GRANT THORNTON Global transfer pricing guide€¦ · appropriate method rule applies. However, depending on the availability of reliable comparable data, traditional methods are preferred

Global transfer pricing guide

GRANT THORNTON

Contents

01 Australia

05 Canada

09 China

13 Czech Republic

17 France

21 Germany

25 Guernsey

29 Hungary

33 India

37 Ireland

41 Italy

45 Japan

49 Jersey

53 Korea

57 Netherlands

61 New Zealand

65 Portugal

69 Russia

73 Slovak Republic

77 Spain

81 Sweden

85 Taiwan

89 United Kingdom

93 United States

97 Contacts

More and more fiscal authorities continue to develop their transfer pricing laws. Theprinciples are common, although interpretations differ from one tax authority toanother. Compliance takes time and patience, and the demands and penalties fromauthorities are increasing. There is greater emphasis on examination and audit activityto encourage compliance and ignoring this issue is not an option for any well-runbusiness.

This international transfer pricing guide provides an overview of the differenttransfer pricing rules and regulations in key countries and details of how you can getfurther advice from Grant Thornton specialists who can help with:• audit support – sophisticated economic arguments, research and databases can help

defend transfer pricing policies before the tax authorities• documentation – using expert local knowledge to prepare country-specific

documentation to satisfy local tax regulations• planning – the growth or restructuring of a company doing business internationally

provides an opportunity to review transfer pricing and tax planning to minimise taxburdens

• supply chain re-engineering – the critical analysis of the supply chain to gainoperational efficiencies.

For a more detailed discussion on any of the country specific transfer pricing rules, orfor further assistance in addressing and resolving any intercompany transfer pricingissues, please contact the relevant country contact listed at the end of each article and at the back of this guide.

Regulatory snapshotOverviewWhen did transfer pricing rules start?1982

Level of TPLong standing and established regime

Return disclosureYes

DocumentationContemporaneous documentation is not compulsory but allows access

to reduced penalties in the event of a transfer pricing adjustment

MethodsMost appropriate method approach

Audit riskHigh

PenaltiesHigh

Advance Pricing Agreements (APAs)Available

• Division 13 of part III of the Income TaxAssessment Act 1936, contains the Australiandomestic law with regards to transfer pricing,which has been in place since 1982. At the timeof writing, the government is proposing tomodernise the Australian transfer pricinglegislation. The new legislation has beenintroduced to parliament and is expected toreceive royal assent with only minormodifications. The following information isbased on the new transfer pricing legislationcontained in the Tax Laws Amendment(Countering Tax Avoidance and MultinationalProfit Shifting) Bill 2013 (new transfer pricingrules).

• Taxpayers with an aggregate amount of theinternational related party transactions greaterthan $2 million need to disclose the details ofthe related party transactions in Section A of theInternational Dealing Schedule (IDS) along withtheir annual income tax returns.

• The new transfer pricing rules align the transferpricing regime to the self-assessment taxationsystem operating in Australia. This places theresponsibility on the companies public officerfor determining the overall tax position arisingfrom all cross border dealings.

• The taxpayer bears the burden of proof tosatisfy the Australian Tax Office (ATO) and thecourts that a company’s transfer pricingarrangements are at arm’s length.

• There is no legal requirement to prepare andmaintain the transfer pricing documentation inAustralia. However, contemporaneousdocumentation is recommended to evidencecompliance with the arm’s length principle anddemonstrate reasonable efforts in the event of atransfer pricing adjustment and, in so doing,access to reduced penalties.

• Australia applies the ‘most appropriate methodapproach’ for selecting the transfer pricingmethod(s).

• Acceptable transfer pricing methods includecomparable uncontrolled price (CUP), resaleprice, cost plus, transactional net marginmethod (TNMM), profit split and othermethods that comply with the arm’s lengthprinciple.

Australia

Global transfer pricing guide – Australia 1

2 Global transfer pricing guide – Australia

• The main focus of transfer pricing audits by theATO are services, business restructuring, lowprofit and/or loss making entities, hybridfinancing arrangements, thin capitalisation andintellectual property shifting.

• Tax penalty rates range from 10% to 50% onthe additional tax, depending on individualassessment of each circumstance.

• Unilateral, bilateral and multilateral APAs areavailable to taxpayers in three different types ofprogramme, i.e. simplified, standard and complex.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The new transfer pricing rules relocate the domestictransfer pricing rules to subdivisions 815-B, 815-Cand 815-D of the Income Tax Assessment Act 1997(ITAA 97) to make sure a single set of rules applyfor both treaty and non-treaty countries. The newrules are designed to better align Australia’sdomestic rules with internationally consistenttransfer pricing approaches set out by theOrganisation for Economic Cooperation andDevelopment (OECD).

Consistent with the approaches under Division13, the new rules in Subdivision 815-B apply thearm’s length principle to relevant dealings betweenboth associated and non-associated entities.

Effective date of commencement of transferpricing regulationsTransfer pricing regulations are effective since 1982in Australia.

Rulings, laws and guidelinesAustralia is a member of the OECD. Australiafollows OECD guidelines1 in relation to transferpricing, and the principles of the OECD guidelinesare reflected in guidance that has been provided bythe ATO. The ATO has issued various taxationrulings concerning transfer pricing, which interpretthe application of the statutory rules; and provideguidance on issues not specifically covered bystatute, without a legally binding effect. Thetaxation rulings that relate to transfer pricinginclude:• TR 1994/14 – basic concepts underlying

division 13• TR 1997/20 – arm’s length transfer pricing

methodologies for international dealings• TR 1998/11 – documentation and practical

issues associated with setting and reviewingtransfer prices

• TR 1998/16 – penalty tax guidelines• TR 1999/1 – international transfer pricing for

intra-group services• TR 2001/11 – operation of Australia’s

permanent establishment attribution rules• TR 2003/1 – thin capitalisation, applying the

arm’s length debt test• TR 2004/1 – cost contribution arrangements• TR 2007/1 – effects of determinations made

under division 13, including consequentialadjustments (replaces TR 1999/8)

• TR 2010/7 – interaction of the thincapitalisation provisions and the transfer pricingprovisions

• TR 2011/1 – application of the transfer pricingprovisions to business restructuring.

Is transfer pricing documentation required? Ifso, what information should be included?There is no legal requirement to prepare andmaintain transfer pricing documentation inAustralia. While the subdivision does not mandatethe preparation or keeping of documentation, failingto do so prevents a taxpayer from establishing areasonably arguable position. Establishing areasonably arguable position allows an entity accessto lower administrative penalties. TR 1998/11recommends contemporaneous documentation toevidence compliance with the arm’s length principle;to fulfil the statutory requirements to keep records;to reduce the risk of tax audits and adjustments; andto reduce/mitigate penalties in the event of an auditadjustment. TR 1998/11 outlines the ATO’srecommended four step approach to transfer pricingdocumentation which provides a basis for reviewingand documenting transfer pricing for internationaldealings between related parties:• Step 1: accurately characterise the international

dealings between the associated enterprises inthe context of the taxpayer’s business anddocument that characterisation

• Step 2: select the most appropriate transferpricing methodology(ies) and document thechoice

• Step 3: apply the most appropriate method,determine the arm’s length outcome anddocument the process

• Step 4: ensure documentation is completeprocess to ensure adjustment for materialchanges.

What are the deadlines for documentationpreparation?There is no specific deadline for documentationpreparation. Transfer pricing documentation isconsidered as ‘contemporaneous’ if prepared by thedue date for filing the annual income tax return.

1 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax

Administrations, 1995 and subsequent updates

Global transfer pricing guide – Australia 3

In which language should documentation befiled?Transfer pricing documentation should be preparedin English.

How long is it necessary to keep transferpricing documentation?The new transfer pricing rules introduced an eightyear time limit on when the ATO can make transferpricing amendments, wth the exception on‘consequential adjustments’. This rule replaces thecurrent unlimited time period for making transferpricing amendments.

Are intercompany agreements recommended?It is generally recommended that taxpayers supporttheir intercompany transactions throughintercompany agreements.

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Australian taxpayers need to disclose their relatedparty transactions in section A of the InternationalDealing Schedule (IDS) along with their annualincome tax returns. Taxpayers must complete theIDS in the event that the aggregate amount of theirinternational related party transactions or dealings(including the value of property transferred or thebalance outstanding on any intercompany loans) isgreater than $2 million. The IDS requires disclosureto the ATO of the following information:• types of related party transactions (e.g., tangible

products, services, financial transactions (loans,guarantees, derivative transactions, debtfactoring, securitisation), capital transactions,share-based employee remuneration plans, costcontribution arrangements)

• magnitude of the related party transactions• related party transactions with specified (tax

haven) countries• transfer pricing methodology(ies) applied and

documentation prepared to support the relatedparty transactions

• business restructuring events• branch transactions.

Which transfer pricing methods are acceptable?All transfer pricing methods are acceptable, i.e.CUP, resale price, cost plus, profit split (e.g.contribution analysis or residual analysis) andTNMM.

Is there a priority among the acceptablemethods?Similar to the OECD guidelines, the mostappropriate method rule applies. However,depending on the availability of reliable comparabledata, traditional methods are preferred in thepractice to transactional profit methods.

In addition the new transfer pricing rules allowfor the use of ‘a combination of methods’ toidentify the arm’s length conditions that operatebetween entities dealing cross-border.

What is the statute of limitations on assessmentof transfer pricing adjustments?The new transfer pricing rules introduced an eightyear limit on when the ATO can make transferpricing amendments, with the exception on‘consequential adjustments’. This rule replaces thecurrent unlimited time period for makingadjustments.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Penalty rates applying transfer pricing adjustmentsunder division 13 and DTAs are outlined in TR1998/16. Under the self-assessment regime (from1992/93 year of income and all subsequent years),the penalty rates imposed are: • 50% penalty rate on tax avoided for transfer

pricing arrangements entered into with the soleor dominant purpose of enabling a taxpayer topay no or less tax. The penalty rate may bereduced to 25% if the taxpayer has reasonablyarguable position

• 25% of the tax avoided for other transferpricing arrangements; reducing to 10% if thetaxpayer has a reasonably arguable position.

Generally, a position is considered as ‘reasonablyarguable’ if it is ‘about as likely as not’ to be correct.In order to demonstrate that a position isreasonably arguable, the taxpayer must prepare andmaintain documentation to support the arm’slength nature of its related party dealings.

Tax penalties may be increased by 20% where:• a taxpayer takes steps to prevent or hinder the

ATO from discovering that a transfer pricingprovision should be applied

• a taxpayer has been penalised under a schemesection in a prior year of income.

Tax penalty may be reduced:• by 20% if the taxpayer makes a voluntary

disclosure to the ATO after it has beeninformed of an impending audit

• by 80% if the taxpayer makes a voluntarydisclosure to the ATO before it has beeninformed of an impending audit.

The ATO has the discretion to remit all or part ofthe penalties. In addition to the penalty, thetaxpayer is liable to pay a shortfall interest chargeon the value of any increase in the tax assessmentarising from the ATO’s transfer pricingadjustments.

An important element of the new transferpricing rules is the introduction of specific rulesallowing the ATO reconstruction powers todisregard the actual transaction and arrangements,where the actual economic substance of thetransaction differs from the legal form.

The new transfer pricing rules introducethresholds for administration penalties arising from the arm’s length principle on satisfying certaincriteria.

Are there exemptions to transfer pricing rules inyour country? There is no exemption to transfer pricing rules inAustralia. The new transfer pricing rules may applyto all cross-border transactions between thirdparties. As such, all cross-border dealings aresubject to the arm’s length principle.

Are advance pricing agreement (APA) optionsavailable?The ATO released detailed guidance on Australia’sAPA programme, i.e. Practice Statement LawAdministration 2011/1 (PS LA 2011/1 ) in March2011 (which replaces TR 95/23 that has beenwithdrawn). The practice statement outlines thepolicies and procedures of the ATO’s APAprogramme, which allows unilateral, bilateral, andmultilateral APAs.

In addition, PS LA 2011/1 outlinesdifferentiated APA programmes, with threedifferent types of APAs, i.e. simplified, standardand complex.

Tax audit areasTransfer pricing remains a high risk area. In May2009, the ATO announced a major transfer pricingproject, referred to as the ‘strategic complianceinitiative’. The strategic compliance initiativeproject was designed to protect Australia’s tax baseand the main focus areas are:• intragroup finance and guarantee fees• business restructures and transformations• intellectual property transactions• services to the mining industry• low-profit/loss making entities.

To support the strategic compliance initiative, theATO recruited a large number of experiencedtransfer pricing staff.

Contact usFor further information on transfer pricing in Australia pleasecontact: Jason CasasT +61 3 8663 6433E [email protected]

4 Global transfer pricing guide – Australia

Global transfer pricing guide – Canada 5


Level of TPEstablished regime, active tax authority

Return disclosureT106 form discloses transactions undertaken with non–arm’s length

non-residents during the taxation year

DocumentationRequired if certain criteria are met

MethodsMost appropriate method detailed in the OECD guidelines

Audit riskHigh

PenaltiesHigh


• Canada has had transfer pricing rules since 1997and the regulations were applicable to taxationyears that began after 1997. The rules can befound in Section 247 of the Canadian incometax act.

• In the tax filing, taxpayers with intercompanytransactions must disclose the types oftransactions and whether the documentationrequirements have been met if all transactionand intercompany balance values exceedCAN$1 million.

• Acceptable TP methods include comparableuncontrolled price (CUP), resale price, costplus, profit split and transactional net margin.

• The penalty is 10% (non-deductible) of the netincome or capital adjustment if the value of thisadjustment exceeds the lesser of 10% of thetaxpayer’s gross revenues and CAN$5 million,plus interest. The penalty is applied only whereit is concluded that ‘reasonable effort’ todetermine and use arm’s length prices was notmade.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The Canadian Income Tax Act (the Act) applies tothe taxation years beginning after 1998. Section 69of the Act applies to prior taxation years. The Actrepresents Canada’s transfer pricing legislation andcovers definitions, the calculation of transfer pricingadjustments, penalties, contemporaneousdocumentation requirements and timing.

Administrative guidance relating to definitions,methods, penalties, cost sharing arrangements,confidentiality of third-party information, and theadvance pricing agreement (APA) and competentauthority processes are provided in informationcircular 87-2R ‘International transfer pricing’(1999). Other guidance:• Competent Authority process – IC 71-17R5 • APA programme – IC 94-4R• Small business APA programme – IC 94-4RSR• Income tax transfer pricing and customs – IC

06-1• Transfer pricing memorandum (TPM) series –

ongoing [http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/trns/menu-eng.html]

Canada

Effective date of commencement of transferpricing regulationsSection 247 of the Act applies to taxation yearsbeginning after 1998. Section 69 of the Act appliesto prior taxation years.

Is transfer pricing documentation required? Ifso, what information should be included?Documentation must be prepared or obtainedbefore the tax filing due date for most corporations,six months after the corporate year end.Documentation must be provided to the CanadianRevenue Agency (CRA) within three months of thewritten request to submit documentation date.Canada is a member of Pacific Asia TravelAssociation (PATA), making that documentationstandard useful as guidance.

Subsection 247(4) of the Act describes thecontemporaneous documentation requirement tobe recorded or documents prepared or obtainedthat provide a complete and accurate description of: • the property or services to which the

transaction relates• the terms and conditions of the transaction and

their relationship, if any, to the terms andconditions of each other transaction enteredinto between the participants in the transaction

• the identity of the participants in the transactionand their relationship to each other at the timethe transaction was entered into

• the functions performed, the property used orcontributed and the risks assumed, in respect ofthe transaction, by the participants in thetransaction

• the data and methods considered and theanalysis performed to determine the transferprices or the allocations of profits or losses orcontributions to costs, as the case may be, inrespect of the transaction

• the assumptions, strategies and policies, if any,that influenced the determination of the transferprices or the allocations of profits or losses orcontributions to costs, as the case may be, inrespect of the transaction.

What are the deadlines for documentationpreparation?Documentation must be prepared or obtainedbefore the tax filing due date. In the case ofcorporations such documentation must be completewithin six months after the taxation year end, andfive months after the taxation year end forpartnerships.

In which language should documentation befiled?Transfer pricing documentation can be provided inEnglish or French.

How long is it necessary to keep transferpricing documentation?In the case of foreign-controlled entities, the CRAmay reassess tax on transfer pricing adjustmentsmade in respect of tax years seven years prior to thedate of the notice of assessment. For Canadiancontrolled entities, this period is six years. In thecase of fraud or gross negligence, no statute oflimitations exists.

Are intercompany agreements recommended?Yes, but not required.

6 Global transfer pricing guide – Canada

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Canadian corporations and partnerships file ‘FormT106’ annually if all transaction and intercompanybalance values exceed CAN$1 million. Branches ofnon-resident corporations only file this form inrespect of transactions with other related non-residents. Form T106 reports (by related non-resident) the value of each type of transaction andintercompany balances as well as the transferpricing method used. Question 6 on this formrequires a yes or no response to the question ‘haveyou prepared or obtained contemporaneousdocumentation as described in subsection 247(4) ofthe Income Tax Act for the tax year/fiscal periodwith respect to the non-resident?’.

Which transfer pricing methods are acceptable?The CRA favours application of OECD methods(CUP, resale price, cost plus, profit split and thetransaction net margin method) to each transactionor group of transactions that may be reasonablyaggregated. Methods are not discussed or ranked insection 247 of the Act.

Is there a priority among the acceptablemethods?The CRA has endorsed the revisions made to theOECD guidelines in 2010, as such it is expected theCRA will endorse a ‘most appropriate’ methodapproach.

What is the statute of limitations on assessmentof transfer pricing adjustments?In the case of foreign-controlled entities, the CRAmay reassess tax on transfer pricing adjustmentsmade in respect of tax years seven years prior to thedate of the notice of assessment. For Canadiancontrolled entities, this period is six years. In thecase of fraud or gross negligence, no statute oflimitations exists.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Refer to subsection 247(3) of the Act. The penalty is10% (non-deductible) of the net income or capitaladjustment if the value of this adjustment exceedsthe lesser of 10% of the taxpayer’s gross revenuesand CAN$5 million, plus interest. The penalty isapplied only where it is concluded that ‘reasonableeffort’ to determine and use arm’s length prices wasnot made.

Are there exemptions to transfer pricing rules inyour country? None.

Global transfer pricing guide – Canada 7

Are advance pricing agreement (APA) optionsavailable?Unilateral, bilateral and multilateral APAs areavailable to Canadian taxpayers to the extent thatthese programs exist with Canada’s tax treatypartners. The CRA generally prefers bilateral APAsto unilateral APAs. A small business APA programwas started in 2005, this imposes certain restrictionsthat make agreements negotiated under thisprogram quite different from any other APA.

Through its treaty network, Canada’scompetent authority engages in Mutual AgreementProcedure (MAP) exchanges with foreign taxauthorities. For more details, see IC 71-17R.

Tax audit areasAudits are conducted by international tax auditorsand federal tax auditors at the Tax Service’s Office(TSO) level. It is usual for a taxpayer to receive awritten request for subsection 247(4)documentation at the beginning of an audit. Booksand records located outside of Canada may berequested by law and the CRA may request totravel (at the taxpayer’s expense) to the country inwhich these books and records are kept to inspectthese books and records, and also to perform sitevisits or interview personnel.

Assistance to the TSOs is provided byInternational Advisory Service Section.Reassessments of tax caused by transfer pricingadjustments may be appealed provided that a‘notice of objection’ is filed with the appeals branchwithin 90 days of the date of the notice ofassessment.

Contact usFor further information on transfer pricing in Canada pleasecontact: Peter KurjanowiczT +1 416 369 7036E [email protected]

Daniel MarionT +1 514 954 4625E [email protected]

8 Global transfer pricing guide – Canada

Global transfer pricing guide – China 9

Regulatory snapshotOverviewWhen did transfer pricing rules start?1998 (yet the most comprehensive legislative update so far occurred

in 2009)


DocumentationCompulsory with de minimis provided

MethodsBest method approach

Audit riskHigh

PenaltiesHigh


• The core Transfer Pricing (TP) rules werepromulgated under circular 2 in January 2009with an effective date from 1 January 2008.

• Taxpayers with intercompany transactions mustdisclose the transactions details through asmany as nine forms during the annual incometax filing process.

• Contemporaneous TP documentation iscompulsory with de minimis threshold.

� China applies the ‘best method approach’ forconducting TP analysis.

• Acceptable TP methods include comparableuncontrolled price (CUP), resale price, costplus, transactional net margin, profit split andother methods that comply with the arm’slength principle.

• TP audit can be targeted at any transaction if itresults in the reduction of China’s tax revenue,and is more prone to intellectual property,equity and service provision transactions.

• Other than administrative cash fines, deemedprofit adjustment is applied for not complyingwith the TP documentation obligation. TPAudit adjustment is subject to an interestsurcharge plus a 5% surcharge.

• Advance Pricing Agreements (APA) areavailable to taxpayers with annual intercompanytransaction amount exceeding RMB40 million.An effective APA can cover three to five years.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The State Administration of Taxation (SAT) issuedGuoshuifa [2009] No. 2 ‘Implementation measuresof special tax adjustments (trial version)’ (circular 2)which contains 13 chapters and 121 articles. Itcovers related party transactions disclosure,contemporaneous documentation, transfer pricingaudits, thin capitalisation, cost contributionarrangement (CCA), APA, general anti-avoidance,controlled foreign corporation (CFC), and etc.

Effective date of commencement of transferpricing regulationsCircular 2 is effective as of 1 January 2008.

China

Rulings, laws and guidelinesIn addition to circular 2, there are several effectiverulings related to transfer pricing as following:• Guoshuifa [2008] no. 86: additional guidance

on service charges between parent andsubsidiary entities.

