricing Guidelines since the last survey. In aggregate these changes have increased the burden on taxpayers by introducing new concepts, such as “options realistically available,” to evaluate intercompany transactions, as well as proposing a more complex and rigorous approach to benchmarking transactions. The United Nations also issued a draft of its Practical Manual on Transfer Pricing for Developing Countries, and the African Tax Administration Forum (ATAF) held its conference on transfer pricing in October 2010. Surprisingly to some, the United Nations manual and the ATAF conference have served to reaffi rm the arm’s-length principle in preference to other transfer pricing methods, such as

formulary apportionment. The resilience of the arm’s-length principle is broadly affi rmed in our survey, with all countries except Brazil indicating the application of arm’s-length approaches. So, the question the survey seeks to address is: in the eyes of the tax authorities, whose arm are we evaluating, and how long is it? That is, what are their attitudes to, and approaches in dealing with, their focus areas?

Against that backdrop, we found some notable areas in which tax authority practice lags regulatory developments. For example, despite the issuance of the OECD draft paper on restructurings in 2008, relatively few tax authorities admit to targeting restructuring transactions. Similarly, the revised US cost-sharing regulations have not led to a signifi cant focus on cost-sharing transactions in either the United States or other markets. Instead, we observe continuing attention to traditional areas such as tangible goods transfers, intercompany services and intangible asset transfers. Financing transactions, although reported as a hugely increased focus of tax authority examinations in Ernst & Young’s Taxpayer Survey from 2010, do not rank highly in this survey as transactions targeted by most tax authorities.

Survey overview



However, our view is that taxpayers cannot expect to escape scrutiny merely because they have only intercompany transactions in tangible and intangible goods transfers and services. Restructurings, fi nancial transactions and cost-sharing arrangements will no doubt be future targets for tax authorities.

Our survey suggests that tax authorities are not enforcing consistency in the valuations used for transfer pricing and indirect tax purposes. This is one area where our clients would like to see much more consistency.

One constant runs through the history of the survey: tax authorities continue to add staff devoted to transfer pricing. In a climate of budget freezes for many government agencies, tax authorities appear to have made the cost/benefi t calculation to incur additional staffi ng costs in order to investigate transfer pricing. The penalty burden is also increasing. The particular danger areas are Argentina, Brazil, China, Colombia, Ecuador, Finland, Hungary, Indonesia, Italy, Kazakhstan, Malaysia, Mexico and Venezuela because of either their high penalty rates, their willingness to impose penalties or both.

Fortunately, the means for managing transfer pricing risk have also increased. APAs are more widely available, even though processing times remain long, particularly for two signifi cant trading partners, the United States and Canada. Litigation and arbitration continue to be the exception for transfer pricing dispute resolution.


Despite governmental budget constraints in many countries, nearly all countries have increased their transfer pricing staffi ng, with plans to increase them further. Only Ecuador and Poland reported freezing the sizes of their transfer pricing practices asa result of budget constraints.

Most jurisdictions have central transfer pricing teams who work alongside regional teams. This applies not only to larger countries, such as the United States, but to smaller countries such as Norway. The United States recently increased the centralization of its transfer pricing strategy by creating a Director — Transfer Pricing Operations in August 2010 to oversee and coordinate all transfer pricing resources in the

Internal Revenue Service (IRS). Switzerland similarly established aTransfer Pricing Center of Excellence in 2010.

Accountants continue to dominate authorities’ transfer pricing groups, even though the discipline is widely viewed, especially in the United States, as an economics-based discipline. This is true even in markets with fairly mature transfer pricing standards, such as Canada and the United States, where economists account for only 5% and 15% of total staffi ng, respectively. The key exceptions are countries relatively new to transfer pricing: Belgium, Latvia, Lithuania, Portugal and Spain, all of which have a majority of economists.

Tax authorities continue to increase their transfer pricing staffi ng

As transfer pricing standards have spread beyond the relatively mature markets in the Americas and Western Europe to more controlled or mixed economies, the arm’s-length standard continues to hold sway. Our survey reveals no signifi cant trend toward alternative transfer pricing systems, such as formulary apportionment. In fact, there is considerable consistency across countries in claiming to apply the arm’s-length standard, including years of analysis, prioritization of methods and views on comparables adjustments. In line with the revisions to Chapter 3 of the OECD Transfer Pricing Guidelines, most jurisdictions have dropped any formal hierarchy of methods. Jurisdictions retaining a preference for specifi c methods or an explicit hierarchy include Canada, Ecuador, Egypt, Germany, Israel, Kazakhstan, Lithuania, Mexico, Poland, the Slovak Republic, Spain and Venezuela retain a formal hierarchy.

Formal opposition to net margin methods appears to have disappeared in nearly all jurisdictions. In fact, a net profi tability review, at least as a diagnostic tool, is cited by many tax authorities as a selection method for audits. Nonetheless, many tax authorities, such as those in Germany, India, Indonesia, Japan, Kazakhstan, Latvia, Lithuania, Malaysia, Mexico, Norway, Peru, the Slovak Republic, Sweden, the United Kingdom and Venezuela, continue to distinguish between the Transactional Net Margin Method (TNMM), which they accept, and the Comparable Profi ts Method (CPM), which they reject. The rejection may be rooted in a view of the CPM as a “whole of entity” profi t test rather than a targeted profi t test of transaction types, despite provisions in the US transfer pricing regulations that indicate a properly applied CPM is identical to a TNMM.

The documentation burden is growing, but the arm’s-length principle continues to hold sway



Although information sharing in general has increased, there is still only limited coordination and information sharing between the transfer pricing and indirect tax practices of individual tax authorities, as well as few offi cial requirements that indirect tax valuations conform to those for transfer pricing.

Only approximately one-third of survey respondents reported cooperation between transfer pricing practices and their indirect tax counterparts. Estonia, Latvia, Portugal, Peru and Venezuela, exceptionally, require the same valuation for indirect tax and transfer pricing purposes.

Still little coordination of transfer pricing and indirect tax standards

The viral spread of transfer pricing requirements poses a new challenge when taxpayers are called upon to perform benchmarking studies for countries where public reporting of company fi nancial data is limited or non-existent. Identifying reliable comparables benchmarks under the TNMM/CPM was already challenging in the developed markets where publicly reported fi nancial data is readily available. Now, as African countries and less developed Asian and Eastern European markets adopt transfer pricing requirements, the comparables challenge has only grown.

The approach of most tax authorities to the problem is pragmatic; they commonly accept regional comparables or comparables from completely different markets. The lack of country-specifi c comparables is a challenge that the United Nations manual and ATAF conference report explicitly acknowledge, sanctioning the use of comparables from other

markets based on a comparability comparison. Based on our survey, Latin America has primarily opted for North American comparables, and African markets tend to favor European comparable data. These results confi rm that tax authorities have taken a fl exible approach to assessing geographic comparability.

One clear fi nding from the survey is that tax authorities do not typically view technical economic adjustments to comparables as a method of accommodating geographic differences between comparables and tested parties. In fact, despite the OECD’s endorsement of appropriate adjustments, many indicated little enthusiasm for them, with some expressing the view that adjustments do not make bad comparables comparable. Only Kenya specifi cally indicates that adjustments should be performed to account for geographic differences.

The increasing geographic scope of documentation requirements imposes increasing benchmarking burdens

Tax authorities continue to target sectors that typically report high margins and rely on signifi cant intangible assets, such as the pharmaceutical industry, or that rely on signifi cant international content in their production, such as the automotive industry. Consumer products are also an area of emphasis, perhaps because of the industry’s economic importance and the thorny issues and differing views on so-called “marketing intangibles.”

Despite the prevalence of international fl ows in the industry and the relative ease of transferring fi nancial profi ts across borders, tax authorities have applied a relatively light touch

to fi nancial services — Switzerland is the exception. This may be understandable during the recent fi nancial turmoil, which has resulted in substantial accumulated tax losses, but greater scrutiny is only a matter of time.

Still, relatively few countries admit to relying on formal lists of tax havens to guide their choice of audit targets. Geographic proximity continues to be the main reason why a country is targeted in a tax review, as well as the size of the country’s economy (e.g., Germany, Japan and the United States are common targets).

Transfer pricing reviews target high-profi t industries and major trading partners, rather than tax havens specifi cally


Tangible goods transactions remain a target transaction for many tax authorities even though the complexity of examining these is usually greater, and the potential for adjustment more limited, than in the case of services, intangible property and fi nancial transactions.

The survey does reveal country-by-country variations in transaction targeting. For example, restructurings, intercompany reinsurance and royalties rank high for the Netherlands. Switzerland reported that 40% of reviews focus on intangible property and 30% focus on fi nancial transactions. Israel also reported intangible property transfers as the target of 40% of cases. In Brazil, tangible goods transactions accounted for all transfer pricing cases because intangible property and service transactions are handled through central bank controls or domestic deductibility restrictions.

Financial transactions remain surprisingly low in the ranking of targeted transactions in most jurisdictions. This fi nding contrasts with Ernst & Young’s 2010 tax payer survey, which indicated 42% of taxpayers had undergone a review of their fi nancing transactions in the prior two years.

Although often mistrusted by tax authorities as an area of potential abuse, cost-sharing arrangements did not rank high among the transactions targeted. This relatively low level of attention may refl ect the rarity of such arrangements and taxpayer reluctance to embrace their perceived complexity. Despite the OECD paper on restructurings, few tax authorities ranked restructurings as a top target for review. This relative inattention is probably the result of a lag between exam practice and regulatory standards. Therefore, taxpayers should remain alert should exam practice catch up with regulatory pronouncements.

Transfer pricing scrutiny is not limited to perceived high-risk transactions

The imposition of penalties is increasing, but, surprisingly in light of government revenue shortfalls, penalties are still applied infrequently in some jurisdictions. Most penalties remain at a level of 25% or less of the increased tax.

Argentina, Brazil, China, Colombia, Ecuador, Finland, Indonesia, Japan, Kazakhstan, Malaysia and Venezuela were among the jurisdictions most likely to impose penalties, imposing them in 75% to 100% of all transfer pricing adjustments. Italy imposed penalties in almost all cases, and at a stated rate of 100%. Hungary and South Africa imposed them in 50% to 75% of cases. Penalties in Colombia can be 160% of the increased tax and are nearly always imposed.

Few tax authorities impose transfer pricing-specifi c penalties, with general tax penalties being the rule. Taiwan has specifi c transfer pricing penalties as well, but has rarely imposed penalties. Denmark is soon expected to impose specifi c penalties. Jurisdictions that impose penalties for failure to prepare documentation itself or that require contemporaneous documentation for relief from penalties remain the exception.

Penalties have become more frequent and more onerous

Mutual agreement procedure (MAP) remains the predominant means of resolving transfer pricing disputes, and nearly all jurisdictions report that MAP claims are ultimately resolved without double taxation. A striking exception is Mexico, where 50% to 60% of MAP claims remain unresolved. Although they are in general ultimately successful, MAP claims can be lengthy. They take an average of 849 days in the Unites States and up to fi ve years in Italy.

Litigation and arbitration remain exceptional means of resolving transfer pricing disputes. Only Argentina, Brazil, India, Sweden and Venezuela reported a signifi cant use of litigation to resolve transfer pricing disputes, and only France reported a signifi cant number of arbitration procedures.

Even when penalties are not imposed, the risk of double taxation makes proper transfer pricing documentation important

The availability of advance pricing agreements continues to expand

There have been a number of welcome developments since our last survey. The number of jurisdictions that have introduced APAs to give transfer pricing certainty continues to expand. Some countries are reporting much swifter resolution, particularly for unilateral APAs, than readers will be used to. The Netherlands showed a predominance of unilateral APAs with a 55-day processing time. The Slovak Republic, which reported only unilateral APAs, had an average completion time of two to three months. Austria required three to six months, New Zealand two to six months, and Hungary four months for unilateral APAs. Portugal has guidelines of 180 days for the

resolution of unilateral APAs and 360 days for the resolution of bilateral APAs. Taiwan sets a limit of one year for the resolution of unilateral APAs, with an optional extension of six months. If necessary, another six-month extension may be applied.

However, in some major territories, processing times remain long. The United States and Canada are among the slowest, at nearly three years and four years for bilateral APAs, respectively. Switzerland also reports an average processing time of two to three years for bilateral APAs.



2012 global transfer pricing tax authority surveyAmericas countries



Argentina 14

Brazil 16

Canada 18

Chile* 22

Colombia 24

Ecuador 26

Mexico* 28

Peru* 30

United States 31

Venezuela* 34

Australia 38

China* 41

India 43

Indonesia 45

Japan 47

Korea 49

Malaysia 51

New Zealand 53

Singapore* 55

Taiwan 57

Thailand* 59

Vietnam 60

Austria 66

Belgium 69

Czech Republic* 72

Denmark 74

Egypt* 76

Estonia 77

Finland 79

France 81

Germany 84

Hungary 86

Israel 89

Italy* 90

Kazakhstan* 93

Kenya 95

Latvia 97

Lithuania 99

Netherlands 101

Norway 103

Poland 105

Portugal* 107

Romania 109

Slovak Republic 111

South Africa* 113

Spain 115

Sweden 117

Switzerland 119

Turkey 122

United Kingdom 124


Resources the tax authority is devoting to transfer pricing

Centralized consulting and transfer pricing audit teams handle transfer pricing reviews in Argentina. The head of the consulting team and two supervisors of the transfer pricing audit teams are dedicated to transfer pricing.

Industry focus

The industries currently under specifi c transfer pricing focus are the automotive, oil and gas, and pharmaceuticals industries, as well as commodities (mainly grain) exporters. Factors taken into account in identifying specifi c industries for scrutiny include the industry’s profi tability and whether the industry has signifi cant activities in Argentina.

Geographic focus

Historically, the Argentine tax authority did not specifi cally target transactions with certain jurisdictions for transfer pricing reviews. However, the tax authority has started to focus on transactions with trading partners located in Switzerland and Uruguay.

Types of transactions under scrutiny

Tangible goods transactions are the main focus of transfer pricing reviews. In particular, imports and exports through international intermediaries have been the focus of recent transfer pricing audits.

Transfer pricing penalties

In the last two years, transfer pricing penalties have been assessed in 75% to 100% of all transfer pricing adjustments. This number is expected to remain

roughly the same in the next two years. The average penalty rate (as a percentage of the additional tax) has been 50% to 75%. However, under the 2003 tax reform, the penalties related to transfer pricing adjustments for tax omitted is currently in the range of 100% to 400%.

Audit case selection

The selection of audit cases is typically driven by factors such as the following:

• The profi tability of the taxpayer

• Previous tax audits of the taxpayer

• The existence of international intermediaries in cross-border transactions

• The nature of the related-party transactions undertaken by the taxpayer

• The volume of the related-party transactions undertaken by the taxpayer

Indirect customs and tax

The transfer pricing enforcement resources and indirect tax specialists do not work in an integrated way in Argentina. It is not mandatory to use the same transfer price for both corporate direct tax and indirect tax purposes in Argentina.

Comparable data

The Argentine tax authority allows for the use of foreign comparables along with local comparables. During audits, as part of comparability analysis, the tax authority requires a copy of the full fi nancial statements of the comparable companies selected by the taxpayer. In

practice, the selection of comparable companies in certain countries is limited due to the lack of full fi nancial statements.

In presenting comparable data, the Argentine tax authority requires that the local entity’s fi nancial year be compared with the three-year average of the comparable companies, including the usual asset intensity adjustments (e.g., accounts receivable, inventory and accounts payable). The interquartile range (with a particular calculation) is the mandatory method for determining the allowable arm’s-length range. There is no mandatory requirement to use weighted average as opposed to the simple average. A brief explanation of the appropriate profi t level indicator is required. There are no mandatory requirements with respect to pooling or averaging of fi nancial data.

Transfer pricing methods

The Argentine transfer pricing regulations include a best method rule, under which the most appropriate method is the one that satisfi es the following conditions:

• It is most compatible with the corporate and business structure.

• It has the best information quality and quantity available for adequate justifi cation and application.

• It has the most adequate comparability level between related-party and unrelated-party transactions or between the companies involved in the comparison.

• It requires the smallest number of adjustments to eliminate comparability differences.

ArgentinaErnst & Young contact

Carlos [email protected]+54 11 4318 1619


In practice, the tax authority usually uses the TNMM for all transactions except for interest or commodities transactions. For commodity transactions, a specifi c “sixth-paragraph method” or the comparable uncontrolled prices (CUP) Method is used. During the 2003 tax reforms, the sixth-paragraph method was introduced to analyze transactions involving the export of goods with a publicly known price on transparent markets, provided that the requirements listed in ITL Section 15, Paragraph 8, are not met. Specifi cally, in the case of exports to related entities (involving grains, oilseeds and other products of the land; oil and gas and their derivatives; and, in general, goods with publicly known quotations on transparent markets) in which an international intermediary other than the intended recipient of the goods is involved, the best method would be the use of the quotation price that was mentioned on the last day the merchandise was loaded. If the agreed- upon price is higher, this price should be considered.

The Argentine tax authority considers the CPM inappropriate. Also, the applicability of the residual profi t split method is unknown. Under the fi rst full transfer pricing rules (December 1998), the residual profi t split method was included, but in the following tax reform (December 1999), it was deleted without comment. Therefore, it is not clear whether this method is availableany longer.

Although the transfer pricing rules allow the executive power to create other transfer pricing methods, so far no new methods have been created.

Advance pricing agreements

The Argentine tax authority does not have a formal APA program.

Mutual agreement procedures

As per the OECD Country MAP Statistics, no cases were received in 2010, and one transfer pricing competent authority case was received in 2009. Before 2009, only two cases were received. At the end of 2011, all three cases remained unresolved.

Yield/performance of transfer pricing reviews

Generally, the effectiveness of transfer pricing reviews is measured by increased tax yield and the percentage of review cases where an adjustment is made to taxpayer income. No statistics are currently published on the yield of transfer pricing reviews.

Transfer pricing disputes

We have seen increased controversy lately. Several ongoing cases are undergoing domestic appeal and litigation. Jurisprudence exists in more than a dozen cases settled at the administrative level.

Current infl uences on transfer pricing

Although OECD rules are not mandatory in Argentina, there is a tendency in recent court cases to consider the OECD Transfer Pricing Guidelines as interpretive of or complementary to the Argentine transfer pricing regulations. Additionally, the tax authority tends to use the OECD Transfer Pricing Guidelines when there are no specifi c provisions in the Argentine regulations.


Ernst & Young contact

Werner [email protected]+55 11 2573 3000


A specialized division at the Brazilian federal tax authority — Special Delegacy for Largest Taxpayers in São Paulo — handles transfer pricing reviews. At the moment, 16 full-time equivalent (FTE) auditors are involved in transfer pricing examinations. All of these resources are based in the central unit. Of these, 5 are transfer pricing specialists and 11 are generalists with some transfer pricing knowledge.

The resources involved in transfer pricing reviews are predominantly economists and lawyers, along with a few accountants and other professionals.

Industry focus

Factors such as industry profi tability and signifi cant industry activities in Brazil are taken into account in identifying specifi c industries for scrutiny. The tax authority is currently focusing on the automotive, biotechnology, consumer products, media and entertainment, pharmaceutical, and telecommunication sectors. The industries under specifi c focus are reviewed annually. The list of industries under scrutiny is not widely communicatedto taxpayers.

Geographic focus

In some cases, the tax authority targets transactions with certain jurisdictions for transfer pricing reviews. Typically, transactions between perceived low-tax jurisdictions and domestically headquartered companies are reviewed during audits.


Transactions involving tangible goods currently represent the entire transfer pricing caseload. Intra-group services and cost-sharing/cost-pooling arrangements are separately scrutinized under domestic deductibility rules and not under transfer pricing rules. Brazilian transfer pricing rules do not apply to intangible property transactions. The deductibility of payments for intangible property is subject to the approval of the Brazilian Patent Offi ce and registration with the Brazilian Central Bank.


Brazilian law does not provide for the imposition of specifi c transfer pricing penalties. The general penalties that apply to infringements of the income tax return laws also apply to transfer pricing cases. Over the last two years, penalties have been applied in 75% to 100% of cases involving transfer pricing adjustments. Where penalties are imposed, they are approximately 75% of the additional tax.


The selection for transfer pricing audit is made by the local division of the federal tax authority. A variety of considerations are taken into account in determining which taxpayers should be audited, including the following:

• The profi tability of the local taxpayer

• A risk-based assessment by thetax authority

• The nature of the related-party transactions undertaken bythe taxpayer

• The volume of the related-party transactions undertaken bythe taxpayer


Indirect and customs tax

The work of transfer pricing enforcement resources is integrated (to the extent of sharing information) with that of indirect tax specialists.


The Brazilian transfer pricing methods are determined by law with further interpretation by the tax authority. There is no priority of transfer pricing methods. Domestic rules provide methods similar to the CUP, CPM and resale minus methods.

Brazil



Brazil does not have a formal APA program. However, in certain cases, a unilateral ruling regarding the interpretation of the law is possible.


The effectiveness of transfer pricing reviews is evaluated by the increase in tax yield, the percentage of review cases in which an adjustment is made to taxpayer income and the percentage of review cases in which an adjustment is sustained on appeal. The tax authority publishes overall yield/performance data, but it is not specifi c to transfer pricing.


Under domestic rules, a transfer pricing dispute case fi rst goes to domestic appeal followed by litigation at the federal tax authority level and then in independent courts. The number of appeals and pending cases is not disclosed, but it is substantial. All of the current transfer pricing disputes are currently in the litigation stage of the dispute process.



Sean [email protected]+1 416 941 1761Canada


The Canada Revenue Agency (CRA) administers taxes in Canada. Most of the CRA’s specialized transfer pricing resources are centrally located in the International Tax Division of the International and Large Business Directorate in Ottawa. The CRA also has specifi c transfer pricing resources dedicated to the resolution of double taxation through competent authority assistance and APAs in the Competent Authority Services Division (CASD), which is also centrally located in Ottawa.

There are approximately 445 FTEs dedicated to transfer pricing reviews in fi scal year 2011. Additionally, there are more than 20 dedicated transfer pricing resources in the CASD. Approximately 55 FTEs based centrally in Ottawa provide advisory and economic services to the fi eld audit teams. The rest are located in regional offi ces.

Two years ago, approximately 450 FTEs were dedicated to transfer pricing reviews: 400 in regional offi ces and 50 centrally. There were approximately 20 resources in the CASD. No signifi cant changes to the number of resources are currently expected.

A majority of the resources are specialists in international tax issues. Approximately 95% of the resources are qualifi ed accountants, and the remainder are economists.

On occasion, external experts have been consulted during the audit stage. However, this activity is primarily undertaken at the appeals andcourt stages.

Industry focus

The CRA has Industry Coordinating Offi ces that focus on the automobile, banking, oil and gas, and pharmaceuticals industries. While the CRA does not target specifi c industries, factors such as whether the industry has signifi cant activities in Canada (or within certain parts of the country) and the profi tability of the industry are nevertheless important in driving target industry selection. Although the CRA does not offi cially communicate a list of priority industries to taxpayers, it does conduct outreach programs through which general comments on planning and resources are provided to the international tax community.

Geographic focus

Geographic location is not a driver for the selection of taxpayers for review. However, the CRA’s risk assessment model typically involves review of various factors, including the involvement of low-tax jurisdictions as counterparties to the taxpayer’s related-party transactions.

In the current caseload of transfer pricing reviews, the top fi ve counterparty jurisdictions are the United States, the United Kingdom, the Netherlands, Australia and Germany.

Types of transactionsunder scrutiny

The CRA does not generally target specifi c transfer pricing transactions. However, the CRA’s risk assessment model typically involves a review of various factors, including the typesof transactions undertaken.


Subsection 247(3) of the Income Tax Act (ITA) provides legislative authority to impose transfer pricing documentation penalties. The CRA has set up an internal Transfer Pricing Review Committee (TPRC) to help ensure the consistent application of transfer pricing documentation penalties. The TPRC decides to apply penalties based on whether a taxpayer has made reasonable efforts to determine and use arm’s-length prices or allocations, as described under Subsection 247(4) of the ITA.

Since the introduction of transfer pricing penalties, they have been applied in more than 50% of cases where the transfer pricing adjustments breached a de minimis threshold of CA$5 million or 10% of the taxpayer’s gross revenue. This represents less than 3% of all transfer pricing adjustments proposed by the CRA. Where penalties are imposed, they are applied at a rate of 10% of the transfer pricing income adjustment.

The number of transfer pricing penalties imposed is expected to decline over the next two years, as the CRA expects a decrease in the rate of non-compliance with Canadian documentation rules.


The 2010 OECD Transfer Pricing Guidelines suggest that there is no strict hierarchy of transfer pricing methods. Rather, the focus should be on the quality of available data and, consequently, what will be the most appropriate method. At the same time, the OECD Transfer Pricing Guidelines continue to suggest that there is a natural hierarchy of methods, as referred to in Paragraph 2.3. The CRA


agrees that the method that will provide the most direct view of arm’s-length behavior and pricing should be applied. The CRA’s Information Circular IC87-2R has stated that only a natural hierarchy exists within the methods. Both IC87-2R and Paragraph 2.3 of the 2010 OECD Transfer Pricing Guidelines state that the traditional transaction methods (e.g., CUP method of resale price method (RPM)) are preferred to a transactional profi t method.


A formal program is available for both unilateral and bilateral APAs. Unilateral APAs are generally considered for taxpayer transactions with countries with which Canada does not have a tax treaty or with tax treaty partner countries that do not have an APA program. Bilateral APAs are encouraged in all other cases as they resolve potential double tax.

Access to the APA program is discretionary. Acceptance depends on various factors, including the following:

• The suitability of the proposed covered transactions under the program (for example, business restructuring transactions typically would notbe accepted)

• The taxpayer’s rationale and support for the characterization of the transactions when relevant

• The proposed transfer pricing methodology and the taxpayer’s willingness to consider alternative characterizations and methodologies

Given the discretionary nature of the service, the CRA may not be able to accommodate all APA requests because its ability to provide service is based on the availability of resources.

During fi scal year 2010–11, 25 prefi le meeting requests were received, 20 applicants were accepted into the APA program and 95 applications were in process. Of the current caseload, the vast majority (90%) were bilateral APAs and the rest were unilateral. The majority of the current caseload involved the United States, Japan and the United Kingdom.

The average time required to complete a bilateral APA is 50 months, and the average time for a unilateral APA is 28 months. Ernst & Young Canada’s experience is that the APA process is often lengthy because of the following factors:

• Signifi cant growth in APA requests, which surpasses the growth in APA resources

• Increase in complexity and number of transactions covered by the average APA since CRA implemented the program

• Delays caused by the requirement for additional taxpayer information at the due diligence or negotiation stage

• Delays in exchange of position papers as one competent authority may take longer than the other

• Signifi cantly longer time to complete a case relating to fi nalization of post-settlement documentation (paperwork between competent authorities) and also agreement by the taxpayers to the agreement achieved (almost one-third of total completion time)

The CRA is currently seeking additional resources to support the APA program. However, availability of additional resources is subject to government-wide budgetary constraints in addition to competing CRA priorities.

In the interest of responsible program management, the CRA does not currently depend solely on new resources to meet these needs. It continues to seek more effective and effi cient means of conducting its business. Examples include the following:

• Better utilization of technology to minimize time spent away from the offi ce (e.g., videoconferencing to reduce travel to meet with taxpayers and other governments)

• Reducing or eliminating site visits on renewal APA applications where it can be reasonably ascertained that there has not been a material change to the functions, assets and risks of the parties to the transaction

• Extending the period of coverage to provide taxpayers with expanded prospective certainty

• Development and utilization of specialized expertise (industry specialization) to expedite the resolution of APAs and to help ensure consistency in the treatment of issues and cases

• Development of risk assessment tools to better allocate resources in the development of position papers and resolution of APAs

• Efforts to work proactively with counterparts toward the early identifi cation of diffi cult or contentious issues and to expedite resolution


Canada (cont’d.)

The CRA has increased due diligence efforts prior to accepting a transaction into the APA program. For the program to be successful, unfettered cooperation of taxpayers and free fl ow of information are required. To use existing resources more effi ciently, the CRA is encouraging taxpayers, at the prefi le stage, to provide a more thorough explanation of proposed transactions and corresponding transfer pricing methodologies in order for the CRA to evaluate the transactions’ propriety. This increased due diligence asks for more information on certain types of transactions, including transactions involving intangible assets. This information is requested so that the CRA can make an informed decision about whether to accept or reject an APA request. The CRA is providing more feedback during and after the prefi le meeting with the intention of helping taxpayers come up with a balanced and complete submission.

Based on Ernst & Young Canada’s experience, it is prudent to make an informed assessment of the potential for a successful resolution of an issue and to provide the necessary feedback before the taxpayer devotes substantial resources to the preparation of an APA submission and before the CRA commits its resources.

For example, a taxpayer’s submission must contain the rationale and support for the proposed transfer pricing methodology, and the taxpayer must be open to the consideration of alternative methodologies and/or characterization of transactions. It is the CRA’s practice to question any methodology or transaction where the rationale is lacking in the application.

In response to queries from accounting and legal representatives, the CRA will not accept business restructuring transactions or the valuation/ownership issues that result from a restructuring during or before the APA period. Business restructuring cases are not suitable for an APA because they do not cover recurring and unchanging transactions where the underlying assumptions that form the basis of an APA transfer pricing methodology do not change over the duration of both the immediate pre-APA period and the APA period itself. The CRA requires a certain stable cycle or period of time without a signifi cant event in order to handle an APA fi le. Without this stability, a proper analysis cannot be conducted.

Finally, the CRA does not accept APA requests with tax treaty countries with which Canada has never settled a MAP case covering transfer pricing adjustments. The new country engagements may require greater resources in the beginning than the CRA can afford. Hence, it is prudent to inaugurate a relationship with the competent authority of a new country through a MAP transfer pricing process (resolving a few double tax cases) before an APA can be considered.

Based on Ernst & Young Canada’s observation, the more rigorous screening of APA applications, including increased information requirements, the elimination of business restructuring and valuation/ownership issues, and entertaining APAs only with countries with which Canada has a prior MAP history, is a reasonable CRA response to increased taxpayer demand in the current environment of fi scal restraint and limited resources. It is also our view that such an approach is in line with the intent of the APA program as described in the CRA’s Information Circular 94-4R, International Transfer Pricing: Advance Pricing Arrangements (APAs).


During fi scal year 2010–11, 80 competent authority requests were received, and 74 cases related to transfer pricing adjustments were completed. Of these, 68 cases of taxpayers who sought assistance obtained full relief from double taxation. One case resulted in partial relief while the remaining fi ve cases did not obtain relief.

The average completion time for MAP cases was approximately 32 months for domestically initiated applications and 21 months for foreign-initiated applications.

In general, collection action on unpaid taxes, interest and penalty may commence 90 days after the date of a taxpayer’s (re)assessment. If a taxpayer fi les a Notice of Objection, the CRA must further defer collection until 90 days after the Minister has either confi rmed or varied the (re)assessment. If the taxpayer then fi les an appeal with the Tax Court of Canada, the CRA must defer collection action until the court renders a decision.


However, a “large corporation,” as defi ned under Subsection 225.1(8) of the ITA, is required to pay half of the assessed amount within 90 days of the date of its assessment. If the large corporation does not fi le a protective appeal or objection, the remaining balance of 50% must be paid. Lastly, the relieving rules described above do not apply to payments to non-residents subject to withholding. Such payers are liable for all tax, interest and penalties assessed.

Subsection 220(4) of the ITA provides that the CRA may, in certain circumstances, accept security for payment of an amount that is or may become payable under the ITA. Agreement to accept security is at the discretion of the CRA’s Taxpayer Services and Debt Management Branch.

With respect to practices during the MAP process, the scope of Canada’s tax conventions does not extend to cover interest and penalties. As a result, the Canadian competent authority does not waive or negotiate any portion of the interest and penalties resulting from assessments, reassessments or adjustments.


The effectiveness of transfer pricing reviews is refl ected by the level of voluntary compliance observed. This voluntary compliance with the ITA and Canadian tax conventions is the overall goal of the CRA.


There were 194 ongoing MAP requests related to transfer pricing adjustments as of 1 April 2011. The CRA’s tracking system does not identify cases held in abeyance at the Competent Authority when taxpayers pursue their disputes under domestic law. Cases in arbitration are included under MAP statistics because arbitration is a method to resolve double tax issues.

The CRA does not publish information relating to MAP cases with specifi c treaty partners (including those MAP cases that proceed to arbitration). Furthermore, the confi dentiality provisions of the ITA and tax treaties prevent the provision of information that may tend to reveal the identity of taxpayers or the specifi c cases that have been negotiated with treaty partners.



Osiel González Azó[email protected]+56 2 676 1141Chile*


The Servicio de Impuestos Internos (SII) administers taxes in Chile. Within the SII, transfer pricing reviews are carried out by the Transfer Pricing Group, which was created two years ago from resources within the SII. These resources were trained either in Chile (through universities) or abroad (by other administrations). A few resources were also hired from private practice. As the group is relatively new, the resources are still undergoing training.

The SII relies on the Mexican tax administration for its training needs. However, it does not rely on external resources such as consultants, industry specialists and expert witnesses while conducting transfer pricing reviews.

Industry focus

Currently, transfer pricing audits in Chile focus on consumer products, mining and metals, pharmaceuticals, the retail industry, and commodity exporters. The factors driving the selection of industries are their signifi cant level of activity in Chile and their profi tability.

The selection of industries currently under specifi c transfer pricing focus is not formally communicated to taxpayers. However, the tax authority attempts to ensure that taxpayers are aware of the industries that may interest the tax authority.


Transfer pricing reviews focus on (in order of preference) tangible goods, fi nancial transactions, intra-group services and intellectual property.


