Tax Review

GLOBAL TRANSFER PRICING SERVICES
Global Transfer
Pricing Review
Evolving regulation
kpmg.com/gtps
TAX
Contents
Introduction 3
Country Snapshots 4
Country Overviews 10
Glossary of Terms 308
Find out more 310

Introduction
The Organisation for Economic Co-operation and Development
(OECD) and its Base Erosion and Profit Shifting (BEPS) 15 Point
Action Plan is one of, if not, the focus of tax authorities around
the world and businesses with global operations.
The underlying rationale of the Action Plan is that globalization of the world economy has
resulted in multinational enterprises shifting from country-specific models to global models with
integrated supply chains, centralization of service functions, location of activities that are distant
from the physical location of customers and increasing delivery of service and digital products
over the internet.
Transfer pricing is of utmost importance and central in not only the BEPS Action Plan, but many
other changes in international tax rules and regulation happening at lightning speed. KPMG’s
Global Transfer Pricing Services (GTPS) practice is an active contributor to the development and
implementation of positive change in the international tax system.
This 2014 edition of KPMG International’s Global Transfer Pricing Review provides a wealth
of transfer pricing information from over 100 countries, and highlights for each country:
documentation requirements, deadlines, transfer pricing methods, penalties, special
considerations, advance pricing arrangements, and competent authority matters.
Visit www.kpmg.com/gtps for additional, real-time transfer pricing news and updates.
Country
Snapshots
Country Snapshots | 5
The following countries are those which currently do not have transfer
pricing regulation, or guidance surrounding their transfer pricing
regulations is still evolving.
Country Answer
Armenia There are no specific transfer pricing regulations in Armenia. However, several provisions of tax
legislation (particularly calculation of tax liabilities by the tax authority through indirect methods) are
connected with transfer pricing.
Currently the Draft Law on transfer pricing is under the consideration of the National Assembly of
Armenia. This is an amended Draft Law on transfer pricing as the previous Draft Law presented to the
National Assembly in 2013 was not passed.
Aruba As of 1 January 2008 the arm’s length principle (ALP) rules have been codified in the Aruban profit tax
ordinance. Prior to the codification only parties who were related through shareholding had to comply
with this principle. As from the date above, if a corporate entity or individual participates, directly
or indirectly, in the management, supervision or the capital of two or more corporate entities, the
conditions related to all transactions between these affiliated parties should be at arm’s length. The ALP
is applicable on all transfer pricing between affiliated companies with regard to all mutual legal relations
(e.g. purchase prices, management fees, remunerations for services provided, royalty paid etc.).The
conditions should be the same as they would have been if the same transaction would take place with a
third party.
A documentation obligation was also introduced in the profit tax ordinance. The explanatory notes on
the bill state that for the meaning and application of the arm’s length principle and the documentation
obligation, Organisation for Economic Co-operation and Development (OECD) Guidelines should be
considered. The documentation obligation is not only applied to affiliated transactions after 1 January
2008, but also on (long-term) contracts prior to this date. The documentation obligation is therefore
applicable at the moment that a transaction takes place. The explanatory memorandum on the bill
indicates that tax subjects should be allowed a reasonable period to produce such documentation if such
is not present when requested. Non-compliance to the documentation obligation leads to a reversed
burden of proof to the taxpayer.
Finally, since the OECD Guidelines are quite extensive and also considering the small scale economy
of Aruba, it is still unclear to what extent these guidelines are to be followed. The legislature has not
elaborated on this up to this moment.
Bahamas There are no transfer pricing regulations in Bahamas. However, Bahamas Customs does have the right to
re-assess the declared value of imports if they believe such value is not based on commercial terms.
Belarus In the Republic of Belarus transfer pricing regulations allow the tax authorities to correct the Corporate
Profit Tax Base in the following cases:
• sale of immovable property if the transaction price deviates downward by more than 20 percent
of its market value
• goods amounting to more than 60 billion Belarusian ruble (BYR) are sold by Belarusian taxpayer to
a foreign entity or individual and the applied price deviates from the market price by more than
20 percent.
Botswana Botswana has no transfer pricing rules. However, in terms of the domestic law, the Commissioner
General has the power to adjust the liability of the taxpayer where the Commissioner General has the
opinion that a transaction, scheme or operation has not been entered into or carried out by persons
dealing at arm’s length and has the effect of avoiding, reducing or postponing tax liability.
6 | Global Transfer Pricing Review
Country Answer
Brunei There are currently no transfer pricing regulations in Brunei Darussalam.
Darussalam
Cambodia Currently, there are no Directives, Circulars or Rulings issued by the Cambodian Tax Office in respect
of transfer pricing regulations. However, the Tax Laws (Article 18) give power to the Tax Office to re-
determine ‘related parties’ transactions. A related party relationship is one where there is a 20 percent
or more shareholders relationship.
Article 18 of the Tax Laws states that “In the case of two or more enterprises, whether incorporated in or
outside of the Kingdom of Cambodia, which are under common ownership, the tax administration may
as may be necessary distribute, gross income, deductions or other benefits among such enterprises
and their owners in order to prevent the avoidance or evasion of taxes or to clearly reflect the income of
such enterprises, or their owners.”
Through using the power of the ’related party’ provisions, the Tax Office has adopted a very aggressive
approach to the tax audit of related party transactions.
Cayman Islands No standing transfer pricing regulations exist.
Curaçao Curaçao obtained the autonomous status (status aparte) and became separate country within the
Kingdom of the Netherlands on 10 October 2010.
Until new legislation is adopted, Curaçao generally maintains the former tax regulations of the
Netherlands Antilles (which ceased to exist on 10 October 2010). Although no specific regulations have
been introduced, transactions between related parties should be at arm’s length.
Georgia The new Tax Code of Georgia (TCG), effective as of 1 January 2011, contains a specific chapter on
transfer pricing with rules based on the OECD arm’s length principle and OECD methods.
The TCG states that guidance on the application of transfer pricing rules is to be issued by the
Minister of Finance of Georgia (MOF). The TCG provides for the possibility of concluding an Advance
Pricing Agreement (APA) with the Revenue Service to confirm the prices to be used for transfer
pricing purposes. In December 2013, MOF issued an instruction on ’Pricing International Controlled
Transactions’ defining transfer pricing methods and their application, comparability criteria,
documentation requirements, information sources on arm’s length prices, procedure for application
of arm’s length range, procedures on advance pricing agreements and other procedural issues. This
instructions are effective from 18 December 2013.
Kazakhstan Kazakhstan has a transfer price law specifying a hierarchy of transfer pricing methodologies that
taxpayers must use. The first instance is that the comparable uncontrolled price (CUP) method, being
the methodology, must be used. Any other method of establishing market price can be used only if it is
impossible to use the CUP method.
The law further stipulates that any cross-border transaction (except sales and purchases of agricultural
goods) with a transaction price deviating from market price may be reviewed, regardless of whether it
occurs between related parties. Cross-border sales and purchases of agricultural goods are subject to
transfer price scrutiny only if the transaction price deviates from market price by more than 10 percent.
The transfer price law also stipulates the rules that specify pricing of uranium, titanium and magnesium
products. The recent updates to the law refer to the implementation of the rules on pricing of oil and gas
products being sold under production-sharing agreements.
APAs are in principle envisaged by the law, but the tax authorities are extremely reluctant to conclude them.
Country Answer
Kuwait Kuwait does not currently have formal transfer pricing regulations. However, Executive Rule No. 49
issued by the Kuwait Tax Authority (KTA) provides that the KTA is entitled to verify that intra-group
transactions are conducted on an arm’s length basis and not for the purpose of obtaining illegal tax
privileges. In such a case, the intra-group transactions of related companies shall be compared in
accordance with the arrangements between companies that are not legally or financially related.
Furthermore, depending on the nature of the relationship between the supplier/service provider and the
acquirer with respect to a transaction, KTA deems certain percentage of the costs or services rendered
outside Kuwait as inadmissible. The percentage of disallowance depends on the nature of relationship
between the foreign company and the purchaser as shown below:
• Material and equipment cost imported from abroad is restricted as per the following percentages,
according to Executive Rule No. 25 of the Kuwait Tax Law No. 2 of 2008 (Executive Rules updated
2013):
Material imported from Maximum cost to be allowed as a Percentage of related revenue

Head office 85 percent
Affiliates 90 percent
Third parties 95 percent
Source: The above information is based on Executive Rule 25 of 2008, issued by the Kuwait Tax Authority.
• Design and consultancy cost incurred abroad is restricted as per the following percentages
according to Executive Rule No. 26 of the Kuwait Tax Law No. 2 of 2008 (Executive Rules updated
2013):
Engineering costs from Maximum design cost to be Maximum consultancy cost to

allowed as a percentage of be allowed as a percentage of
related revenue related revenue
Head office 75 percent 70 percent
Affiliates 80 percent 75 percent
Third parties 85 percent 80 percent
Source: The above information is based on Executive Rule 26 of 2008, issued by the Kuwait Tax Authority.
Macedonia Generally, the Macedonian tax legislation does not have explicit transfer pricing provisions regarding the
documentation methods for the determination of transfer prices. The respective provisions are quite
general i.e. that the tax authorities can request a taxpayer to provide information and evidence that the
conditions under which the transfer prices are set are at arm’s length.
Transfer pricing provisions in the Macedonian Corporate Profit Tax Law stipulate revenues and/or
expenses incurred on transactions between related parties are recognized for tax purposes at market
prices, whereby the Law prescribes the CUP or the cost plus method (CPM) as the basis for determining
any differences. The definition of related parties is provided in the Macedonian Trading Companies’ Law.
In addition, the Macedonian Personal Income Tax Law provides that expenses incurred between related
parties are recognized for tax purposes up to the level of the prices which would have been agreed
on the domestic market (i.e. the Macedonian market) or on a comparable foreign market between
unrelated parties.
Country Answer
Malawi Malawi has standing transfer pricing regulations under Chapter 41:01 (Taxation Act) of the laws of the
land. The Malawi Revenue Authority (MRA) is currently enhancing their transfer pricing practice with an
initial focus on the sugar and tobacco industry and also the manufacturing industry.
Provision of information to the Commissioner General
The Malawi Government enacted the regulations governing transactions that involve transfer pricing
in 2009.
Although the regulations were approved in the 2009 financial year, the regulations only came into use
(now known as Taxation Transfer Pricing Regulations 2009) after being gazetted in the Government
Official Gazette. The MRA will be guided by the regulations when dealing with transfer pricing tax issues.
The regulations:
• provide guidelines to be applied by enterprises in determining the arm’s length prices of goods
and services in transactions involving them
• provide administrative rules, including the types of records and documents to be submitted to the
Commissioner General by the person involved in transfer pricing arrangements.
These regulations are applicable to:
• transactions between associated enterprises within a multinational company where one company
is a Malawi taxpayer
• transactions between a permanent establishment and its head office or related branches in
Malawi and in that case the permanent establishment will be treated as a distinct and separate
enterprise from its head office and related branches.
The transactions subjected to the adjustment of prices under these regulations shall include:
• the sale or purchase of goods

• the sale, purchase or lease of tangible assets
• the transfer, purchase or use of intangible assets
• the provision of services
• the lending or borrowing of money
• any other transactions which may affect the profit or loss of the enterprise involved.
A taxpayer may choose a method to employ in determining the arm’s length pricing provided the
methods used comply with Section 127A of the Taxation Act and such methods are appropriate for the
enterprise having regard to the nature of transaction, class of transaction or class of the related persons
or function performed by such persons in relation to the transaction.
Taxpayer may choose among the following:
• the CUP method

• the RP method
• the CP method
• the profit split method
• the transactional net margin method (TNMM)
• any such other method as may be prescribed by the Commissioner General form time to time
when computing acceptable prices in view of the transfer pricing regulations currently in use.
The Commissioner General may, where necessary, request the person, to whom these regulations
apply to provide information, including books of accounts and other documents relating to transactions
where transfer pricing is applied.
Country Answer
Mauritius No transfer pricing regulations in Mauritius. Transactions between related parties should be at arm’s
length.
Saint Maarten Saint Maarten obtained the autonomous status (status aparte) and became a separate country within
the Kingdom of the Netherlands on 10 October 2010.
Until new legislation is adopted, St. Martin generally maintains the former tax regulations of the
Netherlands Antilles (which ceased to exist on 10 October 2010). Although no specific regulations have
been introduced, transactions between related parties should be at arm’s length.
Trinidad and Currently, there are no transfer pricing regulations in Trinidad and Tobago.
Tobago
However, the Income Tax Act provides that where the Board of Inland Revenue is of the opinion that any
transaction which reduces or would reduce the amount of tax payable by a person is artificial or fictitious,
the Board may disregard such transaction and the person concerned shall be assessable accordingly.
Furthermore, the government recently indicated it would be introducing a transfer pricing regime based
on the principles embodied in the OECD Guidelines.
United Arab There are currently no transfer pricing regulations applicable in the UAE.
Emirates
Zimbabwe For all trading transactions, there is general anti-avoidance legislation that the Commissioner could use if
transactions do not occur at arm’s length.
Country
Overviews
Andorra | 11
Andorra
KPMG observation
The corporate income tax and transfer pricing rules are applicable to Andorran
taxpayers for fiscal years started on or after 1 January 2012. Thus, it is not yet clear
how the Andorran tax authorities will address transfer pricing matters, interpret
the new regulations or engage in tax audits. The transfer pricing regulations do not
establish documentation requirements for Andorran taxpayers, although they refer to
the arm’s length principle as the standard to price controlled transactions.
Basic information or more; for publicly-traded entities, What types of transfer pricing
when the participation is equal or information must be disclosed?
Tax authority name greater than three percent) Not applicable.
Tax Administration (Administració
• an entity and its board members,
tributària). What are the consequences
as well as the relatives of the board
members up to the third-degree of failure to prepare or submit
Citation for transfer pricing rules disclosures?
Legislation: Article 16 of the corporate • an entity that holds an indirect Not applicable.
income tax law (CITL) (Law 95/2010, participation equal to, or greater than,
dated 29 December 2010) modified by 25 percent of another entity
Law 17/2011, dated 1 December 2011. Transfer pricing study
• two entities that are part of a group
Regulations developing CITL: Decree, overview
dated 13 June 2012. • an entity and its permanent
establishments. Is preparation of a transfer pricing
Effective date of transfer pricing study required – i.e. can the
rules What is the statute of limitations taxpayer be penalized for mere
on assessment of transfer pricing failure to prepare a study?
The transfer pricing rules are applicable
adjustments? No. However, Article 16.6 of the CITL
to taxpayers on fiscal years started on or
after 1 January 2012. Three years following the final date to file establishes that interest expenses
the tax return. accrued on intra-group loans may only
What is the relationship threshold be considered deductible if the taxpayer
for transfer pricing rules to apply proves that they were in line with the
between parties?
Transfer pricing arm’s length principle.
Generally, two entities are considered
disclosure overview
Other than complying with a
related parties when the same individuals Are disclosures related to transfer
requirement per the previous
or legal entities, directly or indirectly, pricing required to be prepared or
question, describe the benefits, if
manage, hold an equity investment or submitted to the revenue authority
any, of preparing and maintaining a
otherwise control both entities. on an annual basis (e.g. with the tax
transfer pricing study?
return)?
The Andorran tax regulations specifically Evidence of the arm’s length principle
state that the following relationships The corporate income tax return does
applied to a transaction. This is relevant
trigger the consideration of related parties: not require the disclosure of controlled
for Andorran tax authorities but also from
transactions, although a schedule requires
the perspective of the counterparty’s tax
• an entity and its shareholders (for the identification of the taxpayer’s
authority.
non-publicly traded entities, when participation and/or ownership of other
they hold a participation of 15 percent legal entities as of fiscal year end.
To satisfy the requirement and/or If an adjustment is sustained, can Is there a preference, or

obtain the benefits, are there any penalties be assessed? If so, what requirement, by the tax authorities
requirements on when the transfer rates are applied and under what for local comparables in a
pricing study must be prepared and conditions? benchmarking set?
submitted? Penalties are only referred to in the There is no experience yet.
No. General Tax Code and may range
from 50 percent to 150 percent of the Do tax authorities have
When a transfer pricing study is additional tax base that arises from requirements or preferences
prepared, should its content follow the adjustment. The percentage of regarding databases for
Chapter V of the Organisation the penalty may be determined by comparables?
for Economic Co-operation and the tax authorities considering the There is no experience yet.
Development (OECD) Guidelines? following circumstances of the taxpayer:
Yes. good faith, economic capacity, prior What level of interaction do tax
infringements of tax regulations, authorities have with customs
Does the tax authority require an obstruction to the tax audit process, authorities?
advisor/tax practitioner to have spontaneous compliance by the There is no experience yet.
specific designation in order to taxpayer, the taxpayer’s agreement to the
prepare or submit a transfer pricing proposed adjustment, relevance of the Are management fees deductible?
study? infringement and adjustment amount. Yes.
No.
There is no specific reference on how
Are management fees subject to
penalties would be applied in the case of
withholding?
Transfer pricing methods a transfer pricing adjustment and there is
no experience. There are reasons to think Yes, 10 percent of the amount.
Are transfer pricing methods outlined
that unless the adjustment is based on
in Chapter II of the OECD Guidelines Are year-end transfer pricing
tax evasion, tax authorities might take
acceptable? adjustments permitted?
the view that the adjustment does not
Yes. The regulations refer to the OECD levy penalties based on the nature of the Although there is no experience yet,
Guidelines regarding transfer pricing transfer pricing adjustment. there is nothing in the legislation that
methods. prohibits year-end adjustments.
To what extent are transfer pricing
Is there a priority among the penalties enforced? Other unique attributes?
acceptable methods? The Andorran CITL includes special
At this time, Andorran tax authorities
No. have only just initiated limited audits regimes applicable to Andorran entities
of local taxpayers (as far as we know, that engage in certain cross-border,
If there is no priority of methods, is intercompany transactions:
the audits did not involve related-party
there a “best method” rule?
transactions). • Regime for entities engaged in the
The regulations refer to the OECD
cross-border license of intangible
Guidelines regarding transfer pricing What defences are available with
assets and/or provision of cross-
methods and their selection. respect to penalties?
border, intercompany services.
Documentation. Advance Pricing
• Regime for entities engaged in
Transfer pricing audit and Agreements (APAs) are also available.
intercompany financing activities.
penalties What trends are being observed
Both special regimes require prior
When the tax authority requests currently?
approval from the tax authorities, and
a taxpayer’s transfer pricing The Andorran tax authority is in the provide for an 80 percent reduction of
documentation, how long does process of developing its capacity and the relevant tax base. In both instances,
the taxpayer have to submit its skill set to adapt to the new tax regime. the approval from the tax authorities is
documentation? The Andorran tax authorities have only required (we expect that this process
Not applicable. started performing some limited scope will be similar to that of rulings in other
audits, as the corporate income tax was jurisdictions) and thus, we anticipate that
If an adjustment is proposed by the only applicable to fiscal years starting on the transfer prices will need to be set at
tax authority, are dispute resolution or after 1 January 2012. arm’s length and tested under one of the
options available to the taxpayer OECD transfer pricing methods.
outside of competent authority?
Special considerations
The taxpayer may appeal against the
proposed adjustment before the Andorran Are secret comparables used by tax Other recent
courts. Dispute resolutions will depend on authorities? developments
treaties to be signed in the future. There is no experience yet but it is Not applicable.
anticipated that secret comparables will
not be used.
Andorra | 13
Tax treaty/double tax Please provide some information

on how successful the APA program
resolution is and whether there are any known
What is the extent of the double tax difficulties?
treaty network? The APA regime was introduced by
Minimal. The tax treaties signed so far the CITL and the regulations were only
refer to the exchange of information. Tax published in June 2012. Because the
treaties with France and Spain are being corporate income tax is applicable only
negotiated. since January 2012, the APA program has
not been active to date.
If extensive, is the competent
authority effective in obtaining
double tax relief? Language
No experience. In which language or languages can
documentation be filed?
When may a taxpayer submit an Catalan.
adjustment to competent authority?
No experience.
May a taxpayer go to competent

authority before paying tax?
No experience.
Advance pricing
agreements
What APA options are available, if
any?
Unilateral, bilateral and multilateral.
Is there a filing fee for APAs?

There is no experience yet.
Does the tax authority publish APA

data either in the form of an annual
report or through the disclosure of
data in public forums?
No.
KPMG in Andorra
Montserrat Trapé
Tel: +93 253 29 36
Email: mtrape@kpmg.es
Elisenda Monforte
Tel: +34 932 542 311
Email: emonforte@kpmg.es
As email addresses and phone numbers change

frequently, please email us at transferpricing@
kpmg.com if you are unable to contact us via the
information noted above.
Angola
KPMG observation
Within the ongoing tax reform in Angola, the Presidential Decree no. 147/13 was
published in the National Gazette in October 2013, introducing into the Angolan
tax framework the Major Taxpayers Statute, which includes both the tax group
relief regime and the transfer pricing regime.
The new transfer pricing rules are applicable to all domestic and cross-border
commercial and financial transactions established between the taxpayer and its
related entities beginning or occurring on or after 1 January 2013.
Transfer pricing documentation is required in Angola for taxpayers with an annual
turnover (defined by the sum of sales and provision of services) equal to or greater than
7 billion Angola Kwanza (AOA) (70 million United States dollars (USD)), as well as for those
which are included in the Major Taxpayers List, according to Order no. 472/14, published in
the National Gazette last February 28. Additionally, all the financial, oil and gas, diamond and
telecommunication companies are subject to transfer pricing obligations in Angola.
The transfer pricing documentation must be prepared and submitted to the National Directory
of Taxes by the end of the sixth month after the fiscal years’ closing date.
Basic information their spouses, ascendants or • when one entity finances the other
descendants, hold directly or in over 80 percent of its credit
Tax authority name indirectly a participation not less portfolio.
Direcção Nacional de Impostos (DNI). to 10 percent of the capital, or the
voting rights in the other entity What is the statute of limitations
Citation for transfer pricing rules on assessment of transfer pricing
• when the majority of the members adjustments?
Presidential Decree (Decreto
on the Board of Directors or
Presidencial) no. 147/13 of 1 October Generally, 5 years from the last day of the
management are the same persons
2013 and Order (Despacho) no. 472/14 of tax year-end.
or, being different persons, are
28 February 2014.
related by marriage, non-marital
Effective date of transfer pricing partnership or direct kinship Transfer pricing
rules • when the entities are bound by a disclosure overview
1 January 2013. subordination contract Are disclosures related to transfer
• when the entities are in a pricing required to be prepared or
What is the relationship threshold submitted to the revenue authority
for transfer pricing rules to apply relationship of domination or
reciprocal participation relationships, on an annual basis (e.g. with the
between parties? tax return)?
as well as bound by subordination
For Angolan transfer pricing purposes, or parity group contracts or Yes.
there is a special relationship when one any equivalent effect under the
entity has the power to exercise, directly Commercial Companies Law What types of transfer pricing
or indirectly, a significant influence in the (Lei das Sociedades Comerciais) information must be disclosed?
management of the other.
The transfer pricing documentation must
• when there are commercial
According to the Angolan legislation, any be prepared and submitted to DNI and
relations between two entities
of the following conditions define a special should contain the following structure:
representing more than 80 percent
relationship: of one of the entities’ total volume • summary
• when the directors or management of transactions
• macroeconomic overview
of a company, as well as
Angola | 15
• company description • efficient tool in order to document If there is no priority of methods, is