• Guoshuifa [2008] no. 114: requiring taxpayersto disclose detailed related-party transactioninformation in the annual tax return process.

• Caishui [2008] no. 121: additional guidance onthe application of thin capitalisation ratiosbetween related parties.

• Guoshuihan [2009] no. 363: requiring loss-making single-functioned manufacturer/distributor/contract R&D service provider toprovide, prepare and submit transfer pricingdocumentation, regardless of its intercompanytransaction amount.

Is transfer pricing documentation required? Ifso, what information should be included?Taxpayers are obliged to prepare transfer pricingdocumentation if they trigger the de minimsthresholds. As required by circular 2, transferpricing documentation should containorganisational structure, business and operation,related party transactions, selection and applicationof the transfer pricing method, comparable analysis,copies of intercompany agreements, functional andrisk analysis form and financial analysis form.

What are the deadlines for documentationpreparation?The transfer pricing documentation should be inplace by 31 May of the year following the yearduring which the related-party transactions occur,and be submitted within 20 days upon request fromthe tax authorities. Where the enterprise cannotsubmit the documentation due to force majeure, itshall submit the documentation within 20 days afterthe elimination of the force majeure.

In which language should documentation befiled?Transfer pricing documentation shall be filed andsubmitted in Chinese.

How long is it necessary to keep transferpricing documentation?Enterprises are responsible for keepingcontemporaneous documentation for ten yearsstarting from 1 June of the year following the yearin which the documented related-party transactionsoccur.

Are intercompany agreements recommended?It is recommended that taxpayers document theirintercompany transactions through intercompanyagreements.

10 Global transfer pricing guide – China

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?All taxpayers in China are required to prepare‘annual reporting forms of related partytransactions for PRC enterprises’ (annual TP filingforms) and submit them along with the annual taxfiling forms. The annual TP filing forms include: relationship between related parties related party transaction summary purchase and sales form service form intangible asset transaction form fixed asset transaction form financing form overseas investment form overseas payment form.

Which transfer pricing methods are acceptable?CUP, resale price, cost plus, transactional netmargin, profit split and other methods that complywith the arm’s length principle.

Is there a priority among the acceptablemethods?No, the best method approach applies.

What is the statute of limitations on assessmentof transfer pricing adjustments?A maximum of ten years.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Cash penaltyFailure to submit the annual TP filing forms or TPdocumentation is subject to a fine of RMB 2,000-10,000. For any entity which refuses to providetransfer pricing documentation and other relevantinformation on related party transactions, a fine ofRMB 10,000 to 50,000 should apply.

Deemed profit adjustmentThe tax authority can use the deemed profit methodto conduct TP adjustment on an entity if the entityrefuses to prepare the transfer pricingdocumentation or discloses false information.

Additional interest on transfer pricingadjustmentsStarting from 1 January 2008, the transfer pricingadjustment is subject to additional interest. Theinterest will be levied on a daily basis, counting thenumber of days in the period starting 1 June of thenext taxable year and ending the day when theunder-paid income tax is collected by The SAT. Theinterest rate equals to the People’s Bank of Chinalending rate plus an additional 5%. The additional5% can be waived if the enterprises fulfil thedocumentation obligation.

Global transfer pricing guide – China 11

Are advance pricing agreement (APA) optionsavailable?Unilateral, bilateral and multilateral APAs areavailable. The negotiation and implementation of anAPA generally includes six phases: pre-filingmeeting, formal application, review and evaluation,negotiation, signing, execution and monitoring.

Tax audit areasTransfer pricing is a high risk area. Transfer pricingis a key issue in any tax audit. The following casesmay easily draw the attention of the tax authorityand trigger a transfer pricing audit: loss makingcompanies with a single function, substantialdifference between related and non-related salesmargins, profit lower than its group enterprises orindustry standard, significant invoicing profit in taxhaven, recurring loss, marginal profit or fluctuatingprofit. The tax authorities focus especially on thefollowing industries/transactions: real estate,automobile, pharmaceutical, retail industries,transfer of intangible, services, financing, and equitytransfer.

Contact usFor further information on transfer pricing in China please contact:Rose ZhouT +86 21 2322 0298E [email protected]

12 Global transfer pricing guide – China

Global transfer pricing guide – Czech Republic 13


Level of TPDeveloping regime

Return disclosureNo

DocumentationNot compulsory


Audit riskLow

PenaltiesLow


• The arm’s length principle was introduced in theCzech income taxes act as of 1 January 1993;however, until 2004 no guidelines wereavailable.

• The core Transfer Pricing (TP) rules werepromulgated under Guideline D-258 in January2004.

• Taxpayers with related-party transactions mustdisclose the transaction details upon request ofthe tax authorities during a tax audit.

� TP documentation is not compulsory butrecommended.

• The Czech Republic applies the ‘best methodapproach’ for conducting TP analysis.

� Recommendable TP methods includecomparable uncontrolled price (CUP), resaleprice, cost plus, transactional net margin andprofit split.

• TP audit can be targeted at any transactionbetween related parties; related parties aredefined as economically (direct or indirect shareof a minimum 25% of the share capital orvoting rights) or personally related (the sameperson participating in management or controlof both companies).

• Regular penalties apply on TP auditadjustments: late payment interest and penaltypayment; on the other hand, TP auditadjustments shall be considered tax-deductibleby the recipient tax subject (Czech Republicsigned the Arbitration Convention90/436/EEC).

• Advance Pricing Agreement (APA) in the formof binding ruling is available to all taxpayers andcan cover a maximimum of three years.

Czech Republic

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The arm’s length principle is enacted in article 23 (7)of the Czech income taxes act as of its outset in1993. TP documentation requirements are specifiedin the Czech Ministry of Finance guidelines D-332and D-333 (accompanied by D-334 on the bindingruling), which however are not binding but serve asa recommendation. In general, the Czech Republicfollows the OECD guidelines1. TP regulationsapply to all related party transactions in which anentity subject to Czech income tax is involved.Related parties are defined as economically (director indirect participation of a mininimum 25% ofthe share capital or voting rights) or personallyrelated (the same person participating inmanagement or control of both companies); theCzech income taxes act also includes an anti-abuseclause when considering related parties, also entitiesthat established a legal relationship mainly toreduce the tax base or increase the tax loss; howeverthis concept applies to domestic taxpayers andentities from countries that did not conclude adouble tax treaty with the Czech Republic;otherwise, the definition of the double tax treatyshall prevail.

Effective date of commencement of transferpricing regulationsTP regulations (arm’s length principle for relatedparties) in the Czech Republic have been effectivesince 1993.

Rulings, laws and guidelinesBesides legally binding articles of the Czech tax law(as of 2004), several guidelines provide insight intothe position of the tax authorities without a legallybinding effect. These guidelines refer to the generalguidance on the application of the OECDguidelines (currently, as of 2011: D-332 and D-333);binding ruling for TP issues (D-334).

Is transfer pricing documentation required? Ifso, what information should be included?Taxpayers are not obliged to prepare TPdocumentation, however they are obliged to provethat the arm’s length principles were observed; theform of the proof is not prescribed, but the TPdocumentation prepared according to OECDguidelines is recommended.

What are the deadlines for documentationpreparation?The documentation (or any other evidence) shouldbe available when the company is asked during a taxaudit. Absent or non-sufficient documentation willshift the burden of proof from the Czech taxauthorities to the taxpayer to demonstrate that thetransfer prices are at an arm’s length basis.However, if the documentation is not availableupon request of the tax authorities, the taxpayermay agree on a deadline to prepare thedocumentation.

14 Global transfer pricing guide – Czech Republic


Administrations, 1995 and subsequent updates.

In which language should documentation befiled?TP documentation can be submitted to the Czechtax authorities in the Czech language only.

How long is it necessary to keep transferpricing documentation?TP documentation should be kept for the periodfor which the right of the tax authorities to assesstax, does not become statute-barred, i.e. usuallythree years. In cases of tax losses, the deadline maybe prolonged to five years, in cases of tax audits thedeadline may be prolonged to a maximum tenyears.

Are intercompany agreements recommended?It is recommended (and usually required) by the taxauthorities that during tax audits, taxpayersdocument their intercompany transactions throughwritten intercompany agreements.

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?No.

Which transfer pricing methods are acceptable?Taxpayers are free to choose any OECD recognisedTP method, as long as the method results in anarm’s length pricing for the transaction.

Is there a priority among the acceptablemethods?There is no priority among the acceptable methodsas long as the result is at arm’s length. Taxpayers arenot obliged to test all OECD recognised methods,though they should substantiate why the methodchosen is considered as the best method.

What is the statute of limitations on assessmentof transfer pricing adjustments?TP adjustments can be assessed three years from thefiling deadline (usually three month after the end ofthe calendar or economic year) plus any extensionsprovided by the Czech income taxes act (e.g. taxloss, additional tax return, investment incentives).In certain cases (e.g. tax audit), this period can beextended up to ten years.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?No specific penalties exist; should the taxpayer failto bear the burden of proof, then additional tax isassessed or the assessed tax loss is decreased, the latepayment interest (Czech National Bank repo rate +14%) and penalty payment (20% of theadditionally assessed tax or 1% of the additionallyassessed tax loss reduction) apply. No penalty relief.

Are there exemptions to transfer pricing rules inyour country? No.

Global transfer pricing guide – Czech Republic 15

Are advance pricing agreement (APA) optionsavailable?Binding rulings based on the submitted TPdocumentation are possible. A fee of CZK 10,000(approx. EUR 400) must be paid in advance; onebinding ruling may involve one or moretransactions. Issued binding ruling is valid onlyceteris paribus, by the same tax authority that hasissued it for a maximum of three years.

Tax audit areasTP is still a relatively low risk area. TP audits arerare and TP is not an issue in every tax audit.However, as of 2012 a new specialised tax office wasintroduced that should be equipped with TPspecialists; this tax authority shall administer largetaxpayers (including banks and insurancecompanies) and shall perform specialised tax audits,including TP audits.

Contact usFor further information on transfer pricing in the Czech Republicplease contact:Helmut HetlingerT +420 296 152 229E [email protected]

16 Global transfer pricing guide – Czech Republic

Global transfer pricing guide – France 17

Regulatory snapshotOverviewWhen did transfer pricing rules start?The first tax guideline with respect to transfer pricing entered into

force in 1973. The first tax rule with respect to transfer pricing

documentation requirements was issued in 1996.

Level of TPLong standing

Return disclosureNo

DocumentationAccording to sections L13 AA, L13 AB and L13 B of the tax

procedures code, transfer pricing documentation must be available

upon request for the French tax authorities.

MethodsThe French tax legislation is based on the comparable uncontrolled

price method (CUP). However, all methods approved in the OECD

guidelines can be applied in France as long as they are supported by

an appropriate transfer pricing study.

Audit riskLow

PenaltiesThere are no specific tax penalties in the event of reassessments

relating to the application of transfer pricing legislation. Standard

penalties indeed apply under such circumstances.

For insufficient or non-existent documentation, the French tax

authorities apply a minimum penalty of €10,000 which can be increased up to 5% of the tax, reassessed per fiscal year.

Advance Pricing Agreements (APAs)APA’s are available to companies. Unilateral APAs can also apply but in

limited situations. A specific APA procedure exists for SMEs within the

definition of European Union law.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?Article 57 of the French tax code contains the mainFrench legal provisions on transfer pricing (TP). Itstates that in assessing the income tax due fromFrench taxable entities that are controlled by or thatcontrol entities established outside France, anyprofits indirectly transferred to the latter, whetherby an increase or reduction in purchase or saleprices or by any other means, shall be added backto taxable income.

Articles L13 AA, L13 AB and L13 B of theFrench tax procedures code set out the formaldocumentation requirements in France.

French regulations and guidelines are broadlybased on and refer to the OECD guidelines1.

Effective date of commencement of transferpricing regulationsTP regulations have been effective in France since1973.

France

1 OECD transfer pricing guidelines for multinational enterprises and tax

administrations, 1995 and subsequent updates.

Rulings, laws and guidelinesBesides articles of the French tax law, several taxguidelines exist which provide insight into theposition of the tax authorities. They concernapplication of article 57 of the French tax code (4A-2-73; 4 A-1211; 4 A-5-83); advance pricingagreements (4 A-8-99; 4 A-11-05); documentationrequirements (13 L-7-98; 4 A-10-10) and SME (4A-13-06).

Is transfer pricing documentation required? Ifso, what information should be included?According to sections L13 AA and L13 AB, TPdocumentation must be available for the French taxauthorities at the opening of a tax audit. Companies in the scope of these documentationrequirements are:• French companies with annual sales or gross

assets totaling €400 million • French subsidiaries with more than 50% of

their capital or voting rights owned, directly orindirectly, by French or foreign entities meetingthe €400 million criterion above

• French parent companies that directly orindirectly own at least 50% of companiesmeeting the €400 million criterion.

When the annual sales or gross assets do not meetthe €400 million threshold, taxpayers must stillcomply with the ‘de facto’ documentationrequirement in the event of a tax audit in order toavoid penalties.The TP documentation includes two reports:• a general report that provides an overview of the

whole group and entities• a specific report focused on the French entity.

A specific additional documentation must beprovided in case of transactions entered into withaffiliate entities located in ‘non cooperative states’(Botswana, Brunei, Guatemala, Marshall Islands,Montserrat, Nauru, Niue and the Philippines).

What are the deadlines for documentationpreparation?According to sections L13 AA and L13 AB, thedocumentation should be available at the beginningof the tax audit i.e. as from the date of the firstmeeting with the tax inspector. For companies thatare not in the scope of sections L13 AA and L13AB, the documentation has to be available uponrequest of the tax authorities during a tax audit. Theminimum deadline to reply is two months.

In which language should documentation befiled?In principle, all documents provided to the Frenchtax authorities must be in French. In practice, if thedocuments are in English, a translation has to beprovided upon request of the tax inspector. It isrecommended to provide the tax inspector with asummary in French of the TP policy as soon as thetax inspector raises TP questions.

How long is it necessary to keep transferpricing documentation?The minimum required retention period for TPdocumentation is the time allotted by the generalstatute of limitation relating to corporate incometax return filings i.e. during the years open to taxaudit (see below statute of limitations).

18 Global transfer pricing guide – France

Are intercompany agreements recommended?It is strongly recommended that taxpayersdocument their intercompany transactions throughintercompany agreements.

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?No.

Which transfer pricing methods are acceptable?Taxpayers are free to choose any OECD recognisedTP method as long as the method results in an arm’slength pricing for the transaction. Taxpayers are notobliged to test all OECD recognised methods,although they must substantiate the methodchosen.

Is there a priority among the acceptablemethods?There is no priority among the acceptable methods,as long as, the result is at arm’s length. The Frenchtax authorities nevertheless usually prefer thecomparable uncontrolled price (CUP) method,since article 57 of the French tax code is based onthat method.

What is the statute of limitations on assessmentof transfer pricing adjustments?There is no specific TP statute of limitations. Theusual statute of limitation regarding corporateincome tax applies i.e. 31 December of the thirdyear, following the year during which a fiscal year isclosed. Fiscal years which were in a tax loss positioncan still be audited after the three year period, if thesaid tax losses have been offset against the taxprofits of a fiscal year still open to tax audit.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?There is no specific penalty due to the violation ofTP regulations (except documentation rules – seebelow). All penalties relating to a tax audit are basedon the amounts reassessed. The most usual penaltiesare late payment penalties i.e. late payment interest(0.40% per month) or/and late payment fine (5%or 10%). In the event of tax fraud, penalties canreach 40% or 80% of the tax that has been avoided.

Companies that are required to have TPdocumentation can be subject to penalties if they donot comply with their requirements (minimumpenalty of €10K, and up to 5% of the taxreassessed per fiscal year).

Are there exemptions to transfer pricing rules inyour country? No.

Global transfer pricing guide – France 19

Are advance pricing agreement (APA) optionsavailable?Unilateral, bilateral and multilateral APAs areavailable. Pre-filing meetings are organised with theFrench tax authorities to discuss the case, before aformal APA request is made. The APA, whichcannot be less than three years or more than fiveyears, makes sure that the concerned companiescannot be reassessed by the tax authorities on thebasis of their TP policies, for the financial yearsconcerned by the agreement and assuming the factpattern given (when the corresponding applicationwas filed) correctly reflects the reality.

A streamlined procedure exists for SMEs withinthe definition of European Union law. Thedocumentation required by the French taxauthorities is lightened, and the French taxauthorities assist the companies in the preparationof their request.

Tax audit areasWhen a French company belongs to aninternational group of companies, the tax inspectorfrequently checks whether TP rules are correctlyapplied. This situation also concerns SMEs andgroups of two companies i.e. a French companywhich is a subsidiary of a non French company orwhich has a subsidiary outside France. TP rules arevery often a key issue in tax audits. The French taxauthorities especially focus on the following areas:loss making routine functions, intellectual property(IP) transactions (transfer of IP, royalties) andbusiness reorganisations.

Contact usFor further information on transfer pricing in France pleasecontact: Alexis MartinT +33 (0)1 53 42 61 76E [email protected]

Elvre Tardivon-LorizonT +33 (0)1 53 42 61 60E [email protected]

Patricia MaloccoT +33 (0)1 53 42 61 43E [email protected]

20 Global transfer pricing guide – France

Global transfer pricing guide – Germany 21


Level of TPEstablished regime

Return disclosureNo

DocumentationCompulsory with threshold


Audit riskHigh

PenaltiesHigh


• The basic rules for Transfer Pricing (TP) inGermany were announced in the early 1980s.These rules were expanded by several importantsupplemented rules, which were promulgated inMay 2003 (documentation requirements) andAugust 2008 (transfer of business) with aneffective date from 1 January 2003 and 1January 2008 respectively.

• TP documentation is compulsory within deminims threshold.

• Germany applies the ‘best method approach’for conducting TP analysis.

• Acceptable TP methods include comparableuncontrolled price (CUP), resale-minus, costplus, transactional net margin (TNM), profitsplit and other methods that comply with thearm’s length principle.

• TP documentation has to be provided during anon-going tax field audit and only on request ofthe tax inspector in charge. There is no need tosubmit the TP documentation together with theannual tax returns.

• If the taxpayer does not submit the requireddocumentation in a timely manner, there will besevere consequences. In case of a violation ofthe obligation to cooperate, the tax authoritiesare entitled to increase the tax basis based ontheir own estimations. In addition to this, thetax authority provides for a penalty of 5% to10% of the additional estimated income. If thereis a delay in submitting usable documentation, apenalty of at least €100 for each day beyond theday of the deadline becomes due with amaximum penalty of €1,000,000.

• Advance pricing agreements (APAs) areavailable to every taxpayer. An effective APAcan cover three to five years.

Germany

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The arm’s length principle and transfer pricingdocumentation requirements are enacted in ‘article1’ of the foreign tax act and ‘section 90 paragraphthree’ of the German general tax code. Specific non-statutory guidance was provided by the FederalMinistry of Finance in February 1983 and October2010. The German transfer pricing legislation is notnecessarily committed to following the OECD’s TPguidelines exactly. However, it refers to and isbroadly consistent with them. TP regulations applyto all related party transactions without a thresholdin which an entity subject to German taxation isinvolved.

Effective date of commencement of transferpricing regulationsTP regulations regarding the obligation to providewritten TP documentation have been effective inGermany since 2003.

Rulings, laws and guidelinesBesides legally binding articles of the German taxlaw, several decrees provide insight into the positionof the tax authorities without a legally bindingeffect. These decrees refer to general guidance onthe profit allocation to related companies (BMF IVC 5 – S 1341 – 4/83), the attribution of profits topermanent establishments (FM Baden-WürtembergS 1300 – 20); intercompany services (BMF IV B 4 –S 1341 – 14/99), business restructuring (BMF IV B4 – S 1341 – 08/10003); APAs (BMF IV B 4 – S 1341– 38/06) and guidance with respect to theadministrative principle procedures (BMF IV B 4 –S 1341 – 1/05).

Is transfer pricing documentation required? Ifso, what information should be included?Taxpayers are obliged to prepare TP documentationand to keep it in their accounting records. Inprinciple the documentation of the taxpayer shouldsubstantiate the serious effort to comply with thearm’s length principle. The taxpayer needs toexplain from his point of view the appropriatenessof the transfer prices using objective criteria.According to German regulations regarding thedocumentation of profit allocation (GAufzV), thenature, scope and processing of the relevant facts, aswell as, the direct economic and legal aspectsthereof need to be exposed. In addition, theorganisational and operational company structureneeds to be displayed. Essentially, the followingparts of the documentation of facts are important:business description, organisational structure,functional (including risk) analysis, industryanalysis, contractual terms and conditions of thetransactions, financial performance, information onthe intercompany transactions, substantiation oftransfer pricing method and prices actually charged.

22 Global transfer pricing guide – Germany

Is there a threshold for preparing transferpricing documentation?Small companies are exempt from the requirementof the detailed TP documentation. Small companiesare where neither the total revenue from thedelivery of goods (from transactions with relatedparties) exceeds €5,000,000 nor the total revenuefrom services other than the delivery of goods(from transactions with related parties) exceeds€500,000. Nevertheless, small companies need toprovide evidence of the compliance with the arm’slength principle.

What are the deadlines for documentationpreparation?The deadline for the submission of the documentsis 60 days after the documentation has beenrequested by the Fiscal Authority. If thedocumentation contains extraordinary transactions,the deadline is shortened to 30 days. Absent(sufficient) documentation will shift the burden ofproof from the German tax authorities to thetaxpayer, to prove that the transfer prices are atarm’s-length.

In which language should documentation befiled?Transfer pricing documentation should be filedwith the German tax authorities in German.