Chile has a specifi c transfer pricing penalty regime, and procedures are in place to ensure the consistent application of these penalties. Over the last two years, in cases where a transfer pricing penalty was assessed, an average penalty rate of 35% of the additional tax was applied. It is expected that penalty assessment will increase over the next two years.


Case selection for transfer pricing audit is governed by the National Audit Department. Various considerations are taken into account in determining which taxpayers to audit, including the following:

• Profi tability

• A risk-based assessment by the tax authority



• A standard audit cycle/program

• Sudden changes in tax results


The transfer pricing enforcement resources are required to integrate with the indirect tax teams. Information is shared with the National Customs Agency and the Chilean Copper Commission. In both cases there is no formal or consistent procedure for exchanging information.

There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes. Transfer pricing adjustments do not have any infl uence in indirect taxation.

Comparable data

The SII has no preference for local country comparables, and regional comparables are acceptable, as long as comparability is established.

In preparing and presenting comparable data, there are no specifi c requirements in relation to the number of years of fi nancial information, the use of simple versus weighted averages, pooling or averaging of fi nancial data, the method for calculating the allowable arm’s-length range, or the method for determining the appropriate profi t level indicator. However, proposed tax reforms are expected to include best method rules.


No guidance is provided by the SII in relation to fi nancial adjustments to comparable data. It is expected that new regulations will follow the OECD Transfer Pricing Guidelines.


Currently, Chile does not follow a hierarchy of transfer pricing methods. The guidance on the use of unspecifi ed method is based on the OECD Transfer Pricing Guidelines. The order of preference of transfer pricing methods is not publicly stated.


Currently, Chile does not have an APA program, and there are no alternative advanced ruling options available to taxpayers. It is expected that new regulations will introduce APAs.


Currently, there are no MAPs, but new regulations are expected to include them.


The SII does not publish statistics on tax yields.


Transfer pricing policies in Chile are infl uenced by the current economic

environment and recent OECD initiatives. It is expected that Chile, as a new member of the OECD, will try to align its transfer pricing policies and regulations with the OECD Transfer Pricing Guidelines. In this respect, a tax reform is expected to be sent to the Congress including recognition and regulation of the best method rule, APAs, and bilateral adjustments. The law would also include the obligation to fi le sworn statements annually.



Andres [email protected]+57 1 484 7600Colombia


The transfer pricing function is centralized at the Dirección de Impuestos y Aduanas Nacionales (DIAN), the offi cial revenue authority in Colombia. DIAN is responsible for the initial investigation in the audit process. After an initial phase, the audit is transferred to the local administration.

Approximately 20 FTEs are involved in transfer pricing examinations, compared to 6 FTEs two years ago. Out of the current total of 20, 14 are based in the central unit. The number of transfer pricing resources is expected to growto approximately 35 to 40 two years from now.

Eleven of the resources involved in transfer pricing examinations are transfer pricing specialists (i.e., have a strong technical background in transfer pricing issues). The remaining are generalists with some transfer pricing knowledge. Approximately 60% of the resources are accountants, 30% are economists and 10% are lawyers. In the past, the majority were lawyers. However, it is expected that the trend will continue to favor economists.

DIAN relies on external industry and valuation experts in several cases, and it has started to evaluate the exchange of professionals with other tax administrations in Latin America. DIAN also relies on support granted by the United States Internal Revenue Service.

Industry focus

Transfer pricing audits in Colombia currently focus on taxpayers from the mining and metals and oil and gas industries. Taxpayer size is the main factor driving the selection of industries for particular focus. The selection of industries is not formally communicated to taxpayers. Agriculture and fi nancial sectors could be the focus of transfer pricing audits in the near future.

Geographic focus

DIAN targets transactions with counterparties typically perceived to be low-tax jurisdictions, as well as treaty partners.


The following transactions typically receive scrutiny: intragroup services, especially in inbound transactions; business restructurings, especially transactions related to transfer of shares; and tangible goods transactions, especially transactions related to the export of goods produced in Colombia.

Out of the total caseload, 80% of the transactions involve tangible goods transactions and 10% involve fi nancial transactions. The remaining caseload relates to intangible property transactions and other transactions.


Colombia has a specifi c transfer pricing penalty regime in place. In 2012, a new tax bill is likely to be enacted that will lead to modifi cations in the transfer pricing penalty regime. Under the current regime, penalties have been assessed in 75% to 100% of transfer pricing adjustments. The average penalty rate has been over 100%. The Colombian transfer pricing penalty regime establishes a fi ne of 160% of the additional tax. This fi ne is levied in all cases. Over the next two years, the assessment of penalties is expected to remain roughly the same.


Case selection for transfer pricing audit is governed by a central decision-making body. The Operational Analysis Sub-secretary makes the selection according to the general criteria provided by the International Tax Enforcement Sub-secretary. Case selection is driven by the following factors (in order of importance):


• Taxpayer profi tability

• The nature of related-party transactions undertaken by the taxpayer

• The volume of related-party transactions undertaken by the taxpayer

• Value-added tax (VAT), employment, customs or other indirect tax reviews



Transfer pricing enforcement resources and indirect tax specialists do not work in an integrated way on a regular basis. At the moment DIAN is trying to perform TACI audits. These audits are performed simultaneously by professionals in the tax, customs, exchange regime control and international tax areas. However, transfer pricing rules apply only for income tax purposes.

Comparable data

The use of both Colombian and foreign comparables is accepted. There is no priority to select either. The tax authority may or may not provide guidance as to whether fi nancial adjustments to comparable data should be made. However, in presenting comparable data, the years of fi nancial data considered should be the same as the years of the tested party. The interquartile range is the preferred statistical method to calculate the arm’s-length range.


Colombian transfer pricing rules apply the best method approach to select an appropriate transfer pricing method.


The Colombian transfer pricing rules include provisions for a formal APA program, but there is currently no agreement in place. The tax authority has begun informal conversations with two taxpayers regarding agreements. DIAN has begun a program to motivate taxpayers to enter into APAs, especially in the mining industry.


The Colombian tax authority does not currently deal with any MAPs.



Javier [email protected]+593 2 255 5553Ecuador


The Servicio de Rentas Internas (SRI) administers taxes in Ecuador. As a result of the central government policy of zero growth in human resources, SRI head count has not increased over the last couple of years. Within the SRI, transfer pricing reviews are carried out by decentralized regional resources based in Coast Side, Highlands and the Amazon Basin, alongside a central unit. Of the 20 transfer pricing FTEs, 5 are based in the central unit while the other 15 are regional resources.

Of the 20 FTEs, 15 have a strong technical transfer pricing background. There are fi ve economists, two lawyers and two accountants. The remaining FTEs have either auditing or business management backgrounds. The SRI relies mainly on Inter-American Center of Tax Administrations members, Argentina, Mexico and Spain for its training needs.

In certain exceptional cases, the SRI consults and relies on external resources, including consultants, industry specialists and expert witnesses.

Industry focus

Transfer pricing audits in Ecuador currently focus on the automotive CKD (completely knocked down) assembly, mining and metals, pharmaceuticals, and exportable products and fi sheries industries. The factor driving the selection of these industries is their signifi cant level of activity in Ecuador. This list is reviewed annually and is not widely communicated to taxpayers.

Geographic focus

The SRI specifi cally targets transactions in certain jurisdictions perceived to be low-tax jurisdictions, as embodied in a formal blacklist. Based on the current caseload of transfer pricing reviews, the top counterparty jurisdictions are Panama, the United States and Switzerland.


Transfer pricing reviews have broadened from an initial focus on tangible goods. The sale of tangible goods (40% of the current caseload), intragroup services (25% of the current caseload) and fi nancial transactions (20% of the current caseload) are currently focus transactions. Intangible property transactions account for 15% of the current caseload.


Ecuador has a specifi c transfer pricing penalty regime. Based on a progressive table, there are administrative procedures in place to help ensure the consistent application of transfer pricing penalties. Over the last two years, penalties were applied in 75% to 100% of cases where transfer pricing adjustments were issued.

The transfer pricing penalty regime establishes an average penalty rate of 0% to 25% of the additional tax. The trend in penalty assessment is expected to increase over the next two years.


A transfer pricing audit is initiated after a risk-based assessment by the tax authority. Various considerations are taken into account in determining which taxpayers to audit, including the nature and volume of the related-party transactions undertaken by the taxpayer.


There is no mandatory integration of transfer pricing enforcement with the indirect tax team, but information can be shared between the teams. There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

The SRI has no preference for local country comparables, and global comparables are acceptable, excluding those located in tax havens.

In preparing and presenting comparable data, there are no specifi c requirements in relation to the number of years of fi nancial information, the use of simple versus weighted averages, and pooling or averaging of fi nancial data. However, there are specifi c requirements for the method for calculating the allowable arm’s-length range (in accordance with the local legislation) and the method for determining the appropriate profi t level indicator.



Ecuador follows a hierarchy of transfer pricing methods. Local regulations establish that only the six methods established in the OECD Transfer Pricing Guidelines are applicable. The SRI considers the CPM inappropriate. The order of preference of transfer pricing methods is publicly stated, and the tax administration prefers to apply the CUP method to taxpayers operating in the agricultural sector.


Ecuador has a unilateral APA program, and taxpayers have the right to initiate the APA consultation process. However, no APA consultation has been initiated to date. The agreement program in Ecuador, structured as an advanced ruling, is perceived as an APA. The average time required to complete an APA is nine months.


No transfer pricing cases have been received for MAP.


The SRI evaluates the effectiveness of transfer pricing reviews by measuring increased tax yield. The SRI does not publish yield statistics.


Of transfer pricing disputes where the tax administration has completed an assessment and communicated an order, there are 22 cases undergoing domestic appeals (preceding court action) and 8 cases undergoing litigation. Among the pending cases, 20 require the assessment process to be completed.



Jorge [email protected]+5255 5283 8671Mexico*


The Servicio de Administración Tributaria (SAT) has had a transfer pricing group since 2004. The Central Administration of Taxation on Transfer Pricing (ACFPT) handles transfer pricing audits, APAs (unilateral, bilateral and multilateral) and transfer pricing rulings.

Approximately 50 FTEs currently specialize in transfer pricing within the ACFPT. Two years ago, the number of FTEs was slightly over 40. All of the transfer pricing executives are based in the ACFPT (a central unit) in Mexico City. There are currently no fi eld auditors at the ACFPT.

All of the FTEs specialize in transfer pricing. At least half of the transfer pricing resources at the ACFPT have a minimum of seven years’ transfer pricing experience. Of these, about 45% are accountants, 40% are economists, 6% are lawyers, and 9% have fi nance and business administration backgrounds.

Industry focus

The automotive, consumer products, pharmaceuticals, technology, telecommunications and hospitality industries receive particular scrutiny. Profi tability has been the driving factor behind industry selection.

The list of industries is reviewed approximately twice a year and is widely communicated to taxpayers. The SAT shares the industries currently under review in forums and conferences for taxpayers and specialists.

Geographic focus

The tax authority does not specifi cally target transactions with certain jurisdictions for reviews. Even so, the majority of the current transfer pricing caseload relates to a handful of countries. The top fi ve counterparty jurisdictions in order of caseload are the United States, Switzerland, Spain, Germany and Sweden.


Transfer pricing reviews cover transactions involving tangible goods (15% of the total caseload), intangible property (30% of the total caseload), intragroup services (5% of the total caseload), fi nancial transactions (20% of the total caseload), cost-sharing/cost-pooling arrangements (5% of the total caseload), business restructurings (20% of the total caseload) and losses generated by sale of stocks/shares (5% of the total caseload). The tax authority has placed particular emphasis on auditing business restructurings to prevent abuses of preferential regimes such as the Maquiladora Program.


There is no specifi c transfer pricing penalty regime currently in place. The Mexican Income Tax Law (MITL) establishes a penalty for unpaid taxes of 55% to 75% of the unpaid amount. However, the law also provides a 50% reduction in the penalty for transfer pricing adjustments if the taxpayer has complied with its obligations (under Article 86 of the MITL), such as preparing transfer pricing documentation. There are no processes currently in place to confi rm consistent application of transfer pricing penalties.

In the past two years, at least three-quarters of transfer pricing adjustments have resulted in an assessment of penalties. On average, these penalties have been between 25% and 50% of the additional tax. The assessment of penalties is expected to remain roughly the same over the next two years.


Case selection for transfer pricing audits is governed by a central decision-making body. In order of importance, taxpayer profi tability, evidence of business restructurings, the volume of related-party transactions undertaken by the taxpayer, the standard audit cycle/program, the nature of the related-party transactions undertaken by the taxpayer and risk assessments by the SAT areall factors that initiate a transferpricing review.


Transfer pricing enforcement resources work in an integrated fashion with indirect tax specialists because the customs, indirect and transfer pricing authorities are all part of the SAT. Communication between these three units has improved dramatically over the last few years.

The SAT does not require that the same transfer price be used for corporate direct and indirect tax purposes.


Comparable data

Local country comparables are not necessarily required. Permissible regions are determined depending on the kind of transaction and the market in which the tested party operates. However, North American comparables are usually acceptable.

There are specifi c requirements for presenting comparable data with respect to the number of years of fi nancial data considered, the method for calculating the allowable arm’s-length range and the methods of determining the proper profi t level indicator.

The SAT recommends that working capital adjustments, asset intensity and country risk adjustments be made to comparable data. The MITL states that transfer pricing adjustments should always be applied when there are differences between the tested party and the comparable that could affect results.


Since 2006 there has been a publicly stated priority of transfer pricing methods: the CUP method should be applied fi rst, and the other methods can be applied only when the CUP method is not appropriate. The SAT does not consider the CPM appropriate. The policy outlined is based on legislative provisions, specifi cally Article 216 of the MITL.


A formal program is available for both unilateral and bilateral APAs. Approximately 15 applications are received annually. All taxpayers are allowed to participate in the program, and approximately 25 applications are currently in process. The majority of the APAs are unilateral. Bilateral APAs involve mostly Japan, Switzerland and the United States. An application usually takes between 18 and 24 months to complete. In addition to the APA program, taxpayers are allowed to request transfer pricing rulings, based on Article 34-A of the Federal Fiscal Code.


Approximately eight transfer pricing competent authority cases are received annually. Three to fi ve of these are generally resolved and take between 18 to 24 months for resolution. Between 50% and 60% of these cases generally remain unresolved. MAPs involving the United States make up a signifi cant portion of the MAP caseload.


The effectiveness of transfer pricing reviews is measured by increase in tax yield. There is currently no other specifi c information available with respect to yield or performance publicly available.



Marcial [email protected]+51 1 411 4424Peru*


Transfer pricing resources of the National Superintendence of Customs and Tax Administration (SUNAT) are decentralized. Information on the size and makeup of Peru’s transfer pricing resources is not currently available. However, it is understood that most of them are accountants.

In 2012, SUNAT created the Department of Audit of International Operations and Transfer Pricing to provide guidelines for audit and control in the mentioned areas.

Industry focus

The automotive, consumer products, pharmaceutical and fi shing industries are currently a focus of SUNAT for transfer pricing scrutiny.

Geographic focus

The tax authority specifi cally targets transactions of taxpayers that are headquartered in Lima for transfer pricing reviews. The size of the taxpayer as well as the reach of its commercial activity with other taxpayers drives the selection of countries.


Transactions involving tangible goods are currently targeted for transfer pricing reviews.


Penalties are applied on the basis of a penalty regime contained in the tax code. This penalty regime is based on objective criteria and defi ned in the regulations. This helps to ensure the consistent application of the penalty regime throughout the country.


Case selection for transfer pricing audit is governed by SUNAT’s Department of Operative Programmation. The nature and value of related-party transactions and the standard audit cycle/programare relevant factors in the initiationof reviews.


There is currently a requirement that the same transfer price be used for corporate direct and indirect tax purposes.

Comparable data

There is currently no legal requirement to use local, regional or global comparables, and there are no requirements regarding the presentation of comparable data. Additionally, there is no guidance available about the propriety or application of fi nancial adjustments.


Current regulations implicitly require the use of the best method rule. Use of all the traditional transfer pricing methods is considered appropriate, apart from the CPM, which is not provided for in the legislation. There is currently no guidance permitting the use of other methods.


The Peruvian transfer pricing rules include provisions for a formal APA program, but there is currently no agreement in place.


MAP is not available in Peru.



Purvez [email protected]+1 713 750 8341United States


The Internal Revenue Service (IRS) administers taxes in the United States. Traditionally, the IRS transfer pricing resources were largely decentralized. However, in 2010, the IRS created the position of Director — Transfer Pricing Operations to centrally oversee and coordinate all transfer pricing resources in the IRS.

Transfer pricing reviews are primarily conducted by international examiners (IEs) and economists at the audit and examination level. All IEs work for one of the fi ve Industry Directors. Industry Directors are responsible for the direction and assignment of the work performed by IEs.

Currently, the IRS has approximately 700 IEs. The substantive responsibilities of IEs include all areas of international tax, including transfer pricing. The IRS also has approximately 120 economists that work with IEs on international examinations and 7 attorneys (based at Associate Chief Counsel International (ACCI)) assigned to transfer pricing who support the operations of the IRS, including providing advice to IEs and taxpayers and drafting administrative guidance.

As part of the formation of the Offi ce of Transfer Pricing Operations, the IRS is merging the APA Program with the Offi ce of Competent Authority and International Coordination to create the Advance Pricing and Mutual Agreement Program.

This merged team will have approximately 100 employees, who will focus on mutual and advance resolution of transfer pricing cases.

In March 2009, the IRS had approximately 475 IEs, 120 economists and 10 attorneys (not including attorneys in the APA program) assigned to transfer pricing. At that time, there were 33 FTEs in the APA program.

Over the next few years, the IRS is expecting to add another 100 employees to the National Offi ce and a few additional resources to the ACCI. The IRS is currently recruiting for positions in the transfer pricing practice, including economists, fi nancial analysts and industry experts.

Approximately 250 of the IRS FTEs are transfer pricing specialists. There are about 120 to 130 economists, 50 lawyers, and 750 accountants and other professionals. There have been no signifi cant changes in the background of professionals in recent years, and no change is expected in the near future.

The IRS relies on external resources, including consultants, industry specialists and expert witnesses. The IRS doesnot rely on other tax administrationsfor training.

Industry focus

The IRS does not focus on particular industries for transfer pricing scrutiny. However, the IRS performs risk assessments based on the importanceof intangible property to an industry.

In 2006, the IRS adopted the Issue Tieringstrategy to make sure that high-risk compliance issues were appropriately addressed and treated consistently. In October 2011, the IRS announced its plan to discontinue the tiering system in favor of an Issue Practice Group approach, which will strive to handle issues on a national basis using expert resources. The IRS will take this approach for both domestic and international issues.

The IRS is organized under fi ve broad industry groups, and transfer pricing audit activity is concentrated within two of those fi ve, i.e., the Communications, Technology and Media industry group and the Retailers, Food, Pharmaceutical and Healthcare industry group.

These broad industry groups make-up a signifi cant amount of the cross-border activity, particularly with regard to intangible assets. Therefore, although the IRS does not scrutinize by industry, the IRS tries to organize its resources by reference to industry groupings. The IRS has also made efforts to train IEs on an industry basis.

Geographic focus

The IRS does not specifi cally target transactions in certain jurisdictions. Rather, it determines transfer pricing reviews based upon a risk assessment, of which tax rate and tax treaty elements may be factors. Based on the current caseload of transfer pricing reviews, the top fi ve counterparty jurisdictions (in order) are Japan, Canada, India, Germany and the United Kingdom.


United States (cont’d.)


Particular types of transactions targeted for transfer pricing reviews are the following:

• Intangible property, i.e., the transfer of intangible assets and cost–sharing are categorized as high compliance priorities

• Intragroup services, particularly for high-value services

• Cost-sharing/cost-pooling arrangements

• Stock-based compensation as a component of any of the above items

• Business restructuring

• Outbound intangible property migration by US multinationals


The IRS has a specifi c transfer pricing penalty regime and process in place to help ensure consistent application of transfer pricing penalties. The IRS used to have a Transfer Pricing Penalty Oversight Committee, which was an initiative across functional groups that had the purpose of assuring a consistent application of the net adjustment penalty under IRC §6662(e)(1)(B) (substantial valuation misstatement under chapter 1) and Treasury Regulations §1.6662-6 (transactions between persons described in Section 482 and net Section 482 transfer price adjustments). The committee was dissolved in 2011 once the IRS concluded that its examiners were applying penalties consistently. The IRS plans to make consistent application of penalties a regular component of its training plan.

In the last two years, penalties have been

imposed in 25% or less of transfer pricing adjustments. Where penalties have been assessed, the average penalty rate, as a percentage of the additional tax, is 0% to 25%. In the next two years the assessment of penalties is expected to remain roughly the same.


The case selection for transfer pricing audits is not governed by a central decision-making body. Various considerations are taken into account in determining which taxpayers to audit, including the following:





For audit case selection, the IRS reviews Forms 1120 and 1120-F (US Corporation Income Tax Return), 5471 (Information Return of US Persons with Respect to Certain Foreign Corporations), and 5472 (Information Return of a 25% Foreign-Owned US Corporation or a Foreign Corporation Engaged in a US Trade or Business), including attached schedules, for relevant information that may trigger transfer pricing reviews. The IRS also has a Compliance Assurance Process program, which allows large corporate taxpayers to work with the IRS to identify and resolve potential tax issues before the tax return is fi led. Starting in fi scal year 2010, certain business taxpayers are required to disclose uncertain tax positions at the time they fi le their returns.


The transfer pricing enforcement resources are not required to integrate with the indirect tax team, and there is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

The IRS does not have a preference for local country comparables. According to Treasury Regulations §1.482-1(c) (Best Method Rule), as well as other transfer pricing regulations, the application of the best method rule is required. Local or regional comparables, while preferable, are not always available. In such cases, comparables from other locations may be considered.

In presenting comparable data, there are requirements with respect to the number of years of fi nancial data analyzed. For transactional methods, the default period is one year, whereas for profi t-based methods, such as the CPM, under Treasury Regulations §1.482-5, the default is a multiyear analysis. However, the number of years depends on each case.

The method for calculating the allowable arm’s-length range is defi ned in Treasury Regulations §1.482-1(e), which defi nes the interquartile range to be the appropriate method.

There are no specifi c rules regarding the use of weighted or simple averages, other than the best method rule and meeting the high standards of comparability and reliability. The IRS takes into account different approaches when analyzing different cases, and the selection of averaging methods depends on data availability and reliability.


The regulations provide guidance on the methods for determining the appropriate profi t level indicator. The specifi c regulations providing guidance on this are the following: allocation of income and deduction among taxpayers (Treasury Regulations §1.482-1), profi t level indicators (1.482-5(b)(4)), methods to determine taxable income in connection with a cost-sharing arrangement (1.482-7), and CPM (1.482-9T(f)).

The regulations under 1.482-1(f) state that averaging is the default method; however, if a taxpayer can show that pooling provides a more reliable result, the taxpayer may rely on pooling of data. However, the APA program has issued training materials that suggested the pooling of fi nancial data is appropriate only in limited circumstances.

The application of fi nancial adjustments to comparable data (e.g., working capital adjustments, asset intensity and country risk adjustments) is optional, if justifi able. The regulations allow adjustments that increase the comparability and reliability of the arm’s-length analysis.


The IRS does not have a priority of transfer pricing methods, and the analysis should be based on the best method rule per Treasury Regulations §1.482-1(c). The best method rule is based on an economic analysis. Unspecifi ed methods may also be used if they are proved to be more reliable than the specifi ed methods. This position regarding transfer pricing methods is provided in the US transfer pricing regulations.


The United States has a formal APA program for both unilateral and bilateral APAs. Approximately 130 APA applications were received in 2011; the average number of applications received annually is around 120. The long-term trends show an increasing number of applications. The tax authority has discretion whether to accept an APA request or not.

The IRS estimates that there are approximately 445 applications currently in process. There are approximately 27 dollar fi les (pre-submission), 229 bilateral APAs and 76 unilateral APAs in the due diligence phase, and 113 bilateral APAs under consideration by the competent authorities.

Of the current caseload, roughly 80% are bilateral or multilateral and 20% are unilateral. For bilateral APAs, the top countries involved are Japan, Canada, Korea, Germany and the United Kingdom. The average time required to complete an APA (both for bilateral and unilateral APAs), up from 2010, was an average of 40 months and 21 days.

On 27 July 2011, the IRS announced that, as part of its ongoing efforts to improve the agency’s international operations, the APA Program will be combined with the Mutual Agreement Program within the Large Business and International Division. The IRS believes that the restructuring of the APA Program will be a signifi cant step in improving the overall IRS approach to transfer pricing. It aims to achieve effi ciency by streamlining

the APA process and is also looking at ways to triage cases so that each case receives the optimum level of analysis. The IRS reports that it has received a fair number of cases in which the taxpayers have been neither transparent nor cooperative, hindering the APA process. It has also increased its resources with a hiring effort over the last year and expects that the cases will be moving more quickly in the near future.


In 2011, 166 transfer pricing competent authority cases were received, and, with the exception of 2010, the number of cases received annually has steadily increased. In 2011, 137 cases were resolved. The average time for a case to be resolved was 849 days in 2011. By value, less than 8% of the proposed adjustments go unresolved. 2011 saw a signifi cant rise in unresolved cases (approximately 21%) due to no relief being granted in a small number of signifi cant cases. The top three jurisdictions involved annually in transfer pricing MAPs are Japan, Canada and Germany.

Payment of tax and interest is suspended while MAP is underway.


In the United States, fewer than six ongoing transfer pricing disputes, where the tax administration has completed assessment and communicated the order, are undergoing litigation, while 686 cases are under MAP.



Jose A [email protected]+58 212 905 66 59Venezuela*


There is a special unit in the Servicio Nacional Integrado de Administración Aduanera y Tributaria (SENIAT) to handle transfer pricing reviews. The transfer pricing division is decentralized, with the main enforcement areas in the East, West, Center and Capital District.

There is currently no information available with respect to the number and makeup of transfer pricing FTEs in the SENIAT. However, it is estimated that 80% of the resources are based in the central unit. The number of FTEs has increased by approximately 20% from two years ago. The size of the unit is expected to grow by another 20% over the next two years.

Approximately 30% of the transfer pricing FTEs are transfer pricing specialists who deal with major taxpayers and more complex cases. The rest are generalists.Most of the resources (60%) have degrees in tax management, while the rest have accounting (30%), legal (5%) or economics (5%) backgrounds. In recent years, resources have become more qualifi ed to perform transfer pricing examinations, have gained experience and skills(e.g., with respect to the use of databases and methodology), and have participated in training locally and abroad.

The tax authority relies on other tax administrations, such as the Mexican tax authority, for training purposes.

Industry focus

The automotive, consumer products, oil and gas, and pharmaceuticals industries all receive specifi c transfer pricing scrutiny. Signifi cant industry activity in Venezuela, industry profi tability, and sudden reductions in income tax payments by certain companies or industries all have been relevant factors in driving the industry focus. The selection of industries for specifi c scrutiny is not currently widely communicated to taxpayers.

Geographic focus

SENIAT does not specifi cally target transactions with certain jurisdictions for transfer pricing reviews. However, the current review caseload involves (in order of caseload) the United States, Germany, the Netherlands, Switzerland and Panama.


Transactions targeted for transfer pricing reviews are fi nancial transactions (30% of the current caseload); intangible property (30% of the current caseload); tangible goods (20% of the current caseload); and technical assistance, engineering/technology services and other professional services (20% of the current caseload).


Venezuela has a transfer pricing penalty regime in place, as well as processes to help ensure consistent application of transfer pricing penalties. Over the last two years, penalties have been assessed in more than three-quarters of proposed transfer pricing adjustment. Of these, the average penalty rate has been more than 100% of the additional tax. Over the next two years, it is expected that the assessment of penalties will increase.


Case selection for transfer pricing audits is governed by a central decision-making body. The volume and nature of the related-party transactions; taxpayer profi tability; and VAT, employment, customs or other indirect tax reviews (in that order) are all relevant factors in initiating reviews, followed by inconsistencies between transfer pricing reports, the income tax return, and the transfer pricing informative return.


Transfer pricing enforcement resources work in an integrated way with indirect tax specialists and actively share information. There is a requirement to use the same transfer price for corporate direct and indirect tax purposes.


Comparable data

There are currently no requirements for local country comparables. For regional comparable data, the preferred approach is to use the same continent as the taxpayer; however, the use of global data depends on the nature of the transaction and the taxpayer’s industry.

When presenting comparable data, there are requirements for the number of years of fi nancial data under consideration and for the method of calculating the allowable arm’s-length range. However, there are no specifi c requirements with respect to the use of the weighted or simple average, selection of profi t level indicator, or the pooling or averaging of fi nancial data. Financial adjustments to comparable data (e.g., working capital, asset intensity and country risk adjustments) are allowed if justifi able.


Venezuela publicly prioritizes the CUP method as the best method in comparison to other methods. All other traditional methods, apart from the CPM, are considered appropriate. Local rules with respect to non-traditional methods follow those of the OECD TransferPricing Guidelines.


A formal program for both unilateral and bilateral APAs is currently available as a legislatively drawn right to taxpayers (stated in the Income Tax Law). However, it has become impractical for most Venezuelan taxpayers. As a result, no applications are currently received.

According to the legislative provisions, the APA must be completed within 12 months of submission to the SENIAT and is subject to the submission of documentation prior to the present application.


No competent authority cases or MAP applications have been received.


The effectiveness of transfer pricing reviews is measured by the increase in tax yield, the percentage of review cases where an adjustment is made to taxpayer income, and the amount of the adjustment per FTE.


Currently, of ongoing transfer pricing cases, 50% are at the domestic appeal stage (preceding court action), and about 10% are in litigation (a judicial appeal with tax courts). Of the pending cases, approximately 80% are at the domestic appeal stage, and almost all of them are in litigation.


2012 global transfer pricing tax authority surveyAsia–Pacifi c countries



Argentina 14

Brazil 16

Canada 18

Chile* 22

Colombia 24

Ecuador 26

Mexico* 28

Peru* 30

United States 31

Venezuela* 34

Australia 38

China* 41

India 43

Indonesia 45

Japan 47

Korea 49

Malaysia 51

New Zealand 53

Singapore* 55

Taiwan 57

Thailand* 59

Vietnam 60

Austria 66

Belgium 69

Czech Republic* 72

Denmark 74

Egypt* 76

Estonia 77

Finland 79

France 81

Germany 84

Hungary 86

Israel 89

Italy* 90

Kazakhstan* 93

Kenya 95

Latvia 97

Lithuania 99

Netherlands 101

Norway 103

Poland 105

Portugal* 107

Romania 109

Slovak Republic 111

South Africa* 113

Spain 115

Sweden 117

Switzerland 119

Turkey 122

United Kingdom 124



Paul [email protected]+61 2 9248 4952Australia


Within the Australian Taxation Offi ce (ATO), the Jurisdictional Income Practice (JIP) is responsible for coordination of the transfer pricing program. There are 12 to 15 FTEs in the JIP. The JIP takes the lead role in negotiating MAPs and bilateral APAs, in representing Australia at Working Party No. 6 (Taxation of Multilateral Enterprises) at the OECD, in developing the ATO’s view in respect of signifi cant transfer pricing and profi t reallocation issues, and in providing specialist input to and strategic oversight of transfer pricing litigation, audits, APAs and risk reviews.

There are approximately 85 FTEs supporting the JIP, including approximately 35 economists and 50 fi eld offi cers. The JIP is also supported by a number of fi eld auditors who are currently receiving specialized training.

Approximately 40% of the ATO’s transfer pricing resources are accountants, 30% are economists and 20% are lawyers. Approximately 40% of the resources are transfer pricing specialists with a strong technical background in transfer pricing. The fi eld staff resources involved in transfer pricing are committed to a two-year training program, and they spend an increasing proportion of their time on transfer pricing work to build their expertise in the area.

Industry focus

There is no formal program for prioritizing any particular industry or industries for review. In practice, factors such as whether or not the industry has signifi cant activities in Australia and the industry’s profi tability are taken into account in identifying taxpayers for scrutiny. The industries currently under focus by the ATO are the automotive, banking and capital markets; consumer products, mining and metals, and pharmaceutical industries; and marketer distributors and service providers.

Geographic focus

Geographic considerations are not generally drivers for the selection of taxpayers for transfer pricing review. Transactions between Australia and its major trading partners (such as Japan, the United States, the United Kingdom, New Zealand and Korea) represent the majority of the current caseload of transfer pricing reviews. However, transactions with companies in low-tax jurisdictions can be a factor in determining whether or not the ATO reviews a transaction.


The ATO has specifi cally identifi ed the following transactions that are the focus of transfer pricing reviews (in order of prevalence as per the current caseload of transfer pricing reviews):

• Tangible goods transfers

• Intangible property transfers

• Intragroup services

• Supply chain restructurings

• Financial transactions


The ATO has the power to impose transfer pricing penalties, and it has put in place administrative requirements and published rulings to ensure consistent application of the transfer pricing penalty provisions. The penalty provisions do not apply in cases where losses are reduced or eliminated and the assessment remains non-taxable. Taxpayers have objection and review rights with respect to the penalty component.

Over the last two years, penalties have been applied in 25% to 50% of cases where transfer pricing adjustments were assessed. Where penalties are imposed, they generally range up to 25% of the additional tax, in addition to a general interest charge of 12% to 14%.

A consultation paper dealing with the review of Australia’s transfer pricing rules was released on 1 November 2011, which indicates that the Australian government may introduce specifi c penalties for failure to maintain contemporaneous transfer pricing documentation.