the costs incurred and to ensure their there a “best method” rule?
• functional analysis
tax deductibility Not applicable.
• identification of related-party
• data or studies might may be
transactions
complementary to the foreign Transfer pricing audit and
• economic analyses of related-party exchange control requirements next penalties
transactions. to the National Angola Bank or other
regulators When the tax authority requests
What are the consequences a taxpayer’s transfer pricing
of failure to prepare or submit • support the company in the documentation, how long does
disclosures? realignment of its activities, risks the taxpayer have to submit its
and assets. documentation?
The Angolan Tax Reform is underway
and, for this reason, there are no To satisfy the requirement and/or Usually 15 days after request.
specific transfer pricing penalties in obtain the benefits, are there any
case of failure to present transfer pricing requirements on when the transfer If an adjustment is proposed by the
documentation within the timeframe. In pricing study must be prepared tax authority, are dispute resolution
this case, the general tax penalties will and submitted? options available to the taxpayer
be applied. outside of competent authority?
Transfer pricing documentation must
General tax penalties applied for No.
be prepared and submitted to the
providing incorrect or incomplete National Directory of Taxes by the end
If an adjustment is sustained, can
information in tax disclosures or other of the sixth month after the fiscal years’
penalties be assessed? If so, what
relevant documents for tax purposes closing date.
rates are applied and under what
can vary between 50 percent and
In Angola the fiscal years’ closing date conditions?
200 percent of the unpaid tax.
corresponds to the civil year, which means Transfer pricing adjustments are
that the transfer pricing documentation regulated by the general tax penalty
Transfer pricing study must be submitted by 30 June. regime. If an adjustment is sustained,
overview When a transfer pricing study is
general penalties may be assessed,
which can vary between 50 percent and
Is preparation of a transfer pricing prepared, should its content follow
200 percent of unpaid taxes. In addition,
study required – i.e. can the Chapter V of the Organisation
compensatory interest will be accrued
taxpayer be penalized for mere for Economic Co-operation and
at a 2.5 percent monthly rate for late
failure to prepare a study? Development (OECD) Guidelines?
payment.
Yes, for certain taxpayers. The Yes.
preparation and submission of transfer To what extent are transfer pricing
pricing documentation to the National Does the tax authority require an penalties enforced?
Directory of Taxes by the end of the advisor/tax practitioner to have With the recent introduction of the
sixth month after the fiscal years’ specific designation in order to transfer pricing regime in Angola, it
closing date is required for Angolan prepare or submit a transfer pricing is expected the beginning of transfer
taxpayers with an annual turnover study? pricing audits and, consequently, an
greater than or equal to AOA7 billion enforcement of transfer pricing penalties.
(USD70 million), for those which are No.
included in the Major Taxpayers List, What defences are available with
as well as for all the financial, oil and Transfer pricing methods respect to penalties?
gas, diamond and telecommunication Documentation is the basis for penalty
companies. Are transfer pricing methods
outlined in Chapter II of the OECD protection. A taxpayer is expected to
Guidelines acceptable? capture all justification in the transfer
pricing documentation in order to
requirement per the previous Yes, with some exceptions.
demonstrate the arm’s length nature of
The transfer pricing regime in Angola only prices agreed on intra-group transactions.
foresees the possibility of application Nevertheless, there is no practical
of the following traditional transactional experience yet.
The benefits are as follows:
methods to determine the arm’s length
principle, namely, (i) Comparable What trends are being observed
• penalty protection
Uncontrolled Price Method; (ii) Resale currently?
• shifting burden of proof Price Method, and (iii) Cost-Plus Method. Since the transfer pricing regime in
• reduced tax exposures Angola is new, the National Directory
Is there a priority among the of Taxes is investing significantly in the
• reduced risk of adjustment acceptable methods? development of technical skills and other
Not applicable. resources to ensure enforcement of the
new rules.
Moreover, the publication of the Major Are management fees subject to May a taxpayer go to competent
Taxpayers List is one of the indicators withholding? authority before paying tax?
that the National Directory of Taxes Yes, at 5.25 percent general rate. For Not applicable.
wants to focus its efforts in specific companies operating in the oil and gas,
groups of companies, namely those the withholding tax rate is equal to
included in financial, oil and gas, diamond 5.75 percent.
Advance pricing
and telecommunication sectors. agreements
Are year-end transfer pricing
What advance pricing agreement
Special considerations adjustments permitted?
(APA) options are available, if any?
Are secret comparables used by tax No evidence.
No APAs or advance rulings of any kind
authorities? are available.
Other unique attributes?
No evidence.
None.
Is there a preference, or
requirement, by the tax authorities Other recent Not applicable.
for local comparables in a
benchmarking set? developments
With the tax reform ongoing in Angola, Does the tax authority publish APA
No. Comparable data of Angolan
the government is starting to focus its data either in the form of an annual
companies is not publicly available.
efforts on training its team on transfer report or through the disclosure of
pricing issues in order to properly face data in public forums?
Do tax authorities have
requirements or preferences the new challenges on this matter. Not applicable.
regarding databases for
Please provide some information
comparables? Tax treaty/double tax on how successful the APA program
No evidence. resolution is and whether there are any known
What level of interaction do tax
authorities have with customs treaty network? Not applicable.
authorities? None.
Limited. Language
Are management fees deductible? authority effective in obtaining In which language or languages can
double tax relief? documentation be filed?
Yes, according to article 25 of the
Industrial Tax Code. Nevertheless, Not applicable. All the information to be submitted to
whenever DNI considers the DNI should be prepared in Portuguese
management fees are in excess, When may a taxpayer submit an language.
discretionary adjustments can adjustment to competent authority?
take place. Not applicable.
KPMG in Angola
Luis Magalhães
Tel: +
244 227 280 101
+351 210 102 087
Email: lmagalhaes@kpmg.com
Susana Miguel Pinto

Tel: +
244 227 280 101
+351 212 487 391
AsEmail:
email addresses and phone numbers
susanapinto@kpmg.com
change frequently, please email us at
transferpricing@kpmg.com if you are unable
to contact us via the information noted above.
As email addresses and phone numbers

transferpricing@kpmg.com if you are unable to
contact us via the information noted above.
Argentina | 17
Argentina
KPMG observation
When documenting transfer pricing in Argentina, careful consideration must be
given to the tested party rule, since local IRS (AFIP) General Resolution (RG 1122)
requires that, no matter the circumstances, the tested party should always be the
Argentinean entity.
In terms of audits and transfer pricing scrutiny, there is an increasing tendency for
the Administración Federal de Ingresos Públicos (AFIP) to challenge transfer prices for
taxpayers that present systematic losses beyond a specific fiscal year, mainly among
resellers. There are no particular types of transactions under scrutiny and AFIP has
initiated audits in different industries. The AFIP does pay special attention to the analysis
criteria applied to the different fiscal years, mainly with respect to the use of multi-year
periods for the tested party. They also require that financial information used in the analysis
of comparables is checked against the relevant data sources. Lack of supporting information
may cause the exclusion of the comparable from the analysis by the AFIP.
KPMG in Argentina believes the AFIP requirements vis-à-vis the transfer pricing annual
returns have increased the burden of proof on the taxpayer. The information that must be
included in the annual form (F969) is complementary to that required by the transfer pricing
annual form (Form F743). Both annual forms are mandatory, the first includes an specific detail
of the intercompany transactions and the second adds the transfer pricing methodology used in
the analysis of the transactions.
Even though Argentina is not an Organisation for Economic Co-operation and Development (OECD)
member, the local transfer pricing rules are based on the main concepts of OECD guidelines.
Nevertheless, to date there have been no specific comments from the local Tax Authorities with
respect to the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan.
Basic information apply equally to all levels of ownership. What is the statute of limitations
Furthermore, and beyond the company on assessment of transfer pricing
Tax authority name capital interest, under the Local Income adjustments?
Administración Federal de Ingresos Tax Law, there are several other Five years from 1 January of the year
Públicos (AFIP). relationships to which the transfer pricing after the filing date. Law 26.476 states
rules apply, such as functional or other that for fiscal years 2003 to 2007 the
Citation for transfer pricing rules kinds, whether contractual or otherwise, statute of limitations is six years from
Income Taxes Act Articles 14–15 and that influence the decision-making 1 January of the year after the filing date.
supplementary regulations. power to direct or define the activities
of the operations. Also transactions
Effective date of transfer pricing with countries or territories that are not Transfer pricing
rules included on the white list are considered disclosure overview
December 1998. countries with low tax or no taxation –
Are disclosures related to transfer
i.e., tax haven jurisdictions – and are
What is the relationship threshold pricing required to be prepared or
subject to transfer pricing scrutiny.
for transfer pricing rules to apply submitted to the revenue authority
between parties? The AFIP has provided the white list of on an annual basis (e.g. with the tax
cooperating jurisdictions. return)?
Based on voting power, share capital
or other. The rules do not discriminate Transfer pricing documentation is
among different thresholds; rather they required to be submitted.
The transfer pricing study, the Certified What types of transfer pricing Material penalties: The transfer pricing
Public Accountant (CPA) Certification, the information must be disclosed? tax adjustment is subject to a fine that
transfer pricing return (Form F743) and a Business description/overview; functional ranges from one to four times the
copy of the Statutory Financial Statement analysis; risk analysis; description of unpaid tax amount. To determine the fine
of the fiscal year under analysis be filed controlled transactions; method selection; within such range, the tax authorities
with the fiscal authorities within 14 days rejection of alternative methods; will take into account the taxpayer’s
of the 8th month subsequent to year-end. identification of comparables; economic compliance with transfer pricing returns
analysis; identification of the foreign and documentation. In case of fraud the
Dated last 10 April 2013 General
counterparty with whom the transactions penalties will increase from two-to-ten
Resolution was published introducing
had been conducted. Determination times the unpaid tax amount.
certain changes in the transfer pricing
compliance rules, establishing the of the median and the interquartile
To satisfy the requirement and/or
formalities and other requirements range. Transcription of the statement of
obtain the benefits, are there any
that must be complied with by those income of the comparable companies
requirements on when the transfer
taxpayers subject to transfer pricing corresponding to the fiscal years
pricing study must be prepared and
regulations. It is to be noted that this necessary for the comparability analysis,
submitted?
Resolution will be effective for filing with an indication of the sources of such
information. Description of the corporate See transfer pricing disclosure overview.
obligations corresponding to fiscal years
ended from 31 December 2012. activity and the characteristics of the
business carried out by the comparable When a transfer pricing study is
In this sense, taxpayer will prepare the companies. Rejection matrix with prepared, should its content follow
transfer prices return – F. 4501 for filing criteria followed to discard companies as Chapter V of the OECD Guidelines?
the transfer pricing study and the CPA comparables. Conclusions obtained. Yes. Even though Argentina is neither
Certification, which shall bear three an OECD member nor do its regulations
digital signatures (i) the taxpayer (ii) the What are the consequences make explicit reference to the OECD
CPA involved and (iii) the representative of failure to prepare or submit Guidelines, the content of the transfer
of the professional association where the disclosures? pricing study to be prepared for local
CPA has been licensed. The taxpayer is subject to penalties purposes mostly includes those items
imposed by the tax authorities in case of mentioned in Chapter V of the OECD
Additionally, prior to fiscal year-end, Guidelines.
failure to file the transfer pricing report
taxpayers must file with the tax
and the corresponding transfer pricing
authorities a transfer pricing mid-term Does the tax authority require an
returns.
form (Form F742). advisor/tax practitioner to have
In addition, on 15 June 2011, the
specific designation in order to
Argentine tax authorities published a
Transfer pricing study prepare or submit a transfer pricing
new resolution that established the need overview study?
to file an additional annual transfer pricing Is preparation of a transfer pricing Yes. The transfer pricing report must
return containing data about transactions study required – i.e. can the taxpayer be submitted to the tax authorities
with related parties abroad (Form F969). be penalized for mere failure to along with a certification issued by an
The deadline for filing this form is prepare a study? independent CPA.
15 running days after the income tax
Yes, for all transactions, there is a
return deadline. This is applicable for Transfer pricing methods
statutory requirement. There is no
fiscal years ended from 31 December
minimum threshold for compliance Are transfer pricing methods
2010 onwards.
purposes. outlined in Chapter II of the OECD
In addition to the above obligations Guidelines acceptable?
Compliance penalties: Taxpayer’s
regarding transactions with related Yes, the local transfer pricing rules are
failure to file the required returns and
parties abroad, taxpayers must also based on the main concepts of OECD
documentation in a timely way, is subject
disclose on an annual basis (Form F867) guidelines. Additionally, the local transfer
to a fine of ARS 10,000 (approximately
information involving the import from, pricing regulations prescribe a specific
1,250 US dollars (USD)), which increases
and export to, unrelated parties abroad method for export of commodities.
to a fine of ARS20,000 (approximately
of tangible goods, with the exception of
USD2,500) for foreign-owned entities.
commodities, with non-related parties, It is important to mention that the local
provided that the amount exceeds 1 Other than complying with a transfer pricing regulation requires that,
million Argentine pesos (ARS) during the requirement per the previous no matter what the circumstances, the
fiscal year. In the case of the import from, question, describe the benefits, if tested party used in the analysis should
and export to, unrelated parties abroad, any, of preparing and maintaining a always be the Argentinian entity.
of commodities, companies must file transfer pricing study?
a mid-term form (Form F741) per each Is there a priority among the
Penalty elimination, penalty reduction, acceptable methods?
semester, taking account of the fiscal
and shift burden of proof.
year ended. No.
Argentina | 19
If there is no priority of methods, is Special considerations considered to be of Argentine origin.

there a “best method” rule? This rule applies when the benefit of
Are secret comparables used by tax the consultancy arises in Argentina,
Yes.
authorities? i.e. the payer will be able to exploit the
No. knowledge received in some way. If a
Transfer pricing audit payment were for Argentine sourced
and penalties Is there a preference, or income as determined under the above-
requirement, by the tax authorities stated rules, an effective withholding
When the tax authority requests for local comparables in a of 31.5 percent would apply to such
a taxpayer’s transfer pricing benchmarking set? payment unless a tax treaty reduces the
documentation, how long does
No. As a consequence of the absence withholding tax.
the taxpayer have to submit its
of local comparables, the tax authorities
documentation? Are year-end transfer pricing
have accepted the use of foreign
Documentation must be submitted with comparables mainly from the American adjustments permitted?
the tax returns. market. In this sense, it is important Yes. Under an evaluation of the transfer
Tax authority requests are normally to have the support of the relevant pricing policy the taxpayer could apply an
expected to be responded to within documentation. Additionally, in some adjustment. However, it should take into
15 days of the request. cases, European or Asian comparables account the impact of the adjustment on
might be used; however, the lack of other taxes, particularly those related to
If an adjustment is proposed by the supporting information about these custom issues.
tax authority, are dispute resolution comparables may cause their exclusion
options available to the taxpayer by the tax authorities. Other unique attributes?
outside of competent authority? An additional method included in the
Do tax authorities have Local Income Tax Law establishes that
The taxpayer can appeal to different requirements or preferences
Justice Court instances. The order of in case of exports to related parties of
regarding databases for commodities and, in general, any assets
appeal for an adjustment proposed by comparables?
the tax authorities is as follows: having a known quotation in transparent
No preferences in the use of databases markets, involving an international broker
• first level: National Tax Court are observed by the tax authorities. who will not be the effective receiver
of the goods, it shall be deemed as
• second level: National Court of What level of interaction do tax the best method for the purpose of
Appeals authorities have with customs determining the export’s Argentine-
• third level: Supreme Court of Justice. authorities? source income, the highest of the good’s
Medium. quotation in the transparent market
If an adjustment is sustained, can on the date of shipment or the price
penalties be assessed? If so, what Are management fees deductible? that would have been agreed with the
rates are applied and under what international broker. This methodology
Yes. For fees to be considered
conditions? does not have to be followed provided
deductible, the Argentine entity must
See Transfer pricing study overview. show that the management fees were the international broker complies with
carried out in order to obtain, maintain, certain requirements.
To what extent are transfer pricing and preserve profits assessed by
penalties enforced? Moreover, careful consideration must
Argentine tax. In addition, there should
Often. be given to the tested party rule since
be sufficient proof that such expenses
Argentinian Regulations (General
relate to the Argentine entity’s
What defences are available with Resolution (RG 1122)) requires that,
operations. In this regard, the company
respect to penalties? no matter what the circumstances,
should obtain a certificate supporting
the tested party should always be the
Compliance with the filing of its expenses or a detailed report of the
Argentinian entity.
documentation required by the tax imputed amount providing a level of
authorities. See Transfer pricing accuracy sufficient to determine the
disclosure overview. local expenses. Other recent
What trends are being observed Are management fees subject to
developments
currently? withholding? Increase in the number of audits by
the AFIP – see What trends are being
An increase in the activities of the AFIP Withholding tax applies on payments
observed currently.
in terms of transfer pricing scrutiny is to non-residents for Argentine-source
being observed. There is a tendency income. Services provided in Argentina There were several rulings issued by the
by the AFIP toward increasing audits would be considered Argentine-sourced, National Tax Court (Tribunal Fiscal de la
in industries other than the initially- whereas services provided outside Nación):
targeted industries like the automobile, Argentina would not. However, the fees
pharmaceutical and agribusiness and other remuneration arising from • the National Tax Court concluded that
industries. technical, financial, or other types of the local tax authorities must perform
consultancy supplied from abroad are a deeper analysis in order to refute
the position taken by the taxpayer in May a taxpayer go to competent

the transfer pricing report authority before paying tax?
• formal documentation must be No formal rules.
considered: e.g. agreements
• the National Tax Court invoked the Advance pricing
OECD Guidelines to the extent they agreements
do not conflict with existing legislation
• the Court accepted the use of multiple (APA) options are available, if any?
years of financial information for both No APAs or advance rulings of any kind.
comparables and the tested party.
On the other hand, it is important Is there a filing fee for APAs?
to consider the new formalities that Not applicable.
must be complied by the taxpayer in
order to submit the transfer pricing Does the tax authority publish APA
documentation to the Tax Authorities. data either in the form of an annual
Please see ’transfer pricing disclosure report or through the disclosure of
overview’. Tax Treaty/Double Tax data in public forums?
Resolution Not applicable.
What is the extent of the double tax Please provide some information
treaty network? on how successful the APA program
Minimal. is and whether there are any known
difficulties?
If extensive, is the competent Not applicable.
double tax relief?
Language
Not applicable.
In which language or languages can
When may a taxpayer submit an documentation be filed?
adjustment to competent authority? Spanish.
No formal rules.
KPMG in Argentina
Marcelo A. Castillo
Tel: +54 11 4316 5834
Email: macastillo@kpmg.com.ar