How long is it necessary to keep transferpricing documentation?Transfer pricing documentation should be kept forat least ten years.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?In Germany taxpayers are not obliged to discloseany information concerning related partytransactions in their (corporate income) tax returns.

Which transfer pricing methods are acceptable?German tax authorities accept the use of thetraditional transaction methods (CUP, resale-minus,cost plus) as well as the use of TNM method andprofit share methods, if applicable.

Is there a priority among the acceptablemethods?German tax authorities prefer to use the traditionaltransaction methods. Nevertheless, taxpayers arefree to choose any other TP methods if thetraditional methods are not applicable and as longas the chosen method results in an arm’s lengthpricing for the transaction. Taxpayers are notobliged to test all recognised methods, althoughthey must substantiate the method chosen.

What is the statute of limitations on assessmentof transfer pricing adjustments?Basically TP adjustments can be assessed five yearsfrom the tax year-end, plus any extensions providedby the German tax authorities for filing tax returns.

Global transfer pricing guide – Germany 23

What rates and conditions apply for transferpricing penalties? And is there penalty relief?A violation of the obligation to co-operate will leadto penalties in addition to the tax. The minimumpenalty is €5,000 and the tax authority provides fora penalty of 5% to 10% of the additional estimatedincome. If there is a delay in submitting usable data,a penalty of at least €100 for each day, beyond theday of the deadline becomes due with a maximumpenalty of €1,000,000.

Are advance pricing agreement (APA) optionsavailable?Since 2006 the taxpayer has the opportunity toobtain an advance pricing agreement (APA) fromthe fiscal authorities. Bilateral and multilateralAPAs are available but unilateral APAs are nolonger supported by the German tax authorities.Pre-filing meetings are mandatory in the course ofan APA request in order to discuss the case before aformal APA process is initiated.

Tax audit areasTransfer pricing is a high risk area since it is a keyissue in any tax audit. The German tax authoritiesespecially focus on the following areas: loss makingroutine functions, IP transactions (transfer of IP,royalties), transactions with permanentestablishments, head office activities, principalstructures (including centralised functions andpurchase offices), business reorganisations andfinancial transactions.

Contact usFor further information on transfer pricing in Germany pleasecontact: Harald MüllerT +49 211 9524 8139E [email protected]

24 Global transfer pricing guide – Germany

Global transfer pricing guide – Guernsey 25

Regulatory snapshotOverviewWhen did transfer pricing rules start?No current transfer pricing rules


Return disclosureNo



Audit riskLow

PenaltiesLow


• Guernsey has not introduced formal transferpricing rules into its domestic tax legislationhowever under certain double tax treaties thereis provision to apply generally accepted transferpricing principles.

• There is no formal requirement to discloseintercompany transactions separately.

• Guernsey uses domestic law in that all expensesmust have been incurred wholly and exclusivelyfor the purposes of trade to apply transferpricing methodology.

• Although there is no formal requirement fortransfer pricing documentation, in realityevidence will be required to justify that theexpense has been incurred wholly andexclusively for the purposes of the trade. Theoption on how to accurately calculate thisexpense would fall with the claimant and anymethod that complies with the arms lengthprinciple would be acceptable.

• No additional charges are levied should there bea dispute concerning whether a transaction isproperly calculated within the tax computationsof the entity on the understanding that thedisclosure was made originally in good faith.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?Although there is no specific legislation, it isexpected that the arm’s length principle and transferpricing guidelines laid down by the OECD arefollowed.

Effective date of commencement of transferpricing regulationsThe arms length principle is enshrined in Guernseydomestic law and has been in existence since theoriginal law was enacted.

Rulings, laws and guidelinesGuernsey uses an arm’s length principle and appliesthe domestic law provisions surrounding expenseswhich require them to be incurred wholly andexclusively for the trade in order to apply a transferpricing methodology. No formal guidelines havebeen published.

Guernsey

Is transfer pricing documentation required? Ifso, what information should be included?In order to justify that an intercompany expensehas been incurred wholly and exclusively for thetrade, the claimant would need to provide (if asked)transfer pricing documentation. The transferpricing documentation should describe howtransfer prices have been determined and includeinformation which enables the tax authorities toevaluate the arm’s length nature of the transactions.

What are the deadlines for documentationpreparation?The burden of proof will rest with the taxpayer todemonstrate that the transfer prices have beencalculated at arm’s length. Although at the time ofthe transaction it is not mandatory to produce anyformal documentation the taxpayer should be able,within a reasonable time, to provide suchinformation as to justify the charge made.

In which language should documentation befiled?English

How long is it necessary to keep transferpricing documentation?Transfer pricing documentation should be kept forat least seven years.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?No separate or formal disclosures are required.

Which transfer pricing methods are acceptable?Taxpayers are free to choose any OECD recognisedtransfer pricing method as long as the methodresults in an arm’s length pricing for the transaction.Taxpayers are not obliged to test all OECDrecognised methods, though they must substantiatethe method chosen.

Is there a priority among the acceptablemethods?There is no priority among the acceptable methodsas long as the result is at arm’s length.

What is the statute of limitations on assessmentof transfer pricing adjustments?Transfer pricing adjustments can be assessed sixyears from the tax year-end plus any extensionsprovided by the Guernsey tax authorities forregistering appeals. Should negligence or fraud beproved then there is no time limitation.

26 Global transfer pricing guide – Guernsey

What rates and conditions apply for transferpricing penalties? And is there penalty relief?There are no specific transfer pricing penalties orrates.

Are there exemptions to Transfer Pricing rulesin your country? All tax returns are required to comply with theprinciple that all expenses claimed for tax purposeshave been incurred wholly and exclusively for thetrade.

Are advance pricing agreement (APA) optionsavailable?Should it be required for a transaction then it ispossible to obtain an APA. Pre-filing meetings canbe organised with the Guernsey tax authorities inorder to discuss the case before a formal APArequest is made.

Tax audit areasConnected party transactions are a high risk area inany tax audit. The Guernsey tax authorities wouldfocus on the following areas: loss making routinefunctions, transfer of intellectual property/royalties,transactions with permanent establishments, headoffice activities, principal structures (includingcentralised functions and purchase offices), businessreorganisations, captives and financial transactions.

Contact usFor further information on transfer pricing in Guernsey pleasecontact: Mark ColverT +44 (0)1481 753 400E [email protected]

Global transfer pricing guide – Guernsey 27

28 Global transfer pricing guide – Guernsey

Global transfer pricing guide – Hungary 29




DocumentationCompulsory


Audit riskHigh

PenaltiesHigh


Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The arm’s length principle and transfer pricingdocumentation requirements are enacted in article18 of the Hungarian corporate income tax act andthe 22/2009 ministry of finance decree. In general,Hungary follows OECD guidelines.

Effective date of commencement of transferpricing regulationsTransfer pricing regulations are effective since 1992in Hungary. Transfer pricing documentationrequirements are effective since 2003.

Rulings, laws and guidelinesThe 22/2009 ministry of finance’s decree providesdetailed information on the requirements of theHungarian tax authorities referring to transferpricing documentation.

Is transfer pricing documentation required? Ifso, what information should be included?Taxpayers are obliged to prepare transfer pricingdocumentation and to keep it in their accountingrecords. Taxpayers have the right to choose whetherthey use the combined documentation (master fileand country specific file) or the separate countryspecific documentation. The transfer pricingdocumentation should describe how transfer priceshave been determined and include informationwhich enable the tax authorities to evaluate thearm’s length nature of the transactions. Thereforethe documentation must contain businessdescription, organisational structure, functionalanalysis (including risk), industry analysis,contractual terms and conditions of thetransactions, information on the intercompanytransactions, benchmarking, substantiation oftransfer pricing method and prices actually charged.

Hungary

What are the deadlines for documentationpreparation?The documentation must be prepared by the day ofsubmission of the annual corporate income tax. Ifthe documentation is not available upon request ofthe tax authorities in a tax audit, the taxpayer ispenalised immediately.

In which language should documentation befiled?Transfer pricing documentation can be filed eitherin Hungarian or any other foreign language. If thedocumentation is in a foreign language, the taxauthorities have the right to ask for a Hungariantranslation at the taxpayer’s expense.

How long is it necessary to keep transferpricing documentation?Transfer pricing documentation should be kept forfive years from the last day of the year when theCIT return was submitted, which is the limitationperiod for taxes.

Are intercompany agreements recommended?It is highly recommended that taxpayers documenttheir intercompany transactions in writtenintercompany agreements.

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Hungarian corporate income taxpayers need tomark in their annual tax returns whether they havechosen the country specific documentation or thecombined documentation. The documentation itselfdoes not need to be submitted together with theannual corporate income tax return.

The taxpayer must report related partycompanies to the tax authority having executedtheir first contract with that party within 15 days.

Which transfer pricing methods are acceptable?The corporate income tax act lists the acceptablemethods as follows: comparative price, resale price,cost and income, transactional net margin,transactional profit split and any other method ifthe fair market price cannot be determined byeither of the before mentioned methods. Taxpayershave the possibility to choose from each thesemethods.

Is there a priority among the acceptablemethods?There is no priority among the acceptable methodsas long as the result is at arm’s length. Howevertaxpayers must declare in the transfer pricingdocumentation, why they have chosen othermethods instead of the five named methods.

What is the statute of limitations on assessmentof transfer pricing adjustments?Transfer pricing adjustments can be assessed fiveyears from the end of the year when the annual taxreturn should have been submitted.

30 Global transfer pricing guide – Hungary

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Those taxpayers, who fail to comply with theobligation of keeping records related to thedetermination of the arm’s length price, may besanctioned by a default penalty of two millionHUF per each documentation for the first time andfour million HUF per each documentation, if theinfringement of the obligation is committedrepeatedly. If the taxpayer further on does not meetthe obligation, the maximum amount of the penaltyis eight times the amount of default penaltyimposed on the taxpayer in the first case. The taxauthorities also adjust the tax base of the taxpayerwith the difference of the market level and thetransfer price and also levy a default penalty, whichis the 50% of the tax lack and late penalty interest isalso charged.

Are there exemptions to Transfer Pricing rulesin your country? Small enterprises are not obliged to prepare transferpricing documentation, but they are obliged to beable to prove that the prices applied are arm’s lengthprices. No transfer pricing documentation isrequired on transactions where the value is under50 million HUF in the current year from thestarting date of transaction. There is also no transferpricing documentation required in case ofrecharging, in unchanged amounts, or the costs ofservices or goods supplied is not within the scope ofthe main activity of the affiliated company. Thisexemption is subject to the condition that neitherthe company providing the service nor the supplierof the goods is in affiliated company relationshipwith any of the related parties.

Are advance pricing agreement (APA) optionsavailable?Unilateral, bilateral and multilateral APAs areavailable. The resolution is valid for a specific term,minimum of three and maximum of five years.Before submitting APA consultation can beorganised with the tax authorities. The outcome ofsuch prior negotiations shall not be binding uponthe applicant or upon the competent authority inthe proceedings for determining arm’s length price.

The fee of APA is:• minimum 500 thousand HUF and maximum

five million HUF for unilateral proceedings,where fair market price is established by themethod of comparative prices, by the method ofresale prices or by the cost and income method

• minimum two and maximum seven millionHUF for unilateral proceedings, where fairmarket price is established by any method otherthan mentioned in point a)

• minimum three and maximum eight millionHUF for bilateral proceedings

• minimum five and maximum ten million HUFfor multilateral proceedings.

If fair market price (price range) cannot bedetermined as a specific sum, the fee shall equal thefee minimum, depending on the type ofproceedings.

Global transfer pricing guide – Hungary 31

Tax audit areasTransfer pricing is a high risk area. Existence oftransfer pricing documentation is always checked ina tax audit. In a tax audit not only the existence ofthe document, but the prices are also checked inincreasing volume.

Contact usFor further information on transfer pricing in Hungary pleasecontact:Waltraud KörblerT +36 1 4552000E [email protected]

32 Global transfer pricing guide – Hungary

Global transfer pricing guide – India 33

India

Regulatory snapshotOverviewWhen did transfer pricing rules start?1 April 2001





Audit riskHigh

PenaltiesHigh


Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The 2001 finance act, introduced transfer pricinglaw in India through sections 92A to 92F of theIndian income tax Act, 1961) and rules 10A to 10Eof the 1962 Indian income tax rules (the rules),which guides computation of the transfer price andsuggests detailed documentation procedures.Transfer Pricing Regulations (TPRs) are applicableto all enterprises that enter into an ‘internationaltransaction’ with an ‘associated enterprise’.Therefore, generally it applies to all cross bordertransactions entered into between related parties.‘Related parties’ is exhaustively defined and doesnot only includes shareholdings of more than 26%,but also other criteria resulting in control andmanagement, which are explicitly defined.

The 2012 finance act expanded the scope ofTPRs by insertion of a new section 92BA in the1961 Indian income tax act, to include specifieddomestic transactions (SDTs). SDTs would include,transactions entered into by domestic relatedparties, or by an undertaking with anotherundertaking of the same tax payer. However, thethreshold for this to trigger is INR 50 million(approximately USD 1 million).

When examining transfer pricing issues, Indiafollows the arm’s length principle in determiningthe price of transactions between related parties.OECD guidelines are used for guidance purposesonly.

Effective date of commencement of transferpricing regulationsIn India, TPRs are effective for all accountingperiods ending on or after 31 March 2002.

Rulings, laws and guidelinesThe transfer pricing legislation contained in the2001 finance act is found in section 92 of the Indianincome tax act and rules 10A to 10E of the Indianincome tax rules.

Is transfer pricing documentation required? Ifso, what information should be included?The burden of demonstrating the arm’s lengthnature of the international transactions rests withthe taxpayer. Rule 10D of the 1962 Indian incometax act, prescribes thirteen mandatory documents inthis regard and requires the taxpayer to maintaindocumentation contemporaneously. Some of therequirements are general in nature while others aremore specific to the relevant internationaltransactions. This includes:

Principal documentation • business and group’s overview (description of

the ownership structure, business of the groupetc.)

• description of international transactions�• functional asset and risk analysis• selection and application of the most

appropriate method• benchmarking and identification of comparables• other supporting details/documents which help

in demonstrating the arm’s length nature oftransaction.

Supporting documentation – the informationwould need to be supported by authenticdocumentation• official publications and databases from the

government of the country of residence of theassociated enterprise or any other country

• market research studies brought out byinstitutions of national and international repute

• price publications, including stock exchange andcommodity market quotations

• published accounts and financial statements,agreements and contracts between theassociated enterprises.

Information is required to be maintained bytaxpayers who enter into international related partytransactions that are valued at more than INR 10million.

What are the deadlines for documentationpreparation?The information and documentation specifiedshould, as far as possible, be contemporaneous andexist by the specified date of the filing of the incometax return, which is 30 November following the endof the financial year.

In which language should documentation befiled?Transfer pricing documentation needs to be filed inEnglish.

How long is it necessary to keep transferpricing documentation?Transfer pricing documentation should be kept andmaintained for at least eight years from the end ofthe relevant assessment year.

34 Global transfer pricing guide – India


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?The taxpayer is required to file an accountantsreport in ‘form 3CEB’ with the income taxdepartment within the due date of filing the returnof income which, presently, is 30 Novemberfollowing the end of the financial year, for taxpayerssubject to transfer pricing. The report providesdetails on the international related partytransactions and provides a confirmation of theaccountant on whether the required documentationhas been maintained by the taxpayer.

Which transfer pricing methods are acceptable?The arm’s length price in relation to an internationaltransaction is required to be determined by any ofthe following methods: comparable uncontrolledprice (CUP), resale price, cost plus, profit split,transactional net margin and the other specifiedmethod.

Recently, the Central Board of Direct Taxes(CBDT) clarified the other method by saying “fordetermination of the arms’ length price in relationto an international transaction shall be any methodwhich takes into account the price which has beencharged or paid, or would have been charged orpaid, for the same or similar uncontrolledtransaction, with or between non-associatedenterprises, under similar circumstances,considering all the relevant facts”. The othermethod or the sixth method is effective from 1April 2012 i.e. from FY 11-12 onwards.

Is there a priority among the acceptablemethods?There is no priority among the acceptable methodsas long as the result is at arm’s length. The mostappropriate method will be the method which isbest suited to the facts and circumstances of eachparticular international transaction, and whichprovides the most reliable measure of an arm’slength price in relation to an internationaltransaction.

What is the statute of limitations on assessmentof transfer pricing adjustments?As per the 2012 finance act, effective 1 July 2012,the transfer pricing audit order is to be passedwithin three years from the end of the year inwhich the return is filed.

An appeal against the order of the transferpricing audit lies with the appeals commissionerand further appeals lie with tribunal, high court andsupreme court respectively. Effective from 1October 2009, a dispute resolution panel (DRP) isconstituted for speedy resolutions of disputesinvolving foreign companies or companies withtransfer pricing dispute. The DRP is an alternate tothe appeals commissioner and a direct route toreach the tribunal should the disputes continue.

Global transfer pricing guide – India 35

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Indian TPRs prescribes onerous penalconsequences in the event of non-compliance withdocumentation and other obligations set out thereunder. The penal provisions are summarised below.

Are there exemptions to Transfer Pricing rulesin your country? No there are no exemptions to transfer pricingrules.

Are advance pricing agreement (APA) optionsavailable?APA provisions are recently introduced by way ofsections 92CC and 92CD in the 1962 income taxact. Following are the key highlights of the APAprovisions:• available to all taxpayers falling within the ambit

of Indian TP legislation, no threshold limit isprescribed

• APAs to be entered by the CBDT with theapproval of the central government

• the APA can be applied for a consecutive periodof five previous years

• the APA has a binding force only on thetaxpayer with whom it is signed and, withrespect to the relevant international transaction,vis-à-vis the jurisdictional commissioner ofincome tax.

The detailed rules for APA are awaited which mayclarify on various procedural aspects like theapplication, fees, threshold etc.

Tax audit areasTransfer pricing is a high risk area. Transfer pricingis a key issue in any tax audit. The income taxauthorities especially focus on the following areas:captive service providers earning low margins,intellectual property (IP) transactions (transfer ofIP, royalties), management fees, loss makingentities, share transfers, corporate guarantees andfinancing and reimbursements. The scrutiny ismandatory for all companies on a yearly basis withthe special transfer pricing cell, wherein transactionvalue exceeds INR 150 million. Lower than thisvalue is scrutinised by the regular assessing officeron a case by case basis.

Contact usFor further information on transfer pricing in India please contact:Karishma R. PhatarphekarT +91 22 5695 4861E [email protected]

36 Global transfer pricing guide – India

Default Penalty Section of TPRsFailure in maintaining documentation 2% of the value of each international transaction 271AA

Failure to report any international transaction 2% of the value of each international transaction 271AA

Maintains or furnishes any incorrect information 2% of the value of each international transaction 271AA

or documents

Failure in producing the relevant documents to the 2% of the value of each transaction for which documents 271G

transfer pricing officer cannot be furnished

Failure to file accountant’s report within the due INR 100,000 271BA

date (form 3CEB)

Concealment of income in the event of wilful 100% – 300% of amount of tax sought to be evaded 271(1)(c)(iii) read

manipulation of price along with explanation 7

Global transfer pricing guide – Ireland 37

Ireland



Return disclosureNo – but upon filing corporation tax returns, the company must be

satisfied that all transfer pricing legislation is complied with

DocumentationCompulsory where a company cannot avail of the SME exemption


Audit riskMedium

PenaltiesHigh to medium

Advance Pricing Agreements (APAs)Not available

• As part of 2010 Finance Act, Ireland introducedtransfer pricing legislation in respect of tradingtransactions, which endorses the OECDguidelines for multinational enterprises and taxadministrations and adopts the arm’s lengthprinciple.

• The rules regarding transfer pricing in Irelandare outlined in Sections 835A to 835H of theTaxes Consolidation Act 1997 (TCA) (the newrules apply to accounting periods beginning onor after 1 January 2011). Only newarrangements entered into on, or after 1 July2010 are affected. Contracts or arrangements inplace before that time are not affected where theterms of the agreement are ‘grandfathered’, i.e.agreed before 1 July 2010.

• The legislation obliges a person/companyinvolved in a transaction, which is within thescope of the transfer pricing legislation, to haverecords/documentation available that mayreasonably be required for the purposes ofdetermining whether the income of thatperson/company has been computed at arm’slength.

• There are exemptions from these rules for smalland medium entities (SMEs) where a companyhas fewer than 250 employees and eitherturnover of less than €50million or assets of lessthan €43million on a group basis.

• There is no separate statutory regime fortransfer pricing penalties. However, normalpenalties which apply to the Irish self–assessment regime may apply.

• There is no priority among the acceptablemethods as long as the result is at arm’s length.To establish an arm’s length price, the OECDguidelines will be referenced.

• Ireland does not have a formal APA procedurefor Irish companies to agree prices with theIrish tax authorities for international relatedparty transactions.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?Section 835C of the TCA sets out the main transferpricing rules. The legislation endorses the OECDguidelines for multinational enterprises and taxadministrations and adopts the arm’s lengthprinciple. The tax authority’s application of therules in relation to documentation will accept boththe ‘EU transfer pricing documentation’ guidanceand Chapter V of the OECD guidelines (theOECD rules only apply insofar as they relate totrading transactions). There are also certain revenueguideline issues in respect of Irish transfer pricingand in particular, a number of e-briefs and revenuenotes.

Effective date of commencement of transferpricing regulationsTransfer pricing regulations apply to accountingperiods of companies beginning on or after 1January 2011. Only new arrangements entered intoon, or after 1 July 2010 are affected. Contracts orarrangements in place before that time are notaffected.

Rulings, laws and guidelinesThe rules regarding transfer pricing in Ireland areoutlined in Sections 835A to 835H of the TCA. The principles in the OECD guidelines formultinational enterprises and tax administrationsmust be followed when analysing whether atransaction has been entered into at arm’s length.