Jesper [email protected]+61 2 8295 6440


Transfer pricing audits are generally instigated centrally and may initially involve either a comprehensive risk review (CRR) or a transfer pricing risk review (TPRR). However, the selection of the taxpayer and the scope of the transfer pricing audit are typically driven by various considerations, such as:


• Whether there is evidence of business restructuring

• The outcome of a risk-based assessment by the ATO

• The nature and volume of the taxpayer’s related-party transactions

The ATO relies on related-party disclosures made by taxpayers, along with the income tax return (Schedule 25A) supplemented by third-party data, to identify particular transfer pricing risks in the taxpayer population.


The work of ATO’s transfer pricing enforcement resources is not integrated with that of indirect tax specialists. There is also no requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes. In addition, if the ATO makes a transfer pricing adjustment to reduce the cost of goods sold, there will not necessarily be an adjustment to the amount of customs duty paid.

Comparable data

Typically, local country comparables are preferred. Foreign comparables can be accepted only if they are from a comparable economy and reliable fi nancial data is available.

Financial data for four years should be used. The use of the interquartile range is dependent upon the reliability of the comparable data. A weighted average is preferred to a simple average. Operating margin is the generally preferred profi t level indicator. The pooling method is acceptable in cases where there is limited data or data is missing for some of the years.

There is no formal or mandatory guidance with respect to adjusting comparable data. Such adjustments are optionaland will likely be supported by the ATO where they enhance comparability tothe tested party.


Australia does not identify any specifi c hierarchy of transfer pricing methods; it recommends the use of the most appropriate method, in line with the OECD Transfer Pricing Guidelines. In addition to the methods outlined in the OECD Transfer Pricing Guidelines, the ATO also recognizes cost contribution arrangements and a 7.5% safe harbor return for non-core services.


Australia has a formal APA program, which is accessible to taxpayers subject to the ATO’s discretion.The APA team receives approximately 50 to 70 APA requests from taxpayers per year, and 85 applications were in process as of 30 June 2011. Bilateral or multilateral APAs represent approximately 40% of the current caseload. The average duration of the APA process is approximately 9 months in the case of unilateral APAs and 21 months in the case of bilateral APAs. Top treaty partners that have concluded bilateral APAs with Australia are Japan, the United States, the United Kingdom and New Zealand.In addition, approximately six to eight cases of double taxation are resolved annually under the competent authority procedure. The average duration of such proceedings can range up to two years.During 2011, the ATO implemented recommendations from an independent third–party review of its APA program to improve the effectiveness and effi ciency of the program. The ATO undertook a process of APA co-design with industry and the professionals, which resulted in the release of new guidelines.1

1 Law Administration Practice Statement PS LA 2011/1: ATO’s Advance Pricing Arrangement Program.


Australia (cont’d.)


Taxpayers who have international related– party transactions are required to report them in Schedule 25A, together with their income tax returns. The ATO has tracked the effective tax rate of Schedule 25A lodgers to the remaining population of taxpayers, and the results suggest that the two populations are starting to converge.

The ATO is also implementing a balanced scorecard reporting process to monitor the performance of the APA program, as recommended in the APA Review.


Australia’s domestic transfer pricing legislation was found to be out of alignment with international transfer pricing practice in recent litigation decided by the Full Federal Court of Australia.2 As a result, the Australian government released a consultation paper on 1 November 2011 aimed at better refl ecting the arm’s-length principle in its domestic transfer pricing rules and promoting the interpretation of those rules with international guidance, in particular the OECD’s 2010 Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.New transfer pricing legislation is expected to be introduced into the Australian parliament during 2012.


The current global fi nancial crisis and the implementation of centralized business and tax models have had an effect on the Australian transfer pricing environment. In particular, because of signifi cant inbound investment in Australia and the corporate income tax derived from foreign-based multinationals in Australia, the ATO will be alert to transactions and arrangements with the potential to erode the tax base.

2 Commissioner of Taxation v SNF (Australia) Pty Ltd [2011] FCAFC 74



Jessica [email protected]+86 21 2228 2115China*


The State Administration of Tax (SAT) has an anti-avoidance division under the International Tax Department that specializes in transfer pricing, while each local state tax bureau (STB) at the provincial or municipal level has a team specializing in transfer pricing. Nationwide, there are approximately 228 transfer pricing specialists, of which 6 are based in the central unit at the SAT. The remaining resources are at the local STB level. There are also in-the-fi eld tax offi cials who are not full-time transfer pricing specialists but who do have some involvement in transfer pricing matters. Examinations are typically led by transfer pricing specialists. Most of these resources have law or accounting backgrounds, while the economist task force is gradually being established.

Two years ago, there were approximately 100 transfer pricing FTEs, and rapid growth is expected in the next two years. Over the next two years, more resources with an economics background are expected to be added, and the technical and language abilities of transfer pricing inspectors are expected to improve.

An exchange program with major trade partners exists, which allows tax inspectors to work in other jurisdictions and international tax organizations. However, training is primarily conducted internally.

Industry focus

The automotive, consumer products, pharmaceuticals, real estate, hospitality and logistics industries all receive specifi c transfer pricing scrutiny from the SAT. The signifi cance of the industry’s activities in China and industry profi tability drive the selection of these industries for particular scrutiny. The industries selected for scrutiny are widely communicated to taxpayers, and the list of industries is reviewed annually.

Geographic focus

The SAT does not specifi cally target transactions with certain jurisdictions for transfer pricing review. The majority of current transfer pricing reviews involve transactions with (in order of caseload) Japan, Korea and Taiwan.


Transactions involving tangible goods, intangible property, intragroup services, fi nancial transactions, cost-sharing/cost-pooling arrangements and business restructurings are all targeted for transfer pricing reviews.

Tangible goods transactions account for the majority of transfer pricing cases currently under review, while intragroup services and intangible property transactions have also attracted a great deal of attention.


There is a general transfer pricing penalty regime in place that applies interest to underpaid taxes. The interest is calculated according to the base interest rate issued by the Central Bank, and an additional 5% penalty interest may apply if the company does not prepare transfer pricing documentation reports as required.

Over the past two years, more than three-quarters of proposed transfer pricing adjustments have resulted in the assessment of penalties. Where these penalties have been assessed, the average penalty rate has been under 25% of the additional tax. Over the next two years, the assessment of penalties is expected to increase.


Each municipal STB proposes audit cases and centrally registers them with the SAT. Taxpayer profi tability; evidence of business restructurings; risk-based assessments by the SAT; the nature and the volume of related–party transactions; previous tax audits conducted on the taxpayer; and value-added tax, employment, customs or other indirect tax reviews are all currently relevant factors that initiate transfer pricing reviews. In addition, transfer pricing reviews are part of the standard audit cycle/program.


China (cont’d.)


Transfer pricing enforcement resources occasionally work in an integrated way with indirect tax specialists and actively share information. However, there is no stated requirement that the same transfer price be used for both corporate direct and indirect tax purposes.

Comparable data

Chinese comparables are strongly preferred, but regional comparable data is permissible and should be from the same continent as the taxpayer.

When presenting data for comparable companies, there are requirements for the number of years of fi nancial data under consideration, the method for calculating the allowable arm’s-length range, and the use of weighted average versus simple average, as well as the method of determining the proper profi t level indicator. The SAT approves of fi nancial adjustments to comparable data (e.g., working capital, asset intensity and country risk adjustments), provided that they are justifi able.


A formal program for both unilateral and bilateral APAs is available. On average, more than 120 applications are received per year. Right of access is at the discretion of the SAT and depends on the annual related–party transaction exceeding RMB40m, compliance in taxes fi lings and compliance in the preparation of transfer pricing documentation.

There are currently between 120 and 130 applications in process, the majority of which are bilateral APAs. Of these, agreements involving Japan, Korea and Denmark represent the majority of cases.

The average completion time is 12 months for a unilateral APA and 24 months for a bilateral APA.


The majority of the MAP caseload involves agreements with Japan and Korea. Relevant taxes and interest payable should be fully paid before a MAP comes to resolution.



Vijay [email protected]+91 11 6623 3240India


Transfer pricing audits are undertaken by the Directorate of Transfer Pricing and International Taxation headed by the Director General of International Taxation (DGIT) who reports to the Central Board of Direct Taxes (CBDT). Directorates have been set up in eight cities across the country, and each has jurisdiction over transfer pricing audits of taxpayers domiciled in its respective location.

There are 70 transfer pricing offi cers (TPOs) posted at different directorates. The transfer pricing administration is decentralized, and the directorates in various locations lead transfer pricing audits. The directorate reports to the DGIT, based in New Delhi. Two years ago, there were approximately 50 TPOs. This number is expected to double by 2014.

All TPOs are from the Indian Revenue Services. They are regularly trained on, and are responsible only for, transfer pricing matters.

TPOs have in the past had training or have shared experiences with other tax administrations, such as those in Korea and Canada. There have alsobeen trainings with the OECD.

Industry focus

Transfer pricing examinations do not have any particular industry focus.

Geographic focus

The CBDT does not specifi cally target transactions with certain jurisdictions for transfer pricing reviews. However, the 2011 Finance Bill introduced an anti-avoidance provision in the IndianTax Law to discourage transactions with persons located in countries or territories that do not effectively exchange information with India (under the Notifi ed Jurisdictional Area).

Transaction focus

Transfer pricing examinations do not have any particular transaction focus.


India has a specifi c transfer pricing penalty regime. While penalties are prescribed under law, there is no consistent application. Evolving jurisprudence will gradually help settle this matter. In the last two years, under a quarter of proposed transfer pricing adjustments have resulted in an assessment of penalties.


Case selection for transfer pricing audits is not governed by a central decision-making body. Transfer pricing reviews are usually initiated on the basis of the volume of related-party transactions undertaken by taxpayers. A circular prescribes the threshold of aggregate transaction value beyond which cases mandatorily have to be referred for a transfer pricing audit.


TPOs do not work in an integrated way with indirect tax specialists. However, a joint working group comprising senior offi cers from the Income Tax and Customs Departments was constituted to study transfer pricing in the context of income tax and customs laws and to suggest interdepartmental cooperation measures.

There is currently no requirement to use the same transfer price for corporate direct and indirect tax purposes.


India (cont’d.)

Comparable data

The use of local comparable data is case-specifi c. Based on Ernst & Young's experience, for Indian tested parties, local comparables are required, and for foreign tested party, overseas comparables are acceptable. In the case of a foreign tested party, regional comparable data covering the same or similar geographical region is permitted. There are no specifi c provisions in the legislation for determination of permissible regions.

When presenting comparable data, there are various requirements. The law provides for the use of data for the year under review and up to two years prior to it. However, the tax authority uses only the latest available single-year data. With respect to the method for calculating the allowable arm’s-length range, the 2011 Finance Act states that instead of a 5% variation (as was applicable previously), the allowable variation will be decided by the central government. The government has not currently prescribed any range. No concept of the arm’s-length range is currently applicable. The simple average is preferred to the weighted average, and there are methods to determine the proper profi t level indicator. The tax authority does not support the pooling of fi nancial data.

The legislation allows adjustments to comparable data, but only if they can be computed reasonably and accurately.


There is currently no priority of transfer pricing methods, and no method is method considered inappropriate. However, of traditional transfer pricing methods, the CPM and the comparable profi t split method are not provided for in the legislation.


India does not currently have a formal APA program in place. Even so, there are alternative advanced ruling options available.


While specifi c data regarding MAPs is not currently available, India has entered into a memorandum of understanding with certain countries containing an agreement that the collection of tax demand and interest would be suspended while the MAP is underway.


There is currently no formal mechanism in place to measure the effectiveness of transfer pricing reviews.


Based on Ernst & Young’s experience, approximately 1,500 cases were pending in litigation as of February 2011. Some of these cases may have since been resolved. However, another round of transfer pricing audit examinations was completed in October 2011, and adjustment cases stemming from these would add to the pending list. It would seem that there are no cases currently ongoing or pending in arbitration. Data with respect to MAPs is not publicly available.



Carlo [email protected]+62 21 5289 5000Indonesia


Transfer pricing resources are generally decentralized in Indonesia as tax auditors in various tax offi ces are qualifi ed and have been empowered to carry out transfer pricing reviews and make the required decisions. An exception is the team of eight employees responsible for handling APA applications, whose operations are centralized. Another group handling transfer pricing audits is in the process of being formed in the central tax offi ce. Tax offi cers conducting transfer pricing audits are decentralized at the local tax offi ces.

The transfer pricing resources in the central tax offi ces are specialists who focus on transfer pricing issues. Two years from now, transfer pricing resources are expected to increase as the need for transfer pricing reviews increases.

The Indonesian tax authority consults external resources when required and relies on other tax administration for its training needs. It has obtained the aid of the Australian, Chinese and Japanese tax authorities, as well as the OECD, for training.

Industry focus

The Indonesian tax authority places special scrutiny on the transfer pricing of the mining, metal and crude palm oil production industries. The list of industries under specifi c focus isreviewed annually.

Geographic focus

The Indonesian tax authority does not specifi cally target transactions in certain jurisdictions.


Particular transaction types are not targeted for transfer pricing reviews; however, intangible property, intragroup services, cost-sharing and cost-pooling arrangements, and tangible goods transactions (in that order) have been audited since 2008.


No specifi c transfer pricing penalties have been established, and penalties are imposed in accordance with local tax regulations. In the last two years, the percentage of proposed transfer pricing adjustments where penalties have been assessed is between 75% and 100%. Penalties can reach a maximum of 48% of the outstanding tax liability.


The case selection for a transfer pricing audit is not governed by a central decision-making body. Claims for a tax refund or the standard audit cycle/program may trigger transfer pricing reviews.


The transfer pricing enforcement resources are not required to work in an integrated way with the indirect tax team. However, sharing of information between tax auditors and customs auditors is possible. Different valuation methods are used for corporate direct tax and indirect tax purposes. But in some cases, transfer pricing reports are used by customs authorities.

Comparable data

The Indonesian tax authority does not require local country comparables; however, comparables from the same continent are required, i.e., Pan-Asian comparables.

In preparing and presenting comparable data, there are no specifi c requirements in relation to the number of years of fi nancial information analyzed; however, three years of fi nancial data are generally observed. The regulations require the use of interquartile range. Financial adjustments to comparable data are optional, if justifi able.


The Indonesian tax authority no longer has a hierarchy of transfer pricing methods. Previously, PER-32 determined the hierarchy of transfer pricing methods.


Indonesia has a formal APA program for both unilateral and bilateral APAs, and there is no limitation on the number of applications received annually. Access to the APA program is discretionary, and taxpayers must demonstrate the necessity of entering into an APA. Currently, there are seven letters of intent in process. The current caseload comprises only unilateral APAs.

There is no specifi c provision in the regulations of the time frame required for completion of APAs. For unilateral negotiations, the conclusions of an APA may take up to seven months. For bilateral APAs, negotiations may take two to three years.


Indonesia (cont’d.)


The time required to resolve a MAP depends on the negotiations between competent authorities. In the event that the implementation of MAP generates mutual agreement before the issuance of decision on application for correction or application for reduction or for cancellation of a tax assessment letter, the mutual agreement shall be set out in decision of the DGT on application for correction or application for reduction or for cancellation of tax assessment letter.

If MAP does not generate mutual agreement and the taxpayer fi les an objection application to the DGT or an appeal application to tax court, the DGT will stop the implementation of MAP and notify the taxpayer in writing within a maximum of 15 calendar days of the fi ling of the objection or appeal application.


The Indonesian tax authority measures the effectiveness of its transfer pricing reviews based on increased tax yield, the percentage of reviews where an adjustment is sustained on appeal andthe percentage of taxpayers in compliance with documentation requirements. The statistics on average yield per investigation and penalties isnot published.



Kai [email protected]+81 33 506 1356Japan


Transfer pricing examinations in Japan are centrally coordinated by the National Tax Agency (NTA) under the Ministry of Finance. The Review Divisions (Large Enterprise Examination) of regional tax bureaus (RTBs) are in charge of reviewing transfer pricing cases. The Large Enterprise Examination Division monitors management and operation of these reviews through the RTBs.

In rare cases, the NTA consults and relies on external resources, including consultants, industry specialists and expert witnesses. It does not currently rely on other tax administrationsfor training.

Industry focus

Transfer pricing reviews in Japan do not currently have any specifi c industry focus.

Geographic focus

Selection for transfer pricing audit is not currently based on geographic considerations.


The decision to initiate a transfer pricing review is not based on transaction type.


Japan does not have a specifi c transfer pricing penalty regime. Only a general penalty regime applies. Over the past two years, over three-quarters of proposed transfer pricing adjustments resulted in the assessment of penalties (on the grounds of underreported income and similar cases). Where these penalties have been assessed, the average penalty rate has been less than 25% of the additional tax.


Case selections are not governed by a central decision-making body and are made on a case-by-case basis.


Transfer pricing examination resources do not currently work in a directly integrated way with indirect tax specialists. There is no requirement that the same transfer price be used for corporate direct and indirect tax purposes.

Comparable data

The NTA’s preference for local country comparables depends on the facts and circumstances of a case, e.g., the degree of market differences that would affect comparability.

There is no formal or mandatory guidance provided about adjustments to comparable data. However, it is recommended that the comparable

data be adjusted if comparables exhibit material differences with the tested party. The Administrative Guidelines provide some practical case examples forsuch adjustments.


There is no longer a hierarchy of transfer pricing methods. While all the traditional methods are considered appropriate, there is no provision for the use of the CPM.


A formal unilateral and bilateral APA program is currently accessible to all taxpayers. In practice, the NTA reserves the right to reject APA applications in certain cases (e.g., where a taxpayer fails to submit information required for APA review) or if the application is deemed to be part of a tax avoidance scheme.

The APA program is based upon administrative directives, which do not entitle taxpayers to any legal rights. Past experience indicates that taxpayer applications are very rarely denied.

The APA program receives on average over 100 requests annually. There are currently approximately 300 applications in progress. Of the current caseload, the majority are bilateral. The average completion time for a bilateral APA is 26 months. APAs involving the United States, Australia and the United Kingdom formed the majority of the caseload for the year ended June 2010.


Japan (cont’d.)


The NTA receives between 150 and 180 transfer pricing competent authority cases annually. For the year ended June 2010, the cases took an average of 25 months to resolve. As with the APA program, agreements involving the United States, Australia and the United Kingdom formed the majority of MAP caseload for the year ended June 2010. While a case is pending for competent authority resolution, taxpayers are able to apply for tax relief.


While the NTA publishes statistics on increases to taxable income, it does not disseminate information on yield. Measuring the performance of transfer pricing reviews, therefore, is diffi cult.


There is currently no information available with respect to ongoing or pending transfer pricing disputes at either the domestic appeal (preceding court action) or litigation stages. As of January 2012, there are no records of any casein arbitration.



Rap [email protected]+82 2 3770 1001Korea


The National Tax Service (NTS) does not have a centralized transfer pricing group. The International Tax Investigation Division of the NTS develops overall tax audit policy, including transfer pricing.

Information on tax authority resources involved in transfer pricing examinations is not readily available. The number of transfer pricing resources is expected to increase over the next two years, but the number is diffi cult to estimate. The NTS occasionally invites opinions and comments from external industry experts.

Industry focus

The NTS does not target particular industries for scrutiny. Signifi cant activity in Korea and industry profi tability rank high among the factors that driveNTS scrutiny.

Geographic focus

The NTS does not specifi cally target transactions with certain jurisdictions for transfer pricing reviews. For benefi cial ownership and treaty shopping purposes, Labuan is considered a high-risk jurisdiction.


Tangible and intangible property transactions and intergroup service charges into Korea are generally reviewed in a tax audit. The NTS has also recently focused on guarantee fees for Korea-based multinational companies.


There is no specifi c transfer pricing penalty regime; however, the Korean

transfer pricing regulations provide that when a transfer pricing adjustment has been made in accordance with the Law for Coordination of International Tax Affairs (LCITA) that results in additional corporate income tax, underreporting and underpayment (or interest) penalties are calculated in accordance with the Korean Corporate Tax Law. The additional corporate income tax, underreporting and underpayment penalties will also be subject to a resident surtax.

The NTS International Investigation Division, as well as international tax divisions of the regional tax offi ces, review signifi cant transfer pricing assessments through internal ad hoc transfer pricing review committees.


The case selection for a transfer pricing audit is not governed by a central decision-making body. Transfer pricing reviews are generally part of a standard audit cycle or are initiated based on previous audits of the taxpayer.


Transfer pricing enforcement resources do not work in an integrated way with indirect tax specialists and do not actively share information. There is pending legislation that will allow formal information exchange between the tax authorities and the customs authorities. Other pending legislation will allow a taxpayer to refer inconsistent determinations between the two authorities to a mediation panel to be established by the Ministry of Strategy and Finance. There is currently no formal requirement to use the same transfer price for corporate direct taxand indirect tax purposes.

Comparable data

If appropriate local country comparables are available, they are preferred to non-local comparables. Regional comparable data is permissible, but the determination of the appropriate region would depend on the facts.

When presenting comparable data, the interquartile range must be calculated in accordance with NTS Interpretation of the LCITA, which is similar to the method used by the Internal Revenue Service in the United States. The use of the weighted average is preferred to the simple average.

The NTS allows adjustments to comparable data (e.g., working capital, asset intensity and country risk adjustments), if they are justifi able.


Amendments to the LCITA made in December 2010 replace the prior hierarchical approach with the selection of the most reasonable method. Prior to this amendment, traditional transactional methods (i.e., the CUP method, the RPM, and the costplus method) had priority over the transactional profi t methods (i.e., the profi t split method and the TNMM), with no internal priority within the traditional transactional methods and the transactional profi t methods.

The NTS does not consider any method inappropriate since the propriety of the method should be reviewed with respect to the relevant facts in connection with the transaction. Other reasonable methods can be applied when all other listed methods are inapplicable.


Korea (cont’d.)


The NTS has a formal APA program that includes both unilateral and multilateral APAs. The formal APA process was introduced on 1 January 1997. Since APAs are being encouraged in Korea, APA applications are increasing, and the APA offi cials are making efforts to decrease the time for concluding APAs. The number of applications received by the NTS increased from 35 in 2008 to 43 in 2010. There is no formal process for the NTS to reject an APA application, but the NTS may discourage the fi ling of an APA through a prefi ling conference. The use of prefi ling process is not mandatory, but the NTS has become stricter in requiring them before a formal APA fi ling. Currently, 97 cases are pending with the NTS through 2010; approximately 70% of these cases were bilateral APAs, and 30% were unilateral APAs.

Through 2010, the United States, Japan and China (with the United Kingdom a close fourth) were the top countries involved in bilateral APAs. The average completion time in 2010 was one year and seven months for a unilateral APA and two years and three months for a bilateral APA.

According to the LCITA, unilateral APAs shall be completed within two years of the application date.

The NTS is taking measures to speed up unilateral APAs by ensuring applicants provide the required information in a timely manner and by increased use of the prefi ling process.


Taxpayers can request a suspension of tax assessment as well as suspension of tax payment while a MAP claim is in process; however, whether such suspension is granted is determined case by case, and the suspension may only be available in limited circumstances.


There were amendments to the Korean transfer pricing regulations in December 2010 to refl ect recent changes to the OECD Transfer Pricing Guidelines.



Sockalingam [email protected]+6 03 7495 8224Malaysia


Transfer pricing resources are centralized at the Inland Revenue Board (IRB) headquarters in Kuala Lumpur at the Multinational Tax Department (MTD).The MTD currently comprises 15 FTEs.

All of the transfer pricing resources dealing with cross-border transactions are based in the central unit. There are fi ve FTEs dealing with transfer pricing among local entities as well as smaller cross- border cases. Two years ago, the MTD had only nine FTEs involved in transfer pricing examinations. There are expected to be 30 FTEs by the end of the fi rst quarter of 2012.

All FTEs in the MTD have received extensive transfer pricing training, and most have an accounting background.

The MTD collaborates with representatives of the OECD and the Japan International Cooperation Agency for training of personnel. Training of MTD personnel is carried out by the OECD, which in turn may provide resources, including those from tax administrations in Australia, Germany, Japan, the Netherlands, New Zealand, the United Kingdom and the United States.

Industry focus

There is no specifi c focus on industries. Instead, transfer pricing scrutiny is based on a risk analysis using data provided on the tax return (Form MNE 1/2011) or other resources. Signifi cant industry activity in Malaysia, the importance of intangible property to the industry and industry profi tability are all factors that have been relevant to the MTD’srisk analysis.

Geographic focus

Transfer pricing scrutiny is dictatedby a risk analysis. The MTD does not currently target transactions for review based on jurisdiction. The caseloadof transfer pricing reviews generally mirrors Malaysia’s business partners(i.e., Japan, the United States, Australia and Singapore in the same proportions).


The MTD’s risk analysis does not target specifi c transactions. However, the vast majority (60%) of cases involve tangible goods, intragroup services (35%) and intangible property (5%).


There are no specifi c transfer pricing penalties. The MTD does provide specifi c guidance on the range of penalties applicable in the event of transfer pricing adjustments.

Over the past two years, penalties were assessed for more than three-quarters of the proposed transfer pricing adjustments. These penalties ranged between 25% and 50% of the additional tax. Over the next two years, the rates of penalties applied are expected to remain the same. However, as awareness and compliance levels increase, there may be fewer adjustments requiring the imposition of penalties.


The cases selected for transfer pricing audits are determined by a committee within the MTD. The selection process is based on a risk analysis.


Transfer pricing enforcement resources do not currently work in an integrated way with indirect tax specialists, but there have been discussions of greater collaboration between the two agencies in the future.

There is currently no requirement that the same transfer price be used for corporate direct and indirect tax purposes.

Comparable data

The Malaysian tax authority has a strong preference for local comparables and will likely accept Pan-Asian comparables only if it can be demonstrated that a search for local comparables yielded insuffi cient or no reliable results. The MTD would consider accepting the Association of South East Asian Nations countries, or Pan-Asian and global comparables, based on the relative merits on acase–by–case basis.

There are no formal regulations or legislation with respect to presenting comparable data. In practice, the MTD generally accepts methods of calculating the arm’s-length range and determining appropriate profi t level indicators based on the OECD Transfer Pricing Guidelines. The MTD generally examines fi nancial data on a year-on-year basis (i.e., tested party results from a particular year are compared to results of the comparables for that particular year).

The application of fi nancial adjustments (e.g., working capital, asset intensity and country risk adjustments) to comparable data is allowed if the adjustmentsare justifi able.


Malaysia (cont’d.)


The CUP method, RPM, cost plus method, TNMM, and residual profi t split method are all acceptable methods. The CPM and the comparable profi t split method are not accepted. There is currently no guidance permitting the use of other methods.


A formal program is currently available for both unilateral and bilateral APAs. On average, approximately nine applications are received per year. There are fi ve applications currently in progress. While a program exists for both APA types, all the applications currently received are for unilateral APAs. The average completion time for either APA process is between one and two years. Taxpayers are free to apply for either program; however, their participation is subject to the taxpayer fulfi lling the appropriate criteria and to the tax authority’s approval.


There have been only three competent authority cases received in the past three years. Generally, between 18 and 24 months are required to resolve these cases. Currently, only one case remains unresolved. Agreements with Japan account for the majority of applications.

Malaysian legislation requires taxpayers to make the settlement of the balance of tax assessed, including assessments arising from transfer pricing adjustments even though the taxpayer intends to appeal the assessment by the IRB via a MAP.


Performance is measured by a combination of tax yield and level of compliance. Statistics on MTD performance are submitted every year. However, these results are not necessarily individually refl ected in the overall Annual Report of the IRB, which is available to the public.


There are currently no cases undergoing domestic appeal under transfer pricing legislation set out in Section 140A of the Income Tax Act of 1967. There are no cases undergoing litigation. There are three MAPs currently in progress. Thereis no process for binding arbitrationin Malaysia.



Mark [email protected]+64 9 300 7085New Zealand


Inland Revenue administers taxes in New Zealand. Within Inland Revenue, transfer pricing reviews are carried out on a centralized basis by transfer pricing specialists. All four transfer pricing specialists are centrally located. The number of resources has remained unchanged over the last two years.

All four transfer pricing specialists have a strong technical background in transfer pricing. Three FTEs are accountants, and one is an economist. Inland Revenue does not use consultants, industry specialists or expert witnesses in performing transfer pricing examinations. However, Inland Revenue may call upon an expert to witness in the event of litigation. Inland Revenue does not rely on any other tax administrations for its training needs.

Industry focus

Transfer pricing audits in New Zealand do not have a specifi c industry focus. The selection of a taxpayer for audit depends on an overall risk assessment as opposed to industry participation.

Geographic focus

Geographic considerations are not drivers for the selection of taxpayers for transfer pricing review. Based on the current caseload of transfer pricing reviews, the top three counterparty jurisdictions are Australia, the United States and Japan.


Based on the current caseload, the top three transactions under scrutiny (ranked in the order of importance) are intragroup services, transfers of intangible property and fi nancial services. Intangible property transfers come under particular scrutiny when the intangible property is subsequently licensed back to the original New Zealand owner. Market support payments made by New Zealand-based parent companies to offshore subsidiaries also receive particular attention.


New Zealand does not have a specifi c transfer pricing penalty regime. The general tax penalty regime applies to transfer pricing adjustments as well. Inland Revenue does not have a process in place to ensure consistent application of transfer pricing penalties. In the last two years, no transfer pricing adjustments were proposed.


A transfer pricing audit in New Zealand is initiated after a risk-based assessment by the tax authority.


The transfer pricing enforcement resources are not required to integrate with indirect tax specialists. There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

Inland Revenue has no preference for local country comparables. Because New Zealand is a small market, the tax authority accepts comparables from other jurisdictions. Inland Revenue prefers, ranked in order, comparables from Australia, the United States, Canada and the United Kingdom. However, comparables from other jurisdictions are accepted if the taxpayer is able to justify comparability.

In presenting comparable data, Inland Revenue generally expects fi ve years of data. In addition, simple averages of data and the application of interquartile ranges are required.

Financial adjustments to comparable data are optional, if justifi able. However, Inland Revenue is of the opinion that the effects of working capital adjustments are generally very minor and often highlight that the companies may not actuallybe comparable.


Inland Revenue does not prioritize transfer pricing methods; however, it prefers that taxpayers use a secondary method, if feasible. Inland Revenue does not consider any method tobe inappropriate.


New Zealand (cont’d.)


New Zealand has both a bilateral and a unilateral APA program. For unilateral APAs, taxpayers have the right to access the program, whereas bilateral APAs are discretionary. Inland Revenue will consider the bilateral APA if the other jurisdiction(s) are open to a bilateral APA program as well.

The ratio of bilateral/multilateral to unilateral APA applications in New Zealand is one to two. InlandRevenue does not disclose thecountries involved in bilateral APAs.

Inland Revenue aims to complete the unilateral APA process within six months of the formal application. The time taken to complete a unilateral APA is expected to increase with the degree of complexity of the arrangement. The bilateral APA process with Australia is expected to be completed within six months. However, negotiations with other tax authorities are expected to take longer. Hence, a bilateral APA case may take up to one to two years to resolve.


There are neither any ongoing cases nor any pending cases for domestic appeal, litigation, arbitration or MAP.



Luis [email protected]+86 21 2228 3366Singapore*


A specialized transfer pricing team in the Corporate Tax Division focuses on transfer pricing reviews, while the International Tax Branch deals with APA/MAP issues. There are currently six dedicated transfer pricing FTEs under the Corporate Tax Division and another six at the International Tax Branch. All of these resources are based in the central unit. In addition to these resources, assessors in the corporate tax division may also raise transfer pricing queries in the course of reviewing tax returns.

Two years ago, the Corporate TaxDivision had approximately four dedicated resources, and the International Tax Branch also had four. It is expected that the number in each team will increaseby one to two resources over the nexttwo years.

All the resources currently involved in transfer pricing examinations have some transfer pricing experience. Most of these resources are accountants, while a few are economists. More resources with economics backgrounds are expected to be brought into both teams. External sources are not relied on; however, OECD contacts may be consulted on an ad hoc basis. Transfer pricing specialists of the tax administrations of OECD countries (e.g., the United States and Australia) conduct trainings as part of the OECD’s collaboration with the Internal Revenue Agency of Singapore (IRAS) to provide training sessions for the region.

Industry focus

No specifi c industry bears particular scrutiny by the IRAS. The IRAS’ circular on the Transfer Pricing Consultation3 indicates that the IRAS “will send questionnaires to selected taxpayers who have or appear to have signifi cant amount of related-party transactions, especially with overseas parties, over a period of time.” However, no further explanation has been provided regarding what is considered to be “signifi cant,” “overseas parties” or “over a period of time.”

Geographic focus

Ernst & Young is not aware that the IRAS specifi cally targets transactions with certain jurisdictions. However, it is likely to show interest in related-party transactions where the counterparty is in a tax jurisdiction with a lower prevailing corporate tax rate than Singapore.

As many companies in Singapore perform regional headquarters functions, there are a number of cases involving Singapore-based companies’ transactions with related parties in the region(e.g., Malaysia, Thailand, Indonesia and China). There are also a number of cases involving Singapore-based companies’ transactions with their Western,Japanese and Korean headquarters.


Based on our observations, particular types of transactions are not currently targeted for transfer pricing reviews. We estimate that tangible goods transactions

and intragroup services form the majority of cases, followed by intangible property transactions. There are currently fewer cases involving fi nancial transactions, cost-sharing/cost-pooling arrangements and stock-based compensation.


Singapore does not have a specifi c transfer pricing penalty regime. The general penalty system applies. Although it is a general system, it ensures consistent application of transferpricing penalties.

Ernst & Young is not aware of any transfer pricing adjustments in the last two years where penalties have been assessed. Over the next two years, the assessment of penalties is expected to increase.