Australia | 21
Australia
KPMG observation
The transfer pricing landscape in Australia continues to evolve as tax authorities
are seeking to approach transfer pricing (TP) through new and more far reaching
laws (subdivision 815) based on self assessing ‘transfer pricing benefits’ by
reference to ‘arm’s length conditions’. These new laws are retrospective for treaty
countries back to 1 July 2004 under subdivision 815-A. Subdivisions 815-B – 815-D
incorporate the Organisation for Economic Co-operation and Development (OECD)
Transfer Pricing Guidelines and introduce new TP documentation requirements going
forward for application to both treaty and non treaty countries (with an amendment
period for adjustments reduced to 7 years).
The new TP laws were introduced in 2013 in response to the Commissioner’s loss in 2011 in the
Full Federal Court case of Commissioner of Taxation vs. SNF (Australia) Pty Ltd. In this case, the
court found that the existence of ongoing losses in an Australian subsidiary does not necessarily
mean that the price paid from international related parties is not arm’s-length. The new legislation
differentiates itself from its predecessor, laws under Division 13 incorporates a focus on profit as
one of the arm’s length conditions to be considered in determining whether transactions between
foreign related parties are on an arm’s-length basis.
The Australian Taxation Office (ATO) plans to update and revise its TP rulings and practice
statements. A number of these are due for release in draft form in the second quarter of 2014.
Given its more holistic view on arm’s length conditions surrounding cross border transactions,
the Australian Government views the new TP rules as the cornerstone to its strategy on OECD’S
Base Erosion and Profit Shifting (BEPS). The Australian government has been overt in its statements
regarding its intention to use its G20 presidential term to demonstrate strong leadership in this
area. The ATO has, unsurprisingly, been tasked with driving the BEPS agenda in Australia and has
established a taskforce with its focus being:
• To work with international partners to establish the purpose of Australian businesses in low-tax
jurisdictions.
• Address BEPS through compliance activities, including bilateral and multilateral audits, supported by
newly implemented laws.
• To understand digitalization of the Australian economy and the implications for the tax system.
• To support Australian and OECD policy development.
To support these activities, the ATO has recently launched a compliance initiative, the International Structuring
and Profit Shifting (ISAPS) program. This is in addition to its annual compliance activities which includes its existing
TP review work and its Advance Pricing Arrangement (APA) program. The ISAPS project is a compliance program
for which the initial phase commenced in the last quarter of 2013 and will continue throughout 2014. The ATO
anticipates that the work performed in this phase will form the basis for an audit program likely beginning in late
2014. The areas covered by this program are broader than just TP and include other corporate income tax areas such
as permanent establishments, thin capitalization, controlled foreign companies (CFC), particularly focusing on offshore
trading hubs and business restructuring.
Basic information The ATO plans to update and revise its assessment tool by the ATO to target its
TP rulings and practice statements listed compliance activities in transfer pricing
Tax authority name above, in light of the new TP legislation and its international tax program.
Australian Taxation Office (ATO). (a number of which are due for release in
draft form in the second quarter of 2014). Under the ATO’s APA program, the
Citation for transfer pricing rules taxpayer is required to prepare and
Income Tax Assessment Act 1936; Effective date of transfer submit an Annual Compliance Report
Income Tax Assessment Act 1997; pricing rules to the ATO disclosing the covered
International Tax Agreements Act 1953; transactions, according to the
1 July 2004 for subdivision 815-A and
TR 92/11, Income tax: application requirements of Practice Statement Law
1 July 2013 for subdivision 815-B, C &D
of the Division 13 transfer pricing Administration PS LA 2011/1.
of the Income Tax Assessment Act 1997.
provisions to loan arrangements and There is no formal requirement to provide
credit balances; TR 1994/14, Income What is the relationship threshold the transfer pricing documentation to the
tax: application of Division 13 of Part III for transfer pricing rules to apply ATO as part of the tax return disclosures.
(international profit shifting); TR 97/20, between parties?
Income tax: arm’s length transfer pricing Parties not dealing with each other What are the consequences
methodologies for international dealings; at arm’s length, having regard to any of failure to prepare or submit
TR 98/11, Income tax: documentation connection between them, or any other disclosures?
and practical issues associated with relevant circumstances (not limited to An administrative penalty may apply for
setting and reviewing transfer pricing in control or shareholding). failure to prepare or submit the IDS.
international dealings; TR 98/16, Income
tax: international transfer pricing, penalty What is the statute of limitations
tax guidelines; 1999/1, Income tax: on assessment of transfer pricing Transfer pricing study
international transfer pricing for intra- adjustments? overview
group services; TR 2000/16, Income A 7 year amendment period. Is preparation of a transfer pricing
tax: international transfer pricing –
study required – i.e. can the
transfer pricing and profit reallocations
adjustments, relief from double taxation Transfer pricing taxpayer be penalized for mere
failure to prepare a study?
and the MAP;TR 2001/11, Income tax: disclosure overview
international transfer pricing, operation No.
of Australia’s permanent establishment
pricing required to be prepared or Other than complying with a
rules; TR2002/2, Income tax: meaning
submitted to the revenue authority requirement per the previous
of ‘Arm’s Length’ for the purpose of
on an annual basis (e.g. with the question, describe the benefits,
subsection 47A(7) of the Income Tax
tax return)? if any, of preparing and maintaining
Assessment Act 1936 (ITAA 1936)
dividend deeming provisions; TR 2003/1, Yes. a transfer pricing study?
Income tax: thin capitalization – applying Penalty mitigation by establishing a
What types of transfer pricing Reasonably Argued Position (RAP).
the arm’s length debt test; TR 2004/1,
information must be disclosed? The existence of a well focussed and
Income tax: international transfer pricing,
cost contribution arrangements; TR The ATO has introduced a new relevant transfer pricing study can help
2005/11, Income tax: branch funding International Dealings Schedule (IDS) to reduce the risk of a transfer pricing
for multinational banks; TR 2007/1, be lodged with the income tax returns audit and may mitigate penalties if there
Income tax: international transfer for 2012 and subsequent years where is an adjustment following a transfer
pricing: the effects of determinations taxpayers have international related pricing audit.
made under Division 13 of Part III of party dealings of more than 2 million
the Income Tax Assessment Act 1936, Australian dollars (AUD) per year. The IDS To satisfy the requirement and/or
including consequential adjustments requires far more detailed disclosures obtain the benefits, are there any
under section 136 AF of that Act; TR about international related party dealings requirements on when the transfer
2010/7, Income tax: the interaction than the Schedule 25A which it replaces, pricing study must be prepared
of Division 820 of the Income Tax including: description and amounts of and submitted?
Assessment Act 1997 and the transfer related party transactions, disclosures Documentation should be prepared
pricing provisions; TR 2011/1, Income related to transactions of special interest contemporaneously as transactions are
tax: application of the transfer pricing to the tax authority, disclosures relating entered into contractually or physically
provisions to business restructuring by to arm’s length transfer pricing methods but must be completed by the time the
multinational enterprises. used and whether documentation has tax return is filed in order for the taxpayer
been prepared. The IDS is used as a risk to rely on it for penalty protection.
Australia | 23
When a transfer pricing study is Transfer pricing audit and For a more detailed description of these
prepared, should its content follow charges and the circumstances under
Chapter V of the OECD Guidelines?
penalties which they are levied visit http://www.
Yes, in applying Subdivision 815-B, the When the tax authority requests ato.gov.au.
new law now requires the taxpayer to a taxpayer’s transfer pricing
documentation, how long does To what extent are transfer pricing
refer to the Transfer Pricing Guidelines
the taxpayer have to submit its penalties enforced?
for Multinational Enterprises and Tax
Administrations, as published by the documentation? Often.
OECD and last amended on 22 July Normal ATO practice is to expect
2010. The ATO Tax Rulings aim to follow documentation to be supplied within What defences are available with
the OECD Guidelines closely and 28 days of request. respect to penalties?
the ATO’s Tax Ruling TR 98/11 details Maintaining documentation of a
contemporaneous documentation If an adjustment is proposed by the sufficiently high quality; commercial
required to evidence compliance with tax authority, are dispute resolution realism analysis; cooperation with
the arm’s length principle to reduce the options available to the taxpayer the ATO in providing the information
risk of audit and mitigate penalties in the outside of competent authority? requested; voluntary disclosure,
event of an audit adjustment. The ATO’s For tax treaty countries, the preferably before the audit notification.
‘four step process’ involves functional taxpayers may seek correlative relief
analysis, industry analysis which focuses or adjustments under Associated What trends are being observed
on the Australian taxpayer, company Enterprises, Method of Elimination, currently?
overview, selection and application of and MAP provided in Australia’s In recent years, the ATO has been very
method, description of comparables, comprehensive Double Taxation active in scrutinizing taxpayers’ transfer
conclusions and the establishment of an Agreements (DTAs). All Australian pricing practices with a view to protecting
annual review process. taxpayers, however, unilaterally have Australia’s revenue base. The ATO has
recourse to domestic tax provisions increased its transfer pricing capability
Does the tax authority require an such that, where agreement cannot through external recruitment and
advisor/tax practitioner to have be reached with the ATO, the taxpayer maintains an annual TP program of risk
specific designation in order to can take the matter to court or to the reviews and audits. In addition to this,
prepare or submit a transfer pricing Administrative Appeals Tribunal or the ATO commenced its ISAPS initiative
study? consider Alternate Dispute Resolution late in 2013. Transactions with respect
No. options that may be available. As the to related party loans and guarantee
focus of these actions is only to consider arrangements, royalty arrangements,
the merits of the adjustment under business restructuring, the transfer of
Transfer pricing methods domestic tax law, foreign related parties intellectual property and the mining,
Are transfer pricing methods will need to seek relief options that may pharmaceutical and motor vehicle
outlined in Chapter II of the OECD be available under the domestic laws in industries continue to receive scrutiny
Guidelines acceptable? their own jurisdiction (if applicable). by the ATO. Furthermore, periods of
Yes. prolonged losses or low profitability
If an adjustment is sustained, can continue to be a focus of the ATO
Is there a priority among the penalties be assessed? If so, what (regardless of whether there are material
acceptable methods? rates are applied and under what related party transactions or not).
conditions?
No, although the ATO recognizes that
the Comparable Uncontrolled Price Yes. A standard Shortfall Penalty rate is Special considerations
(CUP) method provides the most direct 25 percent of the tax avoided for transfer
pricing adjustments where the taxpayer Are secret comparables used by tax
comparison where sufficiently reliable
does not have a reasonably arguable authorities?
information is available. The SNF case
emphasized a practical application of the position; 50 percent of the tax avoided, No.
CUP method over the TNMM. where the sole or dominant purpose was
to avoid tax and the taxpayer does not Is there a preference, or
If there is no priority of methods, is meet the ‘Reasonably Argued Position’ requirement, by the tax authorities
there a “best method” rule? (RAP) standard. for local comparables in a
benchmarking set?
The ATO seeks to adopt the method that In addition a Shortfall Interest Charge
is most appropriate to the circumstances Yes. Although there is no formal
(SIC) and General Interest Charge (GIC)
of the specific case. requirement to use local comparables
may also be applied to tax and penalties.
in an Australian benchmark study, the
ATO would generally prefer Australian exemptions from penalties, simplified As well as specific legislation to include
comparable companies during review APA procedures). A discussion paper both trusts and partnerships (subdivision
or audit. Where a regional set is used was released in March 2014 and any 815-D), the new legislation also has
for Australian purposes, the ATO will developments are expected to feed into application to entities with permanent
focus on the Australian comparables and the ATO’s update and review of its TP establishments (Subdivision 815-C).
their relative position in the set. Where rulings and practice statements. The application of the permanent
necessary, the ATO will conduct its own establishment rules in Australia
analysis to identify Australian comparable provides for the allocation of income
companies for benchmarking purposes.
Other recent and expenses between an entity and
developments its related parties to be reflective of
Do tax authorities have The new TP laws under subdivision that between separate entities dealing
requirements or preferences 815 aim to modernize Australia’s TP wholly independently with each other.
regarding databases for rules and to ensure consistency in their In October 2012, the Board of Taxation
comparables? application between both tax treaty and released a Discussion Paper in relation
No. non-tax treaty cases. As with Australia’s to a review of tax arrangements applying
previous TP rules, the new provisions are to permanent establishments. This
What level of interaction do tax sufficiently broad to capture non-arm’s- review considered whether Australia
authorities have with customs length dealings between both related should adopt the OECD's functionally
authorities? and unrelated parties. separate entity treatment for permanent
High. establishments. While not yet publically
In addition the new TP legislation is available, the Board of Taxation has
Are management fees deductible? aligned with the more general policy delivered its report to the Government
intent of self-assessment. Consequently in April 2013.
Yes, provided that management
the new rules are self-executing which
fees comply with the arm’s length As a key consequence of enacting new
places a higher degree of emphasis on
principle and meet general income tax TP laws, the ATO plans to update and
taxpayers, and particularly public officers,
deductibility requirements. revise its existing TP rulings and practice
who must form a view at the time of
submission of the income tax return that statements issued under Division 13. A
foreign related party transactions have number of these are due for release in
withholding?
been structured and priced on an arm’s- draft form in the second quarter of 2014,
No. length basis for tax purposes, for which including new draft rulings covering TP
they may be held accountable. documentation and the Commissioner’s
reconstruction power under subdivision
adjustments permitted? The new legislation does grant the 815, and a new practice statement in
Yes. However, year-end adjustments ATO the power to reconstruct dealings respect of transfer pricing penalties.
have the potential to increase risk (Section 815-130) in situations where In addition to this program, the ATO
especially where there is an unclear there is inconsistency in the form and also released a revised draft Taxation
transfer pricing policy, the adjustments substance of a particular arrangement Determination (TD 2014/D7) in January
are applied inconsistently or the and situations where the arrangement 2014, outlining its position in which it
characterization of the adjustment is not one that would have been entered considers that capital support payments
is unclear. into by independent parties acting at are capital in nature and non-deductible.
arm’s-length. While the Act does not
Other unique attributes? specifically include an ‘exceptional The ATO has also entered into a pilot
None currently, although in determining circumstances’ requirement, the program with the US Internal Revenue
the new guidance it will issue under reconstruction provisions in section 815- Service to conduct joint transfer pricing
the new law, the ATO is considering 130 are intended to be consistent with audits. There are three cases currently
various options to simplify transfer those described in paragraph 1.65 of the running under this program, although
pricing documentation and compliance OECD’s TP Guidelines. The ATO intends additional joint audit cases are expected
(such as exemptions from TP rules or to use its new powers under Subdivision to be identified from the current
adjustments, simplified TP methods 815 to pursue its BEPS agenda and ISAPS program.
and safe harbors, exemptions or implement the ISAPS program.
simplified documentation requirements,
Australia | 25
Tax treaty/double tax products and the ATO’s policies

and procedures in relation to APA
resolution applications. A key feature of the new
What is the extent of the double tax APA program is the introduction of
treaty network? three APA products to deal with simple,
Extensive. standard and complex international
related party dealings, as well as a
If extensive, is the competent streamlined APA renewal process.
While the Commissioner supports both
double tax relief?
unilateral and bilateral APAs, a bilateral
Almost always. approach is generally favored for its
ability to resolve double taxation. To date,
When may a taxpayer submit an
the ATO has concluded bilateral APAs
with the revenue authorities of the US,
After an adjustment is proposed to the UK, Canada, Japan, Korea, Switzerland,
taxpayer. This will usually be in the form New Zealand, Denmark and Singapore.
of a position paper. In 2011–12, 37 APAs were completed
with large businesses (turnover more
May a taxpayer go to competent than AUD250 million) and 29 APAs
authority before paying tax? were completed with small/medium
Yes. enterprises.
The ATO has recently undertaken some

Advance pricing internal restructuring, and it is unclear
agreements how the APA program will be resourced
and managed going forward. Further
What APA options are available,
guidance is expected from the ATO.
if any?
However, it is expected that the ATO will
Unilateral, bilateral, and multilateral. seek to understand the global supply
chain and consider BEPS type issues
Is there a filing fee for APAs? in all APA applications and renewals
Not currently. going forward.

data either in the form of an annual Language
report or through the disclosure of In which language or languages can
data in public forums? documentation be filed?
Yes. The ATO publishes an annual report English.
on recent developments of its APA
program through its official website.

is and whether there are any known
difficulties?
Following a review of its APA program, KPMG in Australia
the ATO issued PSLA 2011/1 in March
2011, which sets out available APA Anthony Seve
Tel: +61 9335 8728
Email: aseve@kpmg.com.au
Tony Gorgas
Tel: +61 9335 8851
Email: tgorgas@kpmg.com.au
Jeremy Capes
Tel: +61 9335 7665
Email: jeremycapes@kpmg.com.au

transferpricing@ kpmg.com if you are unable to
Austria
KPMG observation
On 28 October 2010, the Austrian Federal Ministry of Finance published the
Austrian Transfer Pricing Guidelines (TPG). These Guidelines show the importance
that the Austrian tax administration is placing on transfer pricing issues and seen
in nearly every tax audit. The guidelines state that their purpose is to ensure the
uniform application of the Organisation for Economic Co-operation and Development
(OECD) Transfer Pricing Guidelines. It is important to monitor how major amendments
of the OECD Guidelines, reflecting the outcome of the Base Erosion and Profit Shifting
(BEPS) initiative, will be considered.
Basic information What is the statute of limitations Transfer pricing study

on assessment of transfer pricing
Tax authority name adjustments?
overview
Bundesministerium für Finanzen (Federal Generally, a 6 year limitation from the tax Is preparation of a transfer pricing
Ministry of Finance). year-end applies, which can be extended study required – i.e. can the
under certain circumstances. taxpayer be penalized for mere
Citation for transfer pricing rules failure to prepare a study?
Austrian Transfer Pricing Guidelines No.
(Austrian TPG) 2010 published as Transfer pricing
administrative guidelines (BMF-GZ disclosure overview Other than complying with a
010221/2522-IV/4/2010, 28 October requirement per the previous
2010). question, describe the benefits, if
pricing required to be prepared or
OECD Guidelines adopted as submitted to the revenue authority
administrative guidelines (translated on an annual basis (e.g. with the tax
into German; published in Fiscal register return)? In our opinion, Austrian law does not
of the Austrian fiscal authority (AÖF impose specific statutory documentation
There is no requirement to file transfer
Nos. 114/1996, 122/1997, 155/1998 and requirements but there is an expectation
pricing disclosures with the tax returns.
171/2000). of authorities/requirement in practice.
The tax administration, however, is of
Transfer pricing guidelines state that the
the opinion that documentation must
Effective date of transfer obligation for a study can be derived from
be prepared contemporaneously and be
pricing rules the general provisions of the Austrian
ready when the tax return is filed.
Date of publication of each of the Administrative Code, whereas KPMG
rules: 1 August 1996, 22 May 1997, 10 What types of transfer pricing in Austria believes that these provisions
September 1998, and 28 October 2010. information must be disclosed? only require the taxpayer to provide
factual evidence (invoices, contracts)
Please see Transfer pricing study
What is the relationship threshold that prove the agreements/transactions
overview.
for transfer pricing rules to apply between the related parties. From a legal
between parties? What are the consequences perspective, guidelines do not bind the
of failure to prepare or submit taxpayer or a tax court but are binding on
Ownership of greater than 25 percent.
disclosures? the tax auditors/the tax administration.
There is no specific penalty for failure A transfer pricing study helps defend
to prepare transfer pricing disclosures. the transfer pricing vis-à-vis the tax
Please see discussion under Transfer authorities and places the burden
pricing study overview. of proof also factually on their side.
Austria | 27
Further, it should help eliminate/reduce Is there a priority among the To what extent are transfer pricing
withholding taxes on deemed dividends acceptable methods? penalties enforced?
due to transfer pricing findings. Austria follows the OECD Guidelines, In cases of tax fraud and wilful and
whereby the most appropriate abusive tax evasion according to Fiscal
method has to be chosen. In practice, Penal Code.
the Comparable Uncontrolled Price
requirements on when the transfer What defences are available with
(CUP) method is preferred over other
pricing study must be prepared and respect to penalties?
transaction methods.
submitted?
Penalties can be enforced in cases where
The tax administration is of the opinion If there is no priority of methods, is there is found to be tax fraud and/or wilful
that documentation must be prepared there a “best method” rule? and abusive tax evasion. Appropriate
contemporaneously with the filing of The most appropriate method as documentation can also help the
the tax return, or might even be required described in the OECD Guidelines is to taxpayer to defend against proceedings
before the transaction is carried out (for be used. according to the Fiscal Penal Code.
withholding tax protection).
What trends are being observed
When a transfer pricing study is Transfer pricing audit and currently?
prepared, should its content follow penalties As previously noted, transfer pricing
When the tax authority requests is a focus area of the tax authorities.
Yes. In addition, the Austrian TPG also KPMG in Austria observes a variety
a taxpayer’s transfer pricing
declare that documentation prepared of factors being taken into account in
in accordance with the European Union determining which taxpayers to audit
(EU) Code of Conduct on transfer pricing and on what areas during the audits. This
documentation?
documentation for associated enterprises can include the existence or evidence of
in the EU (EU masterfile concept) fulfils the Normal administrative procedural rules
business restructurings, the profitability
documentation requirements in Austria. apply.
of the local taxpayer, the nature and
For management fees, the taxpayer must volume of related party transactions,
If an adjustment is proposed by the
be able to provide a specific, detailed basis and findings from previous audits of the
tax authority, are dispute resolution
for all charges imposed by foreign group taxpayer. A specific focus is currently
options available to the taxpayer
companies for services rendered (case on the automotive, consumer products,
law) and a detailed contract should be pharmaceutical and high-tech industries,
prepared and signed. Taxpayers can dispute proposed
as well as intra-group financing
adjustments according to Austrian
transactions in general (including
Does the tax authority require an appeals procedures, through Mutual
guarantee fees).
advisor/tax practitioner to have Agreement Procedures (MAPs), and
specific designation in order to under the EU Arbitration Convention. In a 2012 court decision (30.07.2012,
prepare or submit a transfer pricing RV/2515-W/09), the court of first
study? If an adjustment is sustained, can instance ruled on specific questions
penalties be assessed? If so, what relating to the use of, and the minimum
Yes. Only approved tax advisors or
rates are applied and under what requirements for, benchmarking studies
lawyers are allowed to perform tax
conditions? and the entitlement of the tax authorities
advisory services and to represent
taxpayers vis-à-vis the tax authorities. No. However, transfer pricing for adjustments. The specific question
Transfer pricing documentation most adjustments have a direct effect on the ruled was whether adjustments of the
likely will qualify as tax advisory services. corporate income tax base and the actual tax authorities would be to the median,
tax burden levied. As with late payments to the interquartile range or to the total
of corporate tax, interest will be levied range of the benchmarking study if the
Transfer pricing methods on any additional prior year‘s corporate actual results achieved by the taxpayer
Are transfer pricing methods income tax. The interest is levied for a fell out of the range deemed acceptable
outlined in Chapter II of the OECD period starting from October following by the tax authorities during a tax audit.
Guidelines acceptable? the assessment year and lasting for a While the circumstances of the case
maximum of 48 months. The interest rate were specific, we anticipate the Austrian
Yes.
is 2 percent above the base interest rate. tax authorities to seek to adjust to the
median during future tax audits. This case
also shows the importance of submitting
high quality benchmarking studies both in
terms of comparability criteria (qualitative
search) and documentation.
Generally, we observed that the Austrian Are management fees subject to If extensive, is the competent
tax administration’s willingness to start withholding? authority effective in obtaining
procedures according to the Fiscal Penal Withholding of 20 percent according double tax relief?
Code has increased. to domestic law for economic and Frequently.
technical advice carried out in Austria
Special considerations and for personnel lease where work is
performed in Austria; generally removed
Are secret comparables used by tax by double tax agreements (DTA); Generally after (revised) assessment
authorities? otherwise no withholding. notes on tax audit findings are issued.
Sometimes they are used in practice, but
formally they are not allowed because Are year-end transfer pricing May a taxpayer go to competent
the tax authorities are barred from adjustments permitted? authority before paying tax?
publishing such data. Yes, under certain circumstances. Yes.
Generally, retroactive agreements
Is there a preference, or are not accepted in tax law. Although
requirement, by the tax authorities neither Austrian tax law nor Austrian Advance pricing
for local comparables in a TPG specifically regulate year-end agreements
benchmarking set? adjustments, there is a tendency for What advance pricing agreement
No, there is no such requirement due the Austrian tax authorities to only (APA) options are available, if any?
to the size of the Austrian market and accept year-end adjustments if they are
missing publicly available data in the No explanations on APAs are included
common practice amongst third parties.
past, often no comparables are in the Austrian TPG. Rules on advance
A clear written agreement concluded
available – a fact that is recognized by rulings (unilateral only) have been
before the respective fiscal year starts is
the Austrian tax authorities. included in Article 118 Federal Fiscal
a prerequisite for acceptance.
Code and entered into force on
Do tax authorities have Other unique attributes? 1 January 2011.
requirements or preferences None. Bi-or multilateral APAs: No formalized
procedure available – they occur in
comparables?
practice based on the competent
The tax authority uses Orbis. Other recent authority provisions of the DTAs.
Nevertheless, any publicly available developments
database can be used. The importance of transfer pricing issues Is there a filing fee for APAs?
is apparent, as can be seen from the Yes, for the formalized advance ruling
What level of interaction do tax publication of the first domestic Austrian procedure that became effective
authorities have with customs TPG in 2010 and provisions for unilateral in January 2011. Depending on the
authorities? advance rulings, which entered into force taxpayers´ sales, the filing fee is between
Low. Customs and tax authorities on 1 January 2011. Starting with March 1,500 and 20,000 Euros (EUR). For
communicate for VAT purposes. For 2014, restrictions on the Corporate Income groups of companies that are required
transfer pricing, there is no interaction Tax deductibility of interest and license to file consolidated accounts, the fee of
known at this time. fees paid to related parties (corporate) EUR20, 000 always applies.
being subject to low taxation (below
Are management fees deductible? 10 percent) in the recipient country apply. Does the tax authority publish APA
Yes. Management fees are deductible data either in the form of an annual
if a payee can prove benefits from report or through the disclosure of
the services and that the fee is at
Tax treaty/double tax data in public forums?
arm’s length. It should be noted that a resolution No.
detailed management service contract What is the extent of the double tax
and comprehensive documentation is treaty network?
required.
Extensive.
Austria | 29

difficulties?
In general, the APA program is
considered successful. Due to the lack
of publicly available data we have no
indication that there is a geographic
preference or reluctance. Practically,
shortages in personnel at the Austrian
tax administration can lead to an increase
in the duration of such procedures.
Language
Formally, if documentation and/or
supporting documents are not available
in German, the tax authorities have
the right to request a translation (at
the taxpayer’s expense). In practice,
documentation is also accepted in
English. However, in a written opinion
issued by the Ministry of Finance
country-specific documentation within
the framework of the EU masterfile
concept has to be prepared in the
language of the Member State and
therefore must be in German for
Austrian tax purposes.
KPMG in Austria
Sabine Bernegger
Tel: +43 1 313 32 286
Email: sbernegger@kpmg.at