Is transfer pricing documentation required? Ifso, what information should be included?The legislation obliges a person involved in atransaction, which is within the scope of thetransfer pricing legislation, to have records availablethat may reasonably be required for the purposes ofdetermining whether the income of that person hasbeen computed at arm’s length. The documentationmust be sufficient to demonstrate a company’scompliance with the transfer pricing rules. Thedocumentation is required to contain the following: • the associated persons that are party to the

transaction• the nature and terms of the transaction• the terms of relevant transactions with both

third-parties and associates• the method or methods by which the pricing of

the transactions were derived• the application of the transfer pricing method

and any budgets• forecasts or other relevant papers relied on in

arriving at an arm’s length result.

Revenue have indicated that the compliancemonitoring programme will begin with transferpricing compliance reviews. These reviews may, at alater date, progress to full transfer pricing audits. Aspart of this self-review process, the following willgenerally be requested/reviewed:• the group structure• details of categories and types of related party

transactions• pricing structure and transfer pricing

methodology used• summary of functions, assets and risks of

relevant parties• summary list of relevant documentation

available and reviewed• details of the basis on which the arm’s length

principle is satisfied.

38 Global transfer pricing guide – Ireland

What are the deadlines for documentationpreparation?Documentation must be available for transactionsthat take place in accounting periods beginning onor after 1 January 2011. It is best practice that thedocumentation is prepared at the time the terms ofthe transaction are agreed. It is also considered bestpractice that the documentation exists at the time offiling the tax return, so that the company is in aposition to make a correct and complete return.

The documentation requirements do not applyto a transaction, the terms of which were agreedbefore 1 July 2010, if:• the terms of the agreement clearly envisage the

transaction• application of these terms delivers the price of

the transaction• an agreement to enter into a further agreement

would not meet these conditions.

However, intercompany arrangements that wereagreed prior to 1 July 2010, and that are re-negotiated and re-signed after 1 July 2010, arewithin the scope of the rules, i.e. they would nolonger continue to be grandfathered.

In which language should documentation befiled?Transfer pricing documentation must be filed eitherin English or Irish, with the Irish tax authorities.The documentation does not need to be prepared orkept in Ireland, but must be in a language of thestate, i.e. English or Irish.

How long is it necessary to keep transferpricing documentation?The legislation does not provide a specific timeperiod. However, guidance notes indicate that acompany is required to have transfer pricingdocumentation available for inspection if requestedby the Irish tax authorities. At a minimum, itshould be retained for six years but it would berecommend to be retained for a longer period.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?There are currently no requirements on returndisclosures or related party disclosures.

Which transfer pricing methods are acceptable?Section 835D(2) provides that the basic transferpricing rules are to be interpreted in accordancewith the OECD guidelines and the guidancecontained within on the determination of the mostappropriate method (which includes the transactionmethods (comparable uncontrolled price, resaleprice, and cost plus) and the profit-based methods(profit split, transactional net margin method)).

Is there a priority among the acceptablemethods?There is no priority among the acceptable methodsas long as the result is at arm’s length. To establishan arm’s length price, the OECD guidelines will bereferenced. Transfer prices should be reviewed atregular intervals to determine that pricing remainsat arm’s length.

Global transfer pricing guide – Ireland 39

What is the statute of limitations on assessmentof transfer pricing adjustments?The statute of limitations is currently four yearsafter the end of the tax year or the accountingperiod in which the return is made.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Part 35A of the TCA does not contain any specificpenalty provisions with respect to a transfer pricingadjustment. In the absence of specific penaltyprovisions being included, the Irish tax authoritieshave indicated that the general corporate taxpenalty provisions and the ‘Code of Practice’ willapply to assessments raised due to transfer pricingadjustments under the new transfer pricing rules.Under the general corporate tax penalty provisions,interest arises on underpaid tax at a daily rate of0.0219%, which is circa 8% per annum.

Are there exemptions to Transfer Pricing rulesin your country? The law provides for an exemption from applyingthe transfer pricing rules where a company is aSME. Section 835E(2) defines a SME, a companywith fewer than 250 employees; and either aturnover of €50 million or less, or a balance sheettotal of €43 million or less, on a group basis. Thebalance sheet total means total assets and should notbe taken as net of any liabilities.

Are advance pricing agreement (APA) optionsavailable?Ireland does not have a formal APA procedure forIrish companies to agree prices with the Irish taxauthorities for international related partytransactions. However, the Irish tax authorities havebeen willing to negotiate and conclude bilateralAPAs with treaty partners, and they are generallywilling to consider entering such negotiations oncea case has been successfully accepted into the APAprogramme of the other jurisdiction.

Tax audit areasTransfer pricing is a medium risk area and is a keyissue in any tax audit. However there are notconsidered to be particular related partytransactions or industry sectors that could beregarded as facing a higher-than-normal risk of atransfer pricing enquiry from the Irish taxauthorities. To the extent profits are being shiftedfrom Ireland to a haven or lower tax countries,transfer pricing may be a risk area. It should benoted that under Irish legislation, revenue will onlyadjust profits upwards, i.e. it is a one wayadjustment process.

Contact usFor further information on transfer pricing in Ireland pleasecontact: Peter ValeT +353 (0)1 680 5952E [email protected]

40 Global transfer pricing guide – Ireland

Global transfer pricing guide – Italy 41

Italy

Regulatory snapshotOverviewWhen did transfer pricing rules start?1973 – arm’s length principle

2003 – advance pricing agreements (APAs)

2010 – documentation

Level of TPUnder development




Audit riskHigh

PenaltiesHigh


• The transfer pricing (TP) rules in force in Italyare the following:– article 110, paragraph 7 of the Italian tax

code (Presidential decree no. 917/1986)– article 9, paragraph 3 of the Italian tax code

(Presidential decree no. 917/1986)– article 1, paragraph 2 of legislative decree no.

471/1997– article 8 of law decree no. 269/2003– measure of the Italian revenue office director

dated 29 September 2010. The measuremakes reference both to EU code of conductand to OECD guidelines 2010 on TPdocumentation for associated enterprises inthe EU, approved by resolution2006/c176/01 of 27 June 2006 from the EUcouncil and government representatives ofmember states

– 58/E. The letter makes direct reference tothe OECD Transfer Pricing Guidelines forMultinational Enterprises and TaxAdministrations, approved by the OECDCouncil on 22 July 2010.

• TP documentation is not mandatory fortaxpayers. The measure adopted by the Italiantax authorities’ director provides informationabout the type of documentation requested (i.e.master file or country file) and about itsstructure.

• TP documentation is drawn up to provideevidence of the arm’s length nature of ataxpayer’s TP policy. Furthermore, by draftingthe TP documentation, taxpayers can takeadvantage of penalty protections in case of taxassessment.

• TP documentation must be filed electronicallywith the tax authorities, in Italian, within tendays after the tax authorities’ request.

• TP documentation must be drafted on a yearlybasis but for SMEs , which are entitled not toupdate the benchmark analysis for the twotaxable periods following the one thedocumentation relates to, in case thecomparability analysis do not incur substantialchanges during the above taxable periods.

1 SME is defined according to quantitative limits provided for the Italian Tax

Authorities Director’s measure adopted on 29 September 2010. Please

note that holding and sub-holding companies may not qualify as SME’s.

• TP documentation must disclose all theintercompany transactions, without anythreshold.

• Italy applies the ‘best method approach’ forconducting TP analysis. Taxpayers are free tochoose any OECD recognised TP method, aslong as the method results in an arm’s lengthpricing of the transaction.

• TP is a high risk area, since it is a key issue inany tax audit. According to article 1 oflegislative decree no. 471/1997, the applicableadministrative penalties range from 100% to200% of the higher tax or credit differenceassessed. As said above, an appropriate TPdocumentation could lead to the non-applicability of penalties.

• Unilateral and bilateral APAs are available.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The arm’s length principle is contained in article110, of the Italian tax code, while TPdocumentation requirements about its structureand contents are contained in the measure of theItalian revenue office. In general, Italy follows theOECD guidelines for the other TP methods.

Effective date of commencement of transferpricing regulationsThe TP regulations are effective in Italy since 1973(presidential decree no. 597/1973) with regard tothe arm’s length principle. In 2003 the APAregulation was enacted, while it was not until 2010that regulation concerning the TP documentationwas introduced.

Taxpayers that prepared the TP documentationrelating to taxable years prior to 2010 couldcommunicate the possession of such documentationto the Italian tax authorities to take advantage ofpenalty protection in case of tax assessment.

Rulings, laws and guidelines• article 110, paragraph 7 of the Italian tax code

(presidential decree no. 917/1986)• article 9, paragraph 3 of the Italian tax code

(presidential decree no. 917/1986)• article 1, paragraph 2-ter of legislative decree no.

471/1997• article 8 of law decree no. 269/2003• measure of the Italian revenue office director

dated 29 September 2010. The measure makesreference both to EU code of conduct and toOECD guidelines 2010 on TP documentationfor associated enterprises in the EuropeanUnion (EU), approved by resolution2006/c176/01 of 27 June 2006 from the EUcouncil and government representatives ofmember states

• Circular letter dated 5 December 2010 n. 58/E.The letter makes direct reference to the OECDTP guidelines for multinational enterprises andtax administrations, approved by the OECDcouncil on 22 July 2010.

Is transfer pricing documentation required? Ifso, what information should be included?The TP documentation is not mandatory. Iftaxpayers decide to prepare the documentation,they are obliged to keep it in their records and showit to the tax authorities if requested by the taxauthority. The TP documentation should describehow transfer prices were/are determined andinclude information that enable the tax authoritiesto evaluate the arm’s length nature of thetransactions.

The measure of the Italian tax authoritiesdirector provides for two different kinds ofdocumentation:• a masterfile, for holding and sub-holding

companies• country-specific documentation, for holding

and sub-holding companies and for those Italiansubsidiaries that are part of a foreignmultinational group.

42 Global transfer pricing guide – Italy

Furthermore, the abovementioned measureprovides the specific structure and content of saiddocumentation. The documentation has to conveythe following information: business description,organisational structure, industry analysis,functional (including risk) analysis, information onintercompany transactions, contractual terms andconditions of the transactions, benchmark analysis,TP method adopted and prices actually charged. Inlieu of a sub-holding masterfile for the measure, themasterfile regarding the entire multinational groupcan be adopted, even though it is prepared by ataxpayer resident in another state member of theEU, subject to the condition that it is consistentwith the code of conduct.

What are the deadlines for documentationpreparation?The possession of the TP documentation must bedeclared when the company files its annual taxreturn. In case of a tax authorities’ request, thetaxpayer has ten days to provide suchdocumentation. If supplementary information isneeded in addition to the information included inthe documentation already submitted to the taxauthorities, then this supplementary informationmust be provided within seven days from therequest or in a longer time period depending on thecomplexity of the TP transactions under analysis.

In which language should documentation befiled?TP documentation must be filed in Italian, with thesole exception of the Masterfile that, in somespecific cases (namely, in case of a subholding), canbe kept in English, the sole foreign language that isaccepted by the authorities.

How long is it necessary to keep transferpricing documentation?According to article 43 of the presidential decreeno. 600/1973, taxpayers must keep the TPdocumentation for all the years potentially subjectto tax audit, usually five years.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Corporate income taxpayers are required to specifyin their annual tax returns whether they have beeninvolved in related party transactions or not,showing the total amount of intercompanyrevenues and costs, as well as whether they possessthe documentation for that year. Furthermore,should the taxpayer be controlled by a non-residentcompany or control, in turn, a non-residentcompany, the information has to provided.

Which transfer pricing methods are acceptable?Taxpayers are free to choose any OECD recognisedtransfer pricing method as long as the methodresults in an arm’s length pricing of the transaction.Taxpayers are not obliged to test all OECDrecognised methods, though they must substantiatethe method chosen.

Is there a priority among the acceptablemethods?The selection of a TP method always aims atfinding the most appropriate method for eachparticular case. This does not mean that all the TPmethods should be analysed in depth or tested ineach case in arriving at the selection of the mostappropriate method. It is important to highlightthat where the comparable uncontrolled pricemethod (CUP) and another transfer pricing methodcan be applied in an equally reliable manner, theCUP method is to be preferred. In the case thelatter should not be applied, it should be explainedthe reason of the exclusion.

What is the statute of limitations on assessmentof transfer pricing adjustments?

TP adjustments can be assessed five years fromthe tax year-end. This term is doubled during a taxassessment when the tax authorities contest‘criminally relevant conduct’.

Global transfer pricing guide – Italy 43

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Whenever the documentation formally complieswith the proper structure required by the law butthe content and information reported in thedocument are incomplete or not compliant with theprovisions set forth by the measure or theinformation given in the document are not fullyaccurate or only partially true, the tax authoritiesare entitled to levy penalties higher than normal,taking into account the taxpayer’s conduct.

According to article 1 of legislative decree no.471/1997 administrative penalties are applicablefrom 100% to 200% of the higher tax or creditdifference assessed. As said above, an appropriateTP documentation could lead to the non-applicability of penalties.

Are there exemptions to Transfer Pricing rulesin your country? N/A

Are advance pricing agreement (APA) optionsavailable?Unilateral and bilateral APAs are available.

In particular, the unilateral APAs were enactedwith a revenue office director’s measure on 23 July2003. With regard to the bilateral APAs, no specificprovisions are contained in Italian domestic law.Reference is made to article 25 of OECD model taxtreaty and commentary, the OECD guidelines, withparticular reference to chapter four, annex four, andto the other documents elaborated by the OECD.Pre-filing meetings can be organised with the Italiantax authorities in order to discuss the case before aformal APA request is made.

Tax audit areasTransfer pricing is a high risk area. Transfer pricingis a key issue in any tax audit. The Italian taxauthorities especially focus on the following areas:loss making routine functions, Intellectual property(IP) transactions (transfer of IP, royalties),transactions with tax havens, transactions withpermanent establishments, head office activities,principal structures (including centralised functionsand purchase offices), business reorganisations,captives and financial transactions.

Contact usFor further information on transfer pricing in Italy please contact:Paolo BesioT +39 02 76 00 87 51E [email protected]

44 Global transfer pricing guide – Italy

Global transfer pricing guide – Japan 45


Level of TPHigh level


DocumentationHighly recommended


Audit riskMedium-high

PenaltiesNo specific penalty


Does your country have transfer pricing rulesvs. ruling, laws and guidelines?As a member state of the OECD, Japan’s transferpricing rules are consistent with the OECD’stransfer pricing guidelines, and Japan’s rulesconsider consistency with OECD guidelines duringaudits and assessments.

The Special Taxation Measures Law (STML),enacted in 1986, remains the central transfer pricinglegislation in Japan. Under STML 66-4, atransaction between a domestic or foreigncorporation and a foreign related person not pricedin accordance with the arms-length principle will bedeemed to occur at an arms-length price forcorporate tax purposes.

Effective date of commencement of transferpricing regulationsTransfer pricing regulations have been effective inJapan since 1986.

Rulings, laws and guidelinesBesides legally binding articles of the STML, otherkey transfer pricing regulations include the STMLenforcement order 39-12 and enforcementregulations 22-10, respectively laying out detailedrules on foreign related persons and transfer pricingmethods, and the transfer pricing informationcorporations are required to report annually onschedule 17(4) of the corporate tax return.

The STML circular provides further guidanceon control relationships, comparables, and transferpricing methods. The National Tax Agency (NTA)commissioner’s directive on the ‘Establishment ofinstructions for the administration of transferpricing matters’ (the administrative guidelines)outlines the various transfer pricing administrativeprocedures.

Japan

Is transfer pricing documentation required? Ifso, what information should be included?Taxpayers are required to disclose informationabout foreign affiliates and related partytransactions on schedule 17-4 as part of the annualcorporate tax filing.

In addition to this annual filing requirement,taxpayers are required to provide transfer pricingdocuments in response to a request from Japan’sNTA in the case of a transfer pricing or corporatetax audit as follows:

Documents associated with the intercompanytransactions:• a list of assets and description of services• functions performed and risks assumed by the

taxpayer and related parties• details on the intangible fixed assets and other

intangible assets used by the taxpayer or relatedparties

• contracts or documents containing the contentof the contracts

• pricing policy and details of price negotiationsbetween the taxpayer and related parties

• profits and losses of the taxpayer and relatedparties with respect to the intercompanytransactions (segmented financials)

• market analysis and related information• business strategies of the taxpayer and related

parties• details on other transactions that are closely

associated with the intercompany transactions,if any.

Documents including the below information usedby the taxpayer to calculate arm’s length price:• the selected method for calculating the arm’s

length price specified in the regulations, reasonsfor the selection, and any other documentsprepared by the taxpayer in calculating thearm’s length price

• the comparable transactions selection processand details of comparable transactions adoptedby the taxpayer

• if the profit split method was applied incalculating the arm’s length price, documentscontaining details of the calculation of profitsattributed

• in cases when the taxpayer aggregated multipletransactions into one to calculate arm’s lengthprice, documents containing details of each ofthe transactions aggregated and justification forthe aggregation

• in cases when adjustments were made tocomparable transactions, documents containingthe adjustment method and reasons foradjustments.

What are the deadlines for documentationpreparation?In a ‘timely manner’, documents are required to besubmitted to the tax authorities in order to evaluatearm’s length price in transfer pricing audit.

In which language should documentation befiled?Not specified. However, Japanese is preferable. Incase that English one is submitted to tax authorities,they may request for a Japanese translation later.

46 Global transfer pricing guide – Japan

How long is it necessary to keep transferpricing documentation?Not specified. Since the statute of limitation is sixyears then it should be kept for at least six years.

Are intercompany agreements recommended?Taxpayers are required to submit intercompanyagreements at the time of examination. Withoutsubmission of such agreements, the tax authoritywill be doubtful of the transactions reality.

Which transfer pricing methods are acceptable?Arm’s length price is calculated by the use of one ofthe following methods: comparable uncontrolledpricing (CUP), resale price, cost plus, profit split,transactional net margin and equivalent methods.

Is there a priority among the acceptablemethods?From the above methods, the most appropriatemethod should be selected, considering the factsand circumstances of each controlled transaction,including functions performed and risk assumed.

What is the statute of limitations on assessmentof transfer pricing adjustments?A transfer pricing assessment may go back sixyears, one year longer than what is allowed forcorporate tax assessments.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Corporate tax penalties and interest are applicableto transfer pricing assessments. For taxunderpayment, a flat 10% is payable on the firstJPY 500,000 of the unpaid amount and 15% on anyadditional unpaid amount thereafter. This increasesto 35% in cases of fraud. Penalties forunderpayment are non-deductible for corporationtax purposes.

There are no additional transfer pricing-specificpenalties, but taxpayers failing to submit documentsrequested by the NTA in a timely manner may besubject to presumptive taxation or be disadvantagedby the use of ‘secret comparables’.

Are there exemptions to Transfer Pricing rulesin your country? Not specified.

Are advance pricing agreement (APA) optionsavailable?Japan’s APA system was instituted in April 1987.The APA guidelines are set out in section 5 of theadministrative guidelines. Since 2008, the NTA hasrequired that APA applications be submitted beforethe start of the fiscal year for which the APA is toapply. It is common for taxpayers to have severalinformal consultations with NTA examiners beforesubmitting an APA application. According to NTAreports, bilateral APA applications have an averageprocessing time of between two and three years.The filing of an APA application by the taxpayerdoes not stop a transfer pricing audit if alreadyunderway.

While the APA process can be long, obtaining ahigh degree of transfer pricing certainty coveringthree to five fiscal years, may provide an effectivesolution to transfer pricing risk for certaintaxpayers.

Global transfer pricing guide – Japan 47

Tax audit areasRecently, audit targets in Japan are going down tofairly large or medium size companies, but notextremely large size companies. Around ten yearsago, extremely large size companies like Honda,Takeda Pharmaceutical, Coca-Cola and so on weremain targets of Japanese transfer pricing audit. Thistrend was changed as these extremely large sizecompanies have already adopted counter-measuresfor transfer pricing risks like APA, global policy orglobal documentation and so on. It is felt thatforeign companies which have more than tenmillion US dollar sales in Japan and Japanesecompanies with more than hundred million USdollar sales in foreign countries need to seriouslyconsider the risks of a transfer pricing audit.

Transfer pricing audits can begin directlythrough questions asked by a transfer pricingexaminer or can result from questions that ariseduring a general corporate tax audit. Beforeformally undertaking a transfer pricing audit, anexaminer will typically undertake an informalinquiry to determine whether a taxpayer is anappropriate target, and if so, the examiner willfollow up more formally with a meeting orinformation request. Taxpayers failing to supplyrequested information in a timely manner, risktreatment under Japan’s ‘presumptive taxation’rules. These rules can be disadvantageous to thetaxpayer as they afford examiners broad discretionto make assessments, including the ability to applysecret comparables, and to make incomeadjustments or apply a transfer pricing methodwithout consultation or input from the taxpayer.

Contact usFor further information on transfer pricing in Japan please contact: Toshiya KimuraT +81 3 5770 8829E [email protected]

48 Global transfer pricing guide – Japan

Global transfer pricing guide – Jersey 49

Regulatory snapshotOverviewWhen did transfer pricing rules start?No TP rules


Return disclosureNo



Audit riskLow

PenaltiesLow


• Jersey has not introduced formal transferpricing rules into its domestic tax legislationhowever under certain double tax treaties, thereis provision to apply generally accepted transferpricing principles.

• There is no formal requirement to discloseintercompany transactions separately.

• Jersey uses domestic law in that all expensesmust have been incurred wholly and exclusivelyfor the purposes of trade to apply transferpricing methodology.