Transfer pricing audit cases are selected by offi cers/assessors in the corporate tax division of the IRAS. Profi tability, a risk assessment undertaken by the IRAS, and the nature and volume of related–party transactions undertaken by the taxpayers are all relevant factors in initiating a transfer pricing review.


Transfer pricing enforcement resources in Singapore do not work in an integrated way with indirect tax specialists. There is no legal requirement that the same transfer price be used for corporate and indirect tax purposes; however, the same transfer prices are typically used.

3 Issued 6 August 2008.


Singapore* (cont’d.)

Comparable data

The IRAS does not require Singaporean comparables. If the tested party is not a Singaporean taxpayer, Asia-Pacifi c comparable data is generally permissible.

There are no explicit requirements regarding the presentation of comparable data. However, three or fi ve years of fi nancial data are usually considered,the interquartile range is generally adopted, and the weighted average is typically used. There are no specifi c requirements regarding the selectionof profi t level indicator.

Financial adjustments to comparable data are optional and may be made if they are justifi able.


There is currently no priority or preferred order of transfer pricing, and no method is considered inappropriate.

The Guidelines refer to the fi ve transfer pricing methods mentioned in the 1999 OECD Transfer Pricing Guidelines. Paragraph 3.2.5.3 of the Guidelines provides that “a taxpayer can select any of the fi ve methods, or even a modifi ed version [of a method] to comply with the arm’s-length principle, as long as the taxpayer maintains and is prepared to provide suffi cient documentation to demonstrate that its transfer pricing prices are established in accordance with the arm’s-length principle.”

The Guidelines indicate that a taxpayer can select any one of the fi ve methods, or even a modifi ed version of a method listed in the Guidelines, as long as the taxpayer can demonstrate that its transfer prices are established in accordance with the arm’s-length principle. There is no specifi c guidance on cost contribution or cost–

sharing arrangements, but weunderstand that the IRAS hasnot excluded the applicability ofcost contribution arrangements orcost-sharing arrangements if theoutcome is in accordance with thearm’s-length principle.

The position outlined above is based on policy statements (IRAS circulars) and working practice.


There is a formal APA program currently available that includes both unilateral and bilateral APAs. An estimated 10 applications per year are received. Access to the program is at the discretion of the tax authority. The IRAS expects the taxpayer to commit suffi cient resources to the APA process. According to the IRAS’ Annual Report for fi scal year 2011,10 unilateral, bilateral and multilateral APAs were completed and documented, and 19 unilateral, bilateral and multilateral APAs were ongoing at different stages of review.

The majority of the cases are bilateral APAs, and a majority of these cases involved Japan and Australia. On average, a bilateral APA takes between 18 and 30 months to complete, while a unilateral APA takes between 12 and 18 months.

In the case of a unilateral APA where the counterparty to the related-party transaction is a resident of a jurisdiction that does not have a comprehensive tax treaty with Singapore, the unilateral APA is considered to be under the advanced ruling system.

There is a perception among companies that the APA process takes too long due to unfamiliarity with the process. In light of this, the IRAS provided administrative guidance on APAs in an

IRAS Supplementary Circular issued on 20 October 2008. It is also increasing the number of resources in its APA team.


Approximately fi ve transfer pricing competent authority cases are estimated to be received per year and take approximately two years to resolve. Most competent authority cases involve Japan.

If a MAP is initiated by a treaty partner, no corresponding adjustment is allowed until resolution of the MAP case. If the transfer pricing adjustment is initiated by the IRAS, the taxpayer would be expected to pay any taxes and interest while MAP negotiations are under way.


As the transfer pricing consultation process is relatively new (the process began in 2008), at the moment the IRAS appears to be assessing the level of awareness of transfer pricing among Singapore taxpayers, the extent of transfer pricing documentation and the appropriateness of the transfer pricing methods adopted. Statistics on transfer pricing review performance are not currently available.


Currently, there are no transfer pricing disputes at the litigation or arbitration stages. Statistics with respect to domestic appeals (i.e., preceding court action) are not readily available. Based on the IRAS Annual Report for 2011, there are currently 11 MAPs at various stagesof review.



George [email protected]+88 62 2720 4000Taiwan


The Taxation Agency (TA) within the Ministry of Finance (MOF) is responsible for approving transfer pricing adjustments, supervising transfer pricing examinations conducted by the fi ve National Tax Administrations (NTAs) and evaluating the effectiveness of transfer pricing reviews. Transfer pricing examinations are subject to the fi nal review and approval of the TA. Tax offi cials are not full-time transfer pricing specialists; however, they are well trained and have built up considerable knowledge and experience in the last seven years since the enforcement of the Taiwan transfer pricing requirements for contemporaneous documentation.

Within the NTAs, tax offi cials are generally responsible for all income tax examinations, including transfer pricing. They can request transfer pricing documentation for review as part of the tax examination. If related-party transactions are complicated, a team with three to fi ve experienced tax offi cials is formed to conduct the special audit.

The First Examination Division of the local NTA is qualifi ed to perform transfer pricing audits. Selection of the auditor is based on the offi cer’s level of experience and expertise.

Most of the resources involved in transfer pricing reviews are offi cials with accounting backgrounds. The number of transfer pricing resources is expected to increase over the next two years, and a larger number of tax offi cials are expected to be trained for transfer pricing examinations.

Transfer pricing reviews as such do not rely on external resources such as consultants, industry specialists or expert witnesses. Training needs for the transfer pricing resources are met by trainings and annual meetings organized by the OECD and trainings organized by the International Fiscal Association. Occasionally, OECD consultants and/or external transfer pricing specialists are invited to conduct in-house trainings for tax offi cials. In addition, the NTA also organizes internal trainings focused on experience sharing. Every two years, one offi ce out of the fi ve NTA offi ces selects and discusses one case example with other NTA offi ces. Discussions involve a range of topics such as basis for case selection, identifi cation of comparables, comparability adjustments, negotiation with taxpayers and tips for effective audit report writing.

Industry focus

Transfer pricing reviews do not have a specifi c industry focus. Based on the semiannual audit plan, taxpayers with multiple intercompany transactions are usually selected for transfer pricing audit. Based on the transfer pricing reports selected for audit in the last seven years, these taxpayers are in industries such as consumer products and technology. The banking sector is usually not targeted for transfer pricing reviews because this industry is highly regulated by the Financial Supervisory Commission. Factors such as whether the industry has a signifi cant presence in Taiwan, the importance of intangible property to the industry and the profi tability of the industry are taken into account in identifying industries for review.

Geographic focus

The tax authority specifi cally targets companies with transactions with affi liates located in perceived low-tax jurisdictions. In addition, transactions with major trading partners, domestically headquartered companies and countries that are aggressive in their tax collection are typically reviewed in the scope of audits.


The following types of transactions are currently the focus for transfer pricing reviews within Taiwan (ranked in order of prevalence): tangible goods transactions, intangible property transfers, intragroup services, fi nancial transactions and business restructurings.


Taiwan has a specifi c transfer pricing penalty regime as prescribed at Article 34 of the Taiwan transfer pricing regulations.

The NTA is empowered to make transfer pricing adjustments and assess the taxable income of related taxpayers in accordance with the Taiwan Income Tax Act and transfer pricing regulations. While processes are in place to ensure consistent application of transfer pricing penalties, overall imposition of penalties is at the discretion of the tax offi cers at the local NTA. Penalty provisions would apply to the following specifi c situations of tax omission or underreporting, at the discretion of tax offi cers at the local NTA:

• The reported price of the controlled transaction is two times or more of the arm’s-length price assessed by NTA or lower than 50% of the arm’s-length price.


Taiwan (cont’d.)

• The increase in taxable income of the controlled transactions adjusted and assessed by NTA is more than 10% of the annual taxable income of the enterprise and more than 3% of the annual net operating revenue.

• The taxpayer cannot provide a transfer pricing report as required under transfer pricing regulations, and there is no other document evidencing that the transactions are conducted atarm’s length.

• Other de facto tax omission or under-reporting is discovered by NTA where the amount of evasion is signifi cant.

To date, there has been only one case in which transfer pricing penalties have been applied. The rate of penalty imposed in that case was in the range of 75% to 100% of the additional tax.


While the MOF initiates a transfer pricing audit plan listing the biannual plan and objectives, case selection is the sole responsibility of the NTA. Various considerations are taken into account in determining which taxpayers to audit, including profi tability, risk-based assessment by the tax authority, nature or volume of related-party transactions undertaken by the taxpayer, standard audit cycle/program, and previous tax audits of the taxpayer.


The transfer pricing enforcement resources are not integrated with the indirect tax team. There is also no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

The NTA has no preference for local country comparables, and regional (i.e., within the same continent as the taxpayer) comparables are generally acceptable. In preparing and presenting comparable data, fi nancial data for three years should typically be used. The interquartile range is the preferred method for calculating the arm’s-length range. The weighted average is preferred to the simple average, and an appropriate profi t level indicator is selected based on a functional and risk analysis and entity characterization. Averaging of fi nancial data is used in Taiwan.

Adjustments to comparable data are mandatory where appropriate, but there is no guidance under the Taiwan transfer pricing regulation with respect to working capital, asset intensity and country risk adjustments.


The Taiwan transfer pricing regulationsdo not observe a hierarchy of transfer pricing methods. Taxpayers are allowed to follow the most appropriate transfer pricing method.


Taiwan’s transfer pricing regime formally provides for both unilateral and bilateral APAs. On average, the program receives two cases per year. The program requires that the following eligibility conditions be satisfi ed before an APA application may be submitted:

• The total value of the transaction that is the subject of the APA should be at least NT$1 billion, or the annual amount of such transactions should be at least NT$500 million.

• No signifi cant tax evasions should have been committed in the past three years.

• The prescribed documentation and transfer pricing report should have been well prepared.

• Any other criteria as may be specifi ed by the MOF should be satisfi ed.

There are four approved cases (out of three companies), three unilateral and one bilateral APA with Singapore. Four applications are currently in process. Three (75%) of these are unilateral, and one (25%) is bilateral. The prescribed processing time for unilateral APAs is one year. There can be two extensions, at six– month intervals. There is no prescribed processing time for bilateral APAs.

Delays in APA processing could be shortened with greater taxpayer cooperation in gathering and providing additional information requested under the APA program.


The NTA measures the effectiveness of its transfer pricing reviews through indicators such as increased tax yield, percentage of review cases where an adjustment is made to taxpayer income, percentage of review cases where an adjustment is sustained on appeal, percentage of taxpayers assessed as high risk and percentage of taxpayers in compliance with documentation requirements. The NTA publishes statistics on yields only for internal reference.


There have been no transfer pricing disputes in appeal, litigation, MAP or arbitration in Taiwan thus far.



Anthony [email protected]+662 264 0777Thailand*


The Thai Revenue Department (TRD) transfer pricing unit currently has 14 offi cers who are transfer pricing specialists. There are plans to increase this number over the next two years. The majority of these specialists have backgrounds in accounting (approximately 80%), economics (10%) and law (10%).

Industry focus

The TRD focuses transfer pricing audits on taxpayers that operate in industries signifi cant to the Thai economy(e.g., the automotive, consumer products, media and entertainment, oil and gas, pharmaceutical, and electronics industries). The TRD also places specifi c scrutiny on companies with profi tability lower than the industry average.

Geographic focus

Transactions with Japanese affi liates receive specifi c scrutiny by the TRD since the majority of foreign investors operating in Thailand are Japanese.


Tangible goods transactions, intangible property transfers, intragroup services, fi nancial transactions, cost-sharing/cost-pooling arrangements and business restructurings are all transactions the TRD has chosen to focus on in transfer pricing reviews. Business restructuring transactions are the most importantof these.


Thailand has specifi c transfer pricing penalties. Over the past two years, under a quarter of proposed transfer pricing adjustments resulted in the assessment of penalties. This low number is probably due to negotiations the taxpayer normally conducts with the TRD in order to avoid the issuing of a summons. However, the percentage of adjustments entailing penalties is expected to increase over the next two years.


Case selection for transfer pricing audit is mainly based on profi tability declines or fl uctuations in income reported by the taxpayer, as well as on the volume and nature of the related-party transactions.

Comparable data

The TRD accepts only local comparable data. The application of fi nancial adjustments to comparable data(e.g., asset intensity adjustments) is allowed, if justifi able.


The TRD has stated that there is no priority of transfer pricing methods and that none of the traditional methodsare inappropriate.


A formal APA program is currently available. The TRD receives an average of three to fi ve APA applications per year. The majority of these are bilateral APAs involving Japan or Singapore. The average time required to complete an APA is between two and three years, depending on the cooperation of the taxpayer and the foreign tax authorities.


Four MAPs have currently been submitted to the TRD; however, none have been completed.


The effectiveness of transfer pricing reviews is measured by the percentage of reviewed cases that satisfi ed the arm’s-length principle. Information on yields of these reviews is not currently available.



Nitin [email protected]+84 8 3824 5252Vietnam


The General Department of Taxation (GDT) administers taxes in Vietnam. Since the introduction of formal Vietnam transfer pricing regulations in 2005 (effective 2006), a centralized transfer pricing team was formed at the Division of Tax Modernization and Reform of the GDT. The centralized team’s responsibilities include leading the development of transfer pricing policy and monitoring transfer pricing regulatory implementation, as well as participating in transfer pricing audits. The team is located in Hanoi and consists of 10 FTEs. The size of the team has increased twofold over the last two years and is expected to increase further over the next two years.

Large local tax authorities are in the process of setting up and developing separate teams responsible for transfer pricing administration, including audits. For instance, the Ho Chi Minh City Tax Department is developing a core team of 12 members focusing on transfer pricing advisory and audit activities. These members are currently working for different divisions but can be deployed on transfer pricing reviews based on case- specifi c requirements. Over time, the local resources’ training and developmental needs are expected to be met by the centralized resources.

The resources at the centralized team are tax generalists with certain transfer pricing knowledge. The resources are mostly economists, accountantsor lawyers.

The tax authority has contracted with industry specialists to provide training to tax auditors undertaking transfer pricing reviews. In addition, resources at both the centralized and local levels are sent for transfer pricing trainings at overseas locations such as Australia, Indonesia, Korea and Japan.

The introduction of Circular 66 in 2010 (which replaces Circular 117/2005/TT-BTC) has changed Vietnam’s transfer pricing landscape. The GDT has provided comprehensive training to tax offi cers to implement the new circular. The establishment of the centralized team responsible for transfer pricing at GDT and the plan to form a formal and separate team administering transfer pricing at certain local tax departments indicate that the tax authority is becoming progressively more sophisticated and increasingly focused on administering transfer pricing.

Industry focus

Transfer pricing audits in Vietnam target automotive; pharmaceutical; export processing enterprises in the garments, textiles and footwear industries; as well as labor-intensive industries. The following categories of taxpayers are typically targeted for reviews:

• Enterprises that report losses either for consecutive years or during their tax incentive period but continue to expand their business despite such losses

• Enterprises that are characterizedas contract manufacturers butreport losses

• Enterprises with signifi cant related-party transactions

• Enterprises under suspicion of transfer pricing abuse

• Enterprises with signifi cant taxes due

• Enterprises that have not been audited for multiple years

• Enterprises that are entitled to tax incentives

The industries under specifi c scrutiny are widely communicated to taxpayers, most recently through a formal announcement by the Vietnam Ministry of Finance (MOF) on 28 December 2011. The list of industries under specifi c focus could change or be reviewed depending on business performance, economic circumstances or regulatory changes. Industries such as banking, oil and gas, real estate, telecommunications, and mining could become targets for more transfer pricing audit reviews in 2012.

Geographic focus

Geographic considerations are not drivers for the selection of taxpayers for review. However, based on the current caseload of transfer pricing reviews, the top fi ve counterparty jurisdictions are Taiwan, Hong Kong, mainland China, Koreaand Japan.



Transactions involving tangible goods, transfers of intangible property, intragroup services and fi nancial transactions are targeted by the Vietnam tax authority (in that order) for transfer pricing reviews. However, the focus on transactions is fl exible and will vary based on actual cases.


Vietnam does not have a specifi c transfer pricing penalty regime. However, the tax authority is empowered to adjust the value of transactions found not to be in accordance with market prices. In addition, such taxpayers shall, depending on the nature and severity of the violation, be sanctioned under the relevant penalty provisions of the Law on Tax Administration as well as the criminal law.

There are no formal processes in place to ensure consistent application of transfer pricing penalties. The incidence of transfer pricing penalties has been minimal for the last two years. However, penalty imposition is expected to be supplemented in the Law on Tax Administration to serve as a legal basis for the increased focus on transferpricing reviews.


The selection of cases for transfer pricing review is governed by the central decision-making body at the GDT, as well as the authority at the local level. Various considerations are taken into account in determining which taxpayers to audit, including factors such as (in order of importance) taxpayer profi tability; the nature or volume of related-party transactions undertaken by taxpayers; VAT, employment, customs or other indirect tax reviews; previous tax audits of the taxpayer; risk-based assessment by the tax authority; and evidence that the taxpayer has restructured its business. Given the enhanced legislation and enforcement of transfer pricing audits in Vietnam, taxpayers are expected to face a more challenging transfer pricing landscape in the next two years.


The cooperation between transfer pricing enforcement resources and indirect tax specialists is limited. Hence, there is limited information sharing between them. There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirecttax purposes.

Comparable data

There is no regulatory provision specifying the permissible region for selection of comparables. However, in practice, use of comparables in the same continent as the taxpayer should be acceptable to the tax authority.

In preparing and presenting comparable data, Circular 664 indicates that a minimum of three consecutive years of fi nancial data should be used. Under the provisions of the Circular,5 it is also mandatory to make adjustments to account for material differences between comparable data and tested parties.


Circular 66 specifi es the following fi ve transfer pricing methods: the CUP method, the RPM, the cost plus method, the CPM and the profi t split method.

While Circular 66 does not impose a rigid methodological hierarchy, it nevertheless gives some indication of the effi cacy of each method applicable to specifi c transactions. For instance, the circular places emphasis on the use of “internal comparables” whenever they are available. All of the generally recognized methods under the OECD Transfer Pricing Guidelines are considered appropriate. There is no specifi c guidance on the use of any other transfer pricing methods.

4 Circular 66/2010/TT–BTC dated April 22, 2010 5 Circular 66/2010/TT–BTC dated April 22, 2010


Vietnam (cont’d.)


Vietnam does not have a formal APA program and is currently developing a formal process for APAs. Because APAs are new in Vietnam, the MOF is expected to launch a pilot APA program by entering into APAs fi rst with a few large companies operating in Vietnam. Based on the experience gained by the MOF in these cases, the MOF is expected to be better equipped to choose the appropriate approach before promulgating the formal APA implementing regulations. It is also expected that some amendments to the Law of Tax Administration to be passed by the end of 2012 will include provisions that provide a legal basis for application of APAs in Vietnam.


Vietnamese tax treaties contain provisions relating to MAP. Given the recent enforcement of transfer pricing in Vietnam, the number of cases received annually is small.


The tax authority measures the effectiveness of its transfer pricing reviews by indicators such as increase in tax yield and level of awareness among the public and taxpayers in general of transfer pricing compliance requirements and associated risks in the event of non-compliance.

According to the statistics published on tax yield during 2011, there had been VND (Vietnamese dong) 4.4 trillion of adjustments and VND 1.65 trillion of additional tax collection and penalties.


Given the relatively new applicability of transfer pricing regulations in Vietnam and the early stage of audit activities by the tax authority, a very limited number of transfer pricing disputes have been raised in the last two years.

64 2012 Global Transfer Pricing Tax Authorities Survey

2012 global transfer pricing tax authority surveyEMEA (Europe, Middle East and Africa) countries

652012 global transfer pricing tax authorities survey


Argentina 14

Brazil 16

Canada 18

Chile* 22

Colombia 24

Ecuador 26

Mexico* 28

Peru* 30

United States 31

Venezuela* 34

Australia 38

China* 41

India 43

Indonesia 45

Japan 47

Korea 49

Malaysia 51

New Zealand 53

Singapore* 55

Taiwan 57

Thailand* 59

Vietnam 60

Austria 66

Belgium 69

Czech Republic* 72

Denmark 74

Egypt* 76

Estonia 77

Finland 79

France 81

Germany 84

Hungary 86

Israel 89

Italy* 90

Kazakhstan* 93

Kenya 95

Latvia 97

Lithuania 99

Netherlands 101

Norway 103

Poland 105

Portugal* 107

Romania 109

Slovak Republic 111

South Africa* 113

Spain 115

Sweden 117

Switzerland 119

Turkey 122

United Kingdom 124



Andreas [email protected]+43 1 211 70 1041


One centralized group within the Austrian tax authority is responsible for international affairs and transfer pricing. There are approximately 30 FTEs involved in transfer pricing examinations, of which 10 are based in the central group. The rest of the FTEs are based in the fi eld.

All of the current resources have a very strong transfer pricing background. At least 40% of the resources have economics backgrounds.

In the past, the Austrian tax authority trained its personnel by itself. Special transfer pricing courses are offered at the Federal Tax Academy. Trainings are now occasionally conducted with the German tax authority.

Industry focus

Companies and transactions that relate to the automotive, consumer products, pharmaceuticals and technology industries receive particular scrutiny. The importance of intangible property to the industry and industry profi tability have been relevant factors in drawing scrutiny to these industries. The selection of industries under specifi c scrutiny is not widely communicated to taxpayers.

Currently, the list of industries under specifi c scrutiny is seldom reviewed; however, the tax authority intends to focus on this topic in the near future and to perform a “sanity check” annually.

Geographic focus

The tax authority specifi cally targets taxpayers engaged in transactions with companies located in perceived low-tax jurisdictions. Transactions involving Switzerland, followed by Germany, Luxembourg, the Netherlands and Ireland rank high among the current caseload of transfer pricing reviews.


Transactions involving tangible goods (20% of the total caseload), intangible property (30% of the total caseload), intragroup services (20% of the total caseload), fi nancial transactions (25% of the total caseload) and cost-sharing/cost-pooling arrangements (5% of the current caseload) are currently specifi cally targeted for transfer pricing reviews.


No specifi c transfer pricing penalty regime is currently in place and specifi c penalties are not expected to be introduced in the near future.


Transfer pricing audits are not currently governed by a central decision-making body. Reviews are usually initiated based on (in order of importance) evidence of business restructurings, taxpayer profi tability, the volume and the nature of the related-party transactions undertaken, and previous tax auditsof the taxpayer.


Transfer pricing enforcement resources work in an integrated way with indirect tax specialists and actively share information. However, there is currently no requirement that the same transfer price be used for corporate direct and indirect tax purposes.

Comparable data

While local country comparable companies are preferred, regional comparables are accepted if no local comparables can be identifi ed. Comparable companies located in the European Union (EU) are preferred. Depending on the case, comparables located in the “old” EU member states (15 countries) may be highly preferred to comparable companies located in the “new” EU member states (27 countries that include some Eastern European countries). Generally, every comparables search must be in line with principlesset forth in the OECD TransferPricing Guidelines.

Three years of fi nancial data under consideration is generally required.The interquartile range is the method used to calculate the allowable arm’s-length range. If transfer prices are outside the range, they are adjusted to the median. The application of the full range is acceptable only if the comparables are virtually perfect comparables to the tested party and the full range is narrow. The simple average is preferred to the weighted average.

Austria


6 Section 118 Federal Tax Code.

There is no preferred method of determining the proper profi t level indicator. There is no preference with respect to pooling or averaging of fi nancial data; however, the pooling method has rarely been applied.

At the moment, there is no specifi c guidance available with respect to fi nancial adjustments (e.g., working capital, asset intensity and country risk adjustments). They are accepted on a case-by-case basis.


Because the Austrian tax authority relies on the OECD Transfer Pricing Guidelines, in cases where a traditional transactional method and a transactional profi t method can be applied in an equally reliable manner, the traditional transaction method is preferable to the transactional profi t method. The CPM and the comparable profi t split method are accepted only in exceptional cases.

Guidance is available with respect to the use of cost-sharing/cost-contribution agreements, which is also taken from Chapter 8 of the OECD Transfer Pricing Guidelines.

The use and order of preferred or allowed methods outlined above are publicly stated and are based on the Austrian Transfer Pricing Guidelines of 2010, published by the Ministry of Finance.


It is currently possible to apply for unilateral, binding and appealable advance ruling6 issued by the competent tax offi ce on the tax treatment of a particular (but yet-to-occur) transfer pricing issue.

Under specifi c circumstances it is possible to ask the Austrian tax authority to participate in negotiations of a bilateral APA on the basis of Article 25(3) of the relevant double tax treaty. A formal bilateral APA program is expected to be implemented in the next two to three years.

On average, 30 applications for unilateral APAs and between 5 and 10 applications for bilateral APAs are received each year. While there is a right of access to the unilateral APA program for taxpayers, right of access to the bilateral APA program is at the discretion of the tax authority, which takes into account the volume of transactions and the willingness of the other jurisdictions involved.

There are between 5 and 10 unilateral APA application and approximately 5 bilateral APA applications currently in progress. Unilateral APAs form the bulk of the current caseload (80%), while the rest are bilateral. Most of the bilateral APAs involve Canada or Germany.

Average completion time for unilateral APAs is between three and six months after fi ling the fi nal ruling request; completion time for bilateral APAs is between one and two years after the fi nal ruling request is fi led. The perception among businesses that the APA process takes too long is due to case complexity and a lack of available resources. There are currently no initiatives in place to expedite the process.


Austria (cont’d.)


Between 50 and 70 transfer pricing competent authority cases are received annually and take between one and two years to resolve. There are very few cases that have been left unresolved. The majority of MAPs involved (in order of caseload) Germany, the Netherlands and the United States. Deferral of payment of taxes and interest while the process is underway is possible.


The Austrian tax authority does not separately measure the effectiveness of transfer pricing reviews. Only adjustments resulting from the review of benchmark studies are measured and then only to determine whether the license fees the tax authority pays for external databases are cost effective.


There are currently between 50 and70 ongoing transfer pricing disputes involving MAP, and there are approximately 2 ongoing cases in arbitration. Information on cases thatare pending is not currently available.


OECD and EU initiatives, such as the EU Joint Transfer Pricing Forum, as well as the implementation of centralized business and tax models, have contributed to changes in transfer pricing policy and practice.

Currently, the Austrian tax authority focuses its attention on issues such as intangible property migration, entities with operating losses, business restructurings and intercompany fi nancing.



Herwig [email protected]+32 02 774 9349Belgium


The Transfer Pricing Audit Cell (TPAC), a centralized unit consisting of trained transfer pricing experts, is responsible for transfer pricing audits at the Belgian tax authority. The TPAC actively sends out lengthy information requests to selected taxpayers and serves as a knowledge resource on transfer pricing issues for the fi eld tax inspectors, who generally have varying levels of transfer pricing experience. Typically, the detailed transfer pricing audits are performed by the transfer pricing audit team. All transfer pricing issues are to be reported to the TPAC. The TPAC may then deal with these issues or may, at a minimum, provide support to fi eld tax inspectors on how they should be dealt with. In addition to the TPAC’s increased audit activity, fi eld tax inspectors are also continuously increasing their focus on transfer pricing during general tax audits.

All 12 FTEs involved in transfer pricing are based in the central unit. This number is expected to increase in the near future. However, local tax inspectors are also increasingly performing transfer pricing investigations.

Transfer pricing experts are also to be found in the Belgian Service for Advance Decisions, as well as in the Department for Foreign Affairs (e.g., those responsible for the application of MAPs and the arbitration convention).

The local tax audit teams are focused on all corporate tax issues, including transfer pricing. For complex cases, the TPAC is typically involved. Resourcing has increased from 8 FTEs to 12 FTEs over the last two years. This number is expected to continue to increase in the near future, given the ever-growing importance of transfer pricing and the increased attention from foreign tax authorities.

All 12 specialist transfer pricing resources are economists and have signifi cant experience in dealing with transfer pricing issues. All 12 have received extensive tax training and are therefore also familiar with tax law and related procedural aspects.

The Belgian tax inspectors typically do not use consultants, industry specialists or expert witnesses during transfer pricing reviews. The transfer pricing inspectors receive the same training as any other tax inspector in order to ensure they remain up to date on general tax issues as well.

Industry focus

There are no formal programs prioritizing the review of taxpayers in any particular industry. Factors such as whether or not the industry has signifi cant activities in Belgium, the importance of intangible property to the industry and the industry’s profi tability are taken into account in identifying industries for review. As a result, the industries most under scrutiny are the automotive, biotechnology, consumer products, oil and gas, pharmaceuticals and technology industries.

Data mining is increasingly used to select targets for transfer pricing reviews. The TPAC screens the website of multinationals, searches the internet, refers to FIN 48 disclosures and taxpayer fi les, and makes an analysis of fi nancial data from public databases such as Amadeus, Orbis and Belfi rst (a comparison of average industry profi tability with individual entity profi tability) to identify transactions for review.

Geographic focus

Geographic considerations, as such, do not drive the selection of taxpayers for transfer pricing reviews. However, transactions with major trading partners and low-tax jurisdictions are typically reviewed in the scope of audits. The top counterparty jurisdictions are France, Japan, Luxembourg, Switzerland, Germany and the United Kingdom.

The Royal Decree of 10 August 2009 obliges Belgian companies to provide certain information linked to transfer pricing in the notes/annexes of their annual accounts. This reporting obligation applies as from tax year 2010 for payments made as from 1 January 2010 directly or indirectly to persons established in tax havens by resident or non-resident entities (Belgian permanent establishments) liable to Belgian corporate income tax, other than privately owned businesses, totaling more than €100,000 per taxable period.

Of the current caseload of transferpricing reviews, the top counterparty jurisdictions in order are Switzerland, Luxembourg, Germany, tax havensand the United States.


Belgium (cont’d.)


The type of transaction does not always drive transfer pricing audits, but business restructurings are currently a major focus of reviews. However, the Belgian tax authority has also identifi ed the following transactions for transfer pricing reviews in Belgium (ranked in increasing order of proportion of existing caseload): tangible goods transactions, intangible property transfers, intragroup services, fi nancial transactions, cost-sharing/cost-pooling arrangements and head offi ce permanent establishment allocations.


No specifi c transfer pricing penalty regime applies since transfer pricing adjustments are within the scope of the ordinary Belgian tax penalty framework. The TPAC has the authority to autonomously decide on the penalty rate, so there is consistency in the application of penalties. Penalties may vary from 10% to 200%, in very exceptional cases, of the additional tax levied under the amended assessment. The rate applied in any particular case depends on the degree of intent to avoid tax or the degree of the taxpayer’s negligence. In addition, taxpayers also incur interest liability for the late payment of additional tax.

Over the last two years, penalties have been applied in 75% to 100% of cases where transfer pricing adjustments were issued. In practice, if the transfer pricing

audit ends in a settlement between the taxpayer and the TPAC, the penalty is typically reduced to nil. In cases where penalty is assessed, the average rate of penalty has been less than 25% of the additional tax. Generally, the Belgian tax authority imposes up to a 10% penalty on additional tax; however, the penalty is determined case by case.


The TPAC typically selects its own fi les for transfer pricing audits. In addition, local fi eld tax inspectors have the power to independently decide to review transfer pricing issues during a tax audit. It is expected that in the future data mining approaches will strongly affect case selection.

The selection of the taxpayer and the scope of the audit are typically driven by various factors, such as (ranked in order of prevalence) whether there is evidence of business restructurings or not, the volume of the taxpayer’s related-party transactions, taxpayer profi tability, the outcome of a risk-based assessment by the tax authority and previous tax audits of the taxpayer.


Belgian transfer pricing enforcement resources are not yet integrated with indirect tax enforcement. There is also no requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

The use of regional Pan-European comparables is widely accepted in Belgium. This is even acknowledged in the Belgian administrative guidelines on transfer pricing. The Belgian transfer pricing documentation legislation specifi cally mentions that the analysis should apply comparable data from the same continent as the taxpayer.

Since comparability is the main concern, the standard approach is the inclusion of countries of the European Union plus Switzerland, Norway and Iceland. Increasingly, the wider European region, including Eastern European countries, is being used; however, this may still give rise to certain comparability issues and therefore needs to be assessed case by case.

In cases where local country and Pan-European information is not available, the use of non-European information is considered acceptable, provided comparability is confi rmed.

The use of global comparables can be justifi ed, but their use requires very rigorous documentation. The Belgian transfer pricing regulations do not provide any details or specifi cations on how a comparable search should be performed. A best practice has been developed within the Belgian Ruling Commission with respect to comparable searches that will also be used during APA negotiations.


Typically, three years of fi nancial data should be used, except in APAs where information for four years is required, based on the practice developed by the Service for Advance Decisions. The interquartile range is the preferred method of calculating the arm’s-length range. Although there are no specifi c requirements, a weighted average is preferred to a simple average.

Operating margin and markup on costs are the most commonly used profi t level indicators. Pooling as well as averaging of fi nancial data is accepted in Belgium with a strong preference for averaging. There is no formal or mandatory guidance provided for adjustments to comparable data. Such adjustments are optional, if justifi able. For instance, in the case of limited risk structures, adjustments for inventory, accounts receivable and intangible assets are typically accepted.


Belgium follows the OECD Transfer Pricing Guidelines. However, the main considerations are that the method selected is the most appropriate for the case and that this can be demonstrated. The CPM is considered inappropriate.

If none of the OECD-approved transfer pricing methods can be applied to determine the arm’s-length remuneration for the transaction under review, other transfer pricing methods can be considered. However, their selection and the rejection of the OECD-approved transfer pricing methods should be documented.