Belgium
KPMG observation
Multinational groups with subsidiaries or permanent establishments in Belgium
should make sufficient efforts to support and document the arm’s length nature
of the pricing of their intra-group transactions. Being prepared for a transfer pricing
audit with all intra-group transactions mapped has become of key importance, with
the Belgian special transfer pricing audit department’s activity surging over the past
years. A new wave of approximately 300 transfer pricing audits were launched at
the beginning of 2014 after the Belgian transfer pricing audit team doubled in size.
Furthermore transfer pricing documentation plays a critical role in tax planning in
Belgium. When utilizing tax features such as the notional interest deduction, the patent
income deduction or hosting an entrepreneur or principal entity in Belgium, setting the
correct transfer price is essential.
Basic information • reporting obligation of certain The Royal Decree of 10 August 2009,
material non-arm’s length intra- which requires corporations to report
Tax authority name group transactions in their annual non-arm’s length transactions with
Federale Overheidsdienst Financiën; accounts (Royal Decree dated related parties, makes reference to the
Service Public Fédéral Finances (Belgian 10 August 2009) International Accounting Standard 24 for
Tax Authorities). the definition of related parties.
• reporting obligation for direct and
Citation for transfer pricing rules indirect payments to tax havens What is the statute of limitations
(Article 307 BITC). on assessment of transfer pricing
Domestic law provisions in relation to
transfer pricing: Effective date of transfer pricing adjustments?
rules Three years from the year-end. In the
• Article 26 Belgian Income Tax Code
case of fraud, 7 years from the year-
(BITC) Effective July 2004. Reporting obligations
end, longer if a company is incurring
in the annual accounts apply to financial
• Article 49 BITC losses (deferral to momentum losses
years starting on or after 1 September
being used).
• Article 54-56 BITC 2008. New reporting obligations
regarding certain payments to tax havens
• Article 79 BITC came into effect 1 January 2010. Transfer pricing
• Article 185, Section 2 BITC disclosure overview
What is the relationship threshold
• Article 207 BITC for transfer pricing rules to apply Are disclosures related to transfer
• Article 344, Section 2 BITC between parties? pricing required to be prepared or
Not specified in Belgian tax law. Article submitted to the revenue authority
• Circular of 28 June 1999 on an annual basis (e.g. with the tax
26 of the BITC being one of the main
(Administrative Transfer Pricing return)?
transfer pricing articles refers to “a
Circular)
company which is situated directly or No, tax return disclosures are required.
• Circular of 7 July 2000 and 25 May indirectly in any situation of mutual However, certain intra-group transactions
2003 (Administrative Circular on the dependency”. In order to assess whether must be reported in the company’s
European Arbitration Convention) entities are dependent, not only will legal annual accounts. These annual accounts
criteria be relevant, but factual elements must be included with the tax return.
• Circular of 14 November 2006
such as common management and Certain payments to tax havens also must
(Administrative Circular on Transfer
control are also likely to be considered. be reported in a specific document (form
Pricing Documentation and Transfer
275F) and enclosed with the tax return.
Pricing Audits)
Belgium | 31
What types of transfer pricing general conditions for the deduction of Does the tax authority require an
information must be disclosed? expenses (mentioned in Article 49 and 54 advisor/tax practitioner to have
Certain material non-arm’s length intra- BITC) remain applicable. specific designation in order
group transactions and off-balance sheet to prepare or submit a transfer
The simultaneous application of the tax
arrangements must be disclosed in the pricing study?
on secret commissions (309 percent) is
annual accounts following the provisions also possible, but only if the conditions No.
of Royal Decree dated 10 August 2009. of Article 219 BITC are met. However, in
This reporting obligation applies to the
following corporations:
case the 309 percent tax is levied, the Transfer pricing methods
costs which have not been justified by
individual statements will be considered Are transfer pricing methods
• those listed on a stock exchange outlined in Chapter II of the OECD
as deductible business expenses.
• those whose shares are traded on a Guidelines acceptable?
multilateral trading facility Yes.
Transfer pricing study
• those that meet more than one of
the criteria to be considered a large
overview Is there a priority among the
acceptable methods?
group as defined in the Belgian Is preparation of a transfer pricing
Companies Code. study required – i.e. can the No.
taxpayer be penalized for mere
These corporations must report all If there is no priority of methods, is
non-arm’s length transactions with there a “best method” rule?
related parties in the annual accounts No. However, it is noted that the absence
The most appropriate method should
and provide amounts, the nature of the of a transfer pricing study increases
be used. Belgium follows the OECD
relationship and all other information substantially the risk of taxpayers being
Guidelines. Profit-based methods
needed to ensure an accurate view of unable to survive a transfer pricing audit
(in particular transactional net margin
the financial position of the corporation. without adjustments.
method (TNMM)) are commonly
Transactions involving wholly owned accepted by the Belgian Tax Authorities.
subsidiaries are excluded from this
reporting obligation. All direct and
indirect payments to tax havens must
question, describe the benefits, if Transfer pricing audit and
be reported in an appendix to the tax
penalties
return, insofar as they amount to at
Preparing a transfer pricing study in When the tax authority requests
least 100,000 Euros (EUR) and are
advance is strongly recommended as the a taxpayer’s transfer pricing
made to persons located in tax havens
special transfer pricing audit department documentation, how long does
as defined in Royal Decree of 7 May
expects it (or at least the kind of the taxpayer have to submit its
2010 and Administrative Circular of
information included in a transfer pricing documentation?
30 November 2010.
study) to be present and the preparation When requested by the Belgian Tax
What are the consequences of such a study forces the Belgian Authorities, supporting information
of failure to prepare or submit taxpayer to proactively reflect on his and documentation must be submitted
disclosures? position and arguments to put forward to within 30 days of the request. However,
Payments to tax havens which have the audit department. Having a transfer in justified cases an extension can be
not been reported or, if they have been pricing study in place may also shift the requested. The administrative circular
reported, for which the taxpayer does not burden of proof to the tax authorities. of 14 November 2006 recognizes that
prove that they are made in the context 30 days is a short period for the request
To satisfy the requirement and/or of transfer pricing information and that
of genuine and bona fide transactions
obtain the benefits, are there any granting an extension may be appropriate.
and outside of artificial constructions,
are non-deductible business expenses.
pricing study must be prepared and If an adjustment is proposed by the
Genuine and bona fide transactions
submitted? tax authority, are dispute resolution
are transactions that really satisfy an
When requested by the tax options available to the taxpayer
industrial, commercial or financial need
authorities, supporting information and outside of competent authority?
and that normally find or must find
compensation in the whole of the activity documentation must be submitted Yes. Domestic procedures are available
of the company. An artificial construction within 30 days of the request. However, enabling the taxpayer to challenge the
has no link with economic reality in justified cases an extension can be adjustment.
(development of a real activity) and is requested from the tax authorities.
meant to evade the tax due in Belgium.
When a transfer pricing study is penalties be assessed? If so, what
In the context of an investigation of prepared, should its content follow rates are applied and under what
the payments concerned, a transfer Chapter V of the Organisation conditions?
pricing investigation by the Belgian Tax for Economic Co-operation and Yes. General tax penalties apply.
Authorities is always possible and the Development (OECD) Guidelines? Penalties range from 10 percent to 200
Yes. percent of the additional tax assessed.
To what extent are transfer pricing pricing policy in the operational transfer Other recent
penalties enforced? prices at business line, product group or
product level. developments
Frequently.
A special transfer pricing audit
What trends are being observed department of the Belgian Tax Authorities
currently?
Special considerations is auditing a wide range of industries.
Are secret comparables used by tax The number of transfer pricing inspectors
The tax officers of the special transfer
authorities? has been doubled in 2013. The selection
pricing audit department (of which the
of audit targets has also recently been
numbers doubled in 2013) have been No.
facilitated by the use of data-mining tools
very active in their sphere of operations,
Is there a preference, or by the tax authorities. Recent audits have
and have manifested themselves very
requirement, by the tax authorities also been conducted on companies in a
actively within their client base with the
for local comparables in a wide variety of industries incurring long
help of data mining tools. They use more
benchmarking set? start-up losses, as well as on Belgian
or less standardized, lengthy requests for
companies hosting intra-group financing
information, through which they solicit No. The Belgian Tax Authorities accept
or cash pooling arrangements.
detailed input from the taxpayer on all the use of pan-European comparables.
sorts of intra-group transactions and Transfer pricing rulings are very popular
on any other information (e.g. legal and Do tax authorities have and are often used to obtain certainty
operational structure, business trends, requirements or preferences for existing and intended business
etc.) that may be relevant to assess regarding databases for structures. Also for Belgian tax features
whether the taxpayer respects the comparables? (such as notional interest deduction,
arm’s length principle. A wide variety of Any comparables which pass the patent income deduction, and excess
industries (e.g. companies incurring long comparability test can be used. In profit rulings) transfer pricing plays a
start-up losses, undergoing business practice, however, often Amadeus and key role.
restructurings, showing fluctuating Belfirst (a local database) are used.
key performance indicators, hosting
intra-group financing or cash pooling What level of interaction do tax Tax treaty/double tax
arrangements) have in the meantime authorities have with customs resolution
been selected for a thorough transfer authorities?
What is the extent of the double tax
pricing audit. Experience from these Low. treaty network?
audits shows that it pays to be well
Are management fees deductible? Extensive.
prepared and to proactively map all
intra-group transactions and support Yes, if the fees are at arm’s length If extensive, is the competent
the arm’s length nature of the transfer and relate to management services authority effective in obtaining
prices being applied. Also adherence to effectively received and related directly to double tax relief?
the provisions and conditions laid down the business.
in intra-group agreements should be Almost always.
monitored with great care. Indeed, by Are management fees subject to
not complying with the provisions of their withholding?
own agreements, taxpayers are quite No.
often a sitting duck for the special transfer An application for a Mutual Agreement
pricing audit department of the Belgian Are year-end transfer pricing Procedure (MAP) should be filed within
Tax Authorities. adjustments permitted? 2 or 3 years (or a shorter period
depending on the relevant treaty
There is still a clear focus on loss-making Yes, transfer pricing adjustments are
provisions) as from the first notification
companies and groups in Belgium generally permitted in practice, although
of the proposed transfer pricing
which have undergone a business there is little specific guidance on making
adjustment communicated to the
restructuring. The deductibility of losses these adjustments. Consideration should
taxpayer in writing.
and restructuring costs are challenged also be given to potential customs
if it appears that they are not supported implications arising from these year-end May a taxpayer go to competent
by the function and risk profile of the adjustments. authority before paying tax?
taxpayer. Furthermore, the Belgian Yes. As long as the MAP is pending
Tax Authorities are also focusing on usually suspension of tax collection
the correct application of the transfer No.
is granted.
Belgium | 33
Advance pricing
agreements
Unilateral, bilateral, multilateral, and
advance rulings.

No.

Yes. Most unilateral rulings are published
(in Dutch or French) on the Belgian Tax
Authorities’ website.

difficulties?
Both the multi and bilateral ruling
program (Service International
Agreements of the Central Tax
Authorities) and the unilateral ruling
program (Service for Advanced Decisions
in Tax Matters, or the Ruling Commission)
of the Belgian Tax Authorities are
very successful. APAs in Belgium are
therefore seen as a very workable and
suitable tool to obtain certainty for the
taxpayer over a given period.
Language
Official language depends on the
company’s location in Belgium.
Therefore, in principle, Dutch or French is
acceptable. In practice, documentation in
English may be accepted.
KPMG in Belgium
Dirk Van Stappen

Tel: +32 3 821 19 18
Email: dvanstappen@kpmg.com

Bosnia and Herzegovina
KPMG observation
Bosnia and Herzegovina (BiH) consists of two territorial and administrative
entities: the Federation of Bosnia and Herzegovina (FBiH) and the Republic of
Srpska (RS), as well as the District of Brcko (BD). Corporate Profit Tax legislation
is enacted on the level of the FBiH, the RS and the BD. Given that the BD
represents approximately 1 percent of BiH, it will be given no further consideration
in information presented here.
Companies doing business in BiH should be aware that different transfer pricing
rules apply in the FBiH and in the RS. The main difference is the range of acceptable
methods. Whereas only Comparable Uncontrolled Price (CUP) and resale price methods
(RPM) are acceptable in FBiH, all of the Organisation for Economic Co-operation and
Development (OECD) methods (CUP, RPM, cost plus profit (CPL), profit split method
(PSM) and transactional net margin method (TNMM)) are acceptable in the RS.
Basic information What is the statute of limitations Apart from disclosures on the tax return,
on assessment of transfer pricing no other requirements to disclose are
Tax authority name adjustments? prescribed.
Federalno Ministarstvo finansija, Porezna Statute of limitations is 5 years and it
uprava FBiH (Federal Ministry of Finance, What types of transfer pricing
commences from the date when the tax
tax authority of the FBiH). information must be disclosed?
return was submitted or from the date
when the tax liability arose, counting See Transfer pricing disclosure overview.
Citation for transfer pricing rules
from the date that comes later (e.g. for
Articles 45 to 48 of the FBiH Corporate the tax year 2012, for which the tax return What are the consequences of failure
Profit Tax Law (CPT Law). Arm’s length is filed at 30 March 2013, the statute of to prepare or submit disclosures?
principle applies. limitations expires at 30 March 2018). Failure to prepare and submit
disclosures may result in the FBiH
Effective date of transfer pricing rules tax authority challenging transactions
1 January 2008. Transfer pricing disclosure between related parties.
overview
for transfer pricing rules to apply Are disclosures related to transfer Transfer pricing study
between parties?
submitted to the revenue authority
overview
The definition of 'related parties' is very Is preparation of a transfer pricing
on an annual basis (e.g. with the tax
broad and includes a physical or legal study required – i.e. can the taxpayer
return)?
entity which has significant influence be penalized for mere failure to
or control on business decisions. It is The FBiH CPT Law requires a taxpayer
to disclose on the annual tax return the prepare a study?
considered that significant influence
difference between market and transfer Not explicitly stated in the CPT Laws.
or control on business decisions exists
where a physical or legal person owns prices which are not at arm’s length,
and the tax base should be adjusted Other than complying with a
more than half of shares or is the single requirement per the previous
largest shareholder in a company. A accordingly. There is no guidance on how
market prices should be determined question, describe the benefits, if
mutually large amount of turnover any, of preparing and maintaining a
between parties and a technological (information on available methods
follows), and there is no developed transfer pricing study?
dependence also constitutes a significant
practice on which to rely. Although it is not a legal requirement to
influence. Applies to transactions
prepare a transfer pricing study, the tax
between residents and non-residents.
Bosnia And Herzegovina | 35
authority has recently started requesting Transfer pricing audit and What defences are available with
that transfer pricing studies be prepared. respect to penalties?
KPMG in BiH strongly recommends the penalties
Timely prepared transfer pricing
preparation of one, because if timely When the tax authority requests documentation.
and correctly prepared, it shifts the a taxpayer’s transfer pricing
burden of proof to the FBiH tax authority documentation, how long does What trends are being observed
and can provide penalty protection. the taxpayer have to submit its currently?
documentation? The topic of transfer pricing is relatively
To satisfy the requirement and/or There are no provisions that require new in the FBiH. In practice, we have not
obtain the benefits, are there any preparation of transfer pricing seen many examples of the competent
requirements on when the transfer documentation (other than information tax authority performing transfer pricing
pricing study must be prepared and prescribed by the CPT Law) or a audits. However, based on experience in
submitted? deadline for the submission of such the region it is expected that the FBiH tax
Currently, there are no requirements documentation. Although the preparation authority will increase performing audits
or official guidelines, but if a taxpayer of a transfer pricing study is not required of related party transactions.
chooses to prepare a transfer pricing by the legislation, best practice would
study, it would be advisable for it to prescribe that the documentation be
be prepared by the time the annual available immediately upon request. Special considerations
corporate profit tax return is submitted Are secret comparables used by tax
(i.e. by 30 March of the current year for the If an adjustment is proposed by the authorities?
previous year). tax authority, are dispute resolution
There are no specific rules in the transfer
pricing provisions.
When a transfer pricing study is outside of competent authority?
prepared, should its content follow An adjustment is proposed following a Is there a preference, or requirement,
Chapter V of the OECD Guidelines? tax audit or the basis of a tax assessment by the tax authorities for local
Yes. Please note that there are no official issued by the FBiH tax authority. The comparables in a benchmarking set?
guidelines or developed practice on this taxpayer can appeal against the tax No.
subject. However, OECD Guidelines assessment to an independent second
are commonly used as an underlying degree body within the FBiH Ministry of Do tax authorities have requirements
template for the preparation of the Finance. In the case of a negative ruling or preferences regarding databases
transfer pricing study. by the independent second degree body for comparables?
the taxpayer can initiate administrative No.
Does the tax authority require an dispute proceedings before the Cantonal
advisor/tax practitioner to have Court. Should the Cantonal Court issue What level of interaction do tax
specific designation in order to a negative ruling, an appeal before the authorities have with customs
prepare or submit a transfer pricing Supreme Court of the FBiH is available, authorities?
study? if certain conditions are met. Please
Low to moderate.
No. note that in general, an appeal does not
postpone the execution of the results of Are management fees deductible?
the tax audit.
Transfer pricing methods Yes, assuming documentary support
Are transfer pricing methods outlined If an adjustment is sustained, can exists and economic benefit can be
in Chapter II of the OECD Guidelines penalties be assessed? If so, what proven. Transfer pricing documentation
acceptable? rates are applied and under what should also be available to support the
conditions? level of charges.
No. In accordance with the FBiH CPT
Law, the only transfer pricing methods Additional taxable income assessed is Are management fees subject to
acceptable are the CUP and CPLM. subject to the standard corporate profit withholding?
tax rate of 10 percent increased by the
Is there a priority among the Yes, if provided in the FBiH.
penalty interest of 0.04 percent per day of
acceptable methods? default in payment. Are year-end transfer pricing
CUP is the preferred method. adjustments permitted?
If there is no priority of methods, is penalties enforced? Yes. In accordance with the CPT Law
there a “best method” rule? of FBiH, adjustments for transfer prices
Given that transfer pricing is a relatively
should be made in the CPT return at the
Not applicable. new topic in the FBiH, currently
end of the tax year.
it is not common for the FBiH tax
authority to scrutinize transactions Other unique attributes?
with related parties.
No.
Other recent Advance pricing

developments agreements
Not applicable. What Advance Pricing Agreement
Tax treaty/double tax No APAs or advance rulings of any kind.
resolution Is there a filing fee for APAs?
What is the extent of the double tax Not applicable.
treaty network?
Minimal. Treaties are negotiated on the Does the tax authority publish APA
level of BiH, but are applicable to both data either in the form of an annual
entities. A number of tax treaties signed report or through the disclosure of
by the former Socialist Federal Republic of data in public forums?
Yugoslavia apply. New treaties are being Not applicable.
signed by BiH.
Please provide some information on
If extensive, is the competent how successful the APA program is
authority effective in obtaining and whether there are any known
double tax relief? difficulties?
No experience in FBiH in practice with Not applicable.
application of competent authority
proceedings.
Language
When may a taxpayer submit an In which language or languages can
adjustment to competent authority? documentation be filed?
No formal rules exist in this area. Although there is a possibility
of maintaining transfer pricing
May a taxpayer go to competent documentation in another language
authority before paying tax? and translating it upon a request issued
No formal rules exist in this area. by the FBiH tax authority, KPMG in BiH
recommends having a local language
translation prepared in advance.
KPMG in Bosnia and Herzegovina
Manal Becirbegovic
Tel: +387 33 941 500
Email: mbecirbegovic@kpmg.com

Brazil | 37
Brazil
KPMG observation
The Base Erosion and Profit Shifting (BEPS) initiative does not directly affect
Brazil even though some requirements, such as the Country-by-Country Report,
may encourage Brazil to adopt the Organisation for Economic Co-operation and
Development (OECD) Guidelines in the future. Obstacles to be overcome include
the lack of a public database on Brazilian comparables. The OECD´s paper named
Transfer Pricing Comparability Data and Developing Countries recognizes that this
is one of the issues faced by developing countries and comments on the possibility
of adopting the so called ‘sixty method’. Recently, Law 12715/12 introduced the
mandatory adoption of public quotation for companies dealing with commodities.
Brazilian rules apply to transactions with related parties and also with companies
located in low-tax and other ‘privileged’ listed jurisdictions. Despite the rigidity of law, the
provisions are in some respects flexible, for instance, allowing the taxpayer to change the
method on a yearly basis with no justification or economic reasons.
Basic information Transfer pricing pricing information within the tax

return. However, the submission of the
Tax authority name disclosure overview complete tax return is mandatory and the
Receita Federal do Brasil. Are disclosures related to transfer penalty is applied for not presenting it.
Citation for transfer pricing rules submitted to the revenue authority
Law n. 9.430/96 and IN SRF 243/02, Law on an annual basis (e.g. with the tax
n. 12.715/12, Law n. 12.766/12 and IN return)? overview
RFB 1.312/12. Yes. Is preparation of a transfer pricing
Effective date of transfer pricing What types of transfer pricing taxpayer be penalized for mere
rules information must be disclosed? failure to prepare a study?
January 2007. A summary of related party transactions No preparation of a transfer pricing study
and transfer pricing calculations must is required. In general terms, taxpayer
be disclosed in the annual tax return. must prepare the cost and price analyses
for transfer pricing rules to apply
This includes identification of the in order to show that the margins set by
between parties?
related parties, the amount involved per law are met.
Companies are deemed to be related transaction (goods, services and rights),
when they are under common control and if any, the methodologies used for Other than complying with a
or one of them is located in a low- tax testing and the adjustments made. requirement per the previous
jurisdiction or privileged tax regime. question, describe the benefits, if
What are the consequences any, of preparing and maintaining a
What is the statute of limitations of failure to prepare or submit transfer pricing study?
on assessment of transfer pricing disclosures?
adjustments? Not applicable.
There are no specific penalties for not
Five years as of the tax return filing date. preparing or submitting transfer
To satisfy the requirement and/or If an adjustment is proposed by the Do tax authorities have
obtain the benefits, are there any tax authority, are dispute resolution requirements or preferences
requirements on when the transfer options available to the taxpayer regarding databases for
pricing study must be prepared and outside of competent authority? comparables?
submitted? Tax court and administrative disputes. No.
Not applicable.
If an adjustment is sustained, can What level of interaction do tax
When a transfer pricing study is penalties be assessed? If so, what authorities have with customs
prepared, should its content follow rates are applied and under what authorities?
Chapter V of the OECD Guidelines? conditions? Low.
Not applicable. No specific penalties for not presenting
the transfer pricing documentation. Are management fees deductible?
Does the tax authority require an General tax penalty is applied on Yes.
advisor/tax practitioner to have corporate tax due.
specific designation in order to Are management fees subject to
prepare or submit a transfer pricing To what extent are transfer pricing withholding?
study? penalties enforced? Yes.
No. Only when the adjustment made by tax
authority triggers corporate tax. Are year-end transfer pricing
adjustments permitted?
Transfer pricing methods What defences are available with Year-end adjustments are not regulated.
Are transfer pricing methods respect to penalties? In some cases, debit/credit notes may
outlined in Chapter II of the OECD The following defenses are available: be issued to adjust import / export prices.
Guidelines acceptable? Impacts on indirect taxes and deductibility
• adjustment miscalculated by the tax
No. Although the ratios used are similar, for corporate tax purposes should be
authority
(i.e. Comparable Uncontrolled Price analyzed on a case-by-case basis.
(CUP) method resale price, and cost • misinterpretation of law or facts by
plus) their application often deviates from the tax authority. Other unique attributes?
the OECD Guidelines because some The rules allow for some flexibility on
methods require the application of a fixed What trends are being observed the application of methods and in the
margin, as set out by law. currently? ability to change the method used
Given the recent changes the tax on a yearly basis. Safe harbors and
Is there a priority among the authorities will be focusing the audits on materiality thresholds are available only
acceptable methods? commodities traders. for exporters.
No.
If there is no priority of methods, is Special considerations Other recent

there a “best method” rule? Are secret comparables used by tax developments
No. authorities? • Changes to transfer pricing rules
Yes, in a few cases. were introduced by Law 12.715/12
and Law 12.766/12, which are
Transfer pricing audit Is there a preference, or effective beginning in 2013 or, at the
and penalties requirement, by the tax authorities taxpayers election, for transactions
for local comparables in a entered into as of 1 January 2012.
When the tax authority requests
benchmarking set? The most important changes are: the
documentation, how long does No. Public comparables are not available statutory margins required to apply
the taxpayer have to submit its in Brazil. Fixed margins/safe harbors are the resale price method are defined
documentation? used; therefore comparables are not according the taxpayers sector and
really relevant. vary between 20 to 40 percent
Within 20 days of request, after which an
extension may be negotiated with the tax • inbound and outbound transactions
authority, depending on the complexity with commodities are to be tested
of documentation required. in accordance with specific methods
Brazil | 39
based on price quotation as Tax treaty/double tax

recognized on an international futures
and commodities exchange and resolution
international organizations What is the extent of the double tax
treaty network?
• loan agreements are included in the
scope of transfer pricing, being the Extensive.
interests deductible for corporate taxes
purposes only up to an amount not
exceeding:
double tax relief?
i) for loans in United States dollars No experience.
(USD) at fixed rates, the market
rate of the sovereign bonds issued When may a taxpayer submit an
by the Brazilian government on adjustment to competent authority?
the external market, indexed in No formal rules exist in this area.
USD
ii) for loans in Brazilian real (BRL) May a taxpayer go to competent
at fixed rates, the market rate of authority before paying tax?
the sovereign bonds issued by No formal rules exist in this area.
the Brazilian government on the
external market, indexed in BRL
Advance pricing
iii) for all other loans the rate is the agreements
six-month London Interbank
Offered Rate (LIBOR). What Advance Pricing Agreement
iv) minimum 2.5 percent spread
None.
must be added to the interest rate
by Brazilian lenders as financial Is there a filing fee for APAs?
income; the Brazilian borrower
Not applicable.
shall recognize maximum 3.5
percent as spread to be added to Does the tax authority publish APA
the interest rate (MF Ordinance data either in the form of an annual
427/13). report or through the disclosure of
• for exporters, to be eligible for the data in public forums?
safe harbor, the annual net pre-tax Not applicable.
profits on exports to a related party
must be at least 10 percent (the Please provide some information
3-year average may be required on how successful the APA program
depending on the fiscal year). This is and whether there are any known
relief will only be available when difficulties?
the export net revenue with related Not applicable.
parties does not exceed 20 percent
KPMG in Brazil
of the total export net revenue during
the period. Language Eliete Ribeiro
In which language or languages can Tel: +55 11 21833288
documentation be filed? Email: eribeiro@kpmg.com.br
Portuguese.
Edson Costa
Tel: +55 11 31385313
Email: edsoncosta@kpmg.com.br
Henrique Conti
Tel: +55 11 21833278
Email: hconti@kpmg.com.br
Evandro Tiba
Tel: +55 11 21831824
Email: etiba@kpmg.com.br