• Although there is no formal requirement fortransfer pricing documentation, in realityevidence will be required to justify that theexpense has been incurred wholly andexclusively for the purposes of the trade. Theoption on how to accurately calculate thisexpense would fall with the claimant and anymethod that complies with the arms lengthprinciple would be acceptable.

• No additional charges are levied, should therebe a dispute concerning whether a transaction isproperly calculated within the tax computationsof the entity on the understanding that thedisclosure was made originally in good faith.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?Although there is no specific legislation it isexpected that the arm’s length principle and transferpricing guidelines laid down by the OECD arefollowed.

Jersey

Effective date of commencement of transferpricing regulationsThe arms length principle is enshrined in Jerseydomestic law and has been in existence since theoriginal law was enacted.

Rulings, laws and guidelinesJersey uses an arm’s length principle and applies thedomestic law provisions surrounding expenseswhich require them to be incurred wholly andexclusively for the trade in order to apply a transferpricing methodology. No formal guidelines havebeen published.

Is transfer pricing documentation required? Ifso, what information should be included?In order to justify that an intercompany expensehas been incurred wholly and exclusively for thetrade, the claimant would need to provide (if asked)transfer pricing documentation. The transferpricing documentation should describe howtransfer prices have been determined and includeinformation which enables the tax authorities toevaluate the arm’s length nature of the transactions.

What are the deadlines for documentationpreparation?The burden of proof will rest with the taxpayer todemonstrate that the transfer prices have beencalculated at arm’s length. Although at the time ofthe transaction it is not mandatory to produce anyformal documentation the taxpayer should be ableto, within a reasonable time, provide suchinformation as to justify the charge made.

In which language should documentation befiled?English.

How long is it necessary to keep transferpricing documentation?Transfer pricing documentation should be kept forat least seven years.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?No separate or formal disclosures are required.

50 Global transfer pricing guide – Jersey



What is the statute of limitations on assessmentof transfer pricing adjustments?Transfer pricing adjustments can be assessed sixyears from the tax year-end plus any extensionsprovided by the Jersey tax authorities forregistering appeals. Should negligence or fraud beproved then there is no time limitation.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?There are no specific transfer pricing penalties orrates.

Are there exemptions to Transfer Pricing rulesin your country? All tax returns are required to comply with theprinciple that all expenses claimed for tax purposeshave been incurred wholly and exclusively for thetrade.

Are advance pricing agreement (APA) optionsavailable?Should certainty be required for a transaction it ispossible to obtain an APA. Pre-filing meetings canbe organised with the Jersey tax authorities in orderto discuss the case before a formal APA request ismade.taxpayers.

Tax audit areasConnected party transactions are a high risk area inany tax audit. The Jersey tax authorities wouldfocus on the following areas: loss making routinefunctions, transfer of intellectual property/royalties,transactions with permanent establishments, headoffice activities, principal structures (includingcentralised functions and purchase offices), businessreorganisations, captives and financial transactions.

Contact usFor further information on transfer pricing in Jersey please contact:John ShentonT +44 (0)1534 885 885E [email protected]

Global transfer pricing guide – Jersey 51

52 Global transfer pricing guide – Jersey

Global transfer pricing guide – Korea 53






Audit riskHigh

PenaltiesHigh


• The core transfer pricing (TP) rules werepromulgated under the Law for theCoordination of International Tax Affairs(LCITA) of Korea which is based on the arm’slength principle.

• Taxpayers with cross-border intercompanytransactions must submit certain TP firms whenfiling corporate income tax return.

• Contemporaneous TP documentation is notcompulsory.

• Best method approach is applicable forconducting TP analysis.

• Acceptable TP methods include comparableuncontrolled price (CUP), resale price, costplus, transactional net margin, profit split andother methods which comply with the arm’slength principle.

• TP audit can be targeted at any cross-borderintercompany transaction.

• Advance Pricing Agreement (APA) is available.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The TP rules in Korea are governed by the LCITAof Korea, which is based on the arm’s lengthprinciple. Before the LCITA was enacted, thecorporate income tax law of Korea governedtransfer price charged for the transactionsconducted between foreign related parties.

The LCITA, which is generally consistent withthe OECD transfer pricing guidelines, states that inintercompany transactions between foreign relatedparties, if the price is either below or above an arm’slength price, the tax authorities may determine orrecalculate taxable income and tax of the residentbased on the arm’s length price.

Effective date of commencement of transferpricing regulationsThe LCITA was enacted in 1995 and took effectfrom 1996, in an effort to conform the Korean TPregulations to internationally recognised rules.

Korea

Rulings, laws and guidelinesThe Korean tax authorities have issued relevant TPrulings since the LCITA took effect in 1996,however, these would not be legally binding.

Is transfer pricing documentation required? Ifso, what information should be included?TP documentation is not required. However,taxpayers engaged in intercompany transactionswith its foreign elated parties are generally requiredto submit (with threshold), when filing theircorporate income tax return:• the transfer pricing method selected with a brief

explanation on the reason for its selection• the statement of inter-company transactions• the summarised income statement of the foreign

related parties.

What are the deadlines for documentationpreparation?TP documentation is not compulsory. However,the Korea tax authorities may, at any time of theyear, request the taxpayer to submit relevant TPdocuments. Upon the request of the tax authorities,the taxpayer is required to submit the concernedinformation within 60 days of a request. If thetaxpayer fails to comply with the tax authorities’request for submission of the requested documents,it will be subject to the penalty up to KRW 100million (approximately US$ 90,000) for eachinstance.

In which language should documentation befiled?No specific requirement under the LCITA.However, in practice, the tax authorities generallyrequest for the submission documents to be inKorean.

How long is it necessary to keep transferpricing documentation?TP documents should be kept for at least five years.

Are intercompany agreements recommended?It would be recommendable that taxpayersdocument their intercompany transactions throughintercompany agreements.

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Taxpayers engaged in intercompany transactionswith its foreign elated party are generally requiredto submit (with a threshold), when filing thecorporate income tax return: • the transfer pricing method selected with a brief

explanation on the reason for its selection• the statement of inter-company transactions• the summarised income statement of the foreign

related parties.

54 Global transfer pricing guide – Korea

Which transfer pricing methods are acceptable?The LCITA states that an arm’s length price shouldbe calculated by the most reasonable transferpricing method given the facts and circumstances.Also, the LCITA describes several differentmethods that the taxpayer can use for TP analysis.These methods can be classified into two generalcategories: primary methods and other reasonablemethods. For the primary methods, the LCITAspecifies three methods: the comparableuncontrolled price (CUP), resale price, cost plus.On the other hand, other reasonable methods arespecified under the presidential enforcement decreeto the LCITA, which includes the profit splitmethod and the transactional net margin methods.The LCITA also permits the application of theother unspecified methods.


What is the statute of limitations on assessmentof transfer pricing adjustments?In general, TP adjustments can be assessed everyfive years.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?For TP adjustments, an underreporting penalty of10% will apply of the additional corporate tax andthe underpayment penalty of 10.95% per annum.In this regard, the underreporting penalty could bewaived if the taxpayer demonstrates an arm’s lengthnature of its TP through the mutual agreementprocedure (or the APA) or if contemporaneous TPdocumentation is maintained.

Are there exemptions to Transfer Pricing rulesin your country? Not applicable..

Are advance pricing agreement (APA) optionsavailable?Unilateral and bilateral APAs are available. Pre-filing meetings can be organised with the Koreantax authorities to discuss the case before a formalAPA request is made.

Tax audit areasTransfer pricing is a high risk area and a key issue inany tax audit for foreign invested companies andbranches of a foreign company.

Contact usFor further information on transfer pricing in Korea please contact:Dong-Bum KimT +82 2 2056 3706E [email protected]

Global transfer pricing guide – Korea 55

56 Global transfer pricing guide – Korea

Global transfer pricing guide – The Netherlands 57

Regulatory snapshotOverviewWhen did transfer pricing rules start?Yes

Return disclosureNo



Audit riskHigh

PenaltiesHigh


• the core Transfer Pricing (TP) rules werepromulgated under the decrees 2001/295m and2004/680m

• taxpayers with intercompany transactions mustprepare transfer pricing documentation

• thresholds: OECD definition (direct or indirectparticipation in management, control or capital)

• documentation is generally expected to becomplete when the taxpayer enters into atransaction. If the transfer pricingdocumentation is not available upon the taxauthority request, taxpayers are granted at leastfour weeks to prepare the documentation. Thisperiod may be extended up to three months,depending on the complexity of theintercompany transactions in which thetaxpayer is engaged

• there is no priority amongst transfer pricingmethods. Transfer pricing methods howeverhave to be motivated and to result into an arm’slength outcome

• acceptable TP methods include: ComparableUncontrolled Price (CUP), resale price, costplus, transactional net margin, profit split andother methods that comply with the arm’slength principle

• TP audits are selected based on risk assessmentsby the Dutch revenue, changes and drops inincome, business reorganisations, IntellectualProperty (IP) transactions, loans, transactionswith tax havens; captives, profit allocation topermenant establishments and centralisedpurchase companies

• in the absence of sufficient documentation, thepenalty is that the burden of proof will shiftfrom the Dutch tax authorities to the taxpayerto demonstrate that the transfer prices are atarm’s length

• transfer pricing adjustments can be subject topenalties, levy interest, withholding tax anddouble taxation

• unilateral, bilateral, multilateral, and combinedAPA/ATRs are available to all taxpayers. Aneffective APA can cover four years.

The Netherlands

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The arm’s length principle and transfer pricingdocumentation requirements are enacted in article8b of the Dutch corporate income tax act. Ingeneral, the Netherlands follows OECDguidelines1. Various decrees2 have been issued toexplain the policy and to provide guidance. Transferpricing regulations apply to all related partytransactions without a threshold in which an entitysubject to Dutch corporate income tax is involved.

Effective date of commencement of transferpricing regulationsTransfer pricing regulations are effective since 2002in the Netherlands.

Rulings, laws and guidelinesBesides legally binding articles of the Dutch tax law,several decrees provide insight into the position ofthe tax authorities without a legally binding effect.These decrees regard to general guidance on theapplication of the OECD Guidelines(IFZ2001/295M); intercompany services, valuationof intangibles, contract R&D (IFZ2004/680M);advance pricing agreements (IFZ2004/124M);financing companies (IFZ2004/126M andIFZ2004/127M); mutual agreement procedures(IFZ2008/248M); and attribution of profits topermanent establishments (IFZ2010/457M).

Is transfer pricing documentation required? Ifso, what information should be included?Taxpayers are obliged to prepare transfer pricingdocumentation and to keep it in their accountingrecords. The transfer pricing documentation shoulddescribe how transfer prices have been determinedand include information which enable the taxauthorities to evaluate the arm’s length nature of thetransactions. Parliamentary history provides thefollowing examples for the content of suchdocumentation: business description, organizationalstructure, functional (including risk) analysis,industry analysis, contractual terms and conditionsof the transactions, financial performance,information on the intercompany transactions,substantiation of transfer pricing method and pricesactually charged.

58 Global transfer pricing guide – The Netherlands


Administrations, 1995 and subsequent updates

2 APA decree, IFZ2004/124M; ATR decree, IFZ2004/125M; Decree

regarding financial service activities, IFZ2004/126M; Questions and

answers on the decree regarding service entities and grandfather regime

ruling policy, IFZ2004/127M; Decree on advance certainty and good faith

versus treaty partners, DGB2004/1337M; Decree on APAs, advance tax

rulings (ATRs), financial services entities, interposed holdings, contact point

potential foreign investors, organization and competency rules,

DGB2004/1338M; Implementation decree regarding the Coordination

Group Transfer Pricing, DGB2004/1339M; Adjustments to the transfer

pricing decree of 30 March 2001, application of the arm’s length principle

and the OECD guidelines, IFZ2004/680M; Accelerated Mutual Agreement

Procedure decree, IFZ2008/248M decree on profit allocation to

permanent establishments (PEs), IFZ2010/457M.

What are the deadlines for documentationpreparation?The documentation should be available at the timewhen the company enters into a transaction. Absent(sufficient) documentation the burden of proof willshift from the Dutch tax authorities to the taxpayerto demonstrate that the transfer prices are at arm’s-length. However, if the documentation is notavailable upon request of the tax authorities, thetaxpayer has four weeks to prepare suchdocumentation. This period can be extended tothree months depending on the complexity of theintercompany transactions.

In which language should documentation befiled?Transfer pricing documentation can be filed eitherin Dutch or in English at the Dutch tax authorities.

How long is it necessary to keep transferpricing documentation?Transfer pricing documentation should be kept forat least 7 years. In case of international transactions,it is recommended to keep documentation for 12years.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Dutch corporate income taxpayers are need tospecify annually in their annual tax returns whetherthey have been involved in related partytransactions. The specific transactions needs to bedetailed in the corporate income tax return.

Which transfer pricing methods are acceptable?Taxpayers are free to choose any OECDrecognized transfer pricing method as long as themethod results in an arm’s length pricing for thetransaction. Taxpayers are not obliged to test allOECD recognized methods, though they mustsubstantiate the method chosen.

Is there a priority among the acceptablemethods?There is no priority among the acceptable methodsas long as the result is at arm’s length. The Dutchtax authorities prefer traditional transactionmethods over transactional profit methods.

What is the statute of limitations on assessmentof transfer pricing adjustments?Transfer pricing adjustments can be assessed fiveyears from the tax year-end plus any extensionsprovided by the Dutch tax authorities for filing taxreturns. In certain (international) cases, this periodcan be extended to twelve years.

Global transfer pricing guide – The Netherlands 59

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Penalties apply not specifically for non-compliancewith documentation requirements, but for anintentional act to manipulate transfer prices underthe circumstance of an incorrect income tax return.In case of a pure intentional act, the tax may beincreased with a maximum of 100% of the tax due,plus interest. It is unlikely to have transferpricing/tax penalties if there is proper transferpricing documentation in place.

Are advance pricing agreement (APA) optionsavailable?Unilateral, bilateral and multilateral APAs areavailable. Pre-filing meetings can be organised withthe Dutch tax authorities in order to discuss thecase before a formal APA request is made.

Tax audit areasTransfer pricing is a high risk area. Transfer pricingis a key issue in any tax audit. The Dutch taxauthorities especially focus on the following areas:loss making routine functions, IP transactions(transfer of IP, royalties), transactions with taxhavens, transactions with permanentestablishments, head office activities, principalstructures (including centralised functions andpurchase offices), business reorganisations, captivesand financial transactions.

Contact usFor further information on transfer pricing in the Netherlands pleasecontact:Michiel van den BergT +31 (0) 182 53 19 22E [email protected]

60 Global transfer pricing guide – The Netherlands

Global transfer pricing guide – New Zealand 61

Regulatory snapshotOverviewWhen did transfer pricing rules start?1996/7


Return disclosureNo



Audit riskNormal

PenaltiesHigh


• A comprehensive transfer pricing (TP) regimewas introduced by legislation in 1995, with aneffective date from the 1996/97 income year.

• The inland revenue subsequently releasedtransfer pricing guidelines in October 2000,which cover the application of New Zealand’sTP rules and a general overview of theframework.

• Limited high level intercompany and crossborder transaction disclosures are required byan entity as part of the annual income tax returncompletion.

• There is no statutory requirement for taxpayersto prepare transfer pricing documentation,however the burden of proof to demonstratethat consideration is consistent with the arm’slength principle is on the taxpayer. Penalties willapply if no documentation is prepared and a taxshortfall is determined.

• New Zealand’s TP rules are based on the arm’slength principle, and follow the OECDguideline principles

• The arm’s length price is calculated using themethod that produces the most reliable method(or a combination of the methods) whichinclude: the comparable uncontrolled price(CUP), resale price, cost plus, profit split andcomparable profits.

• High level risk reviews may be undertaken bythe issuing of TP questionnaires to taxpayers,requiring disclosure of things like financialperformance, groups financial performance,cross-border association party transactions etc.

• Specified penalties may be applied in addition toadjustments arising from transfer pricing issuesand can range from 20% up to 150% of the taxshortfall. Determination of the penalties focuseson culpability and can also reflect the level ofco-operation by the taxpayer. Interest will alsobe charged on any tax shortfall.

• APA’s are available to taxpayers and can eitherbe bilateral or unilateral APA’s. An effectiveAPA can cover three to five years and may berenewed on an on-going basis.

New Zealand

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?New Zealand transfer pricing rules are containedwithin section GC of the current New Zealandincome tax act. In October 2000 the New Zealandinland revenue also released transfer pricingguidelines. These guidelines are not enforced by lawin New Zealand and are intended to supplement theOECD guidelines by providing additionalinformation on how to comply with New Zealandtransfer pricing rules.

Effective date of commencement of transferpricing regulationsExtensive transfer pricing regulations came intoeffect from the 1996/97 income year in NewZealand.

Rulings, laws and guidelinesIn addition to New Zealand transfer pricinglegislation and guidelines, taxpayers also have theability to apply for bilateral or unilateral advancepricing agreements. Taxpayers are also directed toseek guidance if required from the guidelines issuedby the Australian Taxation Office (ATO) and theUnited States s482 regulations. If required the NewZealand courts and the inland revenue can also takeguidance from New Zealand and overseas case lawinvolving transfer pricing issues.

Is transfer pricing documentation required? Ifso, what information should be included?There is no statutory requirement for taxpayers toprepare transfer pricing documentation, howeverthe burden of proof is on the taxpayer todemonstrate that consideration is consistent withthe arm’s length principle. Therefore the inlandrevenue expect that taxpayers prepare some form ofdocumentation in order to record how theirtransfer prices have been determined and how theyare consistent with the above principle, with thelevel of detail dependent upon the transfer pricingtax at risk. It is suggested that at the very least thefollowing minimum documentation should exist: • an identification of the cross-border

transactions for which the taxpayer has atransfer pricing exposure

• a broad functional analysis of the taxpayer’soperations to identify the critical functionsbeing performed

• an estimate of the business risk of notundertaking and documenting a more detailedtransfer pricing analysis

• an estimate of the costs of complying with thetransfer pricing rules.

What are the deadlines for documentationpreparation?Not applicable.

62 Global transfer pricing guide – New Zealand

In which language should documentation befiled?English, taxpayers wishing to maintain records in aforeign language must apply to the commissioner ofthe inland revenue for discretion to do so.

How long is it necessary to keep transferpricing documentation?Business records are required to be kept for aperiod of seven years after the end of the incomeyear to which they relate.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?New Zealand corporate income taxpayers arerequired to specify annually in their annual taxreturns whether they have been involved in relatedparty transactions, however details of thesetransactions are not required to be disclosed.

Which transfer pricing methods are acceptable?New Zealand legislation provides five transferpricing methods available in New Zealand todetermine arm’s length consideration being,comparable uncontrolled price, resale price, costplus, profit split, and the comparable profitsmethod.

Is there a priority among the acceptablemethods?There is no priority among the acceptable methodsas long as taxpayers choose the method thatproduces the most reliable measure (or acombination of the methods).

What is the statute of limitations on assessmentof transfer pricing adjustments?Transfer pricing adjustments can be assessed up tofour years following the end of tax year in whichthe tax return was filed. If there is fraud or anomission of the mention of taxable income of aparticular nature or a particular source, then there isno time limit.

Global transfer pricing guide – New Zealand 63

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Specified penalties may be applied to adjustmentsarising from transfer pricing issues. These penaltiesrange from 20% up to 150% of the tax shortfall.Determination of the penalties focuses onculpability and can also reflect the level of co-operation by the taxpayer. Interest will also becharged on any tax shortfall and tax payments notmade on time will also incur late payment penalties.

Are there exemptions to Transfer Pricing rulesin your country? Not applicable.

Are advance pricing agreement (APA) optionsavailable?Unilateral and bilateral APAs are available.

Tax audit areasThe New Zealand inland revenue considers transferpricing to be one of the most important issuesarising in international tax and therefore activelyfocus on this area. Audits or investigations may beperformed specifically for transfer pricing issues oralternatively combined with normal tax audits. Theinland revenue use transfer pricing questionnaires asa high level risk review and are generally used as thefirst (information gathering) phase of a formaltransfer pricing review. These questionnaires allowthe inland revenue to evaluate the significance ofcross-border associated party transactions/dealings,assess key performance indicators and identify anyunusual or one-off items.

Contact usFor further information on transfer pricing in New Zealand pleasecontact:Greg ThompsonT +64 (0)4 495 3775E [email protected]

64 Global transfer pricing guide – New Zealand

Global transfer pricing guide – Portugal 65


Level of TPLong standing and established regime

Return disclosureNo



Audit riskMedium

PenaltiesMedium


• Transfer pricing in Portugal was introduced in1998 and at that time was one of the Europe’smost aggressive legislations, covering a widerange definition of related parties and beingapplicable not only to international transactionsbut also to domestic transactions.

• Originally, transfer pricing dealt only withimposing arm’s length prices for goods andservices provided under international agreementbetween related parties. Today, it’s a much widerconcept and many of the European transferpricing laws are now introducing a larger scopein order to also cover domestic transactions.

• Ttransfer pricing laws generally prescribe thatrelated party transactions be undertaken to acommercially justifiable arm’s length basis inorder to not to shift taxable profit from onejurisdiction/company to another. The rulespotentially apply to the movement of all goodsand services, including the use in tangible assets.

• Generally, Portuguese law follows the OECDmodels and guidelines.

• Advanced Pricing Agreements (APAs) are amechanism foreseen in the Portuguese transferpricing legislation.

• Tax authorities have formed a specific auditdepartment to deal with transfer pricing issues,but these questions can also be raised by any taxinspector. In view of that, it is essential thatPortuguese businesses are prepared for anychallenges by tax authorities.

• Under Portuguese transfer pricing regulation,any Portuguese company with a turnoverhigher than three million euros must prepare atransfer pricing file, including all relevantinformation in respect of the transfer pricemethod chosen, supported by any documents,reports, studies, contracts, benchmarking, etc.