Belgium has a unilateral and bilateral APA program in place, accessible to all Belgian taxpayers since mid-1999 (as modifi ed in 2002 and 2004). Taxpayers may also negotiate specifi c up-front transfer pricing rulings (i.e., APAs or advance decisions). The APA team received over 77 APA requests during 2010. About 95% of the current caseload of APAs represents unilateral APA requests, and the number of bilateral APA requests is also increasing. The top three treaty partners in these bilateral APA requests are Japan, France and the Netherlands.

The completion of an APA, depending on the complexity of the ruling, including prefi lings, may take up to six months for unilateral APAs. A decision is made, in principle, within three months of application. For more complex fi les, the procedure might take six months to one year; Bilateral APAs take 12 to 18 months on average. The reasons cited for delays in completing an APA program are the workload of the Ruling Commission and the complexity of the ruling. Initiatives undertaken to speed up the process include agreeing on the timing during the prefi ling phase.


The exact number of transfer pricing cases received for MAP is not available; however, the top-ranked countries for Belgian MAP claims are Germany, France and the Netherlands. The timing for resolution largely varies case by case depending on the responsiveness of the other countries party to the negotiation. While a case is pending for competent authority resolution, payment of taxes can be suspended, and interest is due (either way) at the outcome of the proceedings.


The effectiveness of transfer pricing reviews is measured by increase in tax yields, the percentage of review cases where an adjustment is made to taxpayer income, the percentage of review cases where an adjustment is sustained on appeal, and the percentage of taxpayers assessed as high risk.

Since the formation of the TPAC, the tax yield (other than tax yield through fi eld audits) realized continues to increase. In 2010, transfer pricing adjustments amounted to €194 million (three times the level two years ago). The Belgian tax authority occasionally publishes global statistics on yields.

Approximately 70% to 80% of the transfer pricing audits carried out by the TPAC result in an adjustment to the taxpayer’s income. Most cases handled by the TPAC are settled during audit, and only a few cases move into the administrative appeal phase. So far, none of these cases have progressed into a transfer pricing court case.


Belgium is responsive to initiatives at the OECD and EU levels such as the EU Joint Transfer Pricing Forum. Although there has not been a change in transfer pricing policy, the OECD report on business restructuring and the fi nancial crisis have led to more scrutiny of transfer pricing in Belgium. In general, transfer pricing in Belgium is becoming more aggressive over time.


Czech Republic*


Transfer pricing matters are dealt with at a central level by the International Cooperation Unit (ICU) of the General Financial Directorate (i.e., the highest tax authority within the Czech tax administration). The ICU currently has three FTEs and its goal is to unify transfer pricing methodology within the Czech Republic, as well as with other international platforms (including OECD and European Union Joint Transfer Pricing Forum (EU–JTPF)). This team is also responsible for negotiations with foreign tax administrations on matters including bilateral and multilateral APAs and MAPs.

The exact number of transfer pricing professionals is diffi cult to establish with accuracy. Tax audits and regular contact with taxpayers (including APAs) are handled by professionals from the Specialized Tax Audit Departments (STADs), which are established at selected local tax authorities. Currently about 30 STAD professionals are estimated to be fully dedicated to transfer pricing. However, in some cases transfer pricing audits are also handled as a part of regular tax audit activities of the individual tax authorities. In addition, employees of fi nancial directorates responsible for methodology are partly involved in transfer pricing.

A new specialized tax authority was formed on 1 January 2012 for taxpayers that had an annual turnover of more than CZK2b (approximately €80m), regardless of the region where they are established. It is expected that the majority of transfer pricing audits will be handled by this new authority in the future.

Industry focus

The tax authority does not currently target specifi c industries for audit.

Geographic focus

Transactions with specifi c jurisdictions are not currently targeted for audit.


The tax authority does not currently target specifi c types of transactions for audit.


There is currently no specifi c penalty regime for transfer pricing. Tax penalties in general are governed by the Czech Tax Code. Standard penalties amount to 20% of the additional tax assessment or 1% of the tax loss reduced during an audit. In addition, interest for late tax payment applies (currently approximately 15% annually).


Selection of taxpayers for tax audit is generally performed at the local level by the individual tax authorities based on all the criteria listed below, or a combination thereof:


• Evidence of business restructurings


• The nature of related-party transactions undertaken bythe taxpayer

• The volume of related-party transactions undertaken bythe taxpayer



• VAT, employment, customs or other indirect tax reviews


Findings from transfer pricing audits can be shared by the transfer pricing specialists with their VAT counterparts. Generally, prices for income tax as well as VAT purposes should be the same. However, the respective tax laws may provide for specifi c exceptions.

Comparable data

Regional comparables are preferred (e.g., from among new European Union member states). However, in the absence of comparables, criteria are further extended to include larger geographic areas. Financial data of comparables should be evaluated for a number of years (e.g., a three-year average). To eliminate market fl uctuations, the weighted average is preferred to the simple average.


All the methods stated in OECD Transfer Pricing Guidelines (or their combination) are applied in practice. No preference of methods is determined. According to domestic law, the use of methods stated in OECD Transfer Pricing Guidelines is not mandatory; however, it is recommended by non-binding Decrees D-332 and D-300 issued by the Ministry of Finance, and these methods are applied in practice.


Libor [email protected]+420 225 335 310



A unilateral APA program has been available since 2006. Bilateral or multilateral APAs are available basedon the respective article of a relevant double tax treaty. In the period between January 2006 and December 2010,78 APA applications were submitted, out of which 35 were approved, 19 were rejected and 17 are pending. A total of 90 APA applications were submitted through December 2011. Access to APAs is not restricted to particular taxpayers. Currently, there are four bilateral APA applications pending (with Germany and Japan). The average completion time for a unilateral APA is eight months.


In 2010, four MAP applications on the basis of the Arbitration Convention were received (all of them were pending as of December 2011). Almost all cases concern agreements with German counterparties.


There has been an increasing emphasis on transfer pricing in the past two years. Approximately 200 transfer pricing audits were carried out in 2010. Tax assessments amounted to approximately CZK90m, and tax loss reduction amounted to CZK65m. Data for 2011 is not currently available. Comparison to prior years is diffi cult because of changes in the method of calculating the statistics.


There is currently no information available with respect to transfer pricing disputes at the domestic appeal or litigation levels. However, there are no MAPs currently disputed, and there are four transfer pricing disputes in arbitration.


There has not been a signifi cant changein approach to transfer pricing practicein the Czech Republic over the lasttwo years. The Czech Republicgenerally adopts OECD as wellas EU-JTPF initiatives.



Thomas [email protected]+45 5 158 2901Denmark


The Danish tax authority, SKAT, has a centralized group responsible for transfer pricing reviews. Of the 100 FTEs involved in transfer pricing reviews, 20 are based in the central unit while the other 80 are regional resources. Two years from now, the number of FTEs involved in transfer pricing is expected to reach 120.

Currently, SKAT has 60 FTE specialists solely dedicated to transfer pricing reviews, while the others are new employees under training. Of the total FTEs 15% are economists, 15% are lawyers and the rest are accountants. The trend has moved in favor of accountants.

Industry focus

The Danish tax authority scrutinizes particular transactions rather than particular industries.

Geographic focus

The tax authority specifi cally targets transactions in certain jurisdictions perceived to be low-tax jurisdictions and transactions with non-treaty partners. Countries considered tax havens are systematically selected for audits since they are considered high-risk jurisdictions for transfer pricing.

Based on the current caseload of transfer pricing reviews, the top counterparty jurisdictions (in order) are Germany, the United Kingdom, the United States, Switzerland, Norway and Sweden.


The types of transactions targeted for transfer pricing reviews, in order, are tangible goods transactions with a focus on loss-making companies, intangible property transfers, intragroup services, fi nancial transactions and business restructuring transactions.


New transfer pricing penalty rules are expected to be adopted in the spring of 2012. The changes imply a penalty of DKK 250,000 in case of insuffi cient transfer pricing documentation and an additional 10% of the increased income after assessment.

Processes are in place to ensure consistent application of transfer pricing penalties in Denmark, but they are new and therefore not fi nalized.


A transfer pricing board decides on the cases that should be selected for audit. Various considerations are taken into account in determining which taxpayers to audit, including the following:

• Taxpayer profi tability (with a focus on loss-making companies)



• The nature of the related-party transactions undertaken bythe taxpayer



The transfer pricing enforcement resources are not required to work in an integrated way with indirect tax resources; however, ad hoc cooperation may be required. There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

Pan-European comparables are accepted, subject to scrutiny, at the discretion of the taxpayer; however, local or Nordic country comparables are preferred.

In preparing and presenting comparable data, there are no specifi c requirements in relation to the number of years of fi nancial information analyzed, pooling or averaging of fi nancial data, the method for calculating the allowable arm’s-length range, or the method for determining the appropriate profi t level indicator. However, the Executive Order on Transfer Pricing Documentation states a preferenceof the weighted average over thesimple average.


Optional guidance is provided by the tax authority in relation to fi nancial adjustments to comparable data. SKAT recommends making a working capital adjustment when it is appropriate to obtain a comparable set of data.


SKAT follows the most appropriate method principle of the OECD Transfer Pricing Guidelines, allowing for the use of alternate methods. In valuations SKAT also allows the use of corporate fi nance methods, such as the discounted cash fl ow model and multiples. There is no priority among the transfer pricing methods, subject to the selection of the most appropriate method for the transaction.


Denmark has a bilateral APA program, and taxpayers have a discretionary right to initiate the APA consultation process. However, all APAs initiated to date have been accepted, and fi ve to seven APAs are received annually. Currently, nine applications are in process. For bilateral APAs, the top three countries involved are China, the United States and Sweden.

The average time required to complete an APA is 24 months. The main reasons for the long process are an overload of cases and the often very complex nature of the APAs. To speed up the process, the tax authorities try to gather information by phone or videoconference rather than through physical meetings.


Approximately 20 transfer pricing competent authority cases are received and resolved annually. Resolution typically requires around 24 months. The top three jurisdictions involved in MAP annually are Germany, the United Kingdomand Norway.

The payment of taxes and interest is suspended while MAP is underway.


SKAT measures the effectiveness of transfer pricing reviews by the amount of adjustments made and the number of cases handled. SKAT publishes the number of transfer pricing adjustments made and the total amount of the adjustments.


Of the ongoing transfer pricing disputes, 10% are where the tax administration has completed an assessment and communicated an order are undergoing domestic appeals, while the remaining 90% of the cases are handled under MAP. A similar pattern is observed among the pending cases as well.



Seema [email protected]+971 4 701 0551Egypt*


A centralized team has recently been formed to focus and build knowledge on transfer pricing matters. The team currently comprises over 20 FTEs. This number is expected to increase as the tax authority increases its focus on transfer pricing. Since the team is relatively new, resources could currently be more aptly characterized as generalists rather than specialists. The team mainly consists of accounting and tax auditors.

The Egypt Tax Authority (ETA) often relies on the OECD to assist in transfer pricing knowledge development. Over the past two years, investment in transfer pricing resources declined, due to political unrest. In addition to the OECD, the ETA also relies on developing countries like India for transfer pricing guidance.

Industry focus

Specifi c industries do not currently receive specifi c transfer pricing scrutiny. Selection of a taxpayer for a transfer pricing audit is based on taxpayer size and a consistent history of losses.

Geographic focus

The ETA does not currently target transactions with specifi c jurisdictions or types of jurisdictions for transfer pricing reviews.


Tangible goods transactions, intragroup services and intangible propertytransfers are the most common typesof transactions targeted for transfer pricing reviews.


There is currently a specifi c transfer pricing penalty regime in place. According to the Income Tax Law, if the tax amount the taxpayers report on the tax return is less than the amount of the fi nal estimated tax, they shall be liable fora penalty, based on the following:

• 5% of the tax payable on the non-included amount, if such amount is between 10% and 20% of the legally payable tax

• 15% of the tax payable on the non-included amount, if such amount is between 20% and 50% of the legally payable tax

• 80% of the tax payable on the non-included amount, if such amount is more than 50% of the legally payable tax


Case selection for transfer pricing audits is fi rst identifi ed by the ETA tax auditor assigned to the company and can then be escalated. These reviews are usually initiated based on the profi tability (or lack thereof) of the company.


Transfer pricing enforcement resources do not currently work in an integrated way with indirect tax specialists, and they do not actively share information. There is no requirement that the same transfer price be used for corporate direct and indirect tax purposes.

Comparable data

Local country comparable companies are preferred; however, the ETA accepts

comparables based in other jurisdictions if functional and regional comparability can be demonstrated. Since the ETA is still at a knowledge-gathering stage, there is currently no specifi c guidance on how permissible regions can be determined, nor is there any guidance related to the presentation of comparable data. Currently, general practice is to use three-year weighted-average data to reduce market fl uctuations. Guidance with respect to fi nancial adjustments (e.g., working capital, asset intensity and country risk adjustments) to comparable data is available, and these adjustments can be applied if they support comparability.


There is a publicly stated priority of transfer pricing methods laid out in transfer pricing regulations. Traditional transaction methods are preferred over transactional profi t methods when either can be applied equally reliably. If the CUP method and another method are equally applicable, the CUPmethod is preferred.

Guidance permitting the use of other non-traditional methods is not currently available.


A formal program for both unilateral and bilateral APAs is currently theoretically available. However, none of the APA applications currently submitted have been concluded; the probability thatthey will be concluded is low.


Because MAPs are currently being formulated, information with respect to this program is not currently available.



Ranno [email protected]+372 611 4578Estonia


There is currently no formal transfer pricing centralized unit. Specialists are located in and outside the capital, Tallinn; however, these specialists belong to one coordinated transfer pricing team.

All tax auditors have knowledge of transfer pricing as part of income tax, and they have the option to seek consultation internally with transfer pricing specialists.

In total, the tax authority has 324 tax auditors. Although tax auditors are familiar with the transfer pricing requirements (which is one aspect of any tax audit), only 6 auditors are specialized solely in transfer pricing (i.e., 2% of tax auditors). A number of advisors and lawyers within the tax authority advise tax auditors. All six specialists have received special transfer pricing training. Among these six specialists, most of the tax auditors have an accounting background.

Two years ago, the tax authority had approximately 10 transfer pricing specialists. Over the next two years, the tax authority expects its transfer pricing resources to grow.

While Estonia does not rely on external resources for transfer pricing matters, it does cooperate on trainings with other tax administrations (such as the Danish, Dutch, Finnish and German tax administrations) in addition to the OECD.

Industry focus

The tax authority pays close attention to manufacturing entities that have parent companies in Nordic countries. At the moment, profi tability and perceived high-risk transactions (e.g., where the transaction volumes are high or the performance of the Estonian entity differs from that of companies operating in a similar fi eld of business) are relevant factors that drive the industry focus. The list of industries selected for scrutiny is not currently widely communicated to taxpayers.

Geographic focus

Mostly Nordic countries are primarily targeted for specifi c transfer pricing scrutiny. Major trading partners, perceived low-tax jurisdictions and domestically headquartered companies (in that order) all receive greater scrutiny.

Of the current caseload of transfer pricing reviews, the top counterparty jurisdictions are Denmark, Finland, Germany, Latvia, Sweden and the United States.


Intragroup services are the most targeted transactions, accounting for more than half of the total transfer pricing caseload, followed in order by fi nancial transactions, tangible goods transactions, and cost–sharing/cost–pooling arrangements.


Estonia does not currently have a specifi c transfer pricing penalty regime. However, transfer pricing adjustments have been made in approximately 10% of transfer pricing reviews. Intragroup transaction adjustments have been made pursuant to other articles of the Income Tax Act. In general, additional taxes have been assessed in 90% of the tax audits.

Where penalties have been assessed, the average default interest has been more than half the additional tax depending on period of audit. The assessment of penalties is expected to increase over the next two years. Penalties have been imposed for a lack of transfer pricing documentation.

Of all tax audits, 90% are fi nalized with a tax assessment; the share of purely transfer pricing cases amounts toroughly 10%.


Transfer pricing reviews are usually initiated on the basis of (in order of importance) a risk-based assessment by the tax authority; taxpayer profi tability; evidence of business restructurings; the nature and the volume of related–party transactions; previous tax audits; and VAT and employment, customs and other indirect tax reviews. Transfer pricing case selection is not part of the standard audit cycle/program.


Estonia (cont’d.)


There is a specialized team that deals with customs tax. Should this team discover any transfer pricing risk, it will be recorded and subjected to a separate analysis by the tax authorities. The same transfer price should be used for corporate direct and indirect tax.

Comparable data

In practice, local comparable data is preferred. Level of comparability and the reasoning behind the use of comparable data are considered most important, and the permissible comparable region depends on the taxpayer’s arguments.

When presenting comparable data, fi nancial data for three years is usually required; the taxpayer should determine the most suitable method while providing respective arguments for its selection. The use of a weighted or simple average is decided case by case, as is the method for determining the proper profi t level indicator, and the pooling or averaging of fi nancial data. The tax authority recommends that fi nancial adjustments to comparable company data be made (e.g., working capital, asset intensity and country risk adjustments). In addition to these requirements, comparable data should be updated annually.


No method is considered inappropriate, and no preference of methods ispublicly stated.


Estonia does not currently have an APA program, and no alternative advanced ruling options are available.


Because Estonia does not currently have a formal APA program, information or guidance related to MAPs is not currently available.


Although there are currently no ongoing disputes, there are pending cases(i.e., cases where reviews have been initiated). Currently, 12 cases on full tax audit, including transfer pricing revision, are pending. The tax authority continues to monitor taxpayers after a tax audit in order to note any change in behavior. Top taxpayers are scrutinized much more than other taxpayers.



Kennet Petterssonkennet.pettersson@fi .ey.com+358 405561181Finland


Since January 2012, The Finnish tax authority, Verohallinto, has carried out transfer pricing reviews on a centralized basis using specialists. The centralized unit contains 37 resources. In addition, Verohallinto has approximately 20 resources available elsewhere to assist in transfer pricing reviews. This level of resources is expected to continue for the next two years.

There is approximately equal representation of economists and lawyers involved in transfer pricing reviews. Approximately 44% of the FTECs are transfer pricing specialists with a strong technical background in transfer pricing issues. Verohallinto does not use consultants, industry specialists, or expert witnesses in transfer pricing examinations. Verohallinto mainly relies on the EU and Scandinavian cooperation for its training needs.

Industry focus

Transfer pricing audits in Finland currently do not have a specifi c industry focus. However, industries that are signifi cant in Finland naturally draw more attention.

Geographic focus

Geographic considerations are not drivers for the selection of taxpayers for review. Major trading partners such as Sweden and Germany are naturally well represented in reviews. Based on the current caseload of transfer pricing reviews, the top three counterparty jurisdictions are Sweden, Germany, and other Nordic countries. Verohallinto expects increased transfer pricing cooperation and reviews with Russia given the country’s newly introduced transfer pricing regulations.


Transactions such as business restructurings (accounting for approximately 30% of the current caseload), intangible property transactions (accounting for approximately 30% of the current caseload), and fi nancial transactions (accounting for approximately 20% of the current caseload) are targeted by the Finnish tax authority for transfer pricing reviews. In addition, Verohallinto pays attention to other transactions such as allocation of profi ts to permanent establishments and examination of unprofi table distribution companies (together accounting for approximately 20% of the current caseload).


The general penalty regime applies to transfer pricing as well. Additionally, a separate penalty can be imposed for lack of or incomplete transfer pricing documentation. The new centralized transfer pricing unit is expected to put in place processes to ensure the consistent application of transfer pricing penalties. Over the last two years, penalties were applied to 75% to 100% cases where transfer pricing adjustments were issued. The average rate of penalty has been approximately 5% of additional tax in these cases.


A transfer pricing audit is initiated after a risk-based assessment by the tax authority. Various considerations are taken into account in determining which taxpayers to audit, including taxpayer profi tability and evidence of restructurings.


The transfer pricing enforcement resources are not required to work in an integrated way with indirect tax specialists. There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

Verohallinto has no preference for local country comparables, and Pan-European comparables are acceptable.

In preparing and presenting comparable data, there are no specifi c requirements in relation to the number of years of fi nancial information analyzed, the use of simple averages as opposed to weighted averages, pooling as opposed to the averaging of fi nancial data, the method for calculating the allowable arm’s-length range, and the method for determining the appropriate profi t level indicator. However, in practice, multiple years of data are commonly used along with simple averages of data and application of the interquartile range. Financial adjustments to comparable data are optional, if justifi able.


Finland follows the principles laid down by the OECD Transfer Pricing Guidelines in selecting the most appropriate method of evaluating arm’s-length remuneration for controlled transactions.

Advance Pricing Agreements

Finland does not have a formal APA program. However, Mutual Agreement Procedure APAs are possible. In addition, Verohallinto encourages requests for advance rulings on domestic transfer pricing matters.


Finland (cont’d.)

Mutual Agreement Procedures

Verohallinto received approximately fi ve to ten transfer pricing cases annually for resolution via the competent authority process during the 2010 - 2011 period. Approximately two to fi ve cases are resolved each year. Resolution takes up to two years on average. The most common jurisdictions involved are Germany and Sweden.

Even though a case may be pending for competent authority resolution, interest is payable on the additional tax arising as a result of the transfer pricing adjustment for such period. Also, consequences arising from transfer pricing assessments cannot be held in abeyance even though the case may be pending before competent authority. Germany and Sweden are the most common counterparties in transfer pricing cases that have been resolved by the Finnish competent authority.


Verohallinto measures the effectiveness of its transfer pricing reviews through indicators such as percentage of review cases where an adjustment is made to taxpayer income, the percentage of review cases where an adjustment is sustained on appeal, and the cases reviewed per year. Verohallinto publishes statistics on transfer pricing performance; however, these statistics are not used as an offi cial measure.


There are currently approximately 15 ongoing cases before the competent authority for resolution via MAP.



Franck [email protected]+33 4 78 63 17 10France


In France, there are local tax audit departments throughout the country, but they are managed by a Central Administration Department (CAD), which, inter alia, monitors technical and organizational matters, steers their activities and determines the national orientation of tax audits. The CAD includes a team dedicated to international affairs, in particular the monitoring of transfer pricing.

In addition, at the Tax Legislation Directorate, there is a department dedicated to the development of international tax standards, including transfer pricing and the negotiation and interpretation of tax treaties, and also different offi ces acting as the competent authority in MAPs and arbitration. These dedicated teams are in regular contact with the network of audit departments, which include specialists in international taxation. The latter are used as a consultative reference by inspectors. Any inspector may look at transfer pricing when conducting an audit. Only the Direction des Vérifi cations Nationales et Internationales (National and International Audit Department), which is in charge of the largest businesses, used to have a team of inspectors dedicated to transfer pricing issues; now certain regions also have dedicated experts.

The number of inspectors dedicated to transfer pricing belonging to the National and International Audit Department has remained stable. The central administration’s team dedicated to international affairs includes approximately 10 transfer pricing specialists. It is estimated that,

countrywide, there are 40 transfer pricing specialists in audit management divisions.

Transfer pricing has, for several years, been one of the priorities under general tax audits in France. The objective of the Direction Générale des Finances Publiques is to train inspectors, whether they are already specialists in transfer pricing or are general practitioners, but there are no plans for any increase in resources dedicated to transfer pricing.

Tax audit results for the last two years show that approximately 85% of tax reassessments concerning transfer pricing in France have been issued by inspectors who are specialists in the subject or who were supervised by such specialists.

For many years, the French Tax Administration (FTA) has concentrated its efforts on training its inspectors involved in international taxation issues on problems related to transfer pricing. It is strengthening the expertise of its international teams in this fi eld and is maintaining its objective of sharing knowledge and experience in international transactions between related parties through training, as well as the pooling of knowledge, notably by forming and coordinating a network of specialists in the tax audit management divisions.

Industry focus

There is no special attention to transfer pricing in any particular industry.

Geographic focus

Geographic or jurisdictional selection criteria are not currently used in scheduling tax audits. On the other hand, in view of the positions taken with respect to tax havens and the national

recommendations given to tax audit management divisions, any transactions between companies belonging to the same group set up in a tax haven are monitored closely and examined in depth.There is no information currently available on caseload by counterparty jurisdiction.


Based on our experience, the French tax administration tends to focus more than before on transactions involving intangible assets and services. Considering the amounts at stake, intragroup loans also constitute a growing subject of tax audits. Audits on tangible transactions have remained stable over the years.


French legislation does not currently include penalties specifi c to transfer pricing reassessments.

However, businesses are under an obligation to document transfer pricing for the years open from 1 January 2010. This new obligation is embodied in Article L13AA of the French Procedural Tax Book. Should a taxpayer fail to provide required documentation or provide incomplete documentation within 30 days of the receipt of the a formal notice, it is liable to pay €10,000 or, depending on the seriousness of the breach, up to 5% of the profi ts transferred. This penalty is applicable for each year subject to the tax audit. Should no documentation be provided, or if documentation is foundto be irrelevant, the maximum 5%penalty applies.


France (cont’d.)

For the taxpayers that remain out of the scope of Article L13AA, a de facto documentation requirement still applies. In certain cases, inspectors may ask the business being audited to provide them with certain specifi c information justifying the transfer pricing policy applied; failing any answer, the burden of proof for the justifi cation of this policy will be in practice on the company and not onthe inspector.


The FTA does not currently distinguish between departments that are competent in direct taxes and those that are competent in indirect taxes. Therefore, the inspectors are competent in all taxes and duties payable.

The audit procedures carried out by the FTA are independent of the procedures carried out by the Customs Administration. However, some information may be shared, at the discretion of the inspectors or of either of the administrations.

The prices fi xed by the FTA inspectors are used in both direct and indirect taxes. However, to the extent that the methods of fi xing transfer prices in tax matters and customs values are not identical, the adjustments made by the FTA are not necessarily used by the Customs Administration, and vice versa.

Comparable data

Pursuant to the principles set down in the OECD Transfer Pricing Guidelines, the transfer pricing study presented by the business must be as precise as possible and must therefore take account of the market in which the business operates. Taxpayers are therefore expected to select comparables with characteristics similar to theirs, including with respect to geographic market. The FTA expects the use of reliable comparables that require the least possible adjustment.


All traditional methods are currently accepted, but the FTA prefers to use the method that is most appropriate to the activity of the taxpayer in question and its specifi cities. In other words, the taxpayer must be in a position to justify the reasons for which it chose a method as opposed to another.


Bilateral and, under certain circumstances, unilateral APAs are currently available.

There is a formal program for unilateral and bilateral APAs pursuant to which the FTA may not perform any tax adjustment when it has formally adopted a position within the framework of the agreement.

The FTA favors bilateral APAs. While unilateral APAs are available, there are three main conditions for their application: there is no APA program in the jurisdiction of the counterparty the request is related to transactions with different countries that cannot be addressed via multiple bilateral APAs or the taxpayer is a small business.

On average, 15 to 20 applications are received per year, with the last three years seeing a large increase. There are currently between 35 and 40 applications in process. More than 80% of the cases handled involve bilateral APAs.

Agreements involving Germany, Switzerland, the United Kingdom andthe United States form the majorityof the bilateral APAs.

It is diffi cult to quantify the time required to complete an APA. The length of the process depends on many factors (e.g., the complexity and nature of the transactions and the degree of responsiveness of the various tax authorities). However, experience shows that, on average, a multilateral/bilateral APA is completed in 18 to 24 months. On the other hand, it is reasonable to expect a unilateral APA to be completed in an average of 12 to 14 months from the fi ling of the application.


There are four main reasons for the length of the APA process: taxpayer delays in providing answers to requests from the FTA lack of cooperation/transparency in some submissions, time required by other competent authorities and diffi culties in coming to an agreement with other competent authorities.

To expedite the process, APA requests should be transparent and accurate. With respect to relationships with other competent authorities, more working sessions to gain a common understanding of the situation and diffi culties faced should help to speed up the process.


The effectiveness of transfer pricing audits takes into account the number of businesses that have been the subject of transfer pricing reassessments, the amount of reassessments notifi ed, the

departments that have performed these reassessments (territorial management and national management) andthe signifi cance of the positionssustained after MAP to eliminatethe double taxation.


There are currently 164 ongoing MAP disputes and 110 in arbitration. Information on ongoing and pending cases at the domestic appeal (preceding court action) and at the litigation stages is not currently available.

For cases currently under MAP (including on the basis of the European Arbitration Convention), the most frequently involved countries are Germany, Italy and Spain.


In general, any changes in legislation and administrative practices may be the

result of jurisprudential changes at the European Community (EC) or national level, modifi cations to the Transfer Pricing Guidelines or EC discussions.

The practices of international groups may lead to a change in certain administrative practices or, at the very least, in the arguments used by the tax audit departments to justify their reassessments.



Oliver [email protected]+49 211 9352 10627Germany


Taxes in Germany are administered by the German Federal Central Tax Offi ce (Bundeszentralamt für Steuern) and the German state tax authorities. However, tax audits, including transfer pricing audits, are administered only by the German state tax authorities (or the Bundesländer). Some states have set up regional or specialist groups for international taxation. Generally, transfer pricing audits are performed by local tax auditors; however, in certain cases the federal tax audit may be called in for the purpose.

The federal tax audit, along with the Federal Central Tax Offi ce, has expanded its resources in the last couple of years. The federal tax audit is organized into industry specialist groups for the most important industries in Germany such as life sciences, automotive, construction and fi nancial services.

The resources involved in transfer pricing reviews consist of a few economists and some lawyers, while the majority of resources are tax offi cials who have received specifi c training on transfer pricing issues. The transfer pricing resources are kept well updated of key transfer pricing developments through periodic trainings.

Industry focus

Transfer pricing audits are largely driven by the size of the taxpayer. There is no formal program prioritizing the review of taxpayers in a particular industry.

Geographic focus

Practical considerations drive the choice of jurisdictions for review. Typically, transactions with Germany’s major trading partners and low-tax jurisdictions are reviewed. The audit activities cover domestically headquartered companies as well as German-based subsidiaries of non-German-headquartered companies.

In the current caseload of transfer pricing reviews, the top fi ve counterparty jurisdictions are the United States, Japan, France, the United Kingdom and Korea. With reference to low-tax jurisdictions, particular attention is placed on transactions with Switzerland, Luxembourg, Ireland, Liechtenstein and Singapore.

In addition, audit activities related to emerging markets, particularly Latin America (Brazil and Mexico) and Asia (India and China), have increased as the importance of these markets has increased.


German tax authorities do not focus on particular transaction types. Rather, any intercompany relationship can be and is subject to audit. Nevertheless, the likelihood of an audit of the following transaction types can be regarded as very high:

• Business restructurings

• Intangible asset transfers

• Intragroup services

• Tangible goods transactions


German tax authorities have the power to impose transfer pricing penalties if taxpayers do not fulfi ll their documentation obligations. However there is no justifi cation for penalties only because transfer pricing adjustments were issued. Over the last two years, penalties have been applied in a limited number of cases. Where penalties are imposed, they range from 5% up to 10%of the transfer pricing adjustment.


A transfer pricing audit is instigated by the relevant decentralized resources in the various states within the framework of a routine audit cycle. The considerations taken into account in determining which taxpayers to focus on and the scope of the audit include the following:

• The profi tability of the local taxpayer• Evidence of business restructurings• Previous audits of the taxpayer• The nature and the volume of the

related-party transactions


German transfer pricing enforcement resources are not required to work in an integrated way with indirect tax specialists.

Comparable data

Typically, for inbound and outbound cases, regional (Pan-European) comparables may be used if they meet the comparability standards. Local comparables in the region/country of the foreign tested party are also


accepted. In general, Germany follows the recommendations of the OECD and the EU-JTPF in this regard.

In preparing and presenting comparable data, there are no specifi c requirements in relation to the number of years of fi nancial information analyzed, the use of simple versus weighted averages or the method for determining the appropriate profi t level indicator. German tax authorities, as a rule, require the use of interquartile ranges for narrowing the arm’s-length range. No formal or mandatory guidance is provided with respect to fi nancial adjustments to comparable data.

The German tax authorities take a skeptical view of comparable searches, often questioning the comparability of the chosen comparables. The rejection of a comparable search can lead to the conclusion that transfer pricing documentation is incomplete, allowing tax authorities to make the rebuttable assumption that the German taxpayer’s income was reduced through transfer pricing. Therefore, taxpayers are well advised to place special attention on the quality of comparables searches if these are used to substantiate the arm’s-length nature of the transfer pricing.


Germany follows the hierarchy of transfer pricing methods as outlined in the German Foreign Tax Act to determine arm’s-length remuneration for controlled transactions. The application of transfer pricing methods is bound by the availability of comparable data.

If fully comparable data exists, Germany relies on the traditional transactional transfer pricing methods only, i.e., the CUP method, RPM and cost plus method.

The German tax authorities consider the CPM an inappropriate method.

If limited comparable data exists, Germany accepts the traditional transactional methods as well as the transactional profi ts methods according to the OECD Transfer Pricing Guidelines, i.e., the TNMM and the transactional profi t split method.

If no comparable data exists, the German tax law prescribes the application of a hypothetical arm’s-length comparison, which tries to identify an arm’s-length price based on the profi t expectations of the parties involved in the intercompany transaction. This method is deemed to play a prominent role in intangible transactions in the future because the German tax authorities question the existence of usable comparable data in these transactions.


Germany has a formal APA process for bilateral and multilateral APAs and a formal ruling process for unilateral APAs. These processes are accessible to all taxpayers.

The APA team receives approximately 25 bilateral APA requests annually from taxpayers, and there are approximately 100 applications currently in process (around 5 of which are multilateral cases). The average duration of the APA process ranges anywhere from two to four years. Top treaty partners that have concluded bilateral APAs with Germany are the United States, Japan, France, the United Kingdom and the Netherlands.

In addition, approximately 200 cases of double taxation are resolved annually under the competent authority procedure. At the end of 2011, around 290 transfer pricing MAP cases were pending. The

average duration of transfer pricing cases range between one-and-a-half and three years.