Bulgaria
KPMG observation
Tax authorities are showing increased interest in the topic and in recent years
KPMG in Bulgaria has observed several material tax audit assessments related
to transfer pricing.
Bulgarian taxpayers increasingly seek to prepare transfer pricing documentation
or localize their group-level master files in order to mitigate the tax risk associated
with related party transactions.
The Bulgarian tax authorities currently do not have access to the Amadeus database
and their transfer pricing efforts are mainly focused on:
• scrutinizing available transfer pricing documentation
• exploring potential internal comparables
• obtaining comparable data from competitors of the taxpayer.
The preparation of transfer pricing documentation therefore provides the taxpayer with a
relatively strong defense for the price levels of its related party transactions.
Basic information tax withholding tax and, in limited cases, Effective date of transfer pricing
for VAT purposes. As a result of these rules
Tax authority name adjustments, an additional 10 percent Detailed transfer pricing rules were first
The tax authority in Bulgaria is the corporate income tax or withholding introduced through Ordinance N-9 of 14
National Revenue Agency at the Ministry tax and in certain cases, a negative VAT August 2006.
of Finance. The National Revenue Agency effect of 20 percent may apply.
reviews transfer pricing issues in the What is the relationship threshold
course of ordinary tax audits. Further, the difference between related
party transaction prices and market levels
between parties?
Citation for transfer pricing rules may be classified as hidden distribution
of profits. In such cases, a 20 percent The Tax and Social Security Procedure
The transfer pricing legislation in Bulgaria Code (TSSPC) sets a threshold of direct
is contained in: administrative penalty and 5 percent
withholding tax may be applied. ownership of five percent of the capital
of a company. Other criteria for related
• Article 15 of the Corporate Income Taxpayers have the burden to prove to parties also apply, including common
Tax Act the authorities that their transactions directors, ability to exercise control, etc.
are performed under market conditions.
• Article 27, paragraph 3 of the VAT Act If they are unable to do so, the tax What is the statute of limitations
authorities are allowed to establish an on assessment of transfer pricing
• Article 116 of the Tax and Social appropriate market price and adjust the adjustments?
Security Procedure Code (TSSPC) taxable base to it. The general statute of limitations for
In 2010 a transfer pricing Manual tax liabilities is 5 years from 1 January
• Ordinance N-9 of 14.08.2006 on of the year following the year when the
was published by the tax authorities,
the application of transfer pricing tax was payable (i.e. when the corporate
containing guidance on transfer pricing
methods. tax return was filed). For example, the
issues. The Manual is generally based
on the 2009 Organisation for Economic statute of limitations for corporate
Under the rules set out in the legislation,
Co-operation and Development (OECD) income tax due for 2009 expires at the
if related parties perform transactions at
Guidelines and the European Union (EU) end of 2015.
prices different from market levels, the
taxable base may be adjusted to market Transfer Pricing Code of Conduct.
prices. This applies for corporate income
Bulgaria | 41
Transfer pricing mitigate the risk of additional tax and Is there a priority among the
administrative penalty liabilities, which acceptable methods?
disclosure overview in the worst case scenario can amount There is a priority among the methods in
Are disclosures related to transfer to 57 percent of the value of the the following order:
pricing required to be prepared or transaction.
submitted to the revenue authority • Comparable uncontrolled
If taxpayers provide transfer pricing
on an annual basis (e.g. with the tax price (CUP) method
documentation, the tax authorities tend
return)?
to review its conclusions and accept
Tax liable persons are required to report • Resale Price and Cost Plus methods
them if no inconsistencies are found. If
transactions with related parties and with no documentation is available or if major
entities established in jurisdictions with a • Transactional net margin method
inconsistencies are found, the authorities
preferential tax regime executed during (TNMM) and Profit Split method.
are allowed to assess the transfer prices
the year in a special appendix to their under their own analysis. If there is no priority of methods, is
annual corporate income tax return.
What types of transfer pricing obtain the benefits, are there any Not applicable.
information must be disclosed? requirements on when the transfer
The tax liable persons should report pricing study must be prepared and
Transfer pricing audit and
the value of the transactions with submitted? penalties
related parties and entities established The transfer pricing Manual recommends
in jurisdictions with a preferential tax When the tax authority requests
preparing transfer pricing documentation
regime executed in the year for which the a taxpayer’s transfer pricing
for a given fiscal year by the date of
corporate income tax return is submitted, documentation, how long does
submitting the corporate tax return.
regardless of the type, form and time of the taxpayer have to submit its
However, there is no statutory deadline
conclusion of the contract, or whether documentation?
for preparation of documentation.
payment related to the transactions has Usually, the tax authorities submit a
been made/received during the year. When a transfer pricing study is request for provision of documents and
Specific rules apply for the reporting of prepared, should its content follow the taxpayer has 14 or 15 days to comply.
the provision/receipt of loans. Chapter V of the OECD Guidelines? However, this deadline may be extended
Generally yes, although Bulgaria is or the tax audit procedure may be
What are the consequences suspended for up to three months.
not an OECD member and the OECD
of failure to prepare or submit
Guidelines are not mandatory for If the taxpayer does not submit the
disclosures?
taxpayers and the tax authorities. documentation within the required
Administrative sanction in the amount However, the tax authorities usually deadline, the tax authorities may assume
of EUR 50-500 for first breach and in the accept the principles outlined in the that no documentation is available and
amount of EUR 100-1,000 for a second OECD Guidelines. may perform a transfer pricing analysis of
breach.
The transfer pricing Manual of the their own.
tax authorities also refers to the EU
Transfer pricing study Transfer Pricing Code of Conduct as a
overview source for the content of transfer pricing
Is preparation of a transfer pricing documentation.
study required – i.e. can the The decision of the tax authorities may
Does the tax authority require an
taxpayer be penalized for mere be appealed at the administrative level
advisor/tax practitioner to have
failure to prepare a study? (before a regional appeal directorate)
specific designation in order
No. However, general tax consequences to prepare or submit a transfer and subsequently at the judiciary level
may arise due to lack of transfer pricing pricing study? (before a court).
documentation.
No.
Other than complying with a penalties be assessed? If so, what
requirement per the previous Transfer pricing methods rates are applied and under what
question, describe the benefits, if conditions?
any, of preparing and maintaining a Are transfer pricing methods
outlined in Chapter II of the OECD An administrative penalty of 20 percent
transfer pricing study? may be applied where an expense
Guidelines acceptable?
By preparing transfer pricing charged by a related party is deemed to
documentation, taxpayers may Yes.
be hidden distribution of profits.
To what extent are transfer pricing Do tax authorities have number of MAPs have been initiated so
penalties enforced? requirements or preferences far and they are not yet complete.
The extent of enforcement cannot be regarding databases for
comparables? When may a taxpayer submit an
monitored in detail as tax proceedings
are not public until the court appeal No. However, Amadeus is generally
phase. Nevertheless, in recent years accepted. Not applicable.
KPMG in Bulgaria have observed a
significant increase in the number and What level of interaction do tax May a taxpayer go to competent
materiality of transfer pricing issues authorities have with customs authority before paying tax?
being identified by tax authorities. authorities? There are no formal rules. A taxpayer
Moderate, however, currently increasing. may submit a request for guidance from
What defences are available with the tax authorities on specific issues.
respect to penalties? Are management fees deductible? However, receiving an answer from
The established way of substantiating Yes, subject to proper documentation the tax authorities does not guarantee
related party transactions is by the and benefit for the recipient. consistent treatment of the issues in
preparation of a local transfer pricing file future.
covering the Bulgarian market. Are management fees subject to
withholding?
In a limited number of cases, transfer Advance pricing
Yes, subject to tax treaty provisions.
prices may be defended by building up agreements
arguments based on pricing policies, Are year-end transfer pricing What Advance Pricing Agreement
cost allocation methodologies, market adjustments permitted? (APA) options are available, if any?
analyses etc. However, such an
approach highly depends on the specific Yes, subject to substantiation with No APAs or advance rulings of any kind.
circumstances of the case and its documents, budgets and a transfer
pricing study. Is there a filing fee for APAs?
success may not be guaranteed.
Not applicable.
What trends are being observed Other unique attributes?
currently? None. Does the tax authority publish APA
As noted, there is an increasing interest
in transfer pricing issues by both Other recent data in public forums?
taxpayers and the tax administration. It
has been noted in transactions involving
developments Not applicable.
goods that the authorities generally Tax authorities have recently issued
seek price adjustments but in services rulings with guidance on the transfer Please provide some information
transactions they tend to focus on the pricing aspects of: on how successful the APA program
actual provision of the services. is and whether there are any known
difficulties?
• cash pooling schemes
Not applicable.
Special considerations • selling goods at prices under market
Are secret comparables used by tax
authorities?
levels under certain conditions. Language
Tax authorities have indicated in informal Tax treaty/double tax documentation be filed?
discussions that they may use secret
comparables. However, the feasibility of resolution Based on the TSSPC, all documentation
this approach is not yet certain. What is the extent of the double tax must be submitted to the tax authorities
treaty network? in Bulgarian. If submitted in another
Is there a preference, or language, the authorities may translate it
Extensive. About 70 tax treaties are in
requirement, by the tax authorities at the expense of the taxpayer.
force.
benchmarking set? If extensive, is the competent
Yes, the authorities require a authority effective in obtaining KPMG in Bulgaria
benchmarking study to start the initial double tax relief?
search from the Bulgarian market. With respect to the usual application of Kalin Hadjidimov
tax treaties – frequently. Tel: +359 2 969 77 00
Email: khadjidimov@kpmg.com
With respect to mutual agreement
procedures (MAPs), only a limited

Canada | 43
Canada
KPMG observation
The Canada Revenue Agency continues to focus significant resources on transfer
pricing audits, including addressing business restructuring situations. Canada’s
first Supreme Court decision in a transfer pricing case was delivered during 2012,
marking a significant milestone in the judicial interpretation of transfer pricing.
Basic information notice of original assessment is generally What are the consequences
received 3 to 6 months after the filing of of failure to prepare or submit
Tax authority name the tax return. disclosures?
Canada Revenue Agency (CRA). A late filing penalty or multiple late filing
Citation for transfer pricing rules Transfer pricing penalties for more than one T106 form
may be assessed if the T106 is filed after
Section 247 of the Income Tax Act of disclosure overview the due date. The penalty is equal to the
Canada, RSC 1985, and Chapter 1 and 2 Are disclosures related to transfer greater of CAD100 and CAD25 per day,
(Fifth Supplement), as amended. pricing required to be prepared or up to a maximum of 100 days.
Effective date of transfer pricing A failure-to-file penalty may be assessed
rules where the reporting persons knowingly
return)?
In general, section 247 is applicable fail to file T106 documentation. The
Yes, as long as related party transactions minimum penalty is CAD500 per month,
for taxation years beginning after 1997.
are above a certain dollar threshold. to a maximum of CAD12,000 for each
However, the transfer pricing penalties
(pursuant to subsection 247(3)) are failure to comply. The failure-to-file
What types of transfer pricing
applicable for taxation years beginning penalty is reduced by any late filing
information must be disclosed?
after 1998. penalties assessed.
A form called the T106 must be
For taxation years prior to 1998, there completed. The T106 requires detailed
were different transfer pricing provisions information about transactions Transfer pricing study
of the Income Tax Act that were with non-arm’s length non-resident overview
applicable. entities, including types and quantum
Is preparation of a transfer pricing
of transactions, transfer pricing
What is the relationship threshold study required – i.e. can the
methodologies used, whether there
for transfer pricing rules to apply taxpayer be penalized for mere
has been a change in methodology,
between parties? failure to prepare a study?
whether the methodology is based on
Ownership of more than 50 percent; an Advance Pricing Agreement (APA) No. Technically, the preparation of
however, parties may still be found to be with another tax authority and whether transfer pricing studies is not required per
non-arm’s length even where there is contemporaneous documentation se. However, failure to prepare transfer
less than 50 percent ownership (de facto exists with respect to such transactions. pricing studies on a contemporaneous
control or the absence of independent A T106 is required if the amount of the basis can automatically trigger the
interests). total reportable transactions for all the application of a transfer pricing penalty
non-residents combined is more than if the CRA levies adjustments above
What is the statute of limitations one million Canadian dollars (CAD). certain thresholds.
on assessment of transfer pricing Where a reporting person’s total
adjustments? amount of transactions with a particular
Generally, 7 years (6 years in specific non-resident during the taxation year is
cases) from the date of issuance of below CAD25,000, certain information
the notice of original assessment. The is not required.
Other than complying with a 6. the assumptions, strategies and If an adjustment is sustained, can
requirement per the previous policies, if any, that influenced the penalties be assessed? If so, what
question, describe the benefits, if determination of the transfer prices rates are applied and under what
any, of preparing and maintaining a or the allocations of profits or losses conditions?
transfer pricing study? or contributions to costs, as the case Yes. The legislation provides for the
Benefits include: may be, in respect of the transaction. imposition of a penalty equal to
10 percent of the total transfer pricing
• penalty protection Does the tax authority require an
adjustment, in certain cases. The
• reduce the risk of adjustment penalty is intended to be compliance-
related, focusing on the efforts that
• proactively manage the facts and prepare or submit a transfer pricing
a taxpayer makes to determine and
analysis study?
use arm’s length pricing. The penalty
• shift the burden of proof to the tax No. equals 10 percent of the net amount
authority. of adjustments made in a tax year,
Transfer pricing methods but only where the net adjustments
To satisfy the requirement and/or exceed the lesser of 10 percent of the
obtain the benefits, are there any Are transfer pricing methods taxpayer’s gross revenue for the year
requirements on when the transfer outlined in Chapter II of the OECD or CAD5 million. The net amount of the
pricing study must be prepared and Guidelines acceptable? adjustment is based on:
submitted? Yes.
• upward adjustments relating
In order to be contemporaneous,
Is there a priority among the to transactions for which the
the transfer pricing analysis and
acceptable methods? taxpayer does not have adequate
documentation must be prepared by
Canada follows the OECD Guidelines documentation
the taxpayer’s filing due date (i.e. within
6 months after fiscal year-end) and must regarding the use of the most appropriate • downward adjustments relating to
be provided to the CRA within 3 months method. However, there remains transactions for which the taxpayer
of a written request. somewhat of a preference for traditional has adequate documentation.
transaction methods and Canadian
When a transfer pricing study is courts have shown a general preference To what extent are transfer pricing
prepared, should its content follow for the comparable uncontrolled price penalties enforced?
Chapter V of the OECD Guidelines? (CUP) method. In competent authority Transfer pricing penalties are enforced
No. While it uses the Organisation for or APA proceedings, transactional profit aggressively.
Economic Co-operation and Development methods are often used.
(OECD) Guidelines as the basis for the What defences are available with
information required, section 247(4) (a) If there is no priority of methods, is respect to penalties?
sets out six required elements: there a “best method” rule? Penalties may be avoided where a
No. taxpayer has made ’reasonable efforts’
1. the property or services to which the
to comply with the dual obligation to
transaction relates
determine and use arm’s length prices
2. the terms and conditions of the pursuant to subsection 247(4) of the
transaction and their relationship, penalties Income Tax Act and CRA’s TPM-09
if any, to the terms and conditions When the tax authority requests (reasonable efforts under section 247
of each other transaction entered a taxpayer’s transfer pricing of the Income Tax Act). To demonstrate
into between the participants in the documentation, how long does that a reasonable effort has been made,
transaction the taxpayer have to submit its complete and accurate documentation
documentation? must be prepared and updated on an
3. the identity of the participants in the
Three months. annual basis. Penalties may be reduced
transaction and their relationship to
or eliminated based on subsequent
each other at the time the transaction
If an adjustment is proposed by the competent authority settlements.
was entered into
4. the functions performed, the property options available to the taxpayer What trends are being observed
used or contributed and the risks outside of competent authority? currently?
assumed, in respect of the transaction, Aside from requesting competent Canada continues to be a jurisdiction
by the participants in the transaction authority assistance, taxpayers can where transfer pricing enforcement is a
also file a notice of objection with the high priority. The probability of a transfer
5. the data and methods considered
Appeals division of the CRA and, if pricing audit and adjustment remain
and the analysis performed to
necessary, can pursue an appeal before higher than in many other jurisdictions.
determine the transfer prices or the
the Tax Court of Canada. In recent years, the CRA has started to
allocations of profits or losses or
apply a risk-based approach to evaluating
contributions to costs, and the case
and selecting taxpayers for transfer
may be, in respect of the transaction
Canada | 45
pricing audits. This approach is based on a To the extent that such adjustments are During 2012, the Supreme Court of
number of factors including the type and required, they may be made as follows: Canada rendered its first decision in
amount of non arm’s length transactions, a transfer pricing case. This decision
• before the books are closed for the
prior audit history, continuing losses as addressed a number of fundamental
year, by making an adjustment in
well as the existence of restructuring issues, including:
the books
transactions.
• the necessity to take into
• after the books are closed, but before
consideration all economically
the financial statements are finalized,
Special considerations by making an adjusting journal entry
relevant circumstances that a party
Are secret comparables used by tax acting at arm’s length would likely
to the financial statements
authorities? consider relevant
• after the financial statements
Yes, but very rarely. • the validity of various asserted
have been finalized, by making an
comparables
adjustment on Schedule 1 of the
corporate tax return. • the extent of the taxpayer’s onus to
requirement, by the tax authorities
support the pricing actually used
for local comparables in a To the extent that year-end adjustments
benchmarking set? relate to tangible products imported • the true role and function of both
Yes. Generally the CRA prefers the use of into Canada, such adjustments will parties to the transactions.
local comparables, but accepts the use have Customs implications:
In terms of administrative guidance, the
of North American comparables. • for upward price adjustments, CRA issued two new Transfer Pricing
Customs will generally require the Memoranda: TPM-13 and TPM-14.
importer to declare such higher TPM-13 deals with referrals to the
requirements or preferences
amount and pay GST and duty on the Transfer Pricing Review Committee and
difference replaces TPM-07, with relatively minor
comparables?
changes. TPM-14 is the CRA’s official
Taxpayers are free to use a database of • downward adjustments are
announcement on adopting the 2010
their choice. The CRA uses the Standard generally disregarded by Customs.
version of the OECD Guidelines.
and Poor’s Capital IQ database. Consequently, the importer will not
able to claim back refunds of duty, in As noted, transfer pricing enforcement
What level of interaction do tax those cases where the goods were continues to be a focus area for the
authorities have with customs dutiable. CRA, particularly in regard to intellectual
authorities? property, business restructuring and
Other unique attributes? financial transactions.
Low.
Generally, the CRA does not support the
Are management fees deductible? use of multi-year averaging. In an audit
setting, results are evaluated on a year- Tax treaty/double tax
Yes.
by-year basis. resolution
Are management fees subject to Use of the inter quartile range is not What is the extent of the double tax
withholding? supported by the CRA. treaty network?
Yes. However, this is generally nullified Extensive. There are currently 89 treaties
by the relevant income tax convention in force.
if the payee does not have a permanent Other recent
establishment in the payer’s country. developments If extensive, is the competent
The 2012 Federal Budget confirmed that authority effective in obtaining
Are year-end transfer pricing secondary adjustments are treated as double tax relief?
adjustments permitted? deemed dividends, subject to relevant Almost always: in more than 90 percent
Yes, year-end adjustments may be made. withholding taxes. In certain cases, of cases.
Taxpayers are, however, encouraged to the withholding tax will not be eligible
minimize or avoid year-end adjustments for foreign tax credits in the other When may a taxpayer submit an
where possible, for example by jurisdiction, as it is based on a deemed, adjustment to competent authority?
reviewing and truing-up pricing on a rather than actual, dividend. After receipt of a notice of reassessment
periodic basis during the year. from the CRA.
May a taxpayer go to competent Please provide some information

authority before paying tax? on how successful the APA program
Yes. However, in most cases, the is and whether there are any known
taxpayer will have to either post security difficulties?
or pay half the amount of the tax payable While currently experiencing
once a reassessment is issued. resourcing constraints, Canada has
a long established and generally well
functioning APA program. Increased
Advance pricing early stage due diligence on proposed
agreements APAs by the CRA has created some
What APA options are available, if delays. In total, since the inception of
any? the APA program, there have only been
four instances in which the CRA has
Unilateral, bilateral, and multilateral.
been unable to conclude an agreement
Is there a filing fee for APAs? with a taxpayer and/or a foreign tax
administration. The current average
Yes, out-of-pocket expenses for the CRA
time to conclude a bilateral APA is
in negotiating the APA.
approximately 49 months. The CRA will
not negotiate APAs concerning business
restructuring transactions.
data in public forums? Language
Yes. The CRA issues an APA program In which language or languages can
Report which provides statistics for that documentation be filed?
year and a summary of key findings.
English or French.
KPMG in Canada
David L Francescucci
Tel: +1 514 840 2395
Email: dfrancescucci@kpmg.ca