• But even for companies that are not obliged tohave a proper file (because their turnover is lessthan three million euros) transfer pricing policyis still required and companies must justify theirprices. If companies are unable to do so whenchallenged by the tax authorities they may havetheir tax situation corrected.

Portugal

• Portuguese business must also gather enoughdocumentation, evidencing arm’s length,whenever there are cost sharing agreements andrendering of intra-group services.

• Major transfer prices methods (such ascomparable uncontrolled price (CUP), resaleminus, cost plus or profit split) are acceptableunder Portuguese regulation, but it is alsopossible to use a typical method for determininga price as long as it is possible to demonstratethat it is at ‘arm’s length’.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The arm’s length principle and transfer pricingdocumentation requirements are enacted in article63 of the Portuguese corporate income tax law andin a specific decree (Portaria 1446-C/2001). Ingeneral, Portugal follows the OECD Guidelines1.Transfer pricing regulations apply to all companies.However, the obligation to have a proper transferpricing file is only applicable to companies with aturnover higher than €3 million that engage inrelated party transactions.

Effective date of commencement of transferpricing regulationsTransfer pricing regulations have been effectivesince 1998 in Portugal.

Rulings, laws and guidelinesBesides legally binding articles of the Portuguesetax law, a specific decree (Portaria 1446-C/2001)provides insight into the position of the taxauthorities. This decree regards to general guidanceon the application of the OECD guidelines; transferpricing methods, cost sharing agreements,intercompany services agreements, supportingdocumentation and correlative adjustments.

Is transfer pricing documentation required? Ifso, what information should be included?Taxpayers are obliged to prepare transfer pricingdocumentation and to keep it in their accountingrecords. The transfer pricing documentation shoulddescribe how transfer prices have been determinedand include information which enable the taxauthorities to evaluate the arm’s length nature of thetransactions. The above mentioned decree providesthe following examples for the content of suchdocumentation: business description, organisationalstructure, functional (including risk) analysis,industry analysis, contractual terms and conditionsof the transactions, financial performance,information on the intercompany transactions,substantiation of transfer pricing method and pricesactually charged.

66 Global transfer pricing guide – Portugal


administrations, 1995 and subsequent updates.

What are the deadlines for documentationpreparation?The documentation should be available at the timewhen the company enters into a transaction.However, if the documentation is not availableupon request of the tax authorities, the taxpayer hasa certain period to disclose such documentation.This period can usually be negotiated with the taxauthorities depending on the complexity of theintercompany transactions.

In which language should documentation befiled?Transfer pricing documentation should be filedpreferentially in Portuguese. Where thedocumentation is in another language a translationmay be required.

How long is it necessary to keep transferpricing documentation?Transfer pricing documentation should be kept forat least ten years.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Portuguese corporate income taxpayers need tospecify annually in their annual tax returns whetherthey have been involved in related partytransactions. The specific transaction amountsneeds to be detailed in the corporate income taxreturn.



What is the statute of limitations on assessmentof transfer pricing adjustments?Transfer pricing adjustments can be assessed fouryears from the tax year which is also the general taxstatute of limitations in Portugal.

Global transfer pricing guide – Portugal 67

What rates and conditions apply for transferpricing penalties? And is there penalty relief?The only penalty specifically defined for transferpricing is that related to the non-compliance withthe obligation to possess a transfer pricing file. Thisfine varies between €1,000 and €10,000.

Penalties may also be applicable for late or nopayment of tax due (in this case as a consequence ofmanipulation of transfer prices). These penaltiesvary between 30% and 100% of the tax due pluscompensatory interest at 4%.

Are there exemptions to Transfer Pricing rulesin your country? As mentioned before, Transfer pricing rules applyto all companies that engage in related partytransactions. However the obligation to have aspecific transfer pricing file only applies tocompanies with a turnover higher than €3 millionthat engage in such related party transactions.

Are advance pricing agreement (APA) optionsavailable?Starting 1 January 2008, the Portuguese transferpricing legislation allows for the establishment ofAPA’s between the tax authorities and thetaxpayers. The process starts with a written requestby the taxpayer where the operations, participants,methods used, duration and any other relevantinformation are explained. Once analysed andagreed upon by the tax authorities the APA willenter into force for a maximum period of threeyears.

Tax audit areasThere is no specific policy defined in this regard.However, as there is a special audit group withinthe tax authorities tax audit department, dedicatedonly to transfer pricing issues, it is likely that theydecide on the companies to inspect based ineconomic factors, namely the amount of taxableincome that is influenced by related partytransactions.

Contact usFor further information on transfer pricing in Portugal pleasecontact: Joaquim L. MendesT +351 21 413 46 31E [email protected]

Pedro Ferreira SantosT +351 21 413 46 33E [email protected]

68 Global transfer pricing guide – Portugal

Global transfer pricing guide – Russia 69

Russia



Return disclosureNo



Audit riskLow

PenaltiesLow


• The core transfer pricing (TP) rules werepromulgated in July 2011 (law no. 227-FZ) withan effective date from 1 January 2012.

• In general TP rules in Russia are similar toOECD rules, but have certain specifics.

• Preparation of comprehensive TPdocumentation files on controlled transactionsby companies is required.

• TP documentation is compulsory on request oftax authorities with relevant threshold.

• Acceptable TP methods include comparableuncontrolled price (CUP), resale price, costplus, transactional net margin, profit split.

• Russia applies a ‘quasi-priority’ approach forthe choice of TP methods.

• A TP audit can be targeted at any controlledtransaction if it results in a reduction of Russia’stax due.

• Additional tax assessment and penalties areimposed due to not complying with the TPrules.

• APA is available only to so-called ‘largetaxpayers’.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The new transfer pricing rules in Russia wereenacted by the federal law no. 227-FZ of 18 July2011 (the law) and came into force starting from 1January 2012. According to the law the companieswhich fall under the scope of TP rules are obligedto disclose controlled transactions as well as toprovide the Russian tax authorities on their requestwith TP documentation proving prices applied. Ingeneral, Russian TP rules are similar to OECDprinciples but OECD guidelines are not officiallyenacted.

The law provides for the following list ofcontrolled transactions:• related parties cross-border transactions (no

volume threshold is defined)• foreign trade transactions with commodities

with total income exceeding RUR 60 million(approximately USD 2 million) per calendaryear

• transactions with companies incorporated orresiding in offshore jurisdictions (includingnon-related parties). A threshold of RUR 60million (approximately USD 2 million) percalendar year has been established for suchtransactions

• transactions between related parties carried outvia unrelated intermediary companies, providedsuch intermediary companies do not performany additional functions, assume any risks andemploy any assets

• Domestic transactions between related partieswill be subject to control in the following cases: – if the amount of such transactions exceeds

certain limit (RUR 3 billion for 2012(approximately USD 100 million), RUR 2billion for 2013, RUR 1 billion starting2014)

– if a party of a transaction is a taxpayer ofmineral extraction tax, unified agriculturaltax, unified imputed income tax, resident ofspecial economic zone or eligible for 0%profits tax. The law provides for certainminimal thresholds and effective dates fordefining such transactions as controlled.

Effective date of commencement of transferpricing regulationsThe new transfer pricing rules in Russia wereenacted by the Federal Law No. 227-FZ of 18 July2011 and came into force starting from 1 January2012.

Rulings, laws and guidelinesTP rules are included in the tax code. Rulings orguidelines are expected, although not yet available.Russian TP rules are similar to OECD principlesbut OECD guidelines are not officially enacted.

Is transfer pricing documentation required? Ifso, what information should be included?Transfer pricing documentation can be requestedfor all controlled transactions. Exemptions areprovided for 2012 when for the controlledtransactions with turnover less than RUB 100million (approximately USD 3 million)documentation is not required. The sameexemption is applicable for 2013 with the thresholdof RUB 80 million in 2013 (approximately USD 3million).

The statutory form of documentation is notdefined but its main features are generally outlinedin the tax code.

The documentation shall include the followinginformation: • description of the controlled transaction, its

parties and conditions, including the descriptionof the pricing method (if any) and otherinformation on the transaction

• information on transaction parties’ functions (iffunctional analysis is carried out by thetaxpayer), assets employed (related to thecontrolled transaction) and commercial risksborne.

• if a taxpayer uses methods, established by thetax code, the following information should alsobe provided: – the ground for choice and applicability of

the method used– the sources of data– calculation of the market prices interval

(margin interval) used for the benchmarking– the grounds for choice and applicability of

comparables – information about other facts, which had

influence on the controlled transaction price(margin), etc.

70 Global transfer pricing guide – Russia

What are the deadlines for documentationpreparation?Taxpayers must report to the tax authorities on thecontrolled transactions no later than 20 May of thecalendar year following a year when the specificcontrolled transaction took place. TPdocumentation shall be provided to the taxauthorities within 30 days from the date of requestissued by tax authorities but not earlier than 1 Juneof the following year.

In which language should documentation befiled?TP documentation has to be filed to the Russian taxauthorities in Russian.

How long is it necessary to keep transferpricing documentation?There are no special provisions in the Russian TPrules in respect to the length of time to keeptransfer pricing documentation. However, there aregeneral requirements of the tax code saying thataccounting and tax data and other documentsnecessary for calculation and payment of taxes shallbe kept within four calendar years.

Are intercompany agreements recommended?Yes, intercompany invoicing has to be based on theintercompany agreements.

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?There are no TP disclosures in profit tax returns.However, companies must separately report to thetax authorities on the controlled transactions nolater than 20 May of the calendar year following ayear when the controlled transaction took place.

Which transfer pricing methods are acceptable?The Russian TP rules set five methods fordetermining the transaction price: comparableuncontrolled price (CUP), resale price, cost plus,transactional net margin and profit split.

Is there a priority among the acceptablemethods?The CUP method is named as a preferred method.If it is not applicable a company may use the mostappropriate method of the others. However, thereare certain provisions in the law which stipulateother methods as preferable ones in certain cases. Ifthe above mentioned methods do not allow todefine the price of an individual transaction it canbe determined through an independent valuation.

What is the statute of limitations on assessmentof transfer pricing adjustments?Transfer prices are audited by tax authorities in thecourse of a separate TP audit with certaintransitional provisions prescribed by the tax code.In particular, an audit for the year 2012 may only beinitiated before 31 December 2013, while a 2013audit may only be initiated before 31 December2015. After the above provisions expire, a TP auditmay cover three years preceding the year when theaudit is initiated.

Global transfer pricing guide – Russia 71

What rates and conditions apply for transferpricing penalties? And is there penalty relief?The Russian TP rules exempt any transactions thatoccur during the years 2012 and 2013 from transferpricing penalties. A penalty of 20% will apply totransactions occurring during the period 2014-2016.Starting from 2017, a 40% penalty will be imposedin cases of a transfer pricing adjustment. Submissionof TP documentation protects a taxpayer frompenalties even if an adjustment is made. For a latepayment, interest on the amount of the assessmentis approximately 10% per annum.

Are there exemptions to Transfer Pricing rulesin your country? There are some exemptions prescribed by theRussian TP rules, in particular:• cross-border transactions with turnover less

than RUB 100 million (approximately USD 3million) for 2012 are not subject to TP rules.The same exemption is applicable for 2013 withthe threshold of RUB 80 million in 2013(approximately USD 3 million). Starting 2012no minimal threshold applies for the cross-border transactions

• domestic transactions between related partiesare not subject to control if the amount of suchtransactions does not exceed certain limits, inparticular RUR 3 billion for 2012(approximately USD 100 million), RUR 2billion for 2013, RUR 1 billion starting 2014).

Are advance pricing agreement (APA) optionsavailable?Taxpayers may be entitled to conclude an APA.This is only possible for Russian companiesregistered as the ‘largest taxpayers’. To conclude anAPA a taxpayer should prepare an application witha description of methods, sources of information,etc. and pay a state duty in the amount of RUR 1.5million (approximately USD 50 000). An APAprotects the company from potential taxassessments, penalties and late payment interest.

Tax audit areasTransfer prices are audited by tax authorities in thecourse of a separate TP audit with certaintransitional provisions prescribed by the tax code.In particular, an audit for the year 2012 may only beinitiated before 31 December 2013, while a 2013audit may only be initiated before 31 December2015. After the above provisions expire, a TP auditmay cover three years preceding the year when theaudit is initiated. The Russian TP rules provide forthe presumption that market prices applied by thecompany are in line with the market level. Thus,Russian tax authorities still have to prove that pricesof controlled transactions do not correspond to themarket level.

Contact usFor further information on transfer pricing in Russia pleasecontact: Alexander SidorenkoT +7 495 258 99 90E [email protected]

72 Global transfer pricing guide – Russia

Global transfer pricing guide – Slovak Republic 73



Return disclosureNo


MethodsOECD

Audit riskHigh

PenaltiesHigh


• The core transfer pricing (TP) rules were laiddown in ‘act no. 595/2003 coll.’ on income tax(income tax act) with an effective date of 1January 2009. Required content of TPdocumentation is stipulated in guidance no.MF/8288/2009-72 of the Slovak ministry offinance. TP rules generally conform with theOECD guidelines.

• There is no obligation to enclose the TPdocumentation to the tax return. However, thetransactions between the Slovak entity andforeign related parties must be disclosed in thefinancial statement notes.

• TP documentation is compulsory fortransactions between the Slovak entity andforeign related parties. Tax payers shouldsubmit TP documentation within 60 days of theSlovak tax authorities request.

• According to the income tax act, accepted TPmethods include: fair market price, subsequentsale, increase costs (methods based on acomparison of prices), profit split and netmargin (methods based on a comparison ofprofits). Preferred methods are methods basedon a comparison of prices.

• A penalty of €60 - €3,000 may be imposed ifthe TP documentation is not submitted to thetax authorities within 60 days of the request andthe penalty may be imposed repeatedly. Otherpenalties may be imposed for unpaid orunderstated tax liability.

• The taxpayer may request approval of theSlovak tax authorities for the selected TPmethod.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The arm’s length principle and the obligation tokeep TP documentaion is enacted in article 18 ofthe Slovak income tax act. Requirements relating tothe content and the rules for preparing the TPdocumentation are stipulated in guidance of theSlovak ministry of finance no. MF/8288/2009-72.Currently a very limited number of rulings exist.

Slovak Republic

Effective date of commencement of transferpricing regulationsTransfer pricing regulations are effective since 2009in the Slovak Republic.

Rulings, laws and guidelinesBesides legally binding articles of the Slovak taxlaw, the ministry of finance published in thefinancial newsletter the OECD transfer pricingguidelines. These are not legally binding; however,the tax authorities should follow them practically.

Is transfer pricing documentation required? Ifso, what information should be included?Entities which are obliged to prepare financialstatements under IFRS must maintain full scope TPdocumentation, which consist of a master file andcountry file. The master file is supposed to includeinformation relating to the whole group and thecountry file provides information about the Slovakentity. The country file should include a transferpricing study.

Taxpayers which are not obliged to preparefinancial statements under IFRS are allowed to keepsimplified TP documentation which provescompliance with the arm’s length principle forsignificant controlled transaction with foreignentities.

Entities which do not perform any controlledtransactions with foreign related parties arecurrently not obliged to prepare TPdocumentation.

What are the deadlines for documentationpreparation?TP documentation must be submitted to the taxauthorities within 60 days after being requested.

In which language should documentation befiled?TP documentation should be filed in Slovaklanguage.

How long is it necessary to keep transferpricing documentation?Not specifically stated in the Slovak income tax act.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?There is no obligation to enclose the TPdocumentation to the annual tax return. However,notes to the financial statements must disclosetransactions between the Slovak entity and foreignrelated parties in euros without any further details.

74 Global transfer pricing guide – Slovak Republic

Which transfer pricing methods are acceptable?Taxpayers may use OECD TP methods – fairmarket price, subsequent sale, increase costs(methods based on a comparison of prices); profitsplit, net margin (methods based on a comparisonof profits).

Is there a priority among the acceptablemethods?Taxpayers may use preferably methods based onthe comparison of prices. If such methods arepractically not possible they may use methodsbased on the comparison of profit.

What is the statute of limitations on assessmentof transfer pricing adjustments?Generally five years from the year for which the taxreturn was filed, in cases where double taxationagreements have been applied then ten years.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?A penalty of €60 - €3,000 can be imposed by thetax authorities for not submitting the TPdocumentation within 60 days of the tax authority’srequest. A penalty may be imposed repeatedly if theTP documentation is not filed within the agreedperiod. Other penalties may be imposed for unpaidor understated tax liability. The penalty in this caseis three times the current basic interest rate of theEuropean Central Bank but not less than 10%.

Are there exemptions to Transfer Pricing rulesin your country? N/A

Are advance pricing agreement (APA) optionsavailable?Unilateral APAs. According to the Slovak incometax act the taxpayer can request approval of theSlovak tax authorities for selected TP methods.

Tax audit areasTax authorities are currently developing a specialtask force for transfer price issues. The likelihood isthat taxpayers with transactions to foreign relatedparties will increasingly be subject to a tax audit.

Contact usFor further information on transfer pricing in the Slovak Republicplease contact:Dr. Wilfried SerlesT +421 2 59 300 400E [email protected]

Global transfer pricing guide – Slovak Republic 75

76 Global transfer pricing guide – Slovak Republic

Global transfer pricing guide – Spain 77





MethodsHierarchy

Audit riskHigh

PenaltiesHigh


The main characteristics of the Spanish transferpricing rules in force since December 2006 are:• Spain is an OECD member so the rules follow

its guidelines regarding applicable methods• the use of external comparables is possible,

generally provided by international databasesuppliers

• if a related party transaction price or marginfalls into the inter-quartile range, there is noadjustment on the price and the transaction isdeemed to be on an arm’s length basis

• potential adjustments are calculated by thedifference between the real price and some point(not specified) in the range

• related party transactions are understood toinclude, among others, those operationsbetween:– an entity and its shareholders or partners

(5% of the shares)– an entity and its administrators or directors– two entities belonging to the same group– two entities where one holds an indirect

interest in the other of at least 25% of theshare capital or the net equity.

• transfer pricing analysis must be done for localtransactions and not only for foreigntransactions

• taxpayers should prepare transfer pricingdocumentation

• the AEAT (Spanish tax authorities) couldrequest the transfer pricing report. Taxpayersneed to address 14 points in their transferpricing reports, and for every point that thetaxpayer omits, a penalty could be applied

• specific legislation on secondary adjustments. Inparticular, secondary adjustments are seen asautomatic once a primary adjustment isproposed in all cases

• prior to 2007, the burden of proof was on theside of the Spanish tax authorities

• in the corporate income tax return, thecompany must disclose related partytransactions

• the threshold for not preparing the transferpricing documentation amounts is €250,000 fortransaction performed with the same relatedparty

• every taxpayer must have its owndocumentation.

Spain

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?Article 16 of the Spanish Corporate Income TaxLaw (CITL) and modified by law 36/2006, shiftedthe burden of proof to the taxpayer and introducedthe obligation of transfer pricing documentationapplicable for fiscal years commencing on or after 1December 2006. Although article 16 establishedthat related-party transactions should be pricedunder the arm’s length principle, the formaldocumentation requirements were only publishedon 18 November 2008; in the royal decree1793/2008. This specifies the compulsory elementsthat Spanish transfer pricing documentation shouldcontain from 19 February 2009 onwards.Previously, the regulation of transfer pricing amongrelated companies was characterised by thefollowing premises:• only the tax administration could realise

adjustments to market prices, therefore, theburden of proof fell on the administration.Consequently, experience demonstrates that incases of administrative regularisation fortransfer pricing, sanctions are not usuallyimposed, but the administration only demandsthe tax debt, if it has not been paid, plusinterests for delayed payment.

• the contributor did not have the obligation toprepare documentation, except in the case ofmanagement support services contracts andcontributions for research and developmentactivities.

The law of reform for the prevention of tax fraudraises an important reform regarding the regulation,relative to the related operations in general andespecially transfer pricing, its principal innovationsare:• the valuation at market prices of the operations

among related entities, for both domestics aswell as cross-border transactions, becomes anobligation of the contributor; therefore, thepossibilities of imposing sanctions increase

• the existence of the contributor’s obligation tojustify the valuation, with the necessarydocumentation.

Effective date of commencement of transferpricing regulationsTransfer pricing regulations have been effectivesince 2006 in Spain.

Rulings, laws and guidelinesTax administration; corporate income tax act (royallegislative degree 4/2004) and non-residents tax act (royal legislative decree 5/2004). Article 16 ofCITA (royal legislative degree 4/2004) governingtransfer pricing rules has been changed significantlyby the tax fraud prevention act published on 30November 2006 (law 36/2006). Royal decree1793/2008 develops the corporate income taxregulation.

Additionally, new regulations were approved in2010: Royal decree 6/2010 on the simplification ofthe documentation requirements for small andmedium-sized enter-prises, and royal decree897/2010, which develops the simplification of thetaxpayer documentation in general.

Royal decree 1793/2008, effective from 19February 2009, provides detailed documentationrules, penalty procedures, tax audit transfer pricingprocess, secondary adjustments, and APA-specificprocedure.

Rulings: formal consultations to tax authorities.Royal decree 1794/2008, governing the mutualagreement procedure and EU arbitrationconvention (EU/90/436) from a Spanish domesticperspective.

Is transfer pricing documentation required? Ifso, what information should be included?Taxpayers carrying out related party transactionshave to prepare the documentation that supportsthe application of the arm’s length principle.

Article 16.2 of the CITL establishes a generalrule, stating that related persons or entities mustkeep available documentation as from the end ofthe voluntary return or assessment period inquestion for the tax authorities. The royal decreeimplements this statutory requirement by drawingon the principles contained in the EU code ofconduct on transfer pricing documentation. Thereare two sets of documents that have to be prepared:• documentation concerning the group to which

the taxpayer belongs – This documentationshould include among other matters, thefollowing:– a general description of the organisational

structure of the group– the type amounts and flow of the

transactions carried out– a general description of the functions,

benefits and risks for each of the parties thatintervene in the transaction.