Usually, the vast majority of the MAP cases (about 90 %) are resolved, and only a very few number of cases fail. In addition, few cases end up in arbitration.


There are approximately 290 ongoing MAP cases. Taxpayers seeking resolution in these cases are mainly involved in industries such as automotive, pharmaceuticals, banking and retail. The treaty partners involved in a majority of these cases are the United States, Japan, France and the United Kingdom. Only a very low number of cases are broughtto litigation.


The transfer pricing environment in Germany is responsive to OECD and European Union initiatives. For instance, Germany is expected to introduce new provisions relating to permanent establishments, following the OECD’s amendments to the commentary on Article 7 of the Model Tax Convention. Germany is also expected to introduce an Executive Order Law and a circular on general transferpricing principles to support and interpret Sec. 1 para. 3 sentences 1 to 8, German Foreign Tax Act.

The German tax authorities expect an increased focus over the next two years on the Executive Order Law on General Transfer Pricing, circulars on General Transfer Pricing, new provisions on partnerships and permanent establishments, and revised regulations for intangible transactions.



Zoltan [email protected]+3614518638Hungary


There is no central unit that specifi cally deals with transfer pricing audits. Transfer pricing resources are decentralized and work at the Audit Offi ces for Corporate Enterprises of the Directorates. Audit activity is supported by Departments for Technical Coordination and Risk Analysis operating at each regional directorate, where audits, including the transfer pricing audits, are analyzed and assessed.

In addition, from 1 October 2010, a separate department has been set up, with seven resources that operate as a part of the Directorate of Special Cases and Special Status Taxpayers. This department helps, on request, the auditors of subsequent audit departments in transfer pricing audits. The primary task of this new department is the assessment of APA applications received not only from taxpayers falling within the competence of the Directorate of Special Status Taxpayers but also from applicants across the country.

Currently, 292 resources are involved in transfer pricing examinations on a national level. Two years ago, 250 resources were involved in such examinations. It is expected that two years from now, this number will increase by 6% to 7%. Out of the total resources currently involved in transfer pricing examinations, 20 to 25 are transfer pricing specialists (i.e., have a strong technical background in transfer pricing issues); the rest of the resources are generalists with some transfer pricing

knowledge. Resources involved in transfer pricing examinations are highly qualifi ed professionals holding degrees in economics, accounting or law. Three professionals are lawyers, two are accountants, one is an economist andfour have other backgrounds.

In some audit cases, external professionals such as consultants, industry specialists and expert witnesses are also relied upon. As part of the FISCALIS program, professionals regularly take part in international transfer pricing conferences. In addition, the most interesting cases and the results achieved in transfer pricing audits are presented to professionals in seminars organized by the Central Bureau.

Industry focus

The industries under particular scrutiny for transfer pricing audits are asset management, automotive, consumer products, real estate, technology and power and utilities. Signifi cant activity in Hungary and industry profi tability are the factors driving scrutiny of these industries. The selection of industries is not widely communicated to taxpayers.

Geographic focus

The tax authority does not target companies in particular jurisdictions for transfer pricing reviews and therefore focuses on all cross-border transactions. Out of the current caseload of transfer pricing reviews, the top fi ve counterparty jurisdictions are Germany, Austria, Poland, Switzerland and the Netherlands.


Transactions receiving the most transfer pricing scrutiny are tangible goods transactions (representing 33% of the current caseload), intangible property transfers (representing 27% of the current caseload), cost-sharing and cost-pooling arrangements (representing 20% of the current caseload), intragroup services (representing 13% of the current caseload) and fi nancial transactions (representing 7% of the current caseload).


Section 172 of Act XCII of 2003 on Tax Procedure covers the default penalty; Subsection (16) of the Act provides that, where transfer pricing documentation has not been prepared, a penalty, subject to a maximum of HUF 2 million, may be imposed per documentation. If the taxpayer has not complied with its obligation to prepare transfer pricing documentation, a default penalty is levied to refl ect the weight of the infringement, on the basis of a “penalty manual,” taking into consideration the principle of differentiated sanctioning. In addition, where, as a result of the audit, pretax profi t has to be adjusted because of the transfer prices applied and there is a tax difference to the detriment of the taxpayer, a tax penalty is levied according to the general rules.


Over the last two years, penalties have been levied for 50% to 75% of the proposed transfer pricing adjustment cases. In cases where penalties were assessed, the average penalty rate (as a percentage of the additional tax) was between 25% and 50%. The assessment of penalties is expected to increase in the years to come.


The scope of transfer pricing audits is not governed by a central decision-making body. The audit director, or the head of the organizational unit in charge of the audit, orders the audit and determines its scope based on fi eld experience from ongoing audits, the assessment or analysis of available documents, and the magnitude and type of the transaction. In certain cases, the revision of transactions and prices applied between related enterprises is based on external information, e.g., an inquiry from another tax authority. Transfer pricing reviews are usually initiated after taking into consideration a variety of factors, including the following (in order of importance):




• The nature of related–party transactions undertaken by the taxpayer



Transfer pricing audits are carried out by auditors at the Audit Offi ces for Corporate Enterprises. As part of these audits, auditors examine the fulfi llment of both corporate income tax and VAT liabilities. Where a more complicated VAT matter arises, auditors of the Audit Department of Corporate Enterprises contact the auditors of the VAT departments. However, different transfer prices can be used for corporate direct tax and indirect tax purposes.

Comparable data

Hungarian transfer pricing regulations require the application of local country comparables when determining the arm’s-length price. The objective is to select the best comparable to a given transaction. However, because there are few or no comparables in Hungary to apply to a Hungarian-based tested party, the geographical coverage of the search is expanded. Because of a similar economic environment, central Eastern European country comparables are considered better than those in the entire European Union. Therefore, geographical coverage is fi rst expanded to include these countries. If no relevant data can be obtained from this set, then the European Union is accepted as a whole.

In presenting and making fi nancial adjustments to comparable data, Hungarian regulations follow the OECD Transfer Pricing Guidelines.


All methods mentioned in the OECD Transfer Pricing Guidelines are accepted under the Hungarian transfer pricing regulations. However, where none of the traditional methods can be applied, any other method can be used for the arm’s-length price determination. The auditors on transfer pricing audits assess whether or not the other method used by the taxpayer is the most appropriate method suitable to determine the arm’s-length price.


Since 1 January 2007, companies are allowed to submit an APA application to the tax authority, and from 1 January 2009, the applications are assessed by the Directorate of Special Status Taxpayers. This program applies to unilateral, bilateral and multilateral APAs. Over the last three years, an average of 10 to 15 applications are received annually. Taxpayers with a transfer pricing documentation obligation or those with direct or indirect majority state ownership may submit an APA application. There are currently 11 APA applications in process, all of them unilateral APAs. No bilateral APA applications have been fi led with the Hungarian tax authorities as yet. However, preliminary consultations have taken place with regard to two cases. On average, 120 days are required to complete an APA.


Hungary (cont’d.)


The Hungarian tax authority receives two to three applications relating to MAPs per year. Of the applications received so far, agreement has been reached in one case. The agreement was reached within the two-year deadline stipulated in the Arbitration Convention. The top three jurisdictions involved annually are Germany, the United Kingdom and the Netherlands. On average, one-and-a-half to two years are required to resolve a case.

The tax authority practice with respect to payment of taxes and interest while MAP is underway is highlighted in Section 176/A of Act CXII of 2003 on Tax Procedure. As per this clause, the tax authority may suspend the enforcement of the resolution or court order upon request of the taxpayer, as required by a superior organ or based on the notifi cation from the competent authority if, pursuant to the procedure as defi ned in Articles 6 or 7 of the Arbitration Convention, the resolution (court order) is expected to be amended, annulled or similarly affected.


The Hungarian tax authority measures the effectiveness of transfer pricing reviews by taking into consideration the following:

• Increased tax yield (as regards corporate income tax)

• Percentage of review cases where an adjustment is made to taxpayer income

• Percentage of review cases where an adjustment is sustained on appeal

• Percentage of taxpayers assessedas high risk

• Percentage of taxpayers in compliance with documentation requirements


There are eight cases undergoing domestic appeals (preceding court action), eight cases undergoing litigation and two cases under MAP. Among the pending cases, i.e., where the assessment process is to be completed, there is one domestic appeal and three MAPs.


Transfer pricing policies or practices have changed based on OECD initiatives. The OECD Transfer Pricing Guidelines, published on 22 July, 2010, elevated the TNMM as well as the profi t split methods to the same level as other transfer pricing methods. Accordingly, these methods were added to Paragraph (2) of Section 18 of Act LXXXI of 1996 on Corporate Income Tax and Dividend Tax in Hungary as of 1 January, 2011.

Also, from 2010 Hungarian regulation adopted the EU MasterFile concept (Decree of the Ministry of FinanceNo. 22/2009(X.16.)).



Lior [email protected]+972 3 623 2749


A central transfer pricing unit conducts transfer pricing reviews on a national level. All four transfer pricing FTEs are based in the central unit. Two years ago, there were three transfer pricing FTEs, and the number is expected to reach fi ve within the next two years. All of the transfer pricing resources are accountants and have a strong technical transfer pricing background.

Industry focus

Transfer pricing audits currently focus on the consumer products, pharmaceuticals and technology industries. This list of industries targeted is reviewed biennially but is not widely communicated to taxpayers. The factors driving the selection of these industries are their signifi cant level of activity in Israel, importance of intangible property to the industry and profi tability.

Geographic focus

The Israeli tax authority specifi cally targets transactions in certain jurisdictions that are major trading partners or are perceived to be low-tax jurisdictions. Based on the current caseload of transfer pricing reviews, the top counterparty jurisdictions are the United States and low-tax jurisdictions.


Particular types of transactions targeted for transfer pricing reviews are intangible property transfers (40% of the current caseload), tangible goods transactions (30% of the current caseload) and intragroup services (30% of thecurrent caseload).


Israel does not have a specifi c transfer pricing penalty regime.


Case selection in a transfer pricing audit is rarely governed by a central decision-making body. Usually, the decision is made case by case by the local assessing offi ces. Various considerations are taken into account in determining which taxpayers to audit, including the following:



• The volume of the taxpayer’s related-party transactions



The transfer pricing enforcement resources are not required to integrate with the indirect tax team; however, some cooperation between the two has recently been observed on rare occasions. There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

The Israeli tax authorities prefer local country comparables, but, since very limited information and databases are available for Israeli companies, United States, European Union and global comparables are also acceptable.

In preparing and presenting comparable data, three years of fi nancial information are required. There are specifi c legal requirements for the method of determining the appropriate profi tlevel indicator.

No guidance is provided in relation to fi nancial adjustments to the comparable data. Adjustments are optional if justifi able.


The CUP method takes priority over other methods. The preference of transfer pricing methods is based on legislative provisions and policy statements.


Israel has both a unilateral and a bilateral APA program. Taxpayers have the right to initiate the APA consultation process. Currently, there are only two unilateral applications in process. The average time required to complete an APA is 12 months.


No transfer pricing cases have been received for MAP.


The Israeli tax authority measures the effectiveness of transfer pricing reviews based on the increase in tax yield. The tax authority does not publish statistics on yields. An adjustment is made to taxpayer income in 80% of cases, and adjustments are sustained on appeal in 20% of cases.


Among the current pending cases, two are under litigation.


In light of recent OECD initiatives, the Israeli tax authority’s focus has moved to restructuring and intangible property migration cases.

Israel



Davide [email protected]+39 02 851 4409Italy*


The Agenzia delle entrate administers taxes in Italy. Traditionally, all transfer pricing activity was carried out from the centralized APA offi ce formed in 2005. In recent years, the resources have become more decentralized, with fully dedicated resources at a regional level, at least in the main geographic regions. Of the 30 FTEs in transfer pricing, 15 FTEs are employed by the APA program, and the remaining are devoted to transfer pricing audits based out of the main geographical regions.

Approximately 50% of the FTEs are estimated to be based at the central unit. The number of transfer pricing resources is believed to have signifi cantly increased in the past two years. With the introduction of the optional transfer pricing documentation regime, the number of FTEs is expected to increase even more in the next two years.

The Agenzia delle entrate mainly relies on OECD or other EU organizations such as IOTA for its training needs.

Industry focus

Italy registered a signifi cant increase in the number of transfer pricing audits last year, covering almost all industries present in the country. Transfers of intangible property, profi tability, magnitude of cross-border transactions and losses play a signifi cant role in the risk analysis evaluation applied to select taxpayers (and thus sectors) tobe audited.

Geographic focus

Transactions with blacklisted countries and all cross-border intragroup transactions generally come under the focus of tax authorities. Based on the current caseload of transfer pricing reviews, the top counterparty jurisdictions (in order) are Germany, Switzerland, France, the Netherlands and the United States.


The Italian tax authority targets tangible goods transfers, intragroup services, transfer of intangible property, fi nancial transactions, cost-sharing/cost-pooling arrangements and business restructuring for transfer pricing reviews. However, tangible goods transactions and intragroup services take priority over intangible property transfers, fi nancial transactions and cost-sharing/cost-pooling arrangements. The Italian tax authority is registering its fi rst structured challenges to business restructurings as a result of the recent introduction of Chapter Nine of the OECD Transfer Pricing Guidelines.


Italy does not have a specifi c transfer pricing penalty regime. The general tax penalty regime is applied.

The Italian tax authorities have processes in place to ensure consistent application of transfer pricing penalties. Over the last two years, penalties were assessed in almost all cases where

transfer pricing adjustments were issued. However, taxpayers have taken advantage of the new optional transfer pricing documentation regime, under which penalties are inapplicable if the taxpayer has fl agged a specifi c option on its tax return (communicating the possession of specifi c transfer pricing documentation) and the auditors deem such documentation compliant with the regulations. Where penalties were imposed, the average penalty rate is often 100%, while in some cases the tax rate ranged from 100% to 200% of the transfer pricing adjustment. The assessment of penalties is expected to decrease in the next two years as a result of the introduction of the new transfer pricing documentation regime.


Transfer pricing audits are generally handled by the regional offi ces. However, in some cases the central team in Rome handles the audit as well. A transfer pricing audit is initiated after a risk-based assessment by the tax authority. Various considerations are taken into account in determining which taxpayers to audit. Evidence of business restructurings; evaluations of taxpayer profi tability; the specifi c nature and volume of the related–party transactions; the standard audit cycle/program; previous tax audits of the taxpayer; and VAT, employment, customs or other indirect tax reviews can lead to increased taxpayer scrutiny. However, the importance of the factor depends on the situation.



The transfer pricing enforcement resources are not required to integrate with indirect tax specialists. There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes. Transfer pricing and VAT are notyet aligned.

Comparable data

There is no specifi c requirement to use local country comparables under the optional transfer pricing documentation regime. However, the Italian tax authority prefers local comparables, and Pan-European sets are accepted only if they are robust enough to refl ect local market peculiarities.

In presenting comparable data, there are no specifi c requirements. The Italian tax authority may consider three to fi ve years of fi nancial data appropriate. An interquartile range is usually considered the most reliable range. The tax authority generally accepts both simple and weighted averages and often uses operating margin as a profi t level indicator, depending on the case. Typically, averaging of fi nancial datais acceptable.

Financial adjustments to comparable data are optional, if justifi able and in line with the OECD Transfer Pricing Guidelines.


Italy follows the principles laid down by the OECD Transfer Pricing Guidelines in selecting the transfer pricing method, and no method is considered inappropriate.

There is guidance that permits the use of other methods, such as safe harbors for royalties in some of the old Ministerial Instructions, dating back to 1980. Two Ministerial Circular Letters were issued in 1980 and 1981 after the 1979 OECD Transfer Pricing Guidelines. No other instructions dealing specifi cally with transfer pricing were issued since, even if reference has always been made to OECD Transfer Pricing Guidelines. An explicit reference to 2010 OECD Transfer Pricing Guidelines is made in the new optional transfer pricing documentation regime.


Italy has a formal APA program, with a unilateral APA program as per internal law. Recently, bilateral (or multilateral) APAs have become available, pursuant to Article 8 of Decree-Law no.269/2003, as converted into Law no.326 of 24 November 2003, and the MAP Article of the relevant tax treaty. The entire APA procedure is expected to take 15 to 20 months.

APAs in Italy have a binding effect for at least three fi scal years beginning with the year in which the agreement is executed and may be extended for an additional three years. During any of these periods, transfer pricing audits of companies participating in the program are restricted; ordinary fi eld inspectors cannot audit transaction covered by the

APA. However, APA teams may review facts and circumstances under agreed visits to the companies. If the agreed facts and circumstances change during the three-year period, the conditions of the agreement may be amended.

According to the International Standard Ruling Report issued by the Italian APA Offi ce on 21 April 2010 and data communicated by Italy to the EU-JTPF, there was an increase from 11 APA applications received in 2009 to 15 in 2010. A similar growth is estimated in 2011, and it is projected that approximately 20 applications may be received.

Taxpayers have the right to access the APA program provided the conditions of the program are met. Approximately 30 applications are estimated to be currently in process. Most of the cases at the end of 2010 were unilateral APAs. The countries involved in the bilateral APAs are said to be the United States and Switzerland. The average time to complete an APA has decreased from 20 months in 2009 to 18 months in 2010. The improvements in the effi ciency of the APA offi ce should offset the increased number of applications. Hence, a similar fi gure is estimated for 2011.

Relatively limited experience in handling APAs and lack of available resources are some of the reasons why the APA process is lengthy. This process could be shortened by increasing the number of resources dedicated to APAs and by communicating better with businesses in order to attract more cases and avoid common misconceptions about the program.


Italy* (cont’d.)


Based on available statistics, 80 MAP cases are open in Italy at the end of 2010, and a similar number can be estimated to be open at the end of 2011.

Last available data for MAP cases under Arbitration Convention (MAP-AC) shows that at the end of 2010, Italy had 52 pending cases, of which 17 and 12 were respectively presented in 2009 and 2010. It is estimated (no offi cial data is available yet) that, in 2011, 20 new cases would have been presented.

The MAP-AC procedure can take three to fi ve years to resolve, and all the cases should be resolved sooner or later. Based on experience, Germany and France are the jurisdictions most involved in MAP-AC with Italy, followed by Spain and the United Kingdom.

Suspension of payment of taxes is available for MAP-AC cases (potentially subject to a taxpayer guarantee), but the suspension is not automatic. No suspension is available for treaty MAP cases.

The payment of interest follows the ordinary administrative internal rules. If Italy has to reimburse taxpayers and suspension of payment of taxes was not granted, interest is added. But if the other country has to reimburse its taxpayer, Italy will ask for payment of interest on the unpaid taxes due.


Only a few transfer pricing disputes have been channeled through MAP or arbitration, but the number of cases is expected to increase.


OECD and European Union initiatives have a natural infl uence on local transfer pricing practices and regulation in Italy. The new centralized transfer pricing documentation regime introduced in 2010 is explicitly linked to the European Union Code of Conduct and the OECD Transfer Pricing Guidelines.



Roman [email protected]+7 727 259 7212


A centralized group of transfer pricing specialists works under the Tax Committee of the Ministry of Finance (TCMF). Transfer pricing examinations are generally part of complex tax audits and are performed by local tax units with involvement, if necessary, of transfer pricing specialists from the TCMF. Approximately 5 to 10 specialists are based in the central group. There are currently no designated transfer pricing specialists in the local units. Two years ago, the number of FTEs was approximately the same, and the number is not expected to change over the next two years.

Industry focus

The banking and capital markets, mining and metals and oil and gas industries receive particular transfer pricing scrutiny. Signifi cant industry activity in Kazakhstan, industry profi tability and the industry’s strategic importance to the Kazakh economy have all been relevant factors in driving the scrutiny. The list of industries selected for scrutiny is not currently widely communicatedto taxpayers.

Geographic focus

The TCMF specifi cally targets transactions with major trading partners and perceived low-tax jurisdictions for transfer pricing reviews. Transactions are systematically selected for transfer pricing audits because of legal requirements(e.g., blacklisted countries).


Tangible goods transactions, intragroup services, fi nancial transactions and cost–sharing/cost–pooling arrangements are all specifi cally targeted for transfer pricing reviews. According to the Kazakhstan Transfer Pricing Law, transfer pricing controls apply to transactions between both related and unrelated parties.


There are currently special fi nes for failure to comply with documentation requirements established by legislation. The maximum fi ne is approximately US$3,600.

Transfer pricing fi nes are also imposed on a company’s authorized individuals resulting in personal liability for an administrative violation, including criminal liability if the misreported tax amount exceeds approximately US$20,600. Such violations can result in an investigation by the fi nancial police and the prosecution of individuals held responsible for violations.

The fi ne for understatement of a tax payment resulting from a transfer pricing adjustment is up to 50% of the additionally accrued tax amount. In addition, interest for the delayed payment of the additional tax resulting from transfer pricing adjustments is calculated at 250% of the National Bank refi nancing rate.

Legislative requirements that ensure consistent application of transfer pricing penalties have been established under the Code on Administrative Violations.

More than three-quarters of transfer pricing adjustments in the last two years have resulted in an assessment of penalties. Where penalties have been assessed, the average penalty rate has been between 50% and 75% of the additional tax. The assessment of penalties is expected to remain roughly the same over the next two years.


Transfer pricing audit case selection is governed by a central decision-making body; taxpayer profi tability, a risk-based assessment by the tax authority, and the nature and the volume of related–party transactions are all relevant factors that drive the initiation of transfer pricing reviews.

Kazakhstan*


Kazakhstan* (cont’d.)


Transfer pricing enforcement resources work in an integrated manner with indirect tax specialists and actively share information. There is currently no requirement that the same transfer price be used for corporate direct and indirect tax purposes.

Comparable data

There are no specifi c rules governing local country comparable requirements or the presentation of comparable company data, and there are no rules or guidance related to the propriety of applying fi nancial adjustments (e.g., working capital, asset intensity and country risk adjustments) to comparable data.


There is a publicly stated priority of transfer pricing methods; use of the CPM or the residual profi t split method is considered inappropriate. There is currently no guidance with respect to other non-traditional methods such as cost-contribution/cost-sharing arrangements.


A formal unilateral APA program exists and is available to any taxpayer that fi les an application with the necessary documentation. The tax authority then considers the application when deciding whether to grant an APA. Based on legislative provisions, the APA process should take 90 working days to complete, but in practice it may take longer.

There are no specifi c provisions in the legislation stipulating that an APA is binding on the tax authority. There are currently no successful examples of APAs in Kazakhstan.



Geoffrey [email protected]+254 020 2715300


The Kenya Revenue Authority (KRA) administers taxes in Kenya and has a centralized group responsible for transfer pricing reviews. All 20 FTEs involved in transfer pricing reviews are based in the central unit. Until a couple of years ago, there were no FTEs involved in transfer pricing reviews in Kenya. Two years from now, 30 to 35 FTEs are expected to be involved in transfer pricing reviews.

Currently, all 20 FTEs are based in the Audit Department of the KRA. Fifteen FTEs are accountants while fi ve are economists. The KRA relies on the Malaysian tax administration and on the OECD for its training needs.

Industry focus

There is no specifi c industry focus for transfer pricing reviews in Kenya. Since the introduction of the transfer pricing rules in 2006, a taxpayer is required to submit its transfer pricing documentation upon request by the KRA. Transfer pricing documentation is a major tool used by KRA to enforce compliance.

Transfer pricing audits are carried out as part of the general or comprehensive audits conducted by the KRA. No audits are conducted specifi cally in respect of transfer pricing. In determining the candidates for audit, the KRA usually assesses the volumes (both in numbers and value) of related-party transactions, profi tability of the entities and general levels of compliance.

Geographic focus

The tax authority specifi cally targets transactions in certain jurisdictions perceived to be low-tax jurisdictions. Based on the current caseload of transfer pricing reviews, the top counterparty jurisdictions (in order) are the United Kingdom, continental Europe and the United States.


No particular transactions are targeted for transfer pricing reviews in Kenya.


There are no specifi c transfer pricing penalties under the Kenyan Income Tax Act. However, the KRA can conduct an audit and make adjustments to taxable profi t and taxes where applicable. Any additional tax due as a result is deemed additional tax for purposes of Sections 72D and 94; Section 72D imposes a penalty on unpaid tax of 20%, and Section 94 imposes interest on unpaid tax (principal tax only) of 2% per month based on a straight-line method.

The percentage of proposed transfer pricing adjustments in the last two years where penalties have been assessed is 0% to 25%. Where penalties have been assessed, the average penalty rate, as a percentage of the additional tax, is 0% to 25%. In the next two years, the assessment of penalties is expectedto increase.


The KRA’s transfer pricing unit decides the cases that should be selected for audit. Various considerations are taken into account in determining which taxpayers to audit, including the following (in order of priority):










The transfer pricing resources do not work in an integrated way with the indirect tax team; however, ad hoc cooperation may be required. Under the Kenyan VAT Act, transactions between two parties are required to be priced at market value. This mirrors the arm’s-length provisions contained in the Income Tax Act. Different valuation methods, however, are provided under the East African Community Customs Management Act for determining the customs value.

Kenya


Kenya (cont’d.)

Comparable data

The KRA prefers local country comparables. However, since these may not be available, global foreign comparables may be used. Appropriate country adjustments should be made to the foreign comparables used. The absence of data to carry out country adjustments also complicates the benchmarking exercise in Kenya and could potentially produce inconsistent results.

Most Kenyan taxpayers rely on European databases such as Amadeus in testing the arm’s-length nature of their transactions since there are no databases with fi nancial information for local Kenyan companies. Transfer pricing policies adopted on the basis of the results of foreign comparables may not be accurate because they may not completely refl ect the actual circumstances and results of comparable Kenyan businesses.

The Income Tax Act is not clear on the presentation of comparable data, and the OECD Transfer Pricing Guidelines are relied on where required. Financial adjustments to comparable data are optional, if justifi able.


According to the Income Tax Act, there is no priority of transfer pricing methods, and the transfer pricing rules allow the taxpayer to select the most appropriate method to test related-party transactions. The absence of data to carry out country adjustments complicates the benchmarking exercise in Kenya and could potentially produce inconsistent results.

The transfer pricing rules allow for a taxpayer to use other methods as prescribed by the Commissioner in cases where, in the Commissioner's view, the specifi ed methods cannot be applied. This is interpreted to mean that the agreement of the Commissioner of Income Tax must be sought before the use of sucha method.


Kenya does not yet have a formal APA program. The KRA has indicated its willingness to enter into APAs with taxpayers; however, no legislation has yet been put in place.


No cases have been received by the KRA under MAP. Currently, no legislation exists to provide for it either.

In June 2011 the Minister for Finance introduced a provision in the Income Tax Act that allows Kenya to enter into tax information exchange agreements with other countries. This was done through the Finance Bill 2011, which has yet to be adopted as law.


The effectiveness of transfer pricing reviews is measured by the percentage of review cases where an adjustment is made to taxpayer income. Yield statistics are not published by the KTA.


Most of the ongoing transfer pricing disputes are domestic appeals where the tax administration has completed assessment and communicated the order.



Ilona [email protected]+371 6704 3836Latvia


The International Transactions Control Division (ITCD), a centralized unit within the State Revenue Service (SRS), leads transfer pricing audits, but tax inspectors in regional tax audit divisions also perform audits.

There are currently 5 FTE resources based in the ITCD that are involved in transfer pricing examinations, along with 5 to 10 in other divisions of the SRS. Two years ago, when the division was established, the ITCD had 2 to 3 FTEs. The central division is expected to employ 5 to 6 FTEs over the next two years, with 10 in the regional divisions.

All ITCD resources are considered transfer pricing specialists. The vast majority of these resources have backgrounds in economics. External resources are not consulted for transfer pricing matters, nor are other tax administrations relied upon for training purposes.

Industry focus

Because the economy is small and the number of large multinational enterprises is also relatively small, the ITCD does not currently select specifi c industries for transfer pricing focus.

Geographic focus

The ITCD does not currently focus on particular jurisdictions in performing transfer pricing reviews.


There is no transaction focus; however, in most transfer pricing audits, tangible goods transactions, intra-group services and fi nancial transactions (e.g., loans and other debt instruments) are reviewed.


There is currently no specifi c transfer pricing penalty regime. However, there are legislative requirements to ensure consistent application of penalties, as well as rules that detail penalty ceilings. Penalty criteria include the size of the adjustment compared to the tax base of the company.

Over the past two years, 25% to 50% of proposed transfer pricing adjustments have resulted in the assessment of penalties. The average penalty rate has been less than 25% of the additional tax. The assessment of penalties is expected to decrease over the next two years. This forecasted decrease in penalties is mainly due to the 2011 reform of the general tax penalty regime, which will result in smaller penalties, including transfer pricing penalties, for taxpayers.


Case selections for transfer pricing audits are governed by a central decision-making body. Profi tability, a risk-based assessment by the ITCD, the nature and volume of the related-party transactions, and previous tax audits of the taxpayer

are all relevant factors in initiating reviews, in addition to the standard audit cycle/program. Each case is evaluated individually, and all factors are analyzed in the context of each taxpayer.


Because each inspector specializes in several taxes, one inspector may cover both transfer pricing and indirect taxes. If there are several inspectors in the team, it is likely that they will cover all taxes paid by a respective taxpayer.

By law, the same transfer price must be used for corporate direct and indirect tax purposes. However, in practice transfer pricing adjustments for corporate income tax purposes do not result in respective VAT adjustments.

Comparable data

The legislation does not formally require local country comparables. However, local comparables are preferred based on the OECD Transfer Pricing Guidelines, which state that local comparables are generally more reliable. Regional comparable data should come from Europe.

When presenting comparable data, the method of determining the appropriate profi t level indicator is governed by law, depending on the chosen method. No other requirements with respect to the presentation of data are currently stated. However, fi nancial adjustments to comparable data are recommended, if it helps to achieve better comparability.


Latvia (cont’d.)


Based on legislative provisions, the OECD Transfer Pricing Guidelines (before the update issued in July 2010) prioritize the transfer pricing methods in Latvia. However, the new approach set out in the update of these guidelines may also be applied. All the traditional methods apart from the comparable profi ts method are considered appropriate. No guidance currently exists permitting the use of any other methods.

Generally, the tax authority relies on EU Joint Transfer Pricing Forum guidance with respect to cost contribution arrangements. However, this is only considered guidance since it is not legally binding.

Advanced pricing agreements

While APAs are not currently available, a draft law regarding APAs was adopted in 2012. In practice, APAs may become available to Latvian tax payers in 2013.


In practice, MAPs are very rare.


The effectiveness of transfer pricing reviews is measured based on the percentage of cases where adjustments are sustained on appeal, as well as the amount of the adjustment. Information on yield is not currently published.


There are no ongoing or pending MAP or arbitration cases. Information with respect to transfer pricing disputes is not currently available on a regular basis.


The current economic environment and OECD and EU initiatives such as the EU Joint transfer Pricing Forum are taken into account with respect to practices (e.g., tax audits and appeals) and changes in tax laws.



Leonas [email protected]+370 5 274 2279


The International Transactions Control Division, which is an integral part of the Big Taxpayers Department at the head offi ce of the State Tax Inspectorate (STI), is responsible for transfer pricing.

Of the 20 FTEs involved in transfer pricing reviews, 4 are based in the central unit, while the other 16 are regional resources. The total number of FTEs has doubled in the last couple of years. In two years, the number of transfer pricing FTEs is expected to increase by 20%.

Currently, the STI has nine FTE transfer pricing specialists who have a strong technical background in transfer pricing issues. Of the 20 FTEs, 18 are economists, while 2 are lawyers.

Industry focus

Banking and capital markets, pharmaceuticals, and technology are industries under heightened transfer pricing review. This list of industries is reviewed annually. Factors that drive the selection of an industry for particular focus are the signifi cance of the industry’s activities in Lithuania and the industry’s profi tability. The list of industries subject to specifi c scrutiny is widely communicated to taxpayers.

Geographic focus

The Lithuanian tax authority does not specifi cally target transactions basedon jurisdiction.


Particular types of transactions targeted for transfer pricing reviews, in order, are fi nancial transactions, tangible goods transactions, real estate transactions and intragroup services.


There is no specifi c transfer pricing regime in Lithuania, and the standard penalties range from 10% to 50%. The penalty and its amount are discretionary and approved at the end of the tax audit depending on the cooperation of the taxpayer and other circumstances. The percentage of proposed transfer pricing adjustments in the last two years where penalties have been assessed is 0% to 25%. Where penalties have been assessed, the average penalty rate, as a percentage of the additional tax, is 0% to 25%. In the next two years, the percentage of penalties is expected to remain the same.


Case selection for transfer pricing audit is governed by a central decision-making body. Various considerations are taken into account in determining which taxpayers to audit, including the following:

• Taxpayer profi tability (with a focus on loss-making companies)


• The nature of the related-party

transactions undertaken bythe taxpayer




The transfer pricing enforcement resources in Lithuania work in an integrated way with the indirect tax team. However, there is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

The STI does not require local country comparables, and regional comparable data is permissible at the discretion of the taxpayer. Financial adjustments to comparable data are optional, if justifi able.


There is a priority of transfer pricing methods in Lithuania based on legislative provisions. The order of preference of transfer pricing methods is pubicly stated. The CPM is considered inappropriate in the computation of the arm’s-length price, and there is no guidance on the use of unspecifi ed methods.

Advance in pricing agreements

Beginning 2012, Lithuania has a formal APA program for both unilateral and

Lithuania


Lithuania (cont’d.)

multilateral APAs. Since the program was introduced only in 2012, it is still too early to comment on the APA process. The timelines for completing an APA are set by legislation.


The Lithuanian tax authority has not yet received any transfer pricing competent authority cases under MAP.


The STI measures the effectiveness of transfer pricing reviews by the increased tax yield, percentage of review cases where an adjustment is made to taxpayer income and the proportion of the taxpayers having transfer pricing documentation in place. The Lithuanian tax authority publishes statistics on the yields of transfer pricing adjustments.