Chile | 47
Chile
KPMG observation
The 2012 Chilean tax reform was enacted with the objective of aligning local
rules with Organisation for Economic Co-operation and Development (OECD)
Guidelines, particularly in terms of incorporating business restructuring effects and
advance pricing agreement (APA) procedures. Moreover, Chilean tax authorities
are also in line with the 2012 United Nations´ Practical Transfer Pricing Manual for
Developing Countries, and it is expected that developments derived from the 2013
OECD’S Base Erosion and Profit Shifting (BEPS) plans will also be taken into account,
although no immediate actions have yet been taken.
Chilean tax authority has been increasingly active not only with respect to the execution
of transfer pricing audit procedures, but also in terms of increasing its human and
technical resources in order to manage the planned work-flow increase.
While a transfer pricing study is not mandatory per se, taxpayers are required to keep
all documentation deemed necessary to support the arm’s length nature of intra-group
transactions. It must be noted that in recent audit procedures, the information required by
Chilean tax authorities has been similar to that commonly included within a transfer pricing
study. Furthermore, taking into consideration deadlines applied in audit procedures, it has been
observed that those taxpayers already possessing a transfer pricing study prior to the start of the
audit tend to be able to better cope with its demands and obtain a favorable outcome.
Basic information It is presumed parties are related when latest date at which the tax should have
they enter into exclusive or joint action been paid.
Tax authority name agreements, preferential treatment or Regarding taxes for which returns must
Servicio de Impuestos Internos (Chilean the parties are economically or financially be filed, this period extends to 6 years,
Internal Revenue Service, or SII). dependent. Also any kind of agency, in the case when a return has not been
branch or permanent establishment of presented, or in cases of tax fraud.
Citation for transfer pricing rules any entity of the group is considered a
Article 41 E of the Chilean Income Tax related party with its head office as well
Law, contained in Decree Law No. 824 as as with any other group member entity. Transfer pricing
amended.
Similarly, it follows that when a party
disclosure overview
Effective date of transfer pricing performs one or more transactions with Are disclosures related to transfer
rules a third party which, in turn, carries out, pricing required to be prepared or
directly or indirectly, identical or similar submitted to the revenue authority
1 January 1998 and 27 September 2012
transactions to those performed with the on an annual basis (e.g. with the tax
for changes incorporated by the latest tax
first party all the parties are considered return)?
reform act.
related. Entities located in a jurisdiction Yes. The obligation to annually (in form
What is the relationship threshold listed as a tax haven are presumed and time) file a sworn statement is
for transfer pricing rules to apply related where there are transactions. incorporated in Article 41 E of the Chilean
between parties? Income Tax Law, where the taxpayer,
What is the statute of limitations subject to transfer pricing rules, must
Parties are related when there is on assessment of transfer pricing
participation (direct or indirect) from one itemize the transactions conducted with
adjustments? its related parties.
party in management, control, capital,
profits or income of the other party. The applicable general rule for the statute
of limitation is 3 years, starting from the
What types of transfer pricing have to prepare transfer pricing studies based methods are applicable. Where an
information must be disclosed? to be able to comply with transfer pricing alternative method is used, the taxpayer
On 31 January 2013, the SII released documentation obligations. has to justify its use.
an official pronouncement specifying
Other than complying with a Is there a priority among the
the filling instructions. The required
requirement per the previous acceptable methods?
information includes:
question, describe the benefits, if No. However, the usage of additional
• the methods used for calculating any, of preparing and maintaining a methods is permitted only when none of
prices, profitability rates or returns transfer pricing study? the methods outlined in Chapter II of the
• the features of such transactions Although no formal transfer pricing study OECD Guidelines can be applied.
(for example, amounts, type of is required, the tax authorities expect in
the case of an audit or transfer pricing If there is no priority of methods, is
transaction, currency used)
review that the taxpayer could support there a “best method” rule?
• related party information (for that transactions were set based on Yes. The taxpayer must use the most
example, address and taxpayer a transfer pricing policy that follows appropriate method considering the
identity number) the arm’s length principle. Additionally, characteristics and circumstances of
• general information on the corporate from 2013 onwards, if the taxpayer the intra-group transaction. For this
group cannot present the transfer pricing purpose, the taxpayer should take
documentation within a month (or 2 if into consideration the advantages
• information regarding financial extended) of receiving a legal notice, and disadvantages of each method,
transactions, intra-group services, it may not be accepted as evidence in the applicability of the methods in
royalties and commissions, among subsequent stages of the audit or later relation to the type of transaction
others. as evidence in court in case of a judicial and circumstances, the availability of
• information informing any business dispute. relevant information, the existence of
restructuring of the taxpayer’s comparable transactions and ranges and
To satisfy the requirement and/or comparability adjustments.
operation in Chile.
The deadline for filling this Transfer requirements on when the transfer
Pricing Affidavit is the last business day pricing study must be prepared and Transfer pricing audit and
of June. submitted? penalties
No, except for the term indicated in the When the tax authority requests
What are the consequences
answer to the previous question. a taxpayer’s transfer pricing
disclosures? documentation, how long does
When a transfer pricing study is
Fines for filing the sworn return in an prepared, should its content follow
documentation?
untimely, incorrect or incomplete manner Chapter V of the OECD Guidelines?
may range from 10 to 50 annual tax One month (or 2 if extended) from the
There is no specific requirement.
units UTA1 (one UTA is equivalent to date the taxpayer receives legal notice of
However, it should at least include a
approximately 980 US dollars (USD)). commencement of a tax audit.
functional analysis, industry analysis,
company overview, and support for If an adjustment is proposed by the
Transfer pricing study selection of method and a description tax authority, are dispute resolution
of comparables, as well as a list of all options available to the taxpayer
overview supporting documentation. outside of competent authority?
Does the tax authority require an In the case of transfer pricing
advisor/tax practitioner to have adjustments, taxpayers are entitled to
specific designation in order to submit a tax claim on the charges and to
prepare or submit a transfer pricing start the regular litigation procedure.
No, a transfer pricing study is not legally
mandatory. However, taxpayers are study?
required to keep all documentation No. penalties be assessed? If so, what
deemed necessary to show the arm’s rates are applied and under what
length nature of intra-group transactions Transfer pricing methods conditions?
and that they were set based on the Yes. In the case of adjustment, a
arm’s length principle using one of the Are transfer pricing methods
35 percent penalty tax is applicable in
acceptable methods. It is likely that outlined in Chapter II of the OECD
lieu of income taxes on the adjustment,
in practice taxpayers with significant Guidelines acceptable?
plus inflation adjustments, interest and
amounts of related party transactions will Yes. Additional methods: The usage of a 5 percent penalty over the amount
additional methods is permitted only adjusted.
when none of the transactional or profit
Chile | 49
To what extent are transfer pricing industry, to make a selection following The extent of the potential effects of this
penalties enforced? a comparison among them for transfer reform on transfer pricing regulations is
The application of penalties has pricing contingencies and then conduct unknown at this point.
increased in recent years. Considering a deeper review. It is important to
note that many of the transfer pricing
the growth in the number of transfer
audits have been targeted at symbolic
pricing audits and the recent tax reform,
it is expected the application of penalties companies (with important global Are secret comparables used by tax
will intensify in future. brands). Even when a transfer pricing authorities?
study is not a formal requirement, the Not officially, but secret comparables
What defences are available with level and detail of information required have been used in some transfer pricing
respect to penalties? by tax authorities in legal notifications is audits.
During a transfer pricing audit, the tax basically the content of a transfer pricing
authority requests from the taxpayer study, including information such as: Is there a preference, or
relevant documents, which the taxpayer requirement, by the tax authorities
• description of the main business
has the obligation to provide. At this for local comparables in a
units of the company, specifying if
stage, it is highly recommended to benchmarking set?
these products are manufactured or
also present a transfer pricing study, as just distributed by the company To date there is insufficient evidence
evidence to demonstrate the compliance to determine whether there is any
with the arm’s length principle of the • list of the principal suppliers and preference by the tax authority.
intra-group transactions under review. clients specifying for each supplier
and client information such as name Do tax authorities have
If a taxpayer does not agree with the of the company, country of residence, requirements or preferences
determination of tax due, the taxpayer amount of all purchases or sales, regarding databases for
may ask the Chilean IRS to reconsider currency used, type of products, comparables?
(via the administrative process) the incoterm used, credit days and if the The tax authority has not issued an
determination. If a reconsideration company is a related or a third party official position on this matter.
request is presented and rejected, the
taxpayer may interpose a claim before • corporate structure of the group
the Tax Court. to which the company belong
authorities have with customs
to, internal organization charts of
If no reconsideration or appeal is authorities?
the company, audited financial
presented, the tax authority issues a statements and all contracts with Increasing. Many of the recent transfer
payment order, which is the amount related parties pricing audits have been supported with
of outstanding taxes, inflation-linked information provided to the tax authority
• segmented financial statements for by the customs authority. Furthermore,
adjustments, interest, and fines and
multi-business entities new APA regulations support the
issues an order to pay.
• sworn return for all transactions with simultaneous involvement of the Chilean
Taxpayers can exercise the right to IRS and the customs authorities in the
related parties
appeal when they are in disagreement case of APAs covering merchandise
with the determinations of tax due and • sworn return regarding the functions imports.
other administrative determinations performed and risks assumed by the
made by the tax authority. company in its operations Are management fees deductible?
However, because the 35 percent • detailed information on any form of Yes, if the management fees comply
penalty tax applies in lieu of income intra-group financing arrangements with the general requirements of the
taxes on the transfer pricing adjustment, or structures. income tax law.
having a transfer pricing study, From 2013 onwards, the Chilean Are management fees subject to
contemporaneous documentation or IRS will be able to use an extensive withholding?
other mechanisms does not provide database containing all of the relevant
protection against the application of Yes, management fees for services
taxpayers´ information as submitted
this penalty. related to technical or professional
automatically by the taxpayer through
services in fields such as engineering,
the online submission of transfer
What trends are being observed finance, human resources, planning,
pricing returns.
currently? accounting, controlling or legal matters,
The strategy followed by the tax Additionally, it is expected that the are subject to a withholding tax at a
authority in the audit process is to notify recently elected government will enact rate of 15 percent if payments are to an
the four or five leading companies of an a new tax reform during the new period. unrelated person or entity and the payee
is not resident in a jurisdiction listed as • the possibility of requesting an APA has entered into an agreement for
a tax haven. Otherwise a 20 percent the avoidance of double taxation that
• taxpayers are required to keep all
withholding tax applies. A 35 percent does not prohibit such adjustments.
documentation deemed necessary
withholding applies for other types of An application for rectification shall be
to show how prices or results
services. However, where there is an filed, accompanied by all documents
agreed upon with related parties are
applicable treaty with the countries supporting the adjustments, including
calculated
involved, management fees should evidence the adjustment was made by
generally be treated as business profits, • the obligation to annually file a the other country, within 5 years from
which would not be subject to tax in Chile sworn statement is incorporated, the expiration of the statutory period in
if the service provider has no permanent where the taxpayer must itemize which the country should declare the
establishment in Chile to which the fees the transactions conducted with its transactions whose prices, values or
can be attributed. related parties profits are intended to be rectified.
Are year-end transfer pricing • specific penalties and fines for May a taxpayer go to competent
adjustments permitted? not complying with regulations on authority before paying tax?
transfer pricing matters.
Unclear. Unclear.
Other unique attributes? Tax treaty/double tax

Advance pricing
None. resolution
agreements
Other recent treaty network? What APA options are available,
if any?
developments Chile has signed 25 tax treaties that
The possibility of requesting an APA from
After Chile became a member of the are currently in effect and four signed
treaties waiting for Congressional the tax authority is included in the new
OECD, the tax authority expressly
ratification. Article 41 E of the Chilean Tax Income
declared that transfer pricing is a main
Law. In the case of imported goods, the
area of focus.
If extensive, is the competent APA should be signed jointly with the
On 27 September 2012, a tax reform was authority effective in obtaining tax authority and the customs authority.
published in Chile, which included the double tax relief? During the term of the APA, no penal
central aspects regarding transfer pricing interest or penalty on account of tax
No experience.
matters: differences identified should apply to the
When may a taxpayer submit an taxpayer, except where offenses may be
• the definition of the transfer pricing punished with imprisonment.
methods to be used by taxpayers
to calculate prices, values or profits Taxpayers may, with the authorization of Is there a filing fee for APAs?
from related party transactions the tax authorities, both on the nature
Tax authorities have stated that all
(which are generally consistent with and the amount of the adjustment,
the detailed procedures of the APA
OECD methods) correct the price, value or profitability
program will be released in subsequent
of the transactions carried out with
• the definition of related party was regulations. These regulations should
related parties, on the basis that transfer
expanded and detailed, adding new specify whether a filing fee will be
pricing adjustments have been made
relationship standards required.
in the other country, with which Chile
Chile | 51

The record of taxpayers with APAs
and the background information used
to reach these agreements will be
protected by secrecy provisions.
Nevertheless, those taxpayers who
authorize the tax authorities to publish
the economic, financial, trade, among
other criteria, and methods under which
APAs were signed, will be included
in a public list of socially responsible
taxpayers.

difficulties?
So far, there is no evidence on how
successful the APA program is. However,
tax authorities are very optimistic
regarding the success of the program.
Language
Spanish.
KPMG in Chile
Juan Pablo Guerrero

Tel: +56 2 2798 1412
Email: jguerrero1@kpmg.com
Rodrigo Stein
Tel: +56 2 2798 1401
Email: rodrigostein@kpmg.com

China
KPMG observation
With nearly 30 years of history in enforcing transfer pricing compliance,
China has been actively broadening and deepening its transfer pricing regime.
Following the issuance of a set of revamped transfer pricing regulations
(Circular 2) in 2009, the State Administration of Taxation (SAT) issued many
transfer pricing related regulations and rules addressing issues such as
contemporaneous documentation administration, intra-group services transactions,
license royalty treatment and single function entities, amongst others. The SAT is
expected to release an updated, expanded and permanent replacement of Circular
2 in the near future.
The Chinese authorities run an aggressive transfer pricing audit program, a maturing
Advance Pricing Agreement (APA) program and have recently put more emphasis on
the day-to-day administration, or ex ante management of taxpayers’ transfer pricing
issues. The ex ante focus has led to pre-audit informal assessments by tax authorities, for
which the taxpayer can elect to make adjustments to its taxable income, which would be
ineligible for any double tax relief.
While Chinese tax authorities leverage experiences of other countries, they waste no time
in developing and putting forward their own positions on a number of key transfer pricing
technical issues. Having actively participated in the United Nation’s (UN) initiative on developing
practical guidance for transfer pricing implementation, China formally pronounced its view
on location specific advantages, translating into lower costs and higher demand, arguing for
additional taxable profit in China.
As a member of the G20 and an observer at the Organisation for Economic Co-operation and
Development (OECD), China is actively involved in the Base Erosion and Profit Shifting (BEPS)
project. The country-by-country reporting requirement, in particular, is expected to result in further
requirements on taxpayers beyond the currently required disclosures.
With Chinese tax authorities becoming increasingly sophisticated in transfer pricing, taxpayers need to
properly manage the balance between the needs for global consistency in transfer pricing policies and
attention to the specific circumstances in China.
Basic information No. 2, Implementation Measures of What is the relationship threshold

Special Tax Adjustments (Provisional) for transfer pricing rules to apply
Tax authority name (Circular 2) (2009). between parties?
The State Administration of Taxation Twenty-five percent, be it direct or
(SAT) at the central level and various state Effective date of transfer pricing
indirect ownership, or control. This
tax bureau and local tax bureau under its rules
applies whether one party owns
administration. 1 January 2008 – when the another or two parties are owned
comprehensive transfer pricing by a common party. The formula for
Citation for transfer pricing rules regulation, Circular 2, came into force. calculating indirect shareholding
Corporate Income Tax Law (CIT Law) Prior to that there had been various percentage is worthy of note: if there
(2007), Implementation Rules for the CIT transfer pricing rules since 1991 but none is 25 percent or greater ownership in
Law (2007), Circular Guoshuifa [2009] took a systematic approach. a higher tier subsidiary, it is counted
China | 53
as 100 percent when multiplying the • Information on outbound payments the segmentation of the taxpayer’s
shareholding percentage of each lower to related and unrelated parties income statement into four categories of
level of indirect shareholdings. Other broken into 17 subcategories, along transactions (i.e. related-party transactions
criteria including loans, control of with information on taxation of these vs. non-related party transactions, within
management, or other types of control payments. China vs. transnational).
can also be taken into account.
What are the consequences Does the tax authority require an
What is the statute of limitations of failure to prepare or submit advisor/tax practitioner to have
on assessment of transfer pricing disclosures? specific designation in order to
adjustments? Penalties up to 10,000 Renminbi (RMB) prepare or submit a transfer pricing
Ten years from the year in which the and negative impact on reputation. study?
related party transaction occurs. No.
Transfer pricing overview Transfer pricing methods
disclosure overview Is preparation of a transfer pricing Are transfer pricing methods
Are disclosures related to transfer study required – i.e. can the outlined in Chapter II of the OECD
pricing required to be prepared or taxpayer be penalized for mere Guidelines acceptable?
submitted to the revenue authority failure to prepare a study? Yes.
on an annual basis (e.g. with the tax Yes. When certain thresholds of related
return)? party transactions are reached (e.g.
Is there a priority among the
annual amount of related party purchases
acceptable methods?
Disclosure of related party transactions
must be submitted to the tax authority and sales totalling RMB200 million or No. Although the SAT recognizes that the
along with the annual corporate income higher, or the amount of other types traditional transaction methods provide
tax return. of related party transactions totalling the most direct comparison where data
RMB40 million or higher), the preparation are available, in practice, the transactional
What types of transfer pricing of a transfer pricing study is required. profit method (primarily transactional net
information must be disclosed? margin method (TNMM)) is commonly
The following information must be Other than complying with a used by both the authorities and
disclosed on nine prescribed forms: requirement per the previous taxpayers.
• Description and amounts of any, of preparing and maintaining a If there is no priority of methods, is
related party and non-related party transfer pricing study? there a “best method” rule?
transactions broken down by Protection from interest surcharge in the While there is no specific mentioning of
type (purchases, sales, services, event of a tax adjustment; opportunity a best method rule in Circular 2, the SAT
intangible assets, tangible assets) for taxpayer to initially frame the issues seeks to adopt the method that is best
as well as by counterparty location and analyses in any negotiations with tax suited to the facts and circumstances of
(domestic or overseas). For tangible authorities and to reduce the likelihood of each particular transaction and provides
assets and intangible assets, the starting negotiations with some ill will. the most reliable measure of an arm’s
information must be further broken length price.
down into several sub-categories. To satisfy the requirement and/or
• Information on financing received
from related parties including time
period, interest rate and expenses, pricing study must be prepared and penalties
and guarantor information such as submitted? When the tax authority requests
guarantee fee and fee rate. The transfer pricing study must be a taxpayer’s transfer pricing
prepared within 5 months after the documentation, how long does
• A full list of all related parties as well end of the calendar year and must be the taxpayer have to submit its
as the address, taxpayer number, legal submitted within 20 days upon request documentation?
representative and type of related by the tax authority in charge.
party relationship. 20 days.
• Extensive information on outbound When a transfer pricing study is If an adjustment is proposed by the
investment (outbound from China) prepared, should its content follow tax authority, are dispute resolution
including information on the invested Chapter V of the OECD Guidelines? options available to the taxpayer
enterprise, such as its profit level, Yes. In addition, China requires transfer outside of competent authority?
income tax payable, effective tax rate, pricing studies to contain certain Apart from direct discussion/negotiation
and shareholders. additional information and completed with the tax authorities, the taxpayers
forms. In particular, one form requires are, in principle, allowed the options
of administrative appeal and litigation. Special considerations Are year-end transfer pricing
However, such proceedings have strong adjustments permitted?
procedural focus and are thus not likely Are secret comparables used by tax
Taxpayers are only allowed to adjust
viable in practice. authorities?
taxable income in China upward through
Yes. Use of secret comparables is a special declaration in the annual tax
If an adjustment is sustained, can specifically sanctioned by Circular 2, return. However, the taxpayer would
penalties be assessed? If so, what however, in most cases, Chinese still not be permitted to remit the money
rates are applied and under what authorities rely on public company data into China.
conditions? derived from commercial databases and
Although there are no penalties as other sources. Other unique attributes?
such on transfer pricing adjustments, Circular Caishui [2008] No. 121 focuses
an interest surcharge may be imposed Is there a preference, or
on the issue of thin capitalization.
on tax underpayments if the taxpayer requirement, by the tax authorities
An enterprise can deduct its interest
does not comply with documentation for local comparables in a
expense actually paid to its related
preparation and production benchmarking set?
parties up to the debt-to-equity ratio
requirements. Preference for local comparables is of 5:1 for financial institutions, and 2:1
observed but a broader geographic set for non-financial enterprises, unless
Interest may be imposed on tax is also acceptable, depending on the
adjustments which relate to transactions the enterprise can provide relevant
circumstances. supporting documents to the tax
taking place on or after 1 January 2008.
This interest rate shall be equal to authority to prove that the transactions
the People’s Bank lending rate plus are conducted at arm’s length, or that
5 percentage points. This interest is the effective tax rate of the enterprise
non-deductible for corporate income paying interest expenses to a domestic
comparables?
tax purposes. However, if the company related party is not higher than that of the
The Chinese transfer pricing regulations domestic related party.
complies with documentation do not dictate the choice of database
requirements, the 5 percent extra charge for benchmarking purposes. However, Circular Guoshuihan [2009] No. 363
may be dropped. KPMG in China’s experience shows provides that China-based enterprises
that the Chinese tax authorities have with limited functions and risks should
subscribed to a few databases such as not bear market or “business” risks
penalties enforced?
Bureau van Dijk’s Osiris database, and related to the financial crisis. As noted
As noted, there are no penalties as Standard and Poor’s Research Insight above, if such companies do generate
such on transfer pricing adjustments. database. Both databases are used losses, they must submit transfer
However, the punitive interest surcharge within the Chinese tax authorities. pricing documentation to the tax
in the absence of a transfer pricing authorities in charge.
documentation is generally enforced. What level of interaction do tax
What defences are available with authorities?
Other recent
respect to penalties?
Low. developments
Not Applicable. As noted last year, the UN included
Are management fees deductible? a chapter on China Country Practice
What trends are being observed in its draft Practical Transfer Pricing
No. The Chinese corporate income tax
currently? Manual for Developing Countries. The
law does not permit the deduction of
With a traditional focus on inbound management fees. While not clearly chapter is a manifesto of Chinese tax
multinational taxpayers, the Chinese defined in the law, the Chinese concept authorities’ position on a range of key
tax authorities are expanding their work of management fees can generally transfer pricing issues. It is consistent
to include domestic enterprises and be interpreted as remuneration for with the continued focus by Chinese
outbound investment. There is also shareholder activities. In addition, tax authorities on location specific
a stronger focus on examining intra- Chinese tax authorities are likely to deny advantages (LSAs), local marketing
group intangible assets transactions, the deductibility of any charges that are intangibles and alternative transfer
equity transfer, thin capitalization literally labelled as management fees, pricing methods.
and other ’new’ transfer pricing even if the charges are not related to
issues. Automotive, pharmaceutical, Taxpayers continue to await
shareholder activities. There are special regulations on valuation of equities
electronics, real estate and distribution rules related to the deduction of fees by
sector companies have received in the related party context, including
bank branches. a contemporaneous documentation
particular scrutiny. The tax authorities
have also been conducting joint requirement for indirect transfers. This
investigations on certain industries and potential regulatory development is
withholding?
across-region investigations on certain consistent with the burgeoning number
No. of tax disputes focusing on intra-group
intra-group companies.
equity transfer.
China | 55
Another continuing development Is there a filing fee for APAs?

is a focus on the transfer pricing No.
arrangements of the so-called High-
New-Tech Enterprises (HNTE). Taxpayers Does the tax authority publish APA
with HNTE status enjoy a reduced data either in the form of an annual
corporate income tax rate of 15 percent. report or through the disclosure of
There is an expectation on the part of data in public forums?
the Chinese tax authorities that HNTEs The SAT published its third APA annual
should not pay significant amount of report (2011) in December 2012 and
royalties on licensed technologies and will issue periodic disclosure on
should earn a higher profit margin than developments of the APA program.
the industry average.
Tax treaty/double tax on how successful the APA program
resolution difficulties?
What is the extent of the double tax Based on the statistics in the APA annual
treaty network? report, more and more taxpayers in
Extensive. China are seeking tax certainty and thus
pursuing an APA, a bilateral APA being
If extensive, is the competent preferred. In the future, the Chinese tax
authority effective in obtaining authorities will recruit and train a larger
double tax relief? pool of tax officers with transfer pricing
Limited Experience. expertise to support the APA program,
thereby alleviating the current bottleneck
When may a taxpayer submit an between application and conclusion.
After receiving from the tax authority Language
in charge a written tax assessment
that may cause or have caused double In which language or languages can
taxation of the same income in different documentation be filed?
treaty jurisdictions. Chinese.