78 Global transfer pricing guide – Spain

• documentation relating to the taxpayer – Thisdocumentation will include, among otherquestions, the following:– the identity of the taxpayer and the related

persons or entities involved in thetransaction

– a comparison analysis leading to the correctapplication of the transfer pricingmethodology

– an explanation concerning the selection ofthe chosen transfer pricing methodology

– the details of the range of valuations arisingfrom that methodology.

What are the deadlines for documentationpreparation?The described documentation covers the related-party transactions carried out by the taxpayer from19 February 2009 onwards; and needs to beavailable by the end of the voluntary period forfiling the corporation tax return; notwithstandingthis, the tax authorities may ask for thecorrespondent fair market value analysis for thosetransactions carried out since 1 December 2006.

For following years documentation should beupdated/prepared annually by the end of the periodfor filing voluntary declarations. The transferpricing study or documentation iscontemporaneous with the filing of thecorresponding corporate income tax return, whichis generally due in six months and 25 days from thefiscal year-end. (i.e. for FY ending 31 December2010, the due date is 25 July 2011).

There is no deadline to submit documentation,but the tax authorities may request it even the dayafter filing the annual corporate tax return. Upon atax audit, the tax inspector will determine thesubmission deadline on a case-by-case basis with aminimum period of ten business days countingfrom the business day subsequent to the request.

In which language should documentation befiled?There are no specific rules in this regard.Documentation should be acceptable in line withthe recommendations of the EU joint transferpricing forum. In an ordinary tax audit, the taxauditor may accept the transfer pricingdocumentation in other languages, but a translationinto Spanish still may be requested. In litigation,any document used must be written in Spanish orin the official language of the autonomous region ofthe taxpayer, that is, Catalan, Basque, Galician, orValencian.

How long is it necessary to keep transferpricing documentation?The statute of limitations on assessment of transferpricing adjustments is up to a four year period.

Are intercompany agreements recommended?It is recommended that taxpayers document theirintercompany transactions through intercompanyagreements, however it is not compulsory.

Regarding the cost-sharing agreements, taxdeductibility of the amounts paid is admitted aslong as it is supported by a written agreement.

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?In the CIT form, taxpayer’s related partytransactions must be disclosed by indicating thecompany name, the fiscal code of the people orentities with which the operation is carried out, aswell as a description of their nature, characteristicsand amount of transactions with each related party.Also, methods used to determine an arm’s lengthprinciple will need to be disclosed in the form filedfor tax returns.

Also, in the financial statements the taxpayersmust provide information about the transfer pricingpolicy.

Which transfer pricing methods are acceptable?Market value will be determined by comparativeanalysis. The circumstances surrounding relatedparty transactions will be compared with thosebetween independent entities or persons that arecomparable. Comparable uncontrolled price(CUP), resale price, cost plus, profit split andtransactional net margin methods are all acceptable.

Is there a priority among the acceptablemethods?CUP, resale price and cost plus methods havepriority. Profit-based methods (profit split and netmargin) should only be applied if the use oftransaction based methods are not possible due tothe complexity or the information of thetransactions.

What is the statute of limitations on assessmentof transfer pricing adjustments?The last four years from the due date or from thefiling date of the last tax return.

Global transfer pricing guide – Spain 79

What rates and conditions apply for transferpricing penalties? And is there penalty relief?The Spanish documentation requirements have 14points that tax payers need to address in theirtransfer pricing reports, and for every point that thetaxpayer omits, a penalty could be applied.

Based on the new penalty regime introduced bylaw 36/2006, and applicable from 19 February 2009onwards, penalties linked to the formalrequirements of the documentation – are alsoenforceable and may apply to both (i) theadjustments performed and to (ii) the lack ofsupport of the related-party transactions performedby the taxpayer, thus establishing the following twotypes of penalties:• when there is no transfer pricing adjustment, a

fixed fine of €1,500 per data and €15,000 pergroup of omitted, inaccurate or misleading datamight be imposed on the taxpayer due to faultsin the documentation provided

• when a transfer pricing adjustment is proposedby the tax authorities, a penalty of 15% of theadditional tax base is applicable in addition tothe tax due, the corresponding delay paymentinterest and the minimum fine will be twice thefine that would result from the application ofthe preceding section.

In addition, for transactions between apartner/shareholder and an entity, a secondaryadjustment has been created. This may result intaxable income for the relevant tax being adjustedfor the difference between the value agreed betweenthe parties and the market value, which will betreated as taxable income for the related parties.

It is important to highlight that, regarding self-initiated adjustments, the general tax directorate haspublicly expressed its distaste for self-initiatedadjustments, because they could mean the taxpayerhas not fulfilled the ‘fair value’ accountingcompulsory principle, however this position couldevolve.

Are there exemptions to Transfer Pricing rulesin your country? The documentation will not be required when theconsideration of all transactions with the samerelated party does not exceed the amount of€250,000 (market value), nor will be required forsmall size entities when the total related partyoperations do not exceed the aggregate amount of€100,000 (market value). It should be noted thatthe obligation to apply market values is applicablein all cases even when there is no obligation toprepare documentation.

At the same time, the regulations establishreduced documentation obligations for relatedparty transactions involving small companies (netrevenues for the consolidated group of less than€10 million in the previous tax year) and individualpersons. It should be noted that documentation isrequired for transactions with entities, related partyor not, resident in tax havens.

Are advance pricing agreement (APA) optionsavailable?Spanish law provides taxpayers with a statutoryright to seek APAs; regulation includes theprocedure for processing and deciding on unilateral,bilateral or multilateral APAs, involving other taxauthorities.

Tax audit areasTransfer pricing issues, until recently, have beenconsidered to be part of a general tax audit and notthe subject of special investigations. However, withthe new legislation, transfer pricing audit activityhas increased significantly.

Special attention has been directed towards themanagement fees and royalties. In addition, theSpanish tax authorities are quite sensitive to‘business restructuring’ and may assert that apermanent establishment exists of a foreign party towhich significant business functions have beentransferred.

Regarding management fees, the Spanish taxauthorities expect to see the application of rationaland continuous cost-allocation criteria and actualevidence of the benefits received from the services.

Contact usFor further information on transfer pricing in Spain please contact:Gabriel YakimovskyT +34 93 206 39 00E [email protected]

80 Global transfer pricing guide – Spain

Global transfer pricing guide – Sweden 81

Regulatory snapshotOverviewWhen did transfer pricing rules start?1928/2007

Level of TPLong standing/Developing regime

Return disclosureNo

DocumentationCompulsory with thresholds


Audit riskHigh

PenaltiesHigh


• The Transfer Pricing (TP) rules were elaboratedfrom 1916 and effective from 1928 (arm’s lengthprincipal)

• Taxpayers with intercompany transactions mustdocument the transaction details as described byregulations issued by the Swedish Tax Agency(STA), effective from 1 January 2007

• Contemporaneous TP documentation iscompulsory with thresholds. The thresholdsregard comparability analysis to be included (inthe documentation) or not

• Sweden applies the ‘best method approach’ forconducting TP analysis however any methodcan be used as long as the result is at arm’slength

• Acceptable TP methods include comparableuncontrolled price (CUP), resale price, costplus, transactional net margin, profit split andother methods that comply with the arm’slength principle

• TP audit can be targeted at any transaction if itresults in reduction of Sweden’s tax revenue,and is more prone to IP-valuation, interest ratesand recently restructuring issues

• TP audit adjustments are subject to a 40%(maximum) penalty surcharge on the tax leviedby the adjustment plus an ‘interest surcharge’on the tax debt

• Advance Pricing Agreements (APAs) areavailable to large taxpayers but only if they aremutually agreed between the tax agencies. Nounilateral agreement APAs are allowed, onlybilateral or multilateral agreements. An APA isusually effective after two years of procedure.The APA is associated with a fee to the STA.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The arm’s length principle and transfer pricingdocumentation requirements are enacted in chapter14, paragraph 19 of the Swedish income tax act. Ingeneral, Sweden follows OECD guidelines1.Transfer pricing regulations apply to all relatedparties that shares economic interest. If share capitalexceeds 50%, the taxpayer is obliged to documentthe transactions according to Swedishdocumentation rules (with certain exceptions).

Sweden


administrations, 1995 and subsequent updates

Effective date of commencement of transferpricing regulationsTP regulations (arm’s length principle) have beeneffective since 1928. Documentation regulationshave been effective since the 1 January 2007 inSweden.

Rulings, laws and guidelinesBesides legally binding articles of the Swedish taxlaw, a notification of the STA provides insight intothe position of the STA without a legally bindingeffect. This notification regards general guidance onthe application of the implementation of the legallybinding articles regarding rules of documentation inthe Swedish Procedural Law. The notification alsogives good insight on the STAs view on the arm’slength principle.

Is transfer pricing documentation required? Ifso, what information should be included?Taxpayers are obliged to prepare transfer pricingdocumentation. The transfer pricing documentationshould describe how transfer prices have beendetermined and include information which enablesthe tax authorities to evaluate the arm’s lengthnature of the transactions. The documentation rulesprovides the following examples for content of suchdocumentation: business description, organisationalstructure, functional analysis (including assets usedand risk assumed), industry analysis, contractualterms information on the intercompanytransactions, choice of transfer pricing method andcomparability analysis.

What are the deadlines for documentationpreparation?The documentation should be available at the timeof the STAs request (generally within 30 days).Absent or insufficient documentation will demisethe STAs burden of proof to demonstrate that thetransfer prices are not at arm’s-length. This can beextended from the initial 30 days depending on thecomplexity of the intercompany transactions;however documentation that has been created aftera commencement of a transfer pricing audit willgenerally be considered as less reliable compared toone that has been previously established.

In which language should documentation befiled?Transfer pricing documentation can be filed eitherin Swedish, Norwegian, Danish or English.

How long is it necessary to keep transferpricing documentation?For tax purposes, transfer pricing documentationshould be kept for at least six years. For accountingpurposes the time frame is ten years.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Swedish taxpayers do not need to annually specifyin their annual tax returns whether they have beeninvolved in intercompany transactions.

82 Global transfer pricing guide – Sweden

Which transfer pricing methods are acceptable?Taxpayers are free to choose any OECD recognisedtransfer pricing method as long as the methodresults in an arm’s length pricing for the purposes ofthe intercompany transaction. Taxpayers are notobliged to test all OECD recognised methods,although they must substantiate the methodchosen.

Is there a priority among the acceptablemethods?There is no priority among the acceptable methodsas long as the result is at arm’s length. The Swedishdepartment of finance prefers traditionaltransaction methods over transactional profitmethods. The STA does not have a specific TPmethod preference, as long as it leads to arm’slength results.

What is the statute of limitations on assessmentof transfer pricing adjustments?Transfer pricing adjustments can be assessed fiveyears from the tax year-end.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Penalties do not apply specifically for non-compliance with the documentation requirements.Tax penalties are applied for acts leading to anincorrect income tax return (i.e. results that are notarm’s length), intent does not matter. In a case of apure intentional act, criminal charges can beapplied. In such cases the STA reports to either theSwedish economic crimes bureau or to the publicprosecutor.

Are there exemptions to Transfer Pricing rulesin your country? TP documentation requirements regardingtransactions between a permanent establishmentand its head office (the same company) are notmandatory under the law, although the arm’s lengthprinciple still applies. However, permanentestablishments’ transactions with other groupcompanies must be documented in the same way asbetween companies.

Are advance pricing agreement (APA) optionsavailable?Bilateral and multilateral APAs are available. Pre-filing meetings can be organised with the Swedishtax authorities in order to discuss the case before aformal APA request is made. In Sweden the APA isassociated with a cost to the STA.

Tax audit areasTransfer pricing is a high risk area. The STAespecially focus on the following areas: loss makingroutine functions, Intellectual property (IP)transactions (transfer of IP, royalties), transactionswith tax havens, interest rates and businessrestructurings.

Contact usFor further information on transfer pricing in Sweden pleasecontact: Per HedrénT +46 (0)8 563 072 63E [email protected]

Global transfer pricing guide – Sweden 83

84 Global transfer pricing guide – Sweden

Global transfer pricing guide – Taiwan 85






Audit riskHigh

PenaltiesHigh


• Taiwan’s ‘Regulations Governing Assessment ofProfit-seeking Enterprise Income Tax on Non-Arm’s Length Transfer Pricing’ have beeneffective since 28 December 2004 and enactedpursuant to the provisions set out in paragraph5, article 80 of the Income Tax Act.

• Profit-seeking enterprises are required todisclose significant related party transactions inthe annual tax return.

• Transfer Pricing (TP) documentation iscompulsory with prescribed threshold.

• Taiwan applies the ‘best method approach’ forconducting TP analysis.

• Acceptable TP methods include: ComparableUncontrolled Price (CUP), resale price, costplus, comparable profit, profit split, comparableuncontrolled transaction, and other arm’s lengthmethods approved by the Ministry of Finance(MoF). However, specific types of transactionsmay not allow certain method types.

• Profit-seeking entities with annual revenueexceeding TWD 300 million together withrelated party transaction amounts of more thanTWD 200 million are required to have TP reportsavailable at the time of filing a corporation incometax return and be presented within one monthwhen prompted by the tax authority.

• The maximum fine is three times theunderpayment of corporation income taxliabilities dependent upon audit results. Failureto present TP documentation when promptedby the tax authority is subject to a fine rangingfrom TWD 3,000 to TWD 30,000 dependantupon discretion of the tax office.

• Advance Pricing Agreement (APA) options areavailable in Taiwan. Once the APA is granted,an APA can be effective for 3 to 5 years fromthe year of application.

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?Yes, transfer pricing regulations in Taiwan are called‘Regulations Governing Assessment of Profit-seeking Enterprise Income Tax on Non-Arm’sLength Transfer Pricing’ (TP audit regulations).Several transfer pricing related tax rulings have alsobeen issued by MoF.

Taiwan

Effective date of commencement of transferpricing regulationsIn Taiwan, the TP audit regulations have beeneffective since 28 December 2004. The regulationsare enacted pursuant to the provisions set out inparagraph 5, article 80 of the Income Tax Act.

Rulings, laws and guidelinesThe MoF finalised and published the TP auditregulations, enacted by paragraph 5, article 80 ofIncome Tax Act in 2004. TP audit regulations werepromulgated by the Taiwan MoF, taking intoconsideration OECD transfer pricing guidelinesand related legislations published by other majorcountries, especially the USA.

Is transfer pricing documentation required? Ifso, what information should be included?TP documentation, including a TP report, shouldbe prepared by taxpayers and be ready forinspection at the time of corporation income taxreturn filing if there are significant related partytransactions carried out during the year.

In this regard, a business entity meeting one ofthe following criteria can elect to use alternativesupporting documents to justify its transfer priceinstead of preparing a full TP report:• combined operating revenue and non-operating

income is less than TWD 300 million for thefiling year

• combined operating revenue and non-operatingincome is more than TWD 300 million but lessthan TWD 500 million, and the business entityhas not claimed any tax credits in excess ofTWD 2 million, has not offset against any netoperating losses in excess of TWD 8 million forthe tax filing year and has no related enterprisesoutside of Taiwan

• total value of related party transactions carriedout is less than TWD 200 million per annum.

In addition to the above, after taking OECD TPguidelines into consideration, the Taiwan MoF thenpublishes safe harbor rules under MoF tax rulingnumber 09704555160, which provides relief tocertain controlled transactions to allow alternativesupporting document instead of a full TP report.Certain controlled transactions specified in safeharbor rules are:• one of the participants in the controlled

transactions is a government agency or a state-run enterprise

• in the controlled transactions, all of theparticipants located within the Republic ofChina do not claim any tax credits, nor do theyoffset against any net operating lossesaggregated from the past five years

• controlled transactions are categorised as eitheroperating revenues or operating expenses andthe same type of controlled transactionsamounts to less than a threshold of TWD 10million per annum; for the controlledtransactions not categorised as operatingrevenues or operating expenses, the thresholdamount is then divided by two

• a profit-seeking entity whose controlledtransactions, within the Republic of China,belong to items of operating revenues oroperating expenses, does not claim any taxcredits, nor do they offset against any netoperating losses aggregated from the past fiveyears, its reported gross margin is above themean of other enterprises in the same industry,and the same type of controlled transactionsamounts to less than a threshold of TWD 20million per annum; for the controlledtransactions not belonging to operatingrevenues or operating expenses, but reportedprofit margin is above the mean of otherenterprises in the same industry, the thresholdamount is then divided by two.

• controlled transactions categorised as ‘Uses ofFund’ type, when the reported income by thefund provider is greater than the amount offund provided at the Taiwan bank prime rate on1 January of the same year and the amount offund is below TWD 300 million; when thereported costs or expenses by the user is lessthan the amount of fund used at the Taiwanbank prime rate on 1 January of the same yearand the amount of fund used is below TWD 300million.

A TP report should include the following contents:background information and industry overview,functional and risk analysis of all the transactingparties, evaluation of each controlled transactionbased on prescribed rules, selection of comparableparties based on certain criteria, analysis of degreesof comparability, selection of the most appropriatemethod, disclosure of pricing strategy and otherrelevant information regarding other participants inthe controlled transactions, and determinationwhether the controlled transactions are within arm’slength range.

What are the deadlines for documentationpreparation?A business entity needs to indicate on itscorporation income tax return, whether a TP reporthas been prepared at the time of filing corporationincome tax return. Accordingly, it’s recommendedthat companies prepare and have a TP report readyprior to filing corporation income tax return.

86 Global transfer pricing guide – Taiwan

In which language should documentation befiled?Documentation needs to be prepared or translatedto Mandarin.

How long is it necessary to keep transferpricing documentation?Transfer pricing documentation should be kept forat least seven years since statute of limitation runsfor seven years.


Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Profit-seeking enterprises are required to disclosesignificant related party transactions in the annual taxreturn in prescribed formats. In other words, abusiness entity that meets one of the followingcriteria can be exempted from disclosing related partytransactions in its corporation income tax return andhence does not need to prepare a TP report:• combined operating revenue and non-operating

income is less than TWD 30 million for thefiling year

• has generated total combined operating revenueand non-operating income less than TWD 300million per annum while having no relatedentities outside of Taiwan, not claiming any taxcredits in excess of TWD 500,000 per annumand not offsetting against net operating lossesaggregated from past ten years in excess ofTWD 2 million per annum.

Enterprises not meeting the disclosureexemption rules aboveIf a non-exempt business entity carries outtransactions with all related enterprises in aggregateamount of more than TWD 50 million per annum orwith the same related enterprise in aggregate amountof more than TWD 12 million, the transactions aredeemed significant and required to be disclosedaccordingly. Whereas, in the case of a non-exemptbusiness entity carrying out transactions with relatedpeople instead of related enterprises, transactionswith all related people in aggregate amount of morethan TWD 25 million per annum or with the samerelated person in aggregate amount of more thanTWD 6 million, the transactions are regardedsignificant and required to be disclosed. Thedefinition of related enterprises and related peopleare defined in the TP audit regulations.

Regulations do not require taxpayers to obtainspecial certification over disclosed information.

Which transfer pricing methods are acceptable?Acceptable TP methods include: ComparableUncontrolled Price (CUP), resale price, cost plus,comparable profit, profit split, comparableuncontrolled transaction and other arm’s lengthmethods approved by the MoF. However, certaintypes of transactions may not be evaluated usingcertain types of methods.

Is there a priority among the acceptablemethods?Taiwan TP audit regulations adopt the best methodapproach. There is no priority among theacceptable methods as long as the method is themost appropriate arm’s length method for thecontrolled transactions. Taiwan tax authoritiesgenerally prefer traditional transaction methodsover transactional profit methods.

What is the statute of limitations on assessmentof transfer pricing adjustments?As per article 21 of the tax collection act, if a timelyreturn is filed and the tax due paid in full, and thereis no intention to defraud the tax office, the generalstatute of limitations is five years. If the return isnot filed timely or there is an intention to defraudthe tax office, then the statue of limitation runs forseven years.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?If the required TP documentation is not presentedwhen prompted by the tax authority, a fine rangingfrom TWD 3,000 to TWD 30,000 will be assesseddependant upon discretion of the tax office.In addition, article 34 of the assessment rules assertsthat from taxable year 2005, a transfer pricingpenalty will be assessed if a taxpayer misstates itsincome tax as a result of not following the transferpricing rules when filing its tax return. Such penaltywill be assessed and calculated based on article 110of Taiwan Income Tax Act which allows amaximum penalties of two times the resultingunderpayment of income tax liabilities.

Global transfer pricing guide – Taiwan 87

Are there exemptions to Transfer Pricing rulesin your country? Yes, there are exemption rules relating to disclosureas well as the necessity of providing any TPdocumentation. A business entity meeting one ofthe following criteria is exempted from disclosingrelated party transactions carried out in itscorporation income tax return and hence does notneed to prepare a TP report:• combined operating revenue and non-operating

income is less than TWD 30 million for thefiling year.

• has no related entities outside of Taiwan and hasnot claimed any tax credits in excess of TWD500,000 per annum, has not offset against netoperating losses aggregated from past ten yearsin excess of TWD 2 million per annum and hasgenerated a total combined operating revenueand non-operating income less than TWD 300million per annum.