Currently, there is one ongoing domestic appeal of a transfer pricing dispute in Lithuania.


The STI has recently initiated changes to the national transfer pricing rules based on recent European Union and OECD developments. However, these changes are not yet enforced.



Danny [email protected]+31 88 40 71007


Within the Dutch Tax Authority (DTA), or Belastingdienst, a centralized Transfer Pricing Coordination Group (TPCG) is responsible for coordinating the administration of transfer pricing and for the enforcement of transfer pricing policies, along with members of both the DTA and the Ministry of Finance. Although it is hard to estimate, the TPCG team has approximately 18 FTEs, excluding APA team members. Regular tax inspectors, based out of the decentralized locations, also conduct transfer pricing audits. The number of FTEs at the TPCG two years ago was the same, but, prior to that, only tax inspectors were involved in transfer pricing reviews. The existing number of resources is expected to increase slightly over the next two years.

Approximately 60% of all transfer pricing resources are accountants, while the remaining 40% are lawyers. The DTA does not use consultants, industry specialists or expert witnesses in addressing transfer pricing examinations. It also does not rely on other tax administrations for its training needs.

Industry focus

Transfer pricing audits do not have a specifi c industry focus.

Geographic focus

Although the DTA does not specifi cally target certain jurisdictions, low-tax jurisdictions are considered by the DTA when performing a risk analysis. Based on the current caseload of transfer pricing reviews, the top fi ve counterparty jurisdictions are Germany, France, the United States, Switzerland and theDutch Antilles.


Specifi c attention is paid to transactions involving the shifting of intangible property abroad, including business restructurings, transactions with captive insurance companies and remuneration of domestically headquartered companies.

The DTA targets for review (in order of importance) business restructurings, intercompany reinsurance, intangible property transfers, fi nancial transactions, central purchasing functions, intragroup services, tangible goods transactions, cost-sharing/cost-pooling arrangements and stock-based compensation.


There is no specifi c transfer pricing penalty regime in the Netherlands and no specifi c processes to ensure consistent application of transfer pricing penalties. In recent years, penalties have been applied in less than 25% of instances where transfer pricing adjustments were issued. Transfer pricing penalties are only applied in case of willful misconduct.


In the Netherlands, a transfer pricing audit is initiated by the TPCG, and cases are mainly selected based on a risk analysis. Individual taxpayers are reviewed to see whether or not a specifi c audit is required. For certain types of transactions (for example, transfer of intangible property and transactions with captive insurance companies), a more centralized approach has been taken. The considerations the DTA takes into account in determining which taxpayers to audit include the following (ranked in orderof prevalence):

• A risk-based assessment






Transfer pricing enforcement resources work in an integrated way with indirect tax specialists, and they regularly cooperate with the central customs valuation team. There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Netherlands


Comparable data

The Netherlands does not require the use of local comparables, and there are no specifi c requirements for the use of comparables. In general, comparables in the same continent/economic area (such as EU 15 plus 2) are accepted.

In preparing and presenting comparable data, there are no specifi c requirements in relation to the number of years of fi nancial information analyzed, the use of simple versus weighted averages or the method for calculating an arm’s-length range. There is no formal guidance provided on adjustments to comparable data, and in general, the tax authority prefers adjustments not be performed.


In general, the DTA follows the OECD Transfer Pricing Guidelines in allowing the most appropriate method in evaluating arm’s-length remuneration for controlled transactions. There is also specifi c guidance on the use of a cost contribution arrangement. A cost contribution analysis can only be used if the contribution by either party is balanced. In general, a pure cash contribution by one of the parties will not be accepted.


There is a unilateral and bilateral formal APA program, which is well established and accessible to all taxpayers. The DTA receives approximately 250 applications from taxpayers annually, and there were approximately 250 applications in process as of December 2011. Of the current APA caseload, most are unilateral APAs. The top three countries involved in bilateral APAs are the United States, Japanand France.

The average duration of the unilateral APA process is 55 days based on the chess clock principle. Bilateral or multilateral APAs may take more time to complete. In 2004, the tax authority introduced various measures to speed up the APA process, including prefi ling and support by the tax authorities.


The DTA receives approximately 50 transfer pricing competent authority cases annually for resolution. The only information made public on the competent authority cases is the information posted on the OECD website. The average time to resolve (both transfer pricing and interpretation cases) in 2009 was approximately 21 months, and generally a very limited number of cases remain unresolved. Though a case may be pending for competent authority resolution, payment of taxes can be suspended during the MAP, and interest will be due, either way, at the outcome of the proceedings.


The DTA neither formally measures the effectiveness of transfer pricing reviews nor publishes yield statistics.


There are approximately 50 ongoing cases before the competent authority for resolution via MAP. There are neither any ongoing cases nor any pending cases for arbitration. There are approximately fi ve cases undergoing domestic appeals (preceding court action) and litigation.


There have been no signifi cant changes in transfer pricing policy or practice in the Netherlands in light of current developments. However, with regard to World Customs Organisation developments, the Netherlands tax authorities are open to a combined APA process for both transfer pricing and customs valuation purposes.

Netherlands (cont’d.)



Marius [email protected]+47 24 00 23 86


The transfer pricing team at the Directorate of Taxes in Norway is responsible for a network of three regional offi ces: Tax East, Tax West and Mid-Norway. It is also responsible for three central offi ces: the Central Offi ces for Foreign Tax Affairs, the Central Offi ce for Large Sized Companies and the Oil Taxation Offi ce.

Currently, there are 62 FTEs involved in transfer pricing reviews, of which three are based in the central location while the others are based at fi eld locations. Two years ago, the number of FTEs engaged in transfer pricing reviews was 53. The trend towards increased resources is expected to continue, and the tax authority is expected to hire more economists in the years to come. The Norwegian tax authority cooperates and coordinates with the other Nordic tax administrations to arrange workshops and seminars to meet its training needs.

External resources such as consultants, industry specialists and expert witnesses are relied upon only in connection with court cases.

Industry focus

Transfer pricing audits focus mainly on the oil and gas industry. Although the focus is based principally on the transaction instead of the industry, oil taxation has always been a focus because of the importance of oil taxation to the Norwegian economy. There is also an Oil Taxation Offi ce at the Directorate of Taxes that focuses on the industry.

Geographic focus

The Norwegian tax authority does not specifi cally target transactions with certain jurisdictions.


Particular types of transactions targeted for transfer pricing reviews are intangible property transactions, intragroup services, fi nancial transactions, business restructurings and thin capitalization as a result of intercompany debt.


Norway does not have a specifi c transfer pricing penalty regime.


Case selection for transfer pricing audit is not governed by a central decision-making body. Various considerations are taken into account in determining which taxpayers to audit, including the following:





• VAT, employment, customs orother indirect tax reviews


Transfer pricing enforcement resources are not required to integrate with the indirect tax team, and there is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

The tax authority prefers but does not require local country comparables. In preparing and presenting comparable data, there are no specifi c requirements in relation to the number of years of fi nancial information, the use of simple versus weighted averages, pooling versus averaging of fi nancial data, the method of calculating the allowable arm’s-length range or the method for determining the appropriate profi t level indicator.


Norway follows the OECD Transfer Pricing Guidelines in order to determine the priority of transfer pricing methods. The CPM is considered an inappropriate method.

Norway


Norway (cont’d.)


Norway does not have an APA program. The Norwegian tax authority will soon carry out an APA pilot project, based on the MAP clause of the relevant tax treaties. The negotiation for the fi rst APA pilot project has already started.


Based on the statistics reported to the OECD, there were 21 and 15 new MAP cases in 2009 and 2010, respectively. The total inventory of cases reached 52 in 2010. The tax authority resolves these cases in the time frame mentioned in the Manual on Effective Mutual Agreement Procedures.


There are approximately 15 ongoing and 15 pending transfer pricing dispute cases in Norway.


In light of the current developments in OECD initiatives, i.e., the new Transfer Pricing Guidelines issued in 2010, there have been some changes in the transfer pricing policy regarding business restructurings and the ranking of transfer pricing methods.



Aneta [email protected]+48 22 557 8996


Poland does not have a dedicated coordination center for transfer pricing reviews. In general, the Tax Inspection Department at the Polish Ministry of Finance coordinates and supervises the work of the local Tax Inspection Offi ces/Bureaus (TIOs). Tax inspectors employed in the TIOs are delegated to inspect the intercompany transactions for local taxpayers, but they are not clearly assigned to transfer pricing audits exclusively.

Approximately 250 FTEs were involved in transfer pricing reviews in 2011, of which 6 were based in the central unit. Because of recent changes in tax inspection regulations, all FTEs delegated for transfer pricing reviews generally work in the TIOs. Only in case of a “tax control” may auditors conduct the audit at the taxpayer’s location.

The tax authority believes there is a need to increase the number of FTEs that can carry out transfer pricing reviews. However, because of the current economic and local market conditions, there is a closure on employingnew resources.

Of the 250 FTEs, 100 are transfer pricing specialists, while 150 are generalists. The majority of the transfer pricing specialists in the TIO are economists, followed by lawyers and accountants. There is a trend towards employing more lawyers to conduct transfer pricing reviews.

The tax authority relies on external resources only as skilled witnesses in tax or court proceedings. They are

generally engaged to provide opinions on transfer pricing methods and choice of intercompany transactions subject to audit.

Representatives of foreign tax jurisdictions conduct trainings for the local tax inspection offi cers. Such trainings take place at least once a year, and the trainers are mainly from Germany, the Netherlands and the United Kingdom.

Industry focus

Transfer pricing audits in Poland focus on the banking and capital markets, consumer products, pharmaceuticals, and real estate. In addition, insurance and power and utilities have been heavily audited in the last two years. This list of industries is reviewed semiannually but is not widely communicated to taxpayers.

The factors driving the selection of industries for particular scrutiny are signifi cant activity in Poland and industry profi tability.

Geographic focus

The Polish tax authority places special focus on transactions with Cyprus, Germany and the Netherlands. Selection of the countries is driven by the offi cial list of tax havens issued by the Polish Ministry of Finance and the reputation of a given tax jurisdiction for low tax rates.

Transactions with certain other jurisdictions are systematically selected for transfer pricing audit based on a blacklist, practical considerations and the experience of the tax auditors.

Of the current caseload of transfer pricing reviews, the top counterparty jurisdictions (in order) are Cyprus, Luxemburg, Germany, Singapore, the Netherlandsand Austria.


Particular types of transaction targeted for transfer pricing reviews (in order) are intragroup services, business restructurings, fi nancial transactionsand cost sharing.


The offi cial transfer pricing penalty indicated in the Polish tax regulations is a 50% penalty tax rate in case of an income assessment where the taxpayer has no transfer pricing documentation or the transfer pricing documentation does not meet the formal requirements. Additional tax penalties are penalties for delayed payment of tax (in case of income assessments) and penalties envisaged in the penal fi scal code (e.g., for using transfer prices that do not meet the arm’s-length standard or for not preparing or maintaining appropriate documentation).

There are no processes in place to ensure the consistent application of penalties.

No data is available on the percentage of proposed transfer pricing adjustments where penalties have been assessed. Where penalties have been assessed, the average penalty tax rates on income assessed are 19% or 50%.

Poland


Poland (cont’d.)


The selection for transfer pricing audit is not governed by a central decision-making body. However, the Director of a Fiscal Inspection Offi ce prepares annual plans for audits.

Transfer pricing reviews are conducted through ongoing risk analyses of taxpayers. Under a risk analysis, taxpayer characteristics such as the value of its intercompany transactions, business restructurings it has engaged in, transaction types it has engaged in, its profi tability and negative results of a previous tax inspection are considered.

The Ministry of Finance does not directly decide which taxpayers should be subject to transfer pricing reviews. It may, however, provide the tax inspection offi ces with certain guidelines as to the sectors of the economy and types of transactions that should be subject to tax risk analyses. These are in form of an offi cial, publicly available “Annual plan/aims for tax auditors.” There is also an internal plan of tasks for tax inspectors issued by the General Inspector of Tax in which the tasks are more detailed/specifi c than the general guidelines.


The transfer pricing enforcement resources in Poland work in an integrated way with the indirect tax specialists. In general, there is no requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

Local benchmarking samples are highly recommended; if the benchmarking does not cover Polish entities, the local tax auditors may suggest expanding the search or suggest additional local entities from their own sources. The most important factor for the local tax auditors is that the set of comparables include entities best matching the taxpayer’s business. The narrower the market or region benchmarked, the better. For regional benchmarking samples, the benchmark markets should be at least in the same continent as the tested party.

There are no formal requirements that address the presentation of comparable data. Financial adjustments to comparable data are optional and recommended,if justifi able.


There is a priority of transfer pricing methods in Poland. The CPM is not directly indicated in the Polish tax regulations and thus falls into the Others category. The Polish guidelines state that, if it is more appropriate or justifi ed (by case) to use unspecifi ed methods, it is allowable to do so. The order of preference of transfer pricing methods is publicly stated.


The tax authority uses several indicators to measure the effectiveness of transfer pricing audits. These indicators include additional revenue generated, number of proceedings where transfer pricing was reviewed, the number of cases in which additional income was assessed and the number of cases in which the penalty tax rate of 50% was applied.


A visible change is an increase of audits, due to the OECD initiatives in cases where business restructurings took place. OECD papers and forums are guidelines for the local tax authorities and inspectors.



Paulo [email protected]+351 21 791 2045


The Directorate General for Taxes (DGCI) administers taxes in Portugal. Within the DGCI, transfer pricing reviews are carried out by a special transfer pricing unit (TPU) within the Tax Inspection Group (Direcção de Serviços de Inspecção Tributária,or DSIT).

There has been an increase in the number of FTEs involved in transfer pricing reviews, from less than 10 FTEs to a level that has fl uctuated just below 50 FTEs over the last two years. However, of these resources, only approximately 10 can be considered transfer pricing specialists. According to tax policy for upcoming years, the resource size of the DGCI is expected to increase by 30%.

For transfer pricing tax inspectors, the TPU takes a key role through a team composed of transfer pricing specialists.

Most of the transfer pricing FTEs have economics backgrounds. The TPU also has resources with management degrees, as well as lawyers.

Industry focus

The list of industries under specifi c transfer pricing focus is widely communicated to taxpayers, and the list is reviewed annually.

Geographic focus

Transactions with certain jurisdictions are targeted by the DGCI for specifi c transfer pricing scrutiny. Typically, perceived low-tax jurisdictions are reviewed in the scope of an audit. In addition,

domestically headquartered companies are also included in the regular audit cycle. Transactions with Germany, the Netherlands and Switzerland form the majority of transfer pricing reviews (in order of caseload).


Business restructurings, intangible property transfers, intragroup services, fi nancial transactions, tangible goods transactions and cost-sharing/cost-pooling arrangements are all currently targeted for transfer pricing reviews (in order of caseload).


There are currently no specifi c transfer pricing penalties under Portuguese domestic law. A general tax penalty regime applies.

Over the past two years, less than a quarter of proposed transfer pricing adjustments have resulted in the assessment of penalties. Of these, the average penalty rate has been under 25% of the additional tax. Over the next two years, the assessment of penalties is expected to increase.


Case selection for transfer pricing audit is managed by the DGCI and DSIT. Factors relevant to the initiation of a review are (in order of importance): business restructurings; VAT, employment, customs or other indirect tax reviews; the nature and the volume of related-party transactions; taxpayer profi tability;

the standard audit cycle/program; and previous audits of the taxpayer.


Transfer pricing enforcement resources work in an integrated way with indirect tax specialists. Many times, transfer pricing issues arise from tax inspections carried out by other tax specialists, namely under a VAT or customs analysis.

From January 2012, there is a legislative requirement to use the same transfer price for corporate direct and indirect tax purposes.

Comparable data

Portuguese transfer pricing legislation has established a preference for Portuguese comparables. However, regional comparable data is permissible. Iberian data is considered the next best alternative by the DSIT when Portuguese comparable information is not available. If both types of comparable data are not available, Pan-European data can be considered, as a last resort, provided that notes on data availability are clearly highlighted in the documentation.

Financial adjustments to comparable data (e.g., working capital, asset intensity and country risk adjustments) are allowed,if justifi able.

Portugal*


Portugal* (cont’d.)


There is currently no formal hierarchy of transfer pricing methods. Nevertheless, preference is given to traditional transactional-based methods rather than profi tability-based methods (which should only be used when the traditional methods are not possible or their application would lead to inaccurate results).

Ministerial order 1446-C/2001 provides for a “most appropriate or best method approach.” This means that the most appropriate method is the one that can provide the most reliable set of comparables with the most available data and requiring the smallest number of adjustments.


There is a formal program available for unilateral and bilateral APAs. Information with respect to number and type of APAs is not currently available.

The procedure to request an APA comprises three phases: a prefi ling phase, which entails a preliminary evaluation of the initial taxpayer proposal and may involve joint meetings with the tax authorities; submission, analysis and negotiation of the APA proposal, which should be presented at least 180 days before the beginning of the applicable tax year; and conclusion.

The guidelines provide that unilateral agreements should be concluded within a maximum of 180 days while a 360-day period applies to bilateral APAs.


According to the 2009 report from the EU-JTPF,, Portugal has 13 pending cases with other European Union member states as of 31 December 2008.


Changes in transfer pricing policy and practice have been infl uenced by the economic environment, the implementation of centralized business and tax models, World Customs Organization developments, OECD and EU initiatives such as the EU-JTPF and other international initiatives (e.g., PATA, ATAF and the UN).



Alexander [email protected]+402 1402 4083


The National Agency of Fiscal Administration (NAFA) administers taxes in Romania. Transfer pricing examinations are performed by general tax audit inspectors based in the fi eld. However, a central transfer pricing unit has been set up within the NAFA to work in cooperation with the fi eld-level inspectors. There are 3 to 4 resources at the central transfer pricing unit and at most 10 based in the fi eld (as of two years ago). The number of transfer pricing resources is expected to increase over the next two years. Only a few of the resources involved in transfer pricing examinations are transfer pricing specialists. Most of the examiners based in the fi eld are generalists, and those at the central unit are generalists with some transfer pricing knowledge. Most of the resources involved in transfer pricing reviews are either economists or lawyers.

Industry focus

Transfer pricing audits in Romania do not have a specifi c industry focus. All industries are equally exposed to scrutiny.

Geographic focus

Geographic considerations do not drive the selection of taxpayers for review.


Intragroup services transactions are more often scrutinized, followed by tangible goods transactions.


Failure to present transfer pricing documentation or the presentation of incomplete documentation within the specifi ed time may trigger a fi ne of up to €3,300 and an estimation of the appropriate transfer prices by the tax authority in place of those determined by the taxpayer. The adjustments trigger a profi ts tax liability of 16% on any additional income in addition to late payment interest and penalties (5% or 15% if applicable). Romania has legislative provisions to ensure consistent application of the transfer pricing penalty provisions. Transfer pricing penalty assessments are expected to increase over the next two years.


Transfer pricing audits are normally initiated by the central transfer pricing unit but could be initiated locally as well. The selection of taxpayers for further review and the scope of the audit are driven by various considerations such as the following (ranked in order of importance):


• VAT reimbursement




The work of transfer pricing enforcement resources is integrated with that of indirect tax specialists, insofar as instigation of a transfer pricing audit is concerned. For instance, VAT reimbursement requests often trigger transfer pricing audits. However, there is no requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes. There is no information exchange obligation between the transfer pricing and indirect tax enforcement agencies.

Comparable data

Typically, local comparables are preferred. The Romanian transfer pricing documentation legislation specifi cally requires that the comparability analysis consider territorial criteria in the following sequence: national, European Union and other international territories. The transfer pricing documentation should detail the criteria under which potential Romanian comparables, if any, were rejected. In preparing and presenting comparable data, the interquartile range is preferred for calculating the allowable arm’s-length range. There are no specifi c requirements in relation to the number of years of fi nancial information, the use of simple versus weighted averages, the method for determining an appropriate profi t level indicator, or the pooling or averaging of fi nancial data. There is no formal/mandatory guidance with respect to adjustments to comparable data. Such adjustments are likely to be supported by the Romanian tax authority, as long as they are in line with the OECD Transfer Pricing Guidelines.

Romania


Romania (cont’d.)


Romanian transfer pricing legislation requires that the most appropriate of the following methods be used: the CUP method, the CPM, the RPM, and any other method recognized by the OECD Transfer Pricing Guidelines, such as the profi t split method or TNMM.

The most appropriate method should be determined considering specifi c facts and circumstances. Traditional methods (the CUP method the CPM, and the RPM) are generally preferred to the transactional profi t methods (TNMM and profi t split method), and, more specifi cally, when possible, the CUP method is the preferred traditional method for assessing the market value of related-party transactions. No method is considered inappropriate, as long as such method is justifi ed for the case at hand. Any method identifi ed in the OECD Transfer Pricing Guidelines may be considered.


Romania has a formal APA program, which is accessible to all taxpayers upon payment of a prescribed fee. The program offers both unilateral and bilateral APAs. Currently, only a handful of APA requests are received annually. The average processing of APA requests typically exceeds the timeline prescribed underthe regulations. Romania has set up certain initiatives to speed up the APA processing times.


The transfer pricing environment in Romania is responsive to the global economic environment and initiatives at the OECD and the European Union levels. It is expected that these factors will result in an increase in the number of transfer pricing audits in the future. Furthermore, with the introduction of specifi c Romanian transfer pricing documentation requirements in 2011, transfer pricing has become one of the key issues in tax audits of multinational enterprisesin Romania.



Gunter [email protected]+421 2 333 39610


The Financial Authority — Tax authority for selected taxpayers administers taxes in the Slovak Republic. The transfer pricing review is not carried out as a separate audit but as a part of the corporate income tax review. Transfer pricing may be examined by any tax auditor that comes across a transfer pricing issue. If necessary, the tax auditor is provided with methodical guidance by a respective person from the Financial Directorate.

There is a specialized department responsible for performing audits of international taxation at the tax offi ce for selected taxpayers, which focuses mainly on transfer pricing examinations. If necessary, the employees of this department may be engaged as part of tax audit teams of other tax authorities.

Transfer pricing examination may be executed by any tax auditor dealing with corporate income tax. There are nine professionals at the Tax Offi ce for selected taxpayers who specialize in transfer pricing examinations. The number of transfer pricing professionals is expected to remain constant in the two years to come.

In the light of signifi cant structural changes currently taking place in the Slovak tax administration, and with regard to the establishment of the Financial Directorate, the number of transfer pricing specialists is expected to increase, with corporate income tax auditors specializing in transfer pricing.

All professionals currently involved in transfer pricing reviews are economists. The tax authority expects to recruit at least two lawyers to support the team. Currently, the tax administration does not rely on other tax administrations for its training needs. However, past transfer pricing projects took place in collaboration with the Danish as well as the French tax administrations.

Industry focus

Transfer pricing audits currently focus on the automotive, consumer products and telecommunication industries. The list of industries is reviewed occasionally, in case of signifi cant changes in conditions. The factor driving the selection of these industries is their signifi cant level of activity in the Slovak Republic and their profi tability.

This selection of industries currently under specifi c transfer pricing focus is not widely communicated to taxpayers.

Geographic focus

The tax authority specifi cally targets transactions in certain jurisdictions perceived to be low-tax jurisdictions and countries that provide scope for aggressive tax planning. There is no legislative direction or any stated policy of the government or relevant ministry requiring that the tax authority select certain jurisdictions for audits.

Based on the current caseload of transfer pricing reviews, the top fi ve counterparty jurisdictions are Germany, Austria, the Czech Republic, the Netherlandsand Greece.


The tax authority targets intragroup services (accounting for approximately 40% of the current caseload), intangible property transfers (accounting for approximately 20% of the current caseload), fi nancial transactions (accounting for approximately 20% of the current caseload) and business restructurings (accounting for approximately 20% of the current caseload).


The Slovak Republic does not have a specifi c transfer pricing penalty regime.


A transfer pricing audit is initiated based on the initiative from the Financial Directorate, but the majority of selections are made at the discretion of the tax auditor.

Various considerations are taken into account in determining which taxpayers to audit, including the following:







Slovak Republic


Slovak Republic (cont’d.)


The transfer pricing enforcement resources are not required to integrate with the indirect tax team, and there is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

The tax authority does prefer local country comparables; however, this is not a strict mandate. Comparable data from other central European countries (Czech Republic, Hungary, Poland and Austria) is also accepted. The emphasis is on the quality of data rather than the number of comparables.

In preparing and presenting comparable data, there is a requirement in relation to the number of years of fi nancial information, which is usually three to fi ve years; the number of years depends on the specifi cs of the respective transaction. The use of simple versus weighted averages or the choice of the appropriate profi t level indicator depends on the circumstances of the case.


The Slovak Republic follows a hierarchy of transfer pricing methods. The CPM is considered to be an inappropriate method by the tax authority. However, it permits the use of other methods if they are in accordance with the arm’s-length principle. The order of preference of transfer pricing methods is publicly stated and is based on legislative provisions.


The Slovak Republic has an APA program in place for all types of APAs. According to Section 18(4) of the Slovak Income Tax Act, in cases of cross-border related-party transactions, the taxpayer may request the tax authorities to approve the selected transfer pricing method. If approved, the method should be applied for a maximum of fi ve tax periods. The Income Tax Act does not explicitly stipulate that the tax authorities may approve the particular price or margin percentage used. Nevertheless, the Slovak tax authority may approve the practical application of the transfer pricing method (e.g., process of identifying comparable transactions or entities).

Approximately 10 APA applications are received annually. Currently, three APA applications are in process. The right of access to the APA program is not limited by law; however, the Slovak tax authority rejects applications that do not meet the required content in case the taxpayer does not cooperate or respond to the tax authority’s requests. The average time required to process an APA is two to three months. The length of processing time is due to the provision of insuffi cient information, improper transfer pricing documentation, insuffi cient comparables, non-responsiveness to the tax authority’s requests and lack of communication on the taxpayer’s side. To speed up the APA process, the tax authority has made efforts at informal communication with taxpayer (e.g., emails and telephone conversations).

Historically, 100% of APAs havebeen unilateral.


The tax authority measures the effectiveness of transfer pricing reviews by the percentage of review cases where an adjustment is made to taxpayer income, the percentage of review cases where an adjustment is sustained on appeal and the percentage of taxpayers assessed as high risk. The tax authority does not publish statistics on yields.


No statistics are available with respect to transfer pricing disputes, except that currently there is one ongoing arbitration case.



Karen [email protected]+27 21 443 0281

Resources the taxing authority is devoting to transfer pricing

The South African Revenue Service (SARS) has a dedicated transfer pricing team that sits within its Large Business Centre division; it currently employs 10 transfer pricing FTEs in its central unit. SARS is in the process of building resources within its transfer pricing team, and the intention is to employ 40 FTEs within the next year. All members of the transfer pricing team have a strong transfer pricing technical background. There are two economists, four lawyers and four accountants. It is expected that more accountants, economists and professionals with fi nancial backgrounds will be recruited.

SARS relies on the OECD to provide transfer pricing-specifi c training, and it has also employed specialists from other countries to help train its team. SARS recently had in its employ a senior HM Revenue & Customs (HMRC) (UK) transfer pricing specialist. SARS is attempting to recruit transfer pricing professionals from other countries in response to a lack of experienced transfer pricing professionals in South Africa.

Industry focus

The automotive, consumer products, mining and metals, oil and gas and telecommunications industries receive particular transfer pricing scrutiny. Factors driving the scrutiny include signifi cant industry activity in South Africa, industry profi tability, the importance of intangible property to the industry (particularly locally developed intangibles that have been transferred out of South Africa or that are exploited outside South Africa by related parties), and inbound fi nancial assistance resulting in excessive gearing (South Africa is

currently moving away from a debt-to-equity fi xed formula to an arm’s-length test). The selection of these industries is not widely communicated.

Geographic focus

While SARS does not focus on a geographic region per se, it is the driving force behind the creation of the African Tax Administrators Forum (ATAF), which was established with the intention of building closer links between African revenue authorities. The key focus area for ATAF currently is transfer pricing, where the intention is to build closer links between the transfer pricing audit teams of the respective revenue authorities through joint training and knowledge-sharing initiatives. In this sense, the African continent is a focus region for SARS in the context of foreign multinationals with operations in Africa.


Historically, SARS paid close attention to the payment of management fees from South Africa to offshore-related parties, which is still a focus area in which management fees are paid as part of tangible goods transfers (approximately 60% of the total caseload) and intangible property transfers (40% of the total caseload).


South Africa does not have a specifi c transfer pricing penalty regime. However, the general penalty provisions also apply to transfer pricing. In addition, the adjustment to the consideration made or received by the South African tax resident is deemed to be a dividend upon which tax is applied. As of 1 April 2012, any adjustment will be deemed a loan.

A formal review panel considers the merits of each case, ensuring consistent application of transfer pricing penalties.

Approximately 50% to 75% of proposed transfer pricing adjustments have resulted in the assessment of penalties. However, in most cases, the full 200% penalty is not applied but is typically reduced to 100% of the additional tax payable. Where penalties have been assessed, the average penalty has been over 100% of the additional tax. The assessment of penalties is expected to increase over the next two years.


The SARS risk and intelligence team meets regularly to decide which cases should progress to transfer pricing audits, while the transfer pricing team also meets regularly to decide which cases it has reviewed internally should be audited. Transfer pricing reviews are usually initiated based upon (in order of importance to the decision-making process) taxpayer profi tability, the nature and volume of the taxpayer’s related-party transactions, and the standard audit cycle. A lack of transfer pricing documentation could also triggera review.


Transfer pricing enforcement resources work in an integrated fashion with indirect tax specialists, and they actively share information. There is no requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes. SARS is exploring ways to harmonize pricing methods used for transfer pricing and customs purposes.

South Africa*


South Africa* (cont’d.)

Comparable data

There is no requirement for South African comparables, and foreign comparable data is acceptable. The use of data from continents outside Africa and global data is permissible but not at the discretion of the taxpayer.

There are requirements when presenting comparable data with respect to the number of years of fi nancial data under consideration, the method for calculating the arm’s-length range, and methods for determining the appropriate profi t level indicator. Pooling of fi nancial data isnot permitted.

Financial adjustments to comparable data (e.g., working capital, asset intensity and country risk adjustments) may be made, if they are justifi able.


There is no priority of transfer pricing methods. SARS states that the most appropriate method should be used based on a facts-and-circumstances approach.

Advanced pricing agreements

There is no formal APA program currently available.


Since no formal APA program is currently available, no MAPs are prescribed. However we are aware of a few cases where MAP is being used for resolution.


The effectiveness of transfer pricing reviews is measured by increase in tax yield, percentage of income adjustments made, percentage of appeal cases where adjustments have been sustained and percentage of taxpayers assessed ashigh risk.


The OECD provides transfer pricing training on an ongoing basis to SARS transfer pricing auditors, while South Africa has observer status with the OECD. South Africa is leading the ATAF transfer pricing initiative and in so doing is building closer relations with other African tax authorities in the area of transfer pricing specifi cally and international tax avoidance generally.

Ernst & Young understands that there is a drive for joint audits across Africa. Transfer pricing continues to be a key focus area for the South African tax authority, as well as other African tax administrations.



Ramón Palacín [email protected]+34 915 727 485


Transfer pricing audit teams in Spain work in a decentralized manner. However, given the approach of the Spanish Tax Administration (STA) to tax risk and scoring of taxpayers under audit, decisions are taken at a central level. Guidelines for audit processes, training, database selection and approaches to special transactions (business restructurings) are also communicated centrally. There is no veto power for review of reassessments from the central coordination team. All tax auditors at the STA can work on transfer pricing audits.

There are approximately 25 transfer pricing specialists. The central unit is composed of 8 people. This team has doubled the number of its FTEs over the last two years. As transfer pricing audits are decentralized, the number of FTEs devoted to transfer pricing over the next few years will depend on specialization and training efforts. Almost 100 professionals participate annually in training on transfer pricing and valuation techniques.

The majority of FTEs currently involved in transfer pricing examinations have economics backgrounds (60%). The rest are lawyers. External consultants, valuation experts and OECD specialists have commonly been requested to participate in providing training.

Industry focus

The STA prepares annual audit plans that it then submits to the Spanish Parliament for approval. This plan also covers transfer pricing. Financial transactions, intangible asset transactions and business restructurings that resulted in an unusual offset of net operating losses were covered in the audit plans for 2011. The plan for 2012 is currently pending approval. Since it is submitted to the parliament, the plan is widely availableto taxpayers.

Transactions involving the automotive, biotechnology, consumer products, media and entertainment, pharmaceutical, and real estate industries all receive special scrutiny in transfer pricing reviews. Signifi cant industry activity in Spain, the importance of intangible property to the industry and industry profi tability were all relevant factors in driving the selection of particular industries in 2011.

Geographic focus

Transactions with certain jurisdictions are specifi cally targeted for transfer pricing reviews. Perceived low-tax jurisdictions and major trading partners receive more scrutiny. This systematic selection is based on legal requirements.

Of the current caseload of transfer pricing reviews, transactions involving the United States (in a variety of industries), Germany (principally in the automotive industry), Switzerland (principally in the pharmaceutical industry), the United Kingdom (principally in the automotive industry) and France (in a variety of industries) formed the majority.


Intragroup services, tangible goods transactions, intangible property transfers, fi nancial transactions,cost-sharing/cost-pooling arrangements, stock-based compensation (as a component of any of the aforementioned transactions) and business restructurings are all currently targeted for transfer pricing reviews.


There is a transfer pricing penaltyregime; however, it is currentlysubject to a pending decision bythe Constitutional Court.