No formal rules exist in this area.
Advance pricing
agreements
The options include unilateral, bilateral
and multilateral APAs. In order to be
eligible for APA, applicants must have
over RMB40 million in annual related
party transactions and have prepared
and/or submitted annual filing and
contemporaneous documentation in
accordance with the Chinese transfer
pricing regulations. KPMG in China
Cheng Chi
Tel: +86 21 2212 3433
Email: cheng.chi@kpmg.com

Colombia
KPMG observation
In 2013 Colombia received an invitation from the Organisation for Economic
Co-operation and Development (OECD) to become a member of the organization.
As a consequence changes in both transfer pricing and tax legislation were carried
out, taking into account OECD guidelines and observations. The Base Erosion and
Profit Shifting (BEPS) Action Plan has been mentioned by the Government as a
flagship to ensure that multinational entities are contributing their fair share of taxes
with regard to the activities they carry out in Colombia.
The Colombian Tax Authorities have continued their scrutiny of transfer pricing and are
closely reviewing the Informational Transfer Pricing Return. They have assessed fines
on those returns that have been filed incorrectly or contain inaccurate information. They
have also changed the requirements for taxpayers that are obliged both to prepare and file
transfer pricing documentation. The Tax Authorities have continued transfer pricing audits
based on red flags detected in the informational return and the transfer pricing studies. It is
expected that there will be more detailed audits and assessments due to the experience
gained by the Colombian Tax Authority.
Basic information power, share capital, and under 260-5 and the Ruling Decree state that
common control. taxpayers which are obliged to prepare
Tax authority name and file Transfer Pricing Documentation
• Even when an entity does not have
Dirección de Impuestos y Aduanas have to keep the documentation
a capital relationship, it is considered
Nacionales, (DIAN – National within their records for a period of at
a related party when it is entitled to
Administration of Taxes and Customs). least 5 years, together with all the
receive directly or indirectly more
supporting documentation that proves
Citation for transfer pricing rules than 50 percent of the profits of a
compliance with the transfer pricing
company.
• Tax Code, Chapter XI, Sections 260-1 rules in Colombia.
to 260-11 • When an operation takes place
between two subordinates, which
• Law 222 of 1995, Section 28
are owned directly or indirectly by
Transfer pricing disclosure
• Economic Sanctions, Tax Code, more than 50 percent by the same overview
Sections 260-11 and 647 individual or corporation or non- Are disclosures related to transfer
corporate entities. pricing required to be prepared or
• Decree 3030 of 2013
• When there are consortiums, submitted to the revenue authority
• Deadlines, according to an annual on an annual basis (e.g. with the tax
temporary unions, account
decree, issued at the end of the return)?
participations, and one of the entities
respective taxable year.
carries out a transaction with any Disclosures have to be submitted on an
Effective date of transfer pricing of its related parties or any of the annual basis within the dates established
rules members of the group in favor or by an annual decree issued before the end
on behalf of the consortium, joint of the taxable year under review.
1 January 2004.
venture or venture accounts.
Taxpayers are also required to annually
What is the relationship threshold prepare and submit a transfer pricing
What is the statute of limitations
for transfer pricing rules to apply study for all transactions carried out with
between parties? related parties overseas, and with tax
adjustments?
• Ownership of greater than havens. Transfer pricing studies are also
The statue of limitations is 5 years
50 percent, based on voting required for taxpayers located in National
from the filing date. Tax Code Article
Colombia | 57
Customs Office Territory who have Other than complying with a If there is no priority of methods, is
operations with related parties located in requirement per the previous there a “best method” rule?
Free Zone, or if there is a triangulation in question, describe the benefits, if No. Nevertheless, the selection of
favor of the taxpayer, through a third party, any, of preparing and maintaining a the method must be based on the
with a related party located in Free Zone or transfer pricing study? characteristic of the transaction under
tax havens. analysis. The method selected should be
The transfer pricing study provides
Taxpayers have to submit the Transfer taxpayers with a tool to mitigate transfer the one that best reflects the economic
Pricing Report when the total amount of pricing risks by supporting its compliance reality of the transaction, provides the
their intercompany transactions exceeds with the arm’s length principle, by best information and requires the fewest
61,000 Taxable Units Value (UVT 1). In correctly describing the facts and adjustments. It is also important to note
addition, Taxpayers are required to analyze circumstances that surround the intra- that if an internal comparable is available;
those transactions which exceed 32,000 group transactions. the transfer pricing rules establish that it
UVT in a kind or class of transaction, must be used.
with related parties, within their Transfer To satisfy the requirement and/or
Pricing Study. obtain the benefits, are there any Transfer pricing audit and
Moreover, transactions carried out with pricing study must be prepared and penalties
related parties located in tax havens have submitted? When the tax authority requests
to be analyzed when the total amount a taxpayer’s transfer pricing
The transfer pricing study should be
exceeds 10,000 UVT. documentation, how long does
prepared and must be submitted within
the dates established every year by the the taxpayer have to submit its
national government. documentation?
Taxpayers need to submit the
Colombian taxpayers are required to file When a transfer pricing study is documentation within dates established
an annual Informational Transfer Pricing prepared, should its content follow by the national government. However, if
Return and/or supporting transfer pricing Chapter V of the OECD Guidelines? a request is issued by the Tax Authorities,
documentation which contain information
No. The transfer pricing study content Taxpayers have 15 days to provide the
related to their intra-group transactions
must follow the requirements of the required information.
including the amounts, related parties,
Colombian Tax Code and the regulatory
type of transactions, methods used to If an adjustment is proposed by the
decree, i.e. functional analysis (general
evaluate the compliance with the arm´s tax authority, are dispute resolution
information of the company and other
length principle, interquartile ranges, options available to the taxpayer
specific information), industry analysis,
amongst other information. outside of competent authority?
company overview, selection of
What are the consequences of failure method, description of comparables, Yes. The taxpayer can dispute the
to prepare or submit disclosures? local economy overview and annex adjustment of the Tax Authorities under
information. However, it is important administrative appeal and regular
The transfer pricing penalties are included
to highlight that local transfer pricing tax litigation.
within Section 260-11 of the Tax Code.
regulation mirrors the OECD guidelines.
Transfer pricing study Does the tax authority require an penalties be assessed? If so, what
advisor/tax practitioner to have rates are applied and under what
overview specific designation in order to conditions?
Is preparation of a transfer pricing prepare or submit a transfer pricing There are not any specific transfer
study required – i.e. can the taxpayer study? pricing penalties other than those
be penalized for mere failure to No. mentioned in Section 260-11 of the Tax
prepare a study? Code. Nevertheless, there are income
Yes. The taxpayer is required to prepare tax penalties linked to a transfer pricing
a transfer pricing study that is requested
Transfer pricing methods adjustment. Those penalties can be up to
every year by the tax authority. However, Are transfer pricing methods outlined 160 percent of the underpayment in tax,
it is only necessary to include the in Chapter II of the OECD Guidelines plus additional penalties and interests.
analysis of the transactions which exceed acceptable?
32.000 UVT. Yes. To what extent are transfer pricing
penalties enforced?
Transfer pricing rules shift the burden of
Is there a priority among the Always.
proof to the Taxpayers. There are formal
acceptable methods?
penalties for late submission of either the What defences are available with
Informational Transfer Pricing Return or the No. However, the Colombian transfer
pricing regulations recommend the use of respect to penalties?
transfer pricing study.
internal comparables when possible. Litigation and settlements.
1
Single UVT value for 2013 COP 26.840 and for 2014 COP 27.485.
What trends are being observed Are management fees deductible? May a taxpayer go to competent
currently? Yes. Deductibility of management fees authority before paying tax?
Tax authorities have begun to perform paid are subject to the limitation applicable Yes.
audits in a more substantive way. The to all expenses paid abroad and not
main challenges to taxpayers relate to subject to withholding tax; if such fees
transfer pricing on expenses for technical or expenses do not exceed 15 percent
Advance pricing
assistance, technical services, intragroup of the taxable income can be taken as a agreements
services and royalties. deduction. What Advance Pricing Agreement
Special considerations withholding? Unilateral and multilateral.
Are secret comparables used by tax When management fees do not contain Is there a filing fee for APAs?
authorities? a technical component or elements
No.
No. that might be considered as advisory,
payments do not require the application Does the tax authority publish APA
Is there a preference, or requirement, of withholding tax, all other payments data either in the form of an annual
by the tax authorities for local usually have a 10 percent withholding report or through the disclosure of
comparables in a benchmarking set? tax rate. data in public forums?
No.
Are year-end transfer pricing No information regarding APA data is
Do tax authorities have requirements adjustments permitted? published.
or preferences regarding databases The transfer pricing rules are silent upon
for comparables? this matter, therefore it is difficult to say
how successful the APA program is
No. Tax authorities expect the taxpayer to whether they are permitted or not.
and whether there are any known
provide sufficient information regarding difficulties?
identification and determination of Other unique attributes?
None. As of 31 December, 2013, one APA had
comparable parties used, information
been signed.
sources, inquiry dates and indication of
the rejection criteria of non-accepted
Other recent
comparable entities. Language
developments
It is also important to present technical In which language or languages can
None.
adjustment descriptions and, when documentation be filed?
needed, a generic description of the Spanish.
principal differences between Colombian Tax treaty/double tax
accounting rules and the rules in those resolution
countries where the comparable parties
are located. What is the extent of the double tax
treaty network?
What level of interaction do tax Extensive, currently there are treaties
authorities have with customs with Canada, Mexico, Chile, Spain,
authorities? Switzerland and the member countries of
High. Customs and tax authorities are the Andean Community (CAN).
part of the same organization (DIAN).
Therefore, the officials of DIAN oversee
both audits.
double tax relief?
Sometimes.

No formal rules exist in this area. KPMG in Colombia
Vicente Javier Torres

Tel: +57 618 8000
Email: vjtorres@kpmg.com

Costa Rica | 59
Costa Rica
KPMG observation
The new Costa Rican transfer pricing rules enacted in September 2013 not only
request Costa Rican tax payers to carry out their intercompany transactions at
an arm’s length value following the Organisation for Economic Co-operation and
Development (OECD) Transfer Pricing Guidelines but also have established formal
transfer pricing obligations to be accomplished annually. Specific regulations related
to the formal obligations are still pending at this time.
Even though general transfer pricing rules have been recently enacted, the Costa
Rican Tax Authority has been able to adjust intercompany transactions if they were
not in accordance with the arm’s length principle since 2003. Moreover, some transfer
adjustments assessed by the Tax Authority for prior years have been ratified by the
Constitutional Court and by the Supreme Court of Justice.
Basic information • when entities are considered to be • a resident in Costa Rica and a
part of the same business group distributor or exclusive agent of a
Tax authority name (unidad de negocio), if one of them foreign jurisdiction;
Dirección General de Tributacion (DGT). is a member or participant of the
• a distributor or exclusive agent,
other and is related to it in any of
Citation for transfer pricing rules resident in Costa Rica, of a resident of
the following situations: (i) holding a
a foreign jurisdiction;
Decree 37898-H published on majority of voting rights; (ii) having
13 September 2013 the power to appoint or remove • a resident entity and its permanent
members or through its legal establishment abroad; or
Effective date of transfer pricing representative to intervene in the
rules • a permanent establishment resident
other entity; (iii) through agreements
in Costa Rica and its foreign parent
New transfer pricing rules are effective with another partner, having the
company, as well as another
since fiscal year 2013. majority of voting rights; (iv) having
permanent establishment of the same
appointed the majority of the board
company or a person associated with
What is the relationship threshold members exclusively by their votes;
it.
for transfer pricing rules to apply or (v) a majority of the members of
between parties? the governing body of the legal entity What is the statute of limitations
Parties will be deemed to be related if are ombudsmen, managers or board on assessment of transfer pricing
one of the following cases applies: members of the related party or the adjustments?
other party dominated by it; or
• when one person or company The normal statute of limitations is
directs or controls the other, or • when two or more companies 4 years. This term is extended to 10 years
holds, directly or indirectly, at least comprise a decision making bloc with for those taxpayers who (1) have not
25 percent of its capital stock or regard to a third company, all them are filed their tax returns, (2) have not
voting rights; considered to be a business group. registered as taxpayers before the
Tax Administration, or (3) have filed
• when five persons or fewer direct Also in the following situations:
tax returns that have been deemed
or control both related parties, or • in a contract of collaboration or joint fraudulent. The statute of limitations
possess, directly or indirectly, a venture, when one of the participants starts counting from 1 January of the
participation of at least 25 percent in holds, directly or indirectly, 25 percent year following that in which the tax
the capital stock or voting rights of of the results or profit under the should have been paid.
both entities; contract;
Transfer pricing disclosure Failure to prepare a transfer pricing If there is no priority of methods, is
study may result in a penalty equivalent there a “best method” rule?
overview to 2 percent of the taxpayer’s Yes. Taxpayers must apply the most
Are disclosures related to transfer previous year’s income. This penalty appropriated method for each transaction
pricing required to be prepared or has a minimum of 10 base salaries under analysis.
submitted to the revenue authority (approximately USD7,270) and a cap
on an annual basis (e.g. with the tax of 100 base salaries (approximately
return)? USD72,700). Transfer pricing audit and
Yes. Taxpayers must prepare the transfer penalties
pricing documentation demonstrating
requirement per the previous When the tax authority requests
controlled transactions are at arm’s a taxpayer’s transfer pricing
length value. This documentation must
any, of preparing and maintaining a documentation, how long does
be retained by taxpayers during the the taxpayer have to submit its
statute of limitations after submitting the
documentation?
income tax return. It can mitigate the risk the Tax Authority
can adjust transactions without applying The taxpayer has 10 work days to
Additionally, taxpayers categorized the arm’s length principle. Also the submit whatever information the Tax
as large taxpayers or large territorial burden of proof is also shifted to the tax Administration requests.
companies, or that operate under the authority.
free trade zone incentive system, must If an adjustment is proposed by the
file, on an annual basis, an informational To satisfy the requirement and/or tax authority, are dispute resolution
return by the deadline and under the obtain the benefits, are there any options available to the taxpayer
conditions to be established by the requirements on when the transfer outside of competent authority?
Tax Authority. pricing study must be prepared and In principle yes, but it has been a very
submitted? consistent practice of the government
What types of transfer pricing and of the State’s Attorney’s Office not
The transfer pricing documentation
information must be disclosed? to allow alternative dispute resolution
should be prepared contemporaneously
The information must include data with the tax return and should be options for matters regarding taxation.
related to the group and to the taxpayer, submitted upon request of the DGT.
as well as information regarding the If an adjustment is sustained, can
controlled transactions, their nature When a transfer pricing study is penalties be assessed? If so, what
and amount, the methods applied, prepared, should its content follow rates are applied and under what
comparable data used and results. Chapter V of the OECD Guidelines? conditions?
Yes. One of the following penalties may
What are the consequences be applied:
of failure to prepare or submit Does the tax authority require an
disclosures? • 50 percent of the incremental tax that
is determined (this is the base case,
Failure to prepare or submit specific designation in order to
applicable for ‘inaccuracy’ upon filing a
disclosures may result in a penalty prepare or submit a transfer pricing
tax return).
equivalent to 2 percent of the study?
taxpayer’s previous year’s income. No. • 100 percent of the incremental tax
This penalty has a minimum of 10 that is determined (this penalty
base salaries (approximately 7,270 US applies when the adjustment derives
dollars (USD)) and a cap of 100 base Transfer pricing methods from information that had been
salaries (approximately USD72,700). Are transfer pricing methods withheld from the Tax Administration).
Furthermore, the Tax Administration outlined in Chapter II of the OECD • 150 percent of the incremental tax
would be entitled to make its own Guidelines acceptable? that is determined (this penalty
determination of what the appropriate
Yes. But there is also the possibility of applies when the taxpayer has
price for related party transactions should
applying other methods to analyze export incurred ‘substantial’ anomalies in
have been.
and import transaction of goods with its accounting records, used falsified
international price quotations. Specific supporting documentation or used
Transfer pricing study regulations regarding these other intermediate persons or entities with
overview methods are still pending. the purpose of hiding its identity).
Is preparation of a transfer pricing Is there a priority among the To what extent are transfer pricing
study required – i.e. can the taxpayer acceptable methods? penalties enforced?
be penalized for mere failure to No. The Tax Administration automatically
prepare a study? applies these penalties every time there
Yes, a transfer pricing study is required is a tax adjustment, and they never
for all transactions carried out with negotiate.
related parties.
Costa Rica | 61
What defences are available with Are management fees deductible? May a taxpayer go to competent
respect to penalties? Yes. When evidence can be provided that authority before paying tax?
The taxpayers need to demonstrate that the services were necessary and actually In principle yes, but there is no experience
they have been diligent. They need to rendered. If no support can be provided, yet in Costa Rica regarding that matter.
convince the Tax Administration that they then the tax authority will consider them
have analyzed the tax positions taken and as non-deductible.
that they are convinced that their position
Advance pricing
is in accordance with the law. The Tax Are management fees subject to agreements
Administration may disagree with the withholding?
taxpayer in those cases and still make a Yes, they are subject to a 15 percent if any?
tax adjustment, but that would allow the withholding tax when they are deemed
Unilateral.
taxpayer to avoid a penalty. It is therefore to be Costa Rica source income. The Tax
very important to document the client’s Administration has been aggressively Is there a filing fee for APAs?
transfer prices. The use of an APA would expanding the definition of Costa Rica
The specific regulation is not
also be a mechanism that would protect source income to include virtually all
published yet.
the taxpayers from harsh penalties. management fees.
What trends are being observed Are year-end transfer pricing
currently? adjustments permitted?
The Tax Administration has made a To be determined. This type of adjustment data in public forums?
significant number of adjustments based is not mentioned by the new rules and
Not applicable. This program has not
on what they consider to be Comparable there is no experience to date with the tax
yet started.
Uncontrolled Prices (CUPs). They have authority.
made several adjustments to companies
that have a local manufacturing facility that Other unique attributes?
sells both to local independent distributors None. and whether there are any known
and to related parties in other countries.
difficulties?
The Tax Authorities have applied the
price used with the third party distributor Other recent Not applicable. This program has not yet
to related parties, without making developments started.
adjustments (e.g. for volume, functions or Specific regulations regarding the transfer
risks incurred). pricing informative return and the Advance Language
Pricing Agreement (APA) program are
Special considerations expected to be enacted in the coming
months.
Are secret comparables used by tax Documentation must be in Spanish.
authorities?
The Tax Administration has said that they
Tax treaty/double tax
will not use secret comparables. They resolution
have not used secret comparables in What is the extent of the double tax
the past. treaty network?
Is there a preference, or requirement, Minimal.
by the tax authorities for local
comparables in a benchmarking set?
No. There is very limited public local double tax relief?
information.
No experience.
Do tax authorities have requirements
or preferences regarding databases
for comparables?
Depends on the time frame allowed by
No specific requirements have been
the tax treaty. The only double tax treaty
officially made. KPMG in Costa Rica
currently in effect is one with Spain,
What level of interaction do tax and it states a 3 year term from the first
Sergio Garcia
authorities have with customs notice of the measure that may imply a
Tel: +(506) 2201 4100
authorities? taxation that is not in accordance with the
Email: sgarcia1@kpmg.com
provision of the treaty.
They do not have a high level of interaction
with customs authorities.
Croatia
KPMG observation
The Croatian Tax Authority (CTA) is regularly performing detailed transfer pricing
audits, with the primary targets being large taxpayers. Other audit triggers, apart
from size, include a sharp fall in profit, continuing losses and companies that are
part of multinational groups.
Basic information terms ‘traditional transactional What types of transfer pricing

method‘ and ‘transactional profit information must be disclosed?
Tax authority name based method‘ as well as ‘best Not applicable.
Ministarstvo Financija, Porezna uprava method rule‘.
(Ministry of Finance, Tax Authority). What are the consequences
What is the relationship threshold of failure to prepare or submit
Citation for transfer pricing rules for transfer pricing rules to apply disclosures?
Croatian Corporate Profit Tax (CPT) Law, between parties?
Not applicable.
Article 13, and CPT Regulations, Article 40. The definition of related parties is very
broad, but specifically includes situations
The Institute for Public Finance, Ministry where one party directly or indirectly Transfer pricing study
of Finance, issued in August 2009 the
Manual for Inspection of Transfer Prices
participates in the management, control, overview
or capital of another party (no specific
(the Manual). Although the Manual is thresholds), or if the same parties Is preparation of a transfer pricing
not legally binding, it provides useful participate directly or indirectly in the study required – i.e. can the
guidance in relation to transfer pricing management, control or capital of taxpayer be penalized for mere
matters and what the CTA might expect another party. failure to prepare a study?
from taxpayers. Yes. A transfer pricing study is required
What is the statute of limitations for all transactions with foreign related
Effective date of transfer pricing on assessment of transfer pricing parties and in certain cases transactions
rules adjustments? with domestic related parties (more
• 1 January 2005 – new CPT Law The statute of limitation is 3 years and specifically, in transactions between two
entered into force introducing commences after the end of the year domestic related parties if one of them
definitions of related parties and in which any tax liabilities should have has a preferential tax position – e.g. is
transfer pricing methods been assessed (e.g. for the 2013 year entitled to a preferential CPT rate, is CPT
• 1 July 2010 – amendments to the the statute of limitations expires at the exempt or has tax losses available for
CPT Law introducing provisions that end of 2017). Under certain conditions an utilization). In the case of an inspection,
transfer pricing rules also apply to absolute statute of limitations of 6 years the CTA may impose penalties if a
domestic related parties, provided may apply. transfer pricing study is not available.
certain conditions are met
• March 2012 – amendments to Transfer pricing requirement per the previous
the CPT Law to harmonize with disclosure overview question, describe the benefits, if
Organisation for Economic Co- any, of preparing and maintaining a
operation and Development (OECD) Are disclosures related to transfer transfer pricing study?
Guidelines by abolishing the provision pricing required to be prepared or
If the transfer pricing study is timely and
that the comparable uncontrolled submitted to the revenue authority
correctly prepared, it shifts the burden
price (CUP) method is the preferred on an annual basis (e.g. with the tax
of proof to the CTA and can protect the
transfer pricing method return)?
taxpayer from penalties.
No. Not unless specifically requested by
• June 2012 – amendments to
the CTA.
the CPT Regulations introducing
Croatia | 63
To satisfy the requirement and/or Transfer pricing audit and What defences are available with
obtain the benefits, are there any respect to penalties?
penalties
Timely prepared transfer pricing
pricing study must be prepared and When the tax authority requests documentation.
submitted? a taxpayer’s transfer pricing
There are no specific provisions documentation, how long does What trends are being observed
indicating when the transfer pricing study the taxpayer have to submit its currently?
should be prepared. However, generally documentation? As in previous years, the CTA has
speaking the expectation is that it will Documentation should be made available shown increasing interest in related
be ready at the same time the annual immediately upon request. party transactions and transfer pricing
corporate profit tax return is submitted documentation. Transfer pricing audits
(i.e. 4 months after the year-end). If an adjustment is proposed by the are regularly performed. Audit triggers,
tax authority, are dispute resolution apart from company size, include a sharp
When a transfer pricing study is options available to the taxpayer fall in profit, continuing losses and those
prepared, should its content follow outside of competent authority? companies that are part of multinational
Chapter V of the OECD Guidelines? An adjustment is proposed following groups.
Yes. Croatian CPT legislation includes a tax audit on the basis of a tax
assessment issued by the CTA. The Further, the CTA requested a number of
mandatory elements for a transfer pricing
taxpayer can appeal the tax assessment large taxpayers to submit transfer pricing
study and generally follows Chapter V of
to an independent second degree body studies with their annual CPT returns for
the OECD Guidelines.
within the Ministry of Finance. 2012 (which were due 4 months after the
Does the tax authority require an end of the financial year). This trend is
advisor/tax practitioner to have If the taxpayer receives a negative ruling likely to continue in the future.
specific designation in order to from the independent second degree
body, the taxpayer is required to pay
prepare or submit a transfer pricing
the corporate profits tax assessed,
study?
penalty interest and any fixed penalties. Are secret comparables used by tax
No.
The taxpayer can then appeal to the authorities?
Administrative Court. There are no specific rules in the transfer
Transfer pricing methods pricing provisions; however, they are
If an adjustment is sustained, can often used by the CTA in practice.
Are transfer pricing methods penalties be assessed? If so, what
outlined in Chapter II of the OECD rates are applied and under what
Guidelines acceptable? Is there a preference, or
conditions? requirement, by the tax authorities
Yes. for local comparables in a
Yes. The CPT Law prescribes fixed
penalties between 2,000 and 200,000 benchmarking set?
Croatian kunas (HRK). Additional No. There is no requirement to include
acceptable methods?
taxable income assessed is subject to local comparables in the benchmarking
No. the standard CPT rate of 20 percent set. However, it is recommended to
increased by a penalty interest of include them as local comparable entities
If there is no priority of methods, is
12 percent per annum. are affected by some of the same
developments, such as industry and
Yes. The CPT Regulations stipulate that To what extent are transfer pricing economic trends.
the selection of the transfer pricing penalties enforced?
method aims at finding the most Transactions with foreign related parties Do tax authorities have
appropriate method for a particular case, are often scrutinized by the CTA and in requirements or preferences
which is in line with Chapter II of the the case of any non-compliance with regarding databases for
OECD Guidelines. the provisions of the tax legislation, comparables?
If a traditional transactional method and the CTA can adjust taxable income and There is no requirement regarding the
a transactional profit based method can where any increase of taxable income use of a certain database for performing
be applied in an equally reliable manner, can result in an additional CPT liability searches for comparables. The CTA uses
the traditional transactional method is assess penalty interest. In addition, the the Orbis database.
preferred. For example, when the CUP CTA may impose fixed penalties. Tax
method and another transfer pricing audits are regularly performed by the What level of interaction do tax
method can be applied in an equally CTA. Domestic transactions in certain authorities have with customs
reliable manner, the CUP method is circumstances are also focused on with authorities?
preferred. similar implications. High.
Are management fees deductible? If extensive, is the competent

Yes, assuming documentary support authority effective in obtaining
exists and economic benefit can be double tax relief?
proven. Limited practical experience.
Are management fees subject to When may a taxpayer submit an

withholding? adjustment to competent authority?
Generally yes, but it depends on the No formal rules.
actual service that is provided. Domestic
withholding tax is 15 percent, but the May a taxpayer go to competent
rate can be reduced or eliminated under authority before paying tax?
an effective double taxation treaty. No formal rules.
In certain circumstances, a withholding
tax at the rate of 20 percent is Advance pricing
applicable to payments for all services agreements
(except for interest, dividends, market
research, business and tax advisory What Advance Pricing Agreement
and audit services) to non-residents (APA) options are available, if any?
who have their legal seat or place of No APAs or advance rulings of any kind.
effective management or control in
tax havens (the list of countries is Is there a filing fee for APAs?
published by the CTA). Not applicable.
Are year-end transfer pricing Does the tax authority publish APA
adjustments permitted? data either in the form of an annual
Yes. CPT legislation does not include report or through the disclosure of
specific provisions or rules related to data in public forums?
year-end transfer pricing adjustments. Not applicable.
However, year-end adjustments occur in
practice. Please provide some information
Year-end adjustments may result in is and whether there are any known
assessment and penalty interest on any difficulties?
customs duty/VAT that was not settled
Not applicable.
in a timely manner. Also, fixed penalties
may be charged due to non-compliance
with the relevant legislation. Language
Other unique attributes? In which language or languages can
None.
Croatian. If accounting and other
documentation is not in Croatian, the
Other recent CTA will require a translation.
developments
None.
Tax treaty/double tax KPMG in Croatia

resolution
What is the extent of the double tax Paul Suchar
treaty network? Tel: +385 1 5390 032
Extensive. Email: psuchar@kpmg.com
Tomislav Borosak
Tel: +385 1 5390 171
Email: tborosak@kpmg.com