As outlined by Taiwan MoF tax ruling number09704555180 and in addition to the disclosureexemption rules above, in the event that a non-exempt business entity carries out transactions witha state-run enterprise, an agent or a distributor anda monopolistic enterprise (defined under the fairtrade act), the underlined transactions falling underany of the following (as outlined under number 3through 5, item 8, article 3 of TP AuditRegulations) are exempted from providing anytransfer pricing documentation but disclosure in thetax return is still required. Given that a non-exemptbusiness entity and the counter party are not in acontrolling and subordinate relationship whenconducting transactions: • a non-exempt business entity cannot commence

its production and business activities withoutthe other enterprise’s provision of patent,trademark, copyright, secret formula,proprietary technology or any franchises andsuch production and business activities accountfor 50% or more of the total sales of a non-exempt business entity in the same tax year

• a non-exempt business entity’s purchasing priceand terms of raw materials, components andgoods are controlled by the other enterprise,and such purchases account for 50% or more ofthe total purchases of raw materials,components and goods by the non-exemptbusiness entity in the same tax year

• sales of a non-exempt business entity arecontrolled by the other enterprise and theunderlined sales account for 50% or more of thetotal sales of the non-exempt business entity inthe same tax year.

Are advance pricing agreement (APA) optionsavailable?Yes, APA options are available in Taiwan. Beforethe end of the accounting period that thetransactions occur in, the profit-seeking enterprisemeeting all of the criteria below can apply for APAwith prescribed forms:• its aggregate controlled transaction amount has

exceeded TWD 1 billion or controlledtransaction amount for the current tax year isover TWD 500 million

• no significant tax evasions were committed bythe applicant in the past three years

• documentation including a TP report asrequired under article 24 of the TP auditregulations is well prepared

• other criteria approved by the MoF.

Generally, within one month, a written notice willbe delivered to the applicant stating whether the taxauthority accepts the APA application. If the taxauthority accepts the application, the applicantshould present required documentation within onemonth upon the receipt of the written notice. In theevent of the applicant being unable to present thedocumentation within one month, the applicant canfile for an extension, however the extension can notexceed one month. Once the APA is granted, anAPA is effective for three to five years from theyear of application.

Tax audit areasTaiwan tax authorities generally focus on thefollowing areas: low profit margin transactions,transactions carried out that are not in line withordinary business arrangements, cross bordertransactions, surety and loans granted to relatedparties etc.

Contact usFor further information on transfer pricing in Taiwan pleasecontact: Jay Lo T +886 2 2758 2688E [email protected]

88 Global transfer pricing guide – Taiwan

Global transfer pricing guide – United Kingdom 89



Return disclosureTransfer pricing documentation is not included within the tax return but

should be available upon request

DocumentationRequired if certain criteria are met

MethodsMost appropriate method detailed in the OECD guidelines

Audit riskMedium

PenaltiesHigh


• The UK has had transfer pricing rules since1915 and the regulations were incorporated intothe UK’s self-assessment regime for accountingperiods ending on or after July 1999. The rulescan be found at TIOPA1 2010 Part 4.

• Small and medium sized enterprises are exemptfrom transfer pricing requirements, althoughthere are a few exceptions to this general rule.There is also an exemption for some dormantcompanies.

• HMRC consider transfer pricingdocumentation to include primary accountingrecords, tax adjustment records, records ofrelated-party transactions and evidence of anarm’s length result.

• Acceptable transfer pricing methods are basedon the OECD guidelines and should providethe most reliable measure of an arm’s lengthpolicy.

• Acceptable OECD methods to demonstratecompliance with the arm’s length standard arerequired.

• Both a fixed penalty and a tax geared penaltycould be levied should documentation not beavailable.

• Where it is deemed that the inter-companytransaction does not produce an arm’s lengthresult, an upward adjustment can be made byHMRC.

• Taxpayers can go to Competent Authorityunder a double tax treaty in perceived cases ofdouble taxation, and where a double taxationagreements exists, MAP can be sought. Forforward looking agreements on TransferPricing, APAs can be entered into.

• Thin capitalisation is also part of the UKtransfer pricing regime. Any interest on debtborrowed from a related party above the levelthat could be borrowed by an independentparty acting in its own interest is non-deductible. For UK-UK debt funding, acorresponding adjustment can be claimed in thelending company.

United Kingdom

1 Taxation (International and Other Provisions) Act 2010

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?The UK’s current transfer pricing legislation is to befound at TIOPA part 4, and is based on the arm’slength principle as stated in Article 9 of the OECDModel Tax Convention on Income and Capital,which forms the basis of the OECD TransferPricing Guidelines. The rules are not heavilyformulaic but instead are principles based.

The rules apply to UK taxpayers, including UKbranches of overseas companies.

Effective date of commencement of transferpricing regulationsTransfer pricing rules were first introduced to theUK in 1915.

Rulings, laws and guidelinesBesides UK tax legislation in TIOPA 2010 which inturn refers to the OECD Transfer PricingGuidance, July 2010, HMRC has an InternationalManual providing guidance on its view of transferpricing matters.

Is transfer pricing documentation required? Ifso, what information should be included?Yes, documentation is required. For filing purposes,there are four types of documentation that shouldbe kept:• Primary accounting records;• Tax adjustment records;• Record of transactions with associated

businesses; and• Documentation to demonstrate an arm’s length

result.

The documentation requirements are notprescriptive. HMRC’s view is that transfer pricingdocumentation should usually include abackground to the company, a group structure, anoutline of the key intercompany transactions underanalysis, an analysis of the key functions, assets andrisks of the company, an industry analysis and aneconomic analysis including supporting evidencesuch as comparables, if required.

What are the deadlines for documentationpreparation?For corporation tax purposes, it is necessary tokeep primary accounting records and all supportingdocuments needed to deliver a correct and completetax return.

The accounting records are created during theyear period in question. Tax adjustment records,records of inter-company transactions anddocumentation demonstrating an arm’s lengthresult do not need to be prepared at the same timeas the accounting records.

At the time of filing, the taxpayer need not haveassembled its evidence to support that thetransactions are at arm’s length, but it does need tohave reached a conclusion and needs to have a basisof reaching that conclusion. If requested byHMRC, taxpayers usually have a maximum of 30days to produce transfer pricing documentation. Itis recommended that documentation should beupdated every two to three years or upon change tothe business structure or functional analysis.

In which language should documentation befiled?English.

How long is it necessary to keep transferpricing documentation?Transfer pricing documentation must be preserveduntil the latest of six years from the end of theaccounting period, the date on which any enquiryinto the return is completed, or the date on whichHMRC is no longer able to open an enquiry.

Are intercompany agreements recommended?Yes.

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?The UK has a self-assessment regime, where theonus is on the taxpayer to ensure that transferpricing regulations are adhered to. There is a ‘tickbox’ on the tax return form for taxpayers toconfirm their eligibility for the small and mediumsized enterprise exemption from the transfer pricingrule, and a second ‘tick box’ for taxpayers to claimcorresponding adjustments (for UK–UKtransactions). HMRC require taxpayers to makecomputational adjustments in cases wheretransactions, as recorded in the statutory accounts,are not on an arm’s length basis and the taxpayer ispotentially advantaged in respect of UK tax by theactual provision.

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Which transfer pricing methods are acceptable?The most appropriate pricing method should beselected on a transaction by transaction basis,providing the most reliable measure of an arm’slength result in each case. The current OECDmethods are categorised as traditional transactionmethods (Comparable Uncontrolled Price (CUP),Resale Price and Cost Plus) and transactional profitmethods (Profit Split and Transactional Net Marginmethod). Other methods can also be used ifjustifiable and appropriate.

Is there a priority among the acceptablemethods?There is no hierarchy as the UK legislation refers tothe 2010 OECD Transfer Pricing Guidelines,although in practice the CUP or adjusted CUP maybe viewed favourably in the UK.

What is the statute of limitations on assessmentof transfer pricing adjustments?An enquiry into a tax return by HMRC may bemade up to 12 months from the date on which thereturn was filed, providing it was filed on time(unless the company is part of a group which is notsmall, in which case the HMRC can enquire intothe tax return up to 12 months from the due filingdate of the tax return). If the return is filed late, theenquiry can be made anytime up to the quarter datefollowing the first anniversary of the date on whichthe return was filed. The quarter dates are 31January, 30 April, 31 July and 31 October. If noenquiry notice is issued then the tax return may beconsidered as closed. Any adjustment and furtherassessment of profits subject to tax will usually bemade on completion of the enquiry.

HMRC may in certain circumstances make anenquiry on a company which is not a self-assessment (a discovery assessment) under thefollowing circumstances:• if they discover that an amount which ought to

have been assessed has not been assessed• an assessment is or has become insufficient• relief has been given which is or has become

excessive.

From 1 April 2010, discovery assessments can beraised where the loss of tax is classified as follows:• not due to careless or deliberate behaviour – up

to 4 years• careless behaviour of the taxpayer or its agent –

up to 6 years• deliberate behaviour of the taxpayer or its agent

– up to 20 years.

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Penalties in relation to transfer pricingdocumentation relate directly to the general record-keeping requirements. Under these rules, two typesof penalties may apply; penalty for failure to keepor produce documentation and a tax geared penaltyfor a careless or deliberate error. At the time ofwriting, the fixed penalty for failure to keep orproduce documentation is £3,000. The tax gearedpenalty is dependent on whether the inaccuracy isconsidered to be:• careless (maximum penalty of 30% of potential

lost revenue (PLR))• deliberate but not concealed by the taxpayer

(maximum penalty of 70% of PLR)• deliberate and concealed by the taxpayer

(maximum penalty of 100% of PLR).

Where a transfer pricing adjustment reduces a loss(or turns a loss into a profit), then the PLR will becalculated to include any tax due as a result ofchanging the original loss to the correct amount. Ifthe loss has been used to reduce a liability (ie bycarry back or group relief), then the PLR will bebased on this additional amount due. Where there isa reduction in the amount of losses carried forward,a penalty of 10% of the reduction may be due,depending on the likelihood of utilisation of thelosses.

A business may receive a mitigation to a penaltyif it had made a reasonable attempt to demonstratean ‘arm’s length’ result but it was subsequentlyestablished that the appropriate ‘arm’s length’ resultwas different from that reflected in its tax return.

Global transfer pricing guide – United Kingdom 91

Are there exemptions to Transfer Pricing rulesin your country? There are exemptions from transfer pricingdocumentation for small and medium sizedenterprises(SMEs), dormant companies (which havebeen dormant since 31 March 2004 and continue tobe), charities and life assurance companies. Itshould be noted that for the SME exemption onlyapplies if the transactions are between a UKtaxpayer and a related party in a qualifyingterritory, which is broadly a territory which is not atax haven.

The exemption criteria are based on EUrecommendation 2003/361/EC as follows:• small: Less than 50 employees, and either

turnover or gross assets not exceeding €10m• medium: less than 250 employees and either

turnover not exceeding €50m or gross assets ofless than €43m.

HMRC can direct that medium sized enterprisesshould apply transfer pricing rules, though this isuncommon in practice.

Are advance pricing agreement (APA) optionsavailable?APAs may be agreed on a unilateral, bilateral ormultilateral basis. Bilateral and multilateral APAswill only be entered into with countries which theUK has a double taxation agreement in force with amutual agreement procedure clause. APAs areentered into at the discretion of HMRC and it maydecline a taxpayer an APA programme. APAsusually address complex transfer pricing issues orthose for which there is a serious doubt as to themanner by which the transfer pricing rules shouldbe applied.

Where companies are debt funded, an AdvanceThin Capitalisation Agreement (ATCA) can beused to agree an appropriate amount of intra-groupdebt. This will determine the amount of interestthat will be treated as deductible. ATCAs aretypically unilateral agreements.

Tax audit areasIn the UK, tax audits comprise of a mixture ofselected audits and random audits, but mostenquiries are based on the risk profile of thebusiness. HMRC are likely to enquire into thetransfer pricing of a UK business when a UKcompany shows the following in its statutoryaccounts or tax return:• losses• tax planning structures involving low tax

jurisdictions or tax havens• high levels of debt funding• business restructurings, particularly where they

give rise to a tax advantage• transactions in valuable or unique intangible

assets.

Contact usFor further information on transfer pricing in the United Kingdomplease contact:Wendy NichollsT +44 (0)20 7728 2302E [email protected]

92 Global transfer pricing guide – United Kingdom

Global transfer pricing guide – United States 93




DocumentationNot compulsory, but highly recommended


Audit riskHigh

PenaltiesHigh


• The final Transfer Pricing (TP) regulations werepromulgated under Internal Revenue Code(IRC) 482 in July 1994, which was applicable totaxable years beginning after 6 October 1994.

• Taxpayers with intercompany transactions mustdisclose detailed information on controlledtransactions with foreign entities via forms 5471and 5472 which are submitted along with theirtax returns.

• Contemporaneous documentation is requiredfor penalty protection under Reg. § 1.6662-6.

• The United States apply the best methodapproach for conducting TP analysis.

• Acceptable TP methods for tangible andintangible property transfers includeComparable Uncontrolled Price(CUP)/Comparable Uncontrolled Transaction(CUT), resale price, cost plus, comparableprofit, profit split and unspecified methods thatcomply with the arm’s length principle.

• Acceptable TP methods for the provision ofservices include services cost, comparableuncontrolled services price, gross servicesmargin, cost of services plus, comparableprofits, profit split, and unspecified methods.

• The penalty on transfer pricing assessment is20% or 40% of additional tax resulting fromadjustments exceeding objective thresholds.Interest is also assessed from the due date of theoriginal filing and the interest payable isdetermined under US domestic tax rules.

• Multilateral, bilateral and unilateral APAs areavailable under rev. proc. 2006-9. The APAfiling fees are varied based on the size of thebusiness as well as whether the APA is anoriginal or renewed one. An effective APA cancover five years with longer terms beingconsidered as appropriate.

United States

Does your country have transfer pricing rulesvs. ruling, laws and guidelines?Yes, the predecessor to IRC 482 was issued in 1934which was later amended in the tax reform act of1986. Since then, the IRS has introduced severalproposed and temporary regulations to sec. 482,including the 1994 final regulations, which arecurrently in effect. Most recently, the IRS hasadopted final cost sharing regulations under reg.§1.482-7, which became effective on 19 December2011 and final services regulations under reg.§1.482-9, which became effective 17 August 2009.

Effective date of commencement of transferpricing regulationsThe final transfer pricing regulations are effective asof July 1994 in the US.

Rulings, laws and guidelinesIRC §482, reg. §1.482, and reg. §1.6662-6. Revenue Procedure (Rev. Proc.) 2006-54, Rev. Proc.99-32, and Rev. Proc. 2006-9

Is transfer pricing documentation required? Ifso, what information should be included?No. Submitting a contemporaneous transfer pricingdocumentation study to the tax authority is usedonly for penalty protection purposes. However,failure to prepare contemporaneous documentationcan result in penalties of 20% to 40% of anyadjustment levied.

In order to achieve penalty protection, certainprincipal documents are required, and those are: anoverview of the taxpayers business, a description ofthe organisational structure, documents explicitlyrequired by the regulations, a description of themethod selected and an explanation of why thatmethod was selected, a description of the alternativemethods that were considered and an explanationof why they were not selected, a description of thecontrolled transactions and any internal data usedto analyse them, a description of the comparablesand comparability considerations used, anexplanation of the economic analysis andprojections relied upon in developing the method, adescription or summary of any relevant data thatthe taxpayer obtains after the end of the tax yearand before filing a tax return and finally a generalindex of the principal and background documents.

What are the deadlines for documentationpreparation?The study should be prepared contemporaneouslywith the filing of the US tax return for the fiscalyear under consideration to qualify for penaltyprotection. In the event that the tax authorityrequests documentation, it must be presentedwithin 30 days of the request.

94 Global transfer pricing guide – United States

1 The IRS considers its transfer pricing laws and regulations to be wholly

consistent with OECD transfer pricing guidelines (OECD guidelines).

However, for domestic use, the OECD guidelines do not provide support,

and would not be directly relevant, to the application of any pricing

methods.

In which language should documentation befiled?TP documentation should be filed in English.

How long is it necessary to keep transferpricing documentation?TP documentation should be kept for the threemost recent tax years open for assessment under theIRS statute of limitations.

Are intercompany agreements recommended?It is recommended that taxpayers document theirintercompany transactions and transfer pricingpolicies through intercompany agreements.

Do you have to make disclosures about transferpricing in the tax return? What statements orcertifications are required?Yes, taxpayers are required to complete form 5471and 5472, providing detailed information oncontrolled transactions with foreign entities.Additionally, reg. §1.482-7(k)(4) requires acontrolled participant to file a cost sharingstatement with the IRS within 90 days after the firstoccurrence of intangible development costs, and tomake specified disclosures on its annual tax return.The new IRS schedule of Uncertain Tax Positions(UTP) is required for certain taxpayers beginningwith 2010 tax returns.

Which transfer pricing methods are acceptable?Tangible property transfers: CUP method, resaleprice method, cost plus method, profit splitmethods (comparable and residual), comparableprofits method (comparable to the OECDtransactional net margin method), and unspecifiedmethods.

Intangible property transfers: CUT method,comparable profits method, profit split method,and unspecified methods. For platformcontribution payments: the CUT method, incomemethod, acquisition price method, marketcapitalisation method, and unspecified methods areallowed.

Provision of services: services cost method,comparable uncontrolled services price method,gross services margin method, cost of services plusmethod, comparable profits method, profit splitmethod, and unspecified methods.

Is there a priority among the acceptablemethods?There is no priority among the acceptable methodsas long as the result is at arm’s length and themethod most appropriately measures thetransaction based on the facts and circumstances ofthe case.

What is the statute of limitations on assessmentof transfer pricing adjustments?Transfer pricing adjustments can be assessed threeyears from the original due date or filing date of thetax return, whichever is later. For substantialomissions of income, the period is extended to sixyears. In cases of non-filing or fraud, the period isunlimited.

Global transfer pricing guide – United States 95

What rates and conditions apply for transferpricing penalties? And is there penalty relief?Taxpayers may be liable for either a 20% or 40%penalty for underpayment of tax, as a percentage ofthe underpayment, or the penalty may apply to avaluation misstatement. There is no penalty forfailure to have documentation; however,documentation may help avoid penalty under reg.§1.6662-6. Documentation does not assist inavoiding adjustments, but rather in avoiding theadditional 20% to 40% penalty that may resultfrom adjustment along with challenge by the IRS inthe event of an audit.

Is there penalty relief?Yes, penalties may be avoided by disclosure on IRSform 8275, of disregarding rules or regulations andof a substantial understatement of income tax.

Are there exemptions to Transfer Pricing rulesin your country? No. Any firm with controlled internationaloperations and intercompany transactions is subjectto the TP regulations. For TP purposes, thedefinition of control, includes all kinds of control,direct or indirect, whether legally enforceable ornot. The reality of the control is decisive, not theform in which it is exercised.

Are advance pricing agreement (APA) optionsavailable?Unilateral, bilateral and multilateral APAs areavailable. Pre-filing meetings can be organised withthe Advance Pricing and Mutual Agreement(APMA) Program personnel in order to discuss thecase before a formal APA request is made. Thesemeetings may occur on an anonymous basis, butthe taxpayer must disclose its identity uponapplying for an APA.

Tax audit areasTransfer pricing is typically a key issue in any taxaudit. In general, risk for transfer pricing scrutinyduring an audit is high, particularly wheninternational transactions are considerable. The UStax authority has also classified CSAs andintellectual property transactions as tier 1, or high-risk, transactions requiring additional scrutinyduring an audit. Documentation will often berequested at the onset of any audit related tointernational issues, but experience has shown thatadequate documentation will often reduce furtherchallenges from the tax authority.

Contact usFor further information on transfer pricing in the United Statesplease contact:David BowenT +1 202 521 1580E [email protected]

96 Global transfer pricing guide – United States

AustraliaJason CasasT +61 3 8663 6433E [email protected]

CanadaPeter KurjanowiczT +1 416 369 7036E [email protected]

Canada – RCGTDaniel MarionT +1 514 954 4625E [email protected]

China Rose ZhouT +86 21 2322 0298E [email protected]

Czech Republic Helmut HetlingerT +420 296 152 229E [email protected]

France Alexis MartinT +33 (0)1 53 42 61 76E [email protected]

Elvre Tardivon-LorizonT +33 (0)1 53 42 61 60E [email protected]

Patricia MaloccoT +33 (0)1 53 42 61 43E [email protected]

Germany Harald MüllerT +49 211 9524 8139E [email protected]

Guernsey Mark ColverT +44 (0)1481 753 400E [email protected]

Hungary Waltraud KörblerT +36 1 4552000E [email protected]

India Karishma R. PhatarphekarT +91 22 5695 4861E [email protected]

IrelandPeter ValeT +353 (0)1 680 5952E [email protected]

Italy Paolo BesioT +39 02 76 00 87 51E [email protected]

Japan Toshiya KimuraT +81 3 5770 8829E [email protected]

Jersey John ShentonT +44 (0)1534 885 885E [email protected]

Korea Dong-Bum KimT +82 2 2056 3706E [email protected]

Netherlands Michiel van den BergT +31 (0) 182 53 19 22E [email protected]

New Zealand Greg ThompsonT +64 (0)4 495 3775E [email protected]

Portugal Joaquim L. MendesT +351 21 413 46 31E [email protected]

Pedro Ferreira SantosT +351 21 413 46 33E [email protected]

Russia Alexander SidorenkoT +7 495 258 99 90E [email protected]

Slovak Republic Dr. Wilfried SerlesT +421 2 59 300 400E [email protected]

Spain Gabriel YakimovskyT +34 93 206 39 00E [email protected]

Sweden Per HedrénT +46 (0)8 563 072 63E [email protected]

Taiwan Jay LoT +886 2 2758 2688E [email protected]

United Kingdom Wendy NichollsT +44 (0)20 7728 2302E [email protected] United States David BowenT +1 202 521 1580E [email protected]

Contacts

Global transfer pricing guide 97

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