Over the past two years, fewer than one-quarter of proposed transfer pricing adjustments have resulted in the assessment of penalties. Of these, the average penalty rate has been under 25% of the additional tax. Over the next two years, the assessment of penalties is expected to increase, depending on the decision of the Constitutional Court.


Case selection for transfer pricing audit is governed by the STA at a central level. A risk-based assessment by the STA, the standard audit cycle/program, taxpayer profi tability and business restructurings (in that order) have all been relevant factors in the initiation of these reviews.

Spain


Spain (cont’d.)

Comparable data

There is no specifi c requirement for local country comparables; however, they are welcomed. Regional comparable data is permissible (from the same continent as the taxpayer only); comparable companies from Western European or European Union (15) countries are not usually challenged, whereas comparable companies from Eastern Europe are subject to scrutiny.

Continents outside the taxpayer’s continent could be selected; however, these can only be selected for transactions involving global industries, such as the oil and gas and banking industries. Selecting continents outside the taxpayer’s continent is not acceptable for transactions involving the pharmaceutical and consumer products industries.

There are specifi c requirements for the presentation of comparable data: three years of fi nancial data are accepted as a standard the method for calculating the allowable arm’s-length range is the interquartile range and the weighted average should be used. Both pooling and averaging of data are accepted.

Financial adjustments to comparable data (e.g., working capital adjustments) are permissible if justifi able. There is currently no specifi c guidance available with respect to adjustments, but administrative practice provides informal guidance.


Taxpayers are required by the Corporate Income Tax Law to prioritize the application of the CUP method, cost plus method, and RPM over profi t-based methods. No traditional method is considered inappropriate.


A formal program for both unilateral and bilateral APAs has been available since 1996. Between 25 and 35 unilateral APAs and between 5 and 10 bilateral APAs are received annually. Access to the program is free for all taxpayers. The STA cannot reject APA fi lings, but it can reject a proposed transfer pricing policy.

There are currently 30 applications in process. Of the current caseload, the vast majority (85%) are unilateral. Agreements involving France, Germany and the United States form the majority of APAs. The average completion time for a unilateral APA is between 6 and 9 months, while a bilateral APA may take between 18 and 24 months.


Information on the number of competent authority cases received annually is diffi cult to determine. Transfer pricing audits are increasing, and MAP cases seem to be increasing each year.

The time required for a MAP resolution depends on the country of the counterparty. For those countries that have a signifi cant track record of cases and a working relationship with Spain, the success ratio is higher and the time needed lower. Agreements that involve France, Germany and the United States form the majority of MAP cases.

While the MAP process is underway, interest is accrued and guarantees to suspend collection of tax debt are needed. Court processes can run parallel to this, but if the court processes are resolved fi rst, the MAP will be closed with no resolution. At the end of a MAP, if a tax quota is refunded to the taxpayer, delayed interest is also accrued in favor of the taxpayer. No statute of limitation currently applies.


The effectiveness of transfer pricing reviews is measured by the increase in tax yield and the percentage of review cases where an adjustment has been made to taxpayer income. Statistics on tax yield are published; however, there is currently no specifi c breakdown provided for transfer pricing cases.



Mikael [email protected]+46 8 520592 35


The Skatteverket (or the Swedish Tax Agency) administers taxes in Sweden. Within Skatteverket, transfer pricing reviews are carried out by a centralized team at the Large Taxpayer’s Offi ce (LTO). However, other offi ces may also conduct transfer pricing reviews in special circumstances under the supervision of the LTO. All 35 to 45 FTEs assigned to transfer pricing reviews are centrally located. The number of resources was approximately the same two years ago and is expected to remain the same in the next two years.

All resources involved in transfer pricing reviews are specialists and have strong technical transfer pricing knowledge since they work solely for the transfer pricing department. The transfer pricing FTEs comprise accountants (60% of the resources) and lawyers (the remaining 40%). In certain exceptional cases, the Skatteverket consults and relies on external resources, including consultants, industry specialists and expert witnesses.

For its training needs, the Skatteverket relies mainly on the transfer pricing working group that conducts joint seminars and workshops in the Nordic countries.

Industry focus

The Swedish Tax Agency does not focus on particular industries for transfer pricing scrutiny.

Geographic focus

The Swedish Tax Agency does not specifi cally target transactions with certain jurisdictions for transfer pricing reviews.


Transactions such as business restructurings (approximately 30% of the current caseload), transfers of intangible property (approximately 30% of the current caseload) and fi nancial transactions (approximately 30% of the current caseload) are targeted by the Swedish Tax Agency for transfer pricing reviews.


Sweden does not have a specifi c transfer pricing penalty regime. Rather, the general tax penalty regime is applied to transfer pricing adjustments. The transfer pricing penalty regime establishes an average penalty rate of 25% to 50% of the additional tax to be paid. This trend in assessment of penalties is expected to continue at the current level over the next two years.


Audit selection is based on a number of factors, and risk areas change over time. Currently, the most relevant factors are the following:

• Status as a large company or group

• Intangible property transactions


• Financial services transfer pricing (interest levels)


The transfer pricing enforcement resources are not required to integrate with indirect tax specialists. There is no formal requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes.

Comparable data

The Skatteverket has no preference for local country comparables, and Pan-European comparables are also acceptable depending on the facts and circumstances of the case, including an assessment of different comparability factors.

Although there is no specifi c requirement with respect to the number of years of comparable data to be presented, the Swedish Tax Agency expects taxpayers to be consistent from year to year (e.g., if the taxpayer uses three years of fi nancial data, then the taxpayer should continue with three years unless compelling reasons arise to change the number of years analyzed). If the Swedish Tax Agency performs a search where a taxpayer has not previously performed a comparables search, the normal procedure is to analyze a three-year period.

In presenting comparable data, the weighted average is preferred. However, if valid reasons exist, the simple average may be applied.

The profi t level indicator should be appropriate based on the facts and circumstances of the case and may include operating margin, total cost markup and return on capital employed.

The choice between pooling and averaging of fi nancial data is made case by case. For example, if a small number of comparables have been identifi ed, a pooling method may be appropriate.

Financial adjustments to comparable data are optional if justifi able by the taxpayer.

Sweden


Sweden (cont’d.)


Sweden follows the principles laid down by the OECD Transfer Pricing Guidelines in selecting the method of evaluating arm’s-length remuneration for controlled transactions. The CPM is considered an inappropriate method by the Skatteverket. However, the use of cost contribution arrangements is allowed if it is in compliance with the OECD Transfer Pricing Guidelines.


Sweden has a bilateral and multilateral APA program for Canada, Germany, Korea, the United Kingdom and the United States. Although taxpayers have the right to initiate the APA consultation process, it is expected to be a complex procedure. Approximately 15 APAs are currently in process, and the average time taken to complete an APA is expected to be two years or more. The APA program in Sweden was initiated two years ago, which makes it diffi cult to state the number of APAs received to date. The Swedish Tax Agency has been dealing only with bilateral APAs. An enhanced cooperation program is also being implemented by the Swedish Tax Agency.


The number of transfer pricing competent authority cases received by Skatteverket varies from year to year. Out of the cases received, 150 are pending (which include all MAP cases, not only those related to transfer pricing). Although Sweden has a good track record of resolving MAP cases, the process of resolving each case on average is lengthy. A deferral of taxes and interest may be granted while MAP is underway.


The Swedish Tax Agency measures the effectiveness of transfer pricing reviews based on the percentage of cases where an adjustment is made to taxpayer income. Skatteverket’s main goal is to lower the tax gap.


With respect to ongoing transfer pricing disputes, there is one ongoing arbitration case. There is no data available on the number of ongoing cases and pending cases in the domestic appeal or litigation phases. However, in Sweden disputes are commonly litigated, and there is an increased use of MAP and Arbitration Convention as well as APAs.



Stephan [email protected]+41 58 286 3813


There are two centralized groups within the Swiss tax administration involved in transfer pricing. One deals exclusively with bilateral and multilateral APAs and MAPs in the State Secretariat for International Financial Matters (SIF), while the other is the Transfer Pricing Centre of Excellence (TP CoE) formed by the Swiss Federal Tax Administration (SFTA) in 2010. The TP CoE includes representatives from different SFTA divisions, such as the SIF APA/MAP Group, the supervisory board for the cantonal tax administrations, and one representative from a cantonal tax administration. The TP CoE is led by the withholding tax audit division and is organized as a matrix, implying that different tax divisions within the government are linked and exchange information with respect to transfer pricing. Additional resources have not been hired for the establishment of the TP CoE.

Currently, there are no dedicated transfer pricing resources in the Cantonal tax administrations. However, the Cantonal tax administrations have the authority to assess federal andcantonal direct taxes and are therefore the main bodies undertaking tax and transfer pricing audits and reviews. The TP CoE is available to assist the cantonal tax administrations in transfer pricing audits and reviews. Therefore, the main objective of the TP CoE is to link different tax divisions of the administration and to increase the competency of transfer pricing audits and reviews on a cantonal and a federal level.

The two employees in the APA/MAP groups deal exclusively with transfer pricing issues and therefore have a strong technical background in the subject. The TP CoE is a group of generalists with strong transfer pricing knowledge. Out of the 12 FTEs, four are economists, two are lawyers and six are accountants. Nine of the FTEs are Certifi ed Swiss Tax Experts and therefore have a strong knowledge of domestic and international Swiss tax law.

The tax administration relies on the technical analysis provided by external consultants during the APA/MAP process. The Swiss tax authorities cooperate with other administrations and the OECD with respect to technical transfer pricing training.

SFTA’s approach is not to build up dedicated transfer pricing resources but to create an internal network to increase the knowledge, exchange information across tax divisions, raise the awareness for transfer pricing questions, and improve the audit and review quality in transfer pricing cases through the TP CoE.

Industry focus

The SFTA does not select specifi c industries for transfer pricing review. Asset management, banking and capital markets, and mining and metals industries all receive greater scrutiny in practice. Industries with high levels of activity in APAs/MAPs are biotechnology, consumer products, oil and gas, pharmaceutical, and insurance. Factors driving the selection of these industries are the signifi cance of their activity in Switzerland, the importance of intangible property to the industry and industry profi tability. The list of industries under scrutiny is not widely communicated to taxpayers.

Geographic focus

Offi cially, the SFTA does not specifi cally target transactions with certain jurisdictions. However, the tax authority may target transactions in certain jurisdictions perceived to be low-tax jurisdictions. These include not only offshore locations, but also onshore locations such as the Netherlands, Luxembourg, the United Kingdom and non-treaty partners, particularly those audited by the withholding tax division in transactions with non-treaty countries. The top fi ve countries for APAs and MAPs in order of importance are the United States, Japan, Germany, France and Canada.


The SFTA does not target specifi c transactions. The top fi ve transactions covered by APAs and MAPs are tangible goods transactions, business restructurings, intangible property transfers, cost–sharing/cost–pooling arrangements and intragroup services.

Of the total current caseload, 40% involves intangible property transactions, while 30% involves fi nancial transactions. The remaining 30% cannot be allocated to specifi c transaction types.


There are no specifi c transfer pricing penalties in Switzerland. In general, penalties are only levied in the event of abuse and tax fraud, which is rarely the case in transfer pricing cases given the judgmental nature of transfer pricing issues. Therefore, no penalties have yet been applied to transfer pricing cases.

Switzerland


Switzerland (cont’d.)


Case selection for transfer pricing audit is not governed by a central decision-making body. Various considerations are taken into account in determining which taxpayers to audit, including the following:

• Taxpayer profi tability (profi tability ratios are important in transfer pricing review selection)



• The nature of related-party transactions undertaken by the taxpayers (e.g., intangible property and fi nancial transactions)

• The volume of related-party transactions undertaken by the taxpayer (because of the potential for signifi cant revenue gain)

• VAT, employment, customs or other indirect tax reviews (VAT notifi cations can initiate transfer pricing reviews in rare cases)

• Previous tax audits of the taxpayer (in rare cases)


Transfer pricing enforcement resources are not required to integrate with the indirect tax team; however, ad hoc cooperation is possible. The SFTA tried to link transfer pricing and VAT and customs, but the indirect tax division did not pursue this initiative.

There is no statutory requirement that the same transfer price be used for corporate (direct) tax and indirect tax purposes. The TP CoE discussed plans to access VAT databases for purposes of direct tax audits. There are cases in which VAT returns of companies have been used in the assessment process for direct taxes, i.e., to adjust transfer prices.

Comparable data

From the APA/MAP perspective, there is no requirement for local country comparables. In APA/MAP cases, Switzerland has accepted Pan-European and even global benchmark studies if the relevance of the data can be supported.

The TP CoE also generally accepts benchmarking studies as long as relevance and reliability in terms of market conditions, industry and company comparability can be demonstrated.

In presenting comparable data, there are no specifi c requirements for number of years of data to be considered or for the method of determining the appropriate profi t level indicator. For calculating the allowable arm’s-length range in the application of the TNMM, at least three years of data are generally required.

Both weighted and simple averages are accepted, but in the majority of cases the administration relies on weighted averages. Pooling of data is sometimes used if few observations are available.


The SIF/SFTA follows the OECD Transfer Pricing Guidelines, and generally the method selected by the taxpayer is accepted as the most appropriate method. The TNMM is by far the most common method in Switzerland.

No method is considered inappropriate as long as the arm’s-length principle is satisfi ed. If there is not one obviously most appropriate and reliable method, the SFTA expects to justify the economic reasonableness of the overall result based on a secondary method, such as a value chain or functional contribution analysis (e.g., identifi cation of the value drivers and intangible property).

The position with respect to preferred transfer pricing methods and order of preference are based on the OECD Transfer Pricing Guidelines.


Switzerland has not implemented a formal APA program. The practice is to include APAs under MAPs (i.e., an APA is considered a MAP concluded in advance as opposed to ex-post). Therefore, APA procedures are settled by the authorities under the applicable regulations for MAPs. The top three countries involved in bilateral APAs are the United States, Japan and Germany. There is a widespread unilateral ruling practice in Switzerland, which is also not established by a formal program or law. There is no formal APA program, but taxpayers can request unilateral and bilateral APAs in Switzerland.


On average, 15 APA applications are received annually. There is no formal right for taxpayers to request an APA. There are generally two reasons for which the SFTA refuses to handle an APA case: (1) there is insuffi cient substance in Switzerland and (2) the facts and circumstances of the case clearly point to abusive tax structures.

Currently, 34 bilateral APAs/MAPs are pending in Switzerland. The average time to complete a bilateral APA is two to three years. The time to complete a unilateral APA varies by canton and depends on the complexity of the case. At the federal level, the time to complete a unilateral APA is on average one to three months.

The main reason for delays in the APA process is resource constraints. This applies to the Swiss side, which has only two dedicated employees, as well as to the other authorities. To speed up the process, the SFTA aims at buildingup additional resources to handleAPAs/MAPs.


On average, 13 MAP transfer pricing competent authority cases are received annually. The top three jurisdictions involved in MAPs are Germany, Japan and the United States. The average time to complete a MAP is two to three years. However, smaller cases can often be resolved in about one year. So far, all MAPs that entered into the competent authority process have been resolved.

Tax overpayments carry interest, and underpayments trigger interest charges according to the domestic tax law for the period while the MAP is in process.


The performance of the SFTA transfer pricing function is measured by the competency and effi ciency (time to completion) of transfer pricing reviews and unilateral ruling requests. As an example, the requirement is to provide a fi rst response within six working days to any transfer pricing ruling fi led with the tax authority.

The tax authority does not publish statistics on yields.


The distinction between ongoingand pending transfer pricing disputes is not clear. However, it is known that there are 46 ongoing MAP cases and34 ongoing APAs.


Switzerland follows the revised 2010 OECD Transfer Pricing Guidelines. The business restructuring guidelines arealso of particular relevance.

The approach to transfer pricing in Switzerland is in line with the political environment and aims at a lean and effi cient administration. Hence, an increase in resources involved in transfer pricing reviews and audit is not expected. However, the APA/MAP group, which is considered a service provider to taxpayers, aims at increasing resources.



Alper [email protected]+90 212 315 3000Turkey


There is a transfer pricing team within Gelir Idaresi Başkanliği (GİB), but the members of this team are not involved in transfer pricing audits/reviews; they mostly operate as an executive body in charge of interpreting the transfer pricing regulations as well as issuing rulings, including APAs. The team can be considered a centralized body, but its responsibilities cover not only transfer pricing issues but also other corporate income taxation issues.

In addition, there is another group working under the Board of Tax Auditors (Vergi Denetim Kurulu Başkanlığı), which is solely responsible for thin capitalization, transfer pricing and income earned abroad.

There was previously a decentralized structure for tax audits in Turkey, with the following four main groups of tax offi cers involved in tax audits:

• Inspectors of the Ministry of Finance (Maliye Müfettişleri)

• Tax inspectors (Hesap Uzmanları)

• Revenue controllers (Gelirler Kontrolörleri)

• Tax reviewers (Vergi Denetmenleri)

Revenue controllers and tax reviewers operated under GİB, whereas inspectors of the Ministry of Finance and tax inspectors operated under the Ministry of Finance (i.e., these two groups did not have a reporting connection).

At the end of 2011, the four groups above were merged under the Board of Tax Auditors and have been restructured under the Ministry of Finance in order to establish a more centralized organizational structure. Following the merger, a new group under the Board of Tax Auditors was formed, which is solely responsible for thin capitalization, transfer pricing and income earned abroad.

Under the previous structure, the transfer pricing team consisted of approximately 10 people within GİB, none of whom was solely involved in transfer pricing. The new group is still being organized. Although it is diffi cult to estimate the exact number of people that will be working under this group, it is highly likely that the new team structure will include personnel in Istanbul, Ankara and Izmir, the three largest cities in Turkey.

Currently, all the tax auditors under the Board of Tax Auditors are based in the fi eld and have the authority to conduct tax audits. Two years ago, there was no specifi c group with sole responsibility for transfer pricing audits. Transfer pricing audits are expected to increase in the near future, and consequently, both GİB and the Board of Tax Inspectors will require more resources specialized in transfer pricing.

Although there is a new group established under the Board of Tax Auditors responsible for transfer pricing audits, it would be fair to assume that few of the group members have strong technical transfer pricing knowledge and that they are generalists with some transferpricing knowledge.

Most tax auditors have undergraduate degrees in the fi elds of economics, fi nance and business administration. Compared to past years, the tax authority now has a stronger focus on and awareness of transfer pricing. Accordingly, there has been an increase in the number of tax audits. With the establishment of the new group, we expect signifi cant technical improvement in resources. GİB does not tend to rely on external resources, nor does it rely on other tax administrations for training purposes.

Industry focus

Starting in 2002, nearly all Turkish pharmaceutical companies have undergone transfer pricing audits with a strong focus on active pharmaceutical ingredient (API) purchases from their related parties. In addition, sectors subject to excise taxes, including, but not limited to, alcoholic beverages and tobacco, have been audited with respect to transactions between related production and distribution companies. In the future, pharmaceutical, automotive, banking and insurance, oil and gas, and telecommunication sectors can be expected to be priorities for transfer pricing audits.

The main factors driving particular focus on the pharmaceutical industry are profi tability and the volume and nature of related-party transactions.


Taxpayers are not offi cially informed about the level of the tax audits specifi c to its industry; however, from past experience, some industries(e.g., pharmaceuticals) are aware of their high transfer pricing audit risk.

Each year, audit teams plan their audits and determine the specifi c sectors under the scope of their audit. These plans are sometimes shared with the public butnot compulsorily.

Geographic focus

The GİB does not target specifi c jurisdictions in transfer pricing reviews.

Types of transaction under scrutiny

Intangible property transactions in the form of royalty payments and licensing arrangements, intragroup services in the form of management fees and cost allocations, and tangible goods transactions have been targeted more than other types of transactions.

No statistics are currently available with respect to caseload type; however, considering the ongoing tax audits in the pharmaceutical sector, tangible goods (i.e., API) may have the highest prevalence, followed by intragroup services and royalties.


There is no specifi c transfer pricing penalty regime. Transfer pricing assessments are subject to general penalty rules under the Tax Procedures Code. There are processes in place to ensure consistent application of transfer pricing penalties.

The tax loss penalty is equal to the tax itself. In addition, late payment interest is applied to the tax at an interest rate of 30% per year. Over the next two years, the assessment of penalties is expectedto increase.


Case selection is governed by the Board of Tax Auditors. Any of the factors listed below may trigger a tax audit:

• Profi tability review

• Evidence of business restructuring








As mentioned above, tax auditors are generalists, and a transfer pricing audit may also result in an indirect tax assessment. Recently, there have been tax inspection reports that have denied the deductibility of VAT by using transfer prices for indirect tax purposes.

Comparable data

While local comparable data is preferred, Turkey does not have any publicly available databases for comparable searches and verifi cation. Currently, there is no clause in the regulations clarifying whether the use of regional databases is permissible or not. While European countries are preferred, GİB has criticized the use of Pan-European sets.

There is no specifi c clause in the regulations on how comparable data should be analyzed, nor is there clear guidance with respect to the use of fi nancial adjustments to comparable data.


While traditional methods are publicly stated to have priority, GİB does not consider any method inappropriate. Based on legislative provision, any other method determined by the taxpayer can be used as long as there is a reasonable explanation why the methods endorsed in the transfer pricing regulations are not suitable for the transactions.


A formal APA program is available. It is currently estimated that only three or four applications are received a year. All corporate income taxpayers may apply for an APA but only for their cross-border transactions. So far, only one unilateral APA has been concluded. While there may be some applications for bilateral or multilateral APAs, none have been currently concluded. It is estimated that it takes at least a year to complete an APA.



Tim [email protected]+44 20 7951 1149United Kingdom


HMRC introduced new governance procedures and a Code of Conduct for Transfer Pricing Cases in 2008. This inter alia mandated the involvement of a transfer pricing specialist in every transfer pricing inquiry (either directly leading the inquiry or as a support to local caseworkers).

There are currently 64 FTEs in the Transfer Pricing Group (TPG) who are transfer pricing specialists. Of these, 23 are based in the Business International division (BI) in London, with the balance split between the Large Business Service (LBS) and Local Compliance. All transfer pricing specialists are fully trained tax inspectors and come from a mix of backgrounds, including law, accounting and economics. In addition to the use of specialists, the governance procedures require sign-off from one of two transfer pricing panels (TPPs) before any inquiry can be started. A business case and a risk assessment will be submitted to the panel for its decision. It is believed that this leads to better targeting of inquiries, which by their nature tend to be fact- and resource-intensive.

The makeup of teams involved in the actual transfer pricing inquiries varies depending on the needs of the specifi c case. When appropriate, the TPG calls upon dedicated transfer pricing economists, economists from a broader pool within HMRC, or on occasion external advisers. The TPG may also call upon commercial sector specialists, lawyers, accountants and systems analysts, who

do not tend to be dedicated transfer pricing resources but can provide insight on a given industry. For example, recently HMRC has used external resources experts in the oil and gas industry and in relation to actuarial insurance matters.

HMRC is actively involved in providing training on transfer pricing to other tax authorities. In addition, HMRC has comprehensive internal training programs on transfer pricing and expects members of TPG to regularly attend training courses.

Industry focus

HMRC does not focus on any particular industry. Rather, the approach taken is on the basis of a risk assessment for each entity that takes into account all relevant factors, including industry. However, clustering in some industries may result from the accumulation of knowledge and experience by individual inspectors. This is not due to a policy to focus on particular industries; where appropriate, specifi c industry insights are sought from sector specialists (within LBS).

Geographic focus

The approach adopted by HMRC is risk based with all entities reviewed on an equal footing, with no explicit geographic focus. The geographic location of counterparties to a transaction could be a factor that feeds into the risk assessment (among many other factors). However, other than for counterparties in tax havens, this factor typically would not trigger a transfer pricing inquiry by itself.


During a risk assessment, HMRC analyzes all transactions and considers some transactions to have a higher risk than others, depending on the facts and circumstances. Therefore, while there are no particular classes of transaction that are automatically subject to investigation, those involving more complex transfer pricing and valuation issues are likely to be seen, as part of an overall risk assessment, as increasing risk of non-compliance. Thus, transactions involving intangible assets and those where there is no obvious third-party proxy may well be characterized as higher risk.

Given the uniqueness of issues affecting the fi nancial services industry, HMRC has a specialist fi nancial services team.

Stock options and their effect on the transfer pricing method applied remain areas of focus as part of the overall risk assessment. This is seen as an issue for HMRC as there are various positions taken by fi scal authorities on whether and how share options are best taken into account within the OECD-sanctioned methods, including cost contribution arrangements.



The penalty regime for transfer pricing is the same as for other direct tax infringements; there is no specifi c penalty regime for transfer pricing. In order, however, to ensure consistency of application of the penalty regime to transfer pricing adjustments, all potential penalty cases are reviewed and settlements signed off by a senior individual inspector within BI. Less than 25% of settlements in the last two years involved penalties. While the penalty provisions are of general tax application, specifi c guidance for transfer pricing has been published by HMRC in its International Manual, which sets out types of failures where penalties will typically be considered and sought.


Case selection is currently undertaken at the local level and is based on a risk assessment and the preparation of a business case. However, fi nal approval on selection for an inquiry is given by the relevant TPP or, in some cases, the Transfer Pricing Board. The TPP reviews risk assessments and the business case for all proposals to take up a transfer pricing inquiry; sign-off by the panel is required before an inquiry may commence. As noted previously, this process helps to ensure better targeting so that only worthwhile cases are taken up. A risk-based assessment is geared to the facts and circumstances of the particular taxpayer, and as part of this, factors such as business restructurings, the pricing of intangible property and persistent losses are taken into account.

The risk assessment approach to inquiries negates the need for any audit cycle as cases are self-selected through the risk assessment with resources focused on issues that warrant the time and effort involved in a transfer pricing inquiry.

Aligned with the risk assessment, HMRC has focused on real-time working of issues and encouraged the engagement of taxpayers in this. It is therefore possible to have discussions up front on transfer pricing or attribution of profi ts issues affecting current and future years. While agreement will be couched in terms of the method and risk ratings, considerable comfort may be obtained in this way and subsequent inquiries avoided.


Joint enquiries with indirect and customs taxes are undertaken where appropriate.

Comparable data

The approach with respect to the presentation of comparable data, as set out in legislation and in HMRC’s International Manual, is to apply the OECD Transfer Pricing Guidelines within the context of specifi c facts and circumstances. On this basis, local comparables may well be best, but suitability depends on the activities being benchmarked and the economic similarities between different markets. There is also an acknowledgement that the lack of available data may sometimes make the identifi cation of local comparables diffi cult. In summary, there are no prescriptive rules, and any comparables set should be supported by a robust, persuasive analysis in conformity with the OECD Transfer Pricing Guidelines.

Adjustments are encouraged but only where they actually improve the comparability of a data set. However, HMRC believes that the application of several material adjustments may invite the question of whether the set is actually comparable in the fi rst place.


HMRC’s position is that the most appropriate method, with reference to the methods laid out in the OECD Transfer Pricing Guidelines, should be applied. The preference is for the CUP method, followed by whichever other method is most appropriate. The United Kingdom’s regime requires the methods to be applied to “provisions,” that is, groupings of the same or similar transactions between the same two parties, and therefore, the use of CPM to test a number of provisions is not generally seen as compliant with the United Kingdom or OECD positions.

HMRC is open to the use of alternative approaches (e.g., cost contribution arrangements) and hybrid approaches if appropriate to the situation.


United Kingdom (cont’d.)


The United Kingdom has had a formal APA program in place since 1999. This program has expanded through the availability of additional resources over the last year or so. In 2011, 49 APA applications were received, and 35 were agreed upon during the year, while a total of 69 applications were still being discussed at the year–end. Only one application was rejected. The average time to reach agreement was 23 months, but 50% were agreed upon within 14 months. These fi gures do not include thin capitalization agreements, which are dealt with separately (under advance thin capitalization agreements).

Taxpayer participation in the APA program is at the discretion of HMRC. In cases involving suffi cient complexity to warrant an APA, HMRC welcomes an “expression of interest” dialogue with the taxpayer at a very preliminary stage, before much detailed modeling and drafting have been undertaken, to discuss whether this criterion is met. Historically, taxpayers have not shown as much interest in unilateral APAs. Bilateral APAs have also been of more value to HMRC, because they prevent competent authority disputes; however, more recently there has been an increase in unilateral applications.

HMRC is actively engaging in APA discussions for new and emerging markets. For example, a number of APAs involving China have been agreed upon.


The United Kingdom has increased its number of competent authorities dealing with MAPs and APAs, and currently has 12 resources. HMRC is keen to resolve issues using MAPs and

encourage taxpayers to make claims in all appropriate circumstances. Competent authorities in the United Kingdom are willing to enter into discussions with their counterparts before an audit is fi nalized in that other territory where this helps to achieve agreement under subsequent MAPs. This is subject to a counterparty competent authority being willing to engage; however, where this happens, it can facilitate subsequent MAP agreements by stopping positions from becoming entrenched.

Recently published statistics show that39 cases were admitted during the year; 40 cases were resolved, and 92 cases were left pending as of 31 March 2011. It is believed that a number of adjustments, whether initiated in the United Kingdom or overseas territory, do not progress to a MAP claim. HMRC encourages taxpayers to do so.


While HMRC does not currently publish specifi c adjustment-per-settled-case data, the published statistics for 2010–11 show a total yield from transfer pricing inquiries of 436 million, of which 273 million related to cases handled by the LBS. It is understood that the current year yield has already exceeded the prior year fi gures as of December 2011. Information available suggests the average age of open inquiries as of September 2011 was 22 months, of which approximately 50% had been open for less than 12 months.


There are currently no transfer pricing cases in litigation or pending litigation. The focus of the HMRC Settlement and litigation strategy is to resolve disputes in a collaborative manner. Litigation is seen

as a last resort with emphasis instead placed on working together to resolve disputes and the use of alternative dispute resolution, including mediation, where appropriate.

Current infl uences on transfer pricing and likely trends

HMRC has a major focus on improving compliance by taxpayers, and this is undertaken through the risk assessment program, real–time working and the governance procedures for transfer pricing inquiries. Increased emphasis on collaborative working to achieve early dispute resolution will continue into 2012, as will encouragement of taxpayers to participate in the real–time working of current transfer pricing issues.

The United Kingdom is heavily involved in the work of the various OECD working parties on transfer pricing and permanent establishments and also in the work of the EU-JTPF and deliverables from these supranational bodies may well affect the United Kingdom's way of working.

A statute on transfer pricing has recently been consolidated in Part 4 of the Taxation (International and other Provisions) Act 2010. It is also noted that there have been a number of wider legislative developments over the last two years that are expected to place an increased focus on transfer pricing. These developments include branch exemption, a patent box regime and proposed controlled foreign company reform. These developments will almost certainly affect the role and resourcing of the TPG. HMRC will monitor this effect to determine how best to respond as the new regimes come into force and taxpayers start to engage in real–time discussions.

Connect with Ernst & Young Tax:• www.twitter.com/ey_tax• www.ernstyoung.mobi for mobile devices• www.ey.com/TaxGuidesApp

Access these reports and more at

Global Tax Policy andControversy Briefi ng

Managing indirect taxes in the supply chain

Turning risks andopportunities into results

Seizing the opportunity in Global Compliance and Reporting

Global Tax Policy and Controversy Briefing

Issue 10 | June 2012

www.ey.com/tax

Managing indirect taxes in the supply chainSupporting growth and reducing cost and risk

Turn risks and opportunities into resultsThe top 10 risks and opportunities in light of the current economic environment

Refresh, March 2012

Seizing the opportunity in Global Compliance and ReportingSurvey and trendsAdvance copy

Ernst & Young

Assurance | Tax | Transactions | Advisory

This publication contains information in summary formand is therefore intended for general guidance only.It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

About Ernst & Young’s Tax servicesYour business will only achieve its true potential if you build it on strong foundations and grow it in a sustainable way. At Ernst & Young, we believe that managing your tax obligations responsibly and proactively can make a critical difference. Our global teams of talented people bring you technical knowledge, business experience and consistent methodologies, all built on our unwavering commitment to quality service — wherever you are and whatever tax services you need.

Effective compliance and open, transparent reporting are the foundations of a successful tax function. Tax strategies that align with the needs of your business and recognize the potential of change are crucial to sustainable growth. So we create highly networked teams who can advise on planning, compliance and reporting and maintain effective tax authority relationships — wherever you operate. You can access our technical networks across the globe to work with you to reduce inefficiencies, mitigate risk and improve opportunity. Our 25,000 Tax people, in over 135 countries, are committed to giving you the quality, consistency and customization you need to support your tax function. It’s how Ernst & Young makes a difference.

© 2012 EYGM Limited.All Rights Reserved.

1206-1370549EYG no. CS0070

ED None

About Ernst & Young’s Tax servicesYour business will only achieve its true potential if you build it on strong foundations and grow it in a sustainable way. At Ernst & Young, we believe that managing your tax obligations responsibly and proactively can make a critical difference. So our 29,000 talented tax professionals in more than 140 countries give you technical knowledge, business experience, consistency and an unwavering commitment to quality service — wherever you are and whatever tax services you need. It’s how Ernst & Young makes a difference.

About Ernst & Young’s Transfer Pricing and Tax Effective Supply Chain Management servicesWe bring you a global perspective on transfer pricing and tax effective supply chain management (TESCM), based on our long-standing experience of what really works. We help you confi gure your supply chain effectively and design and implement sustainable transfer pricing policies. Our multi-skilled teams support you in implementing proactive, pragmatic and integrated strategies that address tax risks and help your business achieve its potential. It’s how Ernst & Young makes a difference.

* Country chapter completed based on the insights of Ernst & Young professionals and publicly available information only.

2012 global transfer pricing tax authority survey...we are pleased to introduce our 2012 global...

Documents