Czech Republic | 65
Czech Republic
KPMG observation
Transfer pricing in the Czech Republic has become a key issue in many tax
audits, in particular in large companies and companies with investment incentives.
Specialized Tax Authority (STA) was established for companies with turnover
exceeding two billion Czech crowns (approximately USD100m) and financial
institutions. The STA set transfer pricing as one of its major focus areas. Currently,
transfer pricing is included in every tax audit of large taxpayers.
The Czech Tax Administration is closely following the Organisation for Economic
Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS)
initiative and is preparing legislation amendments.
Adequate documentation serves as a tool to show that prices applied are at arm’s
length. While still not specifically required by tax legislation, it is in practice expected to
demonstrate compliance. Obligatory documentation preparation is likely to be introduced
following the BEPS program.
Basic information common control, and entering a business a part of the enclosure to the financial
relationship predominantly for tax evasion statements. The introduction of
Tax authority name purposes. obligatory documentation for companies
Financ ní úr ad (Tax Authority). exceeding some thresholds is currently
What is the statute of limitations being discussed and is expected in the
Specializovaný financ ní úr ad (Specialized on assessment of transfer pricing near future (related to BEPS).
Tax Authority for companies with turnover adjustments?
higher than 2 billion Czech crowns (CZK) What types of transfer pricing
General limits for additional tax
and financial institutions), Generální information must be disclosed?
assessment apply. Additional tax may
financ ní r editelství (General Financial
be assessed within 3 years after the The enclosure to the financial
Directorate) and Odvolací financ ní
end of the respective taxable period. statements should include an overview
r editelství (Appeal Financial Directorate).
This deadline may be extended up to of significant related party transactions
Citation for transfer pricing rules 10 years in case of repeated tax audits. that do not follow the arm’s length
Special rules further extend the deadline principle.
Income Tax Act 23 (7), legally non-binding
for companies with tax incentives and/or
regulations D-332, D-333, D-334 and D-10. What are the consequences
tax losses.
Czech Ministry of Finance decrees D-332 of failure to prepare or submit
(international standards for taxation of disclosures?
transactions between related parties), Transfer pricing disclosure Not applicable.
D-333 (advanced pricing arrangements) overview
and D-334 (recommended scope of
transfer pricing documentation) and Are disclosures related to transfer Transfer pricing study
General Financial Directorate decree D-10
overview
(low value intra-group services).
on an annual basis (e.g. with the tax Is preparation of a transfer pricing
Effective date of transfer pricing rules return)? study required – i.e. can the
Transfer pricing disclosure is not required taxpayer be penalized for mere
1 January 1993.
by tax legislation. The Corporate Tax failure to prepare a study?
What is the relationship threshold Return Form contains only information No, there is no statutory requirement
for transfer pricing rules to apply about the existence of a link to foreign regarding transfer pricing studies.
between parties? entities which can be viewed as a transfer However, the Tax Authority usually
Ownership of greater than 25 percent pricing risk indicator. Limited information expects the documentation in form of a
based on voting power, share capital, about transactions with related parties is transfer pricing study.
Other than complying with a Is there a priority among the What defences are available with
requirement per the previous acceptable methods? respect to penalties?
question, describe the benefits, if No, but strict rules do apply. OECD Only shifting the burden of proof through
any, of preparing and maintaining a Guidelines need to be followed. the use of proper documentation or
transfer pricing study? defense files. Self-correction through filing
The main benefits are meeting the If there is no priority of methods, is supplementary tax return avoids the basic
expectation of the Tax Authority for there a “best method” rule? penalty (20 percent of additional tax or 1
transfer pricing documentation during Practically, the best method rule applies. percent of reduced tax loss); interest for
a tax audit, shifting the burden of proof late payment is always due.
from the taxpayer to the Tax Authority and
the reduced probability of additional tax Transfer pricing audit and What trends are being observed
assessment and the related penalty. penalties currently?
When the tax authority requests The number of tax audits with a transfer
To satisfy the requirement and/or pricing focus has increased considerably.
obtain the benefits, are there any The main focus is on services (benefit
requirements on when the transfer test) and profitability ratios. Interest
pricing study must be prepared and rates and financial transactions are also
documentation?
submitted? being challenged by Tax Authorities.
The Tax Authority commonly expects
During a tax inspection, the Tax Authority The Tax Authorities cross-check the
documentation as a basic tool, assisting
can ask that the taxpayer to justify prices local documentation and its link to local
the taxpayer to justify its prices, within
used in transactions with related parties. accounting information and require a
15 days of request. This deadline can be
In this situation it is practically expected high level of detail during tax inspections.
extended by the Tax Authority upon the
that the taxpayer will provide transfer Investigating transfer pricing within a
taxpayer’s request.
pricing documentation. The usual deadline tax inspection is the rule rather than the
set by the Tax Authority is within 15 If an adjustment is proposed by the exception for multinationals. The Tax
days of the request. Tax Authorities may tax authority, are dispute resolution Authorities have specialized teams for
provide a longer deadline if requested by options available to the taxpayer transfer pricing and international tax.
the taxpayer. outside of competent authority? The Ministry of Finance regularly attends
European Union Joint Transfer Pricing
When a transfer pricing study is Yes. The taxpayer can initiate an appeal to Forum (EUJTPF) meetings and is part of
prepared, should its content follow the Appeal Financial Directorate before the international information exchange
Chapter V of the OECD Guidelines? going to a regional court. within the EU.
Yes. Additional information is usually If an adjustment is sustained, can Companies with investment incentives in
required for received services, with strong penalties be assessed? If so, what form of a tax relief are subject to transfer
focus on benefit test. Detailed calculations rates are applied and under what pricing scrutiny. We have encountered
are required for major transactions during conditions? several cases in which the Tax Authorities
tax audits.
Yes. General tax penalties apply. challenged the tax relief claimed by
Does the tax authority require an companies with investment incentives
A penalty of 20 percent of the avoided tax who overstated their tax base (reverse
advisor/tax practitioner to have or 1 percent (5 percent for tax liabilities
specific designation in order to transfer pricing applies). A self-correction
before 2011) of the overstated tax loss through filing a supplementary tax
prepare or submit a transfer pricing is assessed when a transfer pricing
study? return does not avoid the tax relief being
adjustment is made by the Tax Authority. challenged. During tax audits, the tax
No specific designation is necessary. Furthermore, interest for late payment authority focuses on the profitability of
Taxpayers can prepare transfer pricing of approximately 15 percent is assessed intra-group transactions and requires
documentation on their own or via (Czech National Bank REPO rate + 14 detailed calculations to be provided
their advisors. On the other hand, it is percent). This interest is calculated and linked to the company’s statutory
possible to have it officially prepared by beginning the fifth working day after the financials.
a designated expert approved by the original maturity day. This interest charge
Interior Ministry. KPMG in the Czech is applicable for a maximum period of
Republic is one of a few companies with 5 years. In specific cases, withholding Special considerations
this authorization. Case law confirms tax on a deemed dividend is assessed Are secret comparables used by tax
expert opinion to be important in court (together with penalty and interest). authorities?
proceedings. Companies with investment incentives
Yes.
granted in the form of tax holidays may
Transfer pricing methods forfeit the right to the tax holidays (even Is there a preference, or requirement,
retroactively). by the tax authorities for local
in Chapter II of the OECD Guidelines To what extent are transfer pricing comparables in a benchmarking set?
acceptable? penalties enforced? Yes. There is a preference to have local
Yes. Tax sanctions are automatically enforced. comparables in a benchmarking set.
Czech Republic | 67
However, not having local comparables Other recent Is there a filing fee for APAs?
does not automatically mean that the 10,000 Czech Republic Koruna (CZK).
benchmark will be rejected. Broader developments
geographic sets can be used where Specialized transfer pricing teams at tax Does the tax authority publish APA
relevant. directorate level have been established. data either in the form of an annual
A specialized Tax Authority for both the report or through the disclosure of
Do tax authorities have requirements biggest clients and financial institutions data in public forums?
or preferences regarding databases was established on 1 January 2012. This
Only information about the number of
for comparables? Authority has replaced the original local
APA applications is published. Approved
The Tax Authority usually uses the Tax Authorities for the biggest clients
unilateral APAs are usually communicated
Amadeus database. Other sources of and financial institutions. Transfer pricing
to tax administration in the other country.
information can be used as well. expertise is available under this supreme
Tax Authority. In December 2012, the
What level of interaction do tax General Financial Directorate issued
authorities have with customs Decree D-10, which is an implementation
authorities? of EUJTPF Report: Guidelines on Low
difficulties?
Very close. Value Adding Intra-Group Services. The
Ministry of Finance is preparing new Tens of APAs are approved each year. The
legislation that should introduce obligatory APA process usually takes between 6 and
Are management fees deductible?
documentation. It is expected that some 9 months to conclude.
Generally yes. However, taxpayers are
thresholds may apply
often asked to document that the services
were provided and consumed for the Language
benefit of the taxpayer Tax treaty/double tax In which language or languages can
Are management fees subject to resolution documentation be filed?

Tax Authorities may require all
withholding tax? What is the extent of the double tax
documents in Czech. This is usually the
A 35 percent withholding tax on services treaty network?
case if they want to scrutinize transfer
rendered in the Czech Republic by a Extensive. prices. However, some Authorities also
company from a country with which voluntarily accept documentation in
Czech Republic has not concluded a If extensive, is the competent
English, and taxpayers may agree with the
double taxation treaty or treaty about authority effective in obtaining
Tax Authorities on which documents must
exchange of information. Permanent double tax relief?
be translated into Czech.
establishment risk exists if the services Frequently.
are physically rendered in the Czech
Republic. When may a taxpayer submit an
Are year-end transfer pricing The taxpayer should submit an additional
adjustments permitted? tax return by the end of the month
Yes. No specific legal provisions on following the month in which the taxpayer
compensating adjustments exist in the discovered the reason for the tax base
legislation. However, domestic legislation increase or tax loss decrease.
does not forbid taxpayers to make these
adjustments. The Tax Authority would first May a taxpayer go to competent
audit whether the original transaction was authority before paying tax?
set in accordance with the arm’s length No formal rules exist except for Advance
principle. Pricing Agreements (APAs).
Transfer pricing adjustments are generally
made before submitting a tax return. Advance pricing
After this deadline, it could only be
agreements
done by submitting a supplementary
tax return based on new facts that are What APA options are available, KPMG in Czech Republic
fully documented. In practice, taxpayers if any?
gradually adjust prices during the calendar A unilateral APA covering the transfer Marie Konečná
year to minimize the need for yearly pricing approach selected by the taxpayer Tel: +420 222 123 438
transfer pricing adjustments. is available.The Czech tax law does Email: mkonecna@kpmg.cz
not specifically provide for bilateral
Other unique attributes? or multilateral APAs. However, the
According to decree D-10, an arm’s length Tax Authorities allow for coordination
mark-up of 3 to 7 percent should apply to with foreign authorities and therefore As email addresses and phone numbers change
low value intra-group services. effectively enable bilateral APAs. frequently, please email us at transferpricing@
Denmark
KPMG observation
In recent years, the Danish tax authorities (SKAT) have significantly increased
the size of their transfer pricing organization in order to comply with the strong
political pressure to audit Danish multinational companies and to present actual
results to the Danish government.
Changes in relevant tax law We have already seen cases in which that the transfer pricing documentation
In June 2012, the Danish Parliament SKAT refers directly to BEPS discussion prepared by the tax payer did not fulfil
passed a transfer pricing bill focusing drafts as part of their reasoning/ the specific Danish transfer pricing
on strengthening the measures against argumentation, e.g. references to the requirements. This has resulted in SKAT
zero tax companies. The bill introduced revised discussion draft on transfer issuing estimated and discretionary
new and more stringent regulations pricing aspects of intangibles in assessments, which then result in a
for companies engaging in controlled connection with transfer pricing audits shift in the burden of proof. Along with
transactions. The most important regarding intangible assets. this, SKAT has introduced deemed
change in relation to transfer pricing is transactions in certain transfer pricing
How to react audits in order to reach an appropriate
the tightening of the rules on specific
transfer pricing fines and the introduction Companies are urged (i) to be aware result in the eyes of SKAT.
of the possibility for SKAT to require of OECD work in progress/focus areas
As such, preparation of localized
independent auditors’ opinions on as SKAT is expected to – and in some
transfer pricing documentation is
transfer pricing. cases already does – follow these
highly recommended. It should:
developments, (ii) to identify significant
Another consequence of the bill is that risk areas and initiate any remediation as (i) represent all relevant facts relating to
Danish companies have their corporate required on the basis of current actions the company.
tax payments for 2011 and onwards of tax authorities, including SKAT, and the
made public. The possibility of offsetting future impact of OECD work (BEPS etc.). (ii) serve as a viable cornerstone of any
losses has also been limited. This means It is expected that SKAT going forward potential transfer pricing audit.
that the first million Euros (EUR) in losses will focus on companies’ ability to Therefore, the preparation of transfer
can always be offset against positive explain their transfer pricing processes, pricing documentation should not be
taxable income, but the remaining losses communicate how transfer pricing risks seen merely as a matter of compliance.
can only reduce the remaining income are identified and the controls applied to
by 60 percent. Losses can still be carried mitigate these transfer pricing risks.
forward indefinitely. Basic Information
Other observations
BEPS impact Tax authority name
There is a continued trend towards SKAT
SKAT has been following the The Danish Customs and Tax
being aggressive and detail-oriented in
developments of the Organisation Administration (SKAT).
its audit of whether the content of the
for Economic Co-operation and transfer pricing documentation fulfils Citation for transfer pricing rules
Development (OECD) Base Erosion and the comprehensive qualitative transfer
Profit Shifting Project (BEPS) closely and • Danish Tax Assessment Act
pricing documentation requirements
is expected to continue its focus on the (ligningsloven), section 2
set out in the Danish Executive Order
future developments of BEPS. More no. 42 of 24 January 2006 (BEK nr. 42 af
specifically, the developments resulting • Danish Tax Control Act
24.01.06).
from BEPS are expected to find their (skattekontrolloven), sections 3 B,
way into the existing transfer pricing In recent years, this trend has led to 14(4) and 17(3) and (4)
guidelines issued by SKAT. many cases in which SKAT has claimed
Denmark | 69
• Danish Corporation Tax Act the taxpayer must ask for a re-opening of (approximately EUR135 million)
(selskabsskatteloven), section 11 the tax assessment for the relevant years. and 0.05 percent of the turnover
exceeding DKK1 billion), or
• Danish Executive Order no. 42 of 24
January 2006 (BEK nr. 42 af 24.01.06)
Transfer Pricing Disclosure (ii) the number of employees in the
Overview company. The penalty amounts
• Guidelines on Transfer Pricing Are disclosures related to transfer to DKK250,000 (approximately
Documentation, updated on 30 pricing required to be prepared or EUR35,000) if the company has less
July 2014 (Den juridiske vejledning submitted to the revenue authority than 50 employees and increases by
2014-2; Selskabs-, fonds- og on an annual basis (e.g. with the tax DKK250,000 for every additional
foreningsbeskatning; C.D.11 Transfer return)? 50 employees. If the company has
pricing). The guidelines are available for more than 500 employees, the penalty
In accordance with section
download on SKAT’s website will be DKK2 million (approximately
3B of the Danish Tax Control Act
EUR270,000).
(skattekontrolloven), taxpayers engaging
• Guidelines on the valuation of business
in controlled transactions must attach
enterprises and ownership interests
in business enterprises, including
an appendix to the income tax return. Transfer Pricing Study
the valuation of goodwill and other
The appendix is a form on which certain Overview
high-level data regarding the taxpayer
intangible rights as issued by SKAT, Is preparation of a transfer pricing
and the nature and scope of controlled
2009 (Transfer pricing; Kontrollerede study required – i.e. can the taxpayer
transactions must be disclosed. The form
transaktioner, værdiansættelse). The be penalized for mere failure to
is called Form no. 05.021 (Danish version)
guidelines are available for download prepare a study?
or Form no. 05.022 (English version).
on SKAT’s website
The form is available for download on Yes, for all transactions.
Effective date of transfer pricing rules SKAT’s website. Since the passage of the
new bill transfer pricing bill introduced in Other than complying with a
June 1998. requirement per the previous
2012, much more focus is given to the
information on the form. question, describe the benefits,
if any, of preparing and maintaining
What types of transfer pricing a transfer pricing study?
between parties?
information must be disclosed? Penalty protection if prepared in
That a company or individual owns
The main business activity of the compliance with the Danish transfer
(directly or indirectly) more than
taxpayer, the exact number of entities that pricing rules, and mitigation of (i) the
50 percent of the share capital or controls
participate in the taxpayer’s controlled risk of shifting the burden of proof from
more than 50 percent of the votes or
transactions, their location and joint SKAT to the taxpayer; (ii) the risk of SKAT
has an agreement regarding controlling
taxation status. When the value of the introducing deemed transactions; and
interest in another company (common
controlled transactions exceeds 5 million (iii) the risk of SKAT issuing a discretionary
control).
Denmark Krone (DKK) approximately assessment.
What is the statute of limitations EUR670,000, a range of further
information regarding the controlled To satisfy the requirement and/or
transactions must also be disclosed. obtain the benefits, are there any
adjustments?
Notice of transfer pricing adjustments What are the consequences of failure pricing study must be prepared and
must be given to the taxpayer by 1 May in to prepare or submit disclosures? submitted?
the sixth year after the end of the income
Penalties will be imposed. SKAT may Transfer pricing documentation must be
year subject to adjustment. This means
impose a penalty if incorrect information is prepared per income year. The transfer
that income adjustments for financial year
given in connection with the obligation to pricing documentation must be submitted
2014 can be made until 1 May 2020.
provide documentation, i.e. in relation to to SKAT within 60 days after receipt of a
The final income adjustment must the appendices to the tax return (special request to that effect, and the deadline
be given to the taxpayer by 1 August forms) and high-level information given is to be considered an absolute deadline
of the sixth year after the end of the regarding the transfer prices declared on which cannot be extended.
income year. the tax return. The penalty is issued in
SKAT is of the opinion that documentation
proportion to the higher of either:
In case of a corresponding adjustment should be prepared and available to SKAT
(income adjustment made by a foreign (i) the turnover of the company no later than at the time of the submission
tax authority), SKAT is not bound by any (weighted as 0.5 percent of the of the tax return for the year documented.
statute of limitation. However, no later turnover up to DKK500 million However, no case law exists and it is
than 6 months after receipt of the first (approximately EUR67 million), our assessment that this argument put
notice of the corresponding adjustment, 0.1 percent of the remaining forward by SKAT is not valid.
turnover up to DKK1 billion
Database searches (comparable If an adjustment is proposed by the where the taxpayer has the opportunity
searches) must be provided within tax authority, are dispute resolution to challenge the imposed penalty before
60 days after SKAT’s request to options available to the taxpayer it becomes final.
that effect, but are not subject to outside of competent authority?
the simultaneous documentation What trends are being observed
Yes, the taxpayer can file a complaint
requirement mentioned above. The currently?
with the Danish National Tax Tribunal. The
deadline for submission of database complaint must be filed no later than 3 SKAT has significantly increased the
searches may be extended to 90 days. months after the date of the adjustment. number of field tax auditors specializing
in transfer pricing audits. Since 15
When a transfer pricing study is If an adjustment is sustained, can August 2011, the field tax auditors
prepared, should its content follow penalties be assessed? If so, what have been authorized to make income
Chapter V of the OECD Guidelines? rates are applied and under what adjustments. Prior to this, all transfer
Yes, with some exceptions. The Danish conditions? pricing adjustments were subject to
transfer pricing legislation sets out very Penalties relating to documentation approval by SKAT’s Central Transfer
specific minimum requirements for a can be imposed if the transfer pricing Pricing Office, and as a result, the income
transfer pricing study, which should be documentation requirements are not adjustments made by SKAT are observed
addressed in order to comply with the fulfilled, whether intentionally or due to to be less coherent. As stated above,
documentation requirements. In general, gross negligence. It is not a condition there is a continued trend towards SKAT
these requirements go further than what for imposing penalties that an income being aggressive and detail-oriented in
is specified in the OECD Guidelines. adjustment is made. The penalty is its audit of whether the content of the
fixed at DKK250,000 (approximately transfer pricing documentation fulfils
SKAT normally emphasizes that the
EUR35,000) per financial year per the comprehensive qualitative transfer
content of the descriptions and analyzes
entity if the submitted transfer pricing pricing documentation requirements.
are of great importance, meaning that
the substance should be adequately documentation is inadequately prepared In transfer pricing audits, companies
presented. preventing SKAT from using it as a are requested to submit a copy of their
basis for assessing whether prices and transfer pricing documentation to SKAT.
Does the tax authority require an conditions have been set on arm’s Typically, after the submission and once
advisor/tax practitioner to have length terms. SKAT has read the company’s transfer
specific designation in order to pricing documentation, a meeting is held
Penalties can also be imposed if
prepare or submit a transfer pricing with the field tax auditor. It is, therefore,
supplementary material, a benchmark
study? important that the transfer pricing
analysis or an auditor’s statement is
No. not submitted at SKAT’s request. The documentation can operate on a stand-
penalty can be reduced by 50 percent if alone basis with respect to the facts and
the required is subsequently prepared. conditions, and that the documentation
Transfer Pricing Methods fulfils the statutory documentation
On top of this, penalties relating to
Are transfer pricing methods adjustments can be imposed as well. requirements.
outlined in Chapter II of the OECD Such penalties are calculated as an SKAT continues to focus on loss-making
Guidelines acceptable? amount corresponding to up to companies and business restructurings,
Yes. 10 percent of an income increase. in particular the outbound transfer of
If the applied transfer prices are intangible assets. Financial transactions
Is there a priority among the considered to be tax evasion, the are also increasingly subject to scrutiny.
acceptable methods? penalty can be significantly higher. Furthermore, BEPS has had – and is
No. expected to continue to have – a major
impact on SKAT’s approach to transfer
If there is no priority of methods, is penalties enforced?
pricing in general and transfer pricing
there a “best method” rule? SKAT enforces the transfer pricing audits involving BEPS-related issues in
Yes, the most appropriate method should penalties more frequently. SKAT can particular.
be applied per the OECD Guidelines. apply the penalty regime starting with
the income year 2009. In addition to the increase in the total
number of transfer pricing audits, the
Transfer Pricing Audit and What defences are available with number of transfer pricing audits that
Penalties respect to penalties? actually result in income adjustments
The penalty of DKK250,000 remains at a historically high level in
When the tax authority requests Denmark. In 2013, SKAT completed
(approximately EUR35,000) for not
a taxpayer’s transfer pricing 77 transfer pricing audits resulting in
preparing the transfer pricing
documentation, how long does transfer pricing adjustments of DKK17.4
documentation in the first place can
the taxpayer have to submit its billion, compared to 67 audits resulting
be reduced if the documentation is
documentation? in adjustments of DKK21.2 billion in 2012
subsequently submitted. Penalties can
No more than 60 days after receipt of a be appealed to the National Tax Tribunal and 47 audits resulting in adjustments of
request to that effect. and after that to the ordinary courts DKK6.2 billion in 2011.
Denmark | 71
Special Considerations written agreements. Adjustments must The results of BEPS are expected
be presented in the transfer pricing to continue to be one of SKAT’s
Are secret comparables used by tax documentation. major focus areas. This is expected to
authorities? affect SKAT’s approach to both on-
No. Other unique attributes? going and future transfer pricing audits.
None.
requirement, by the tax Tax Treaty/Double Tax
authorities for local comparables Other Recent Resolution
in a benchmarking set? Developments What is the extent of the double tax
Yes, there is a preference, but not a SKAT continuously focuses on large treaty network?
requirement, for local comparables in a multinational enterprises (including
Extensive.
benchmarking set. However, European taxation of large one-off transactions
comparables are often produced, and involving large multinational If extensive, is the competent
accepted, by SKAT where a limited enterprises), intra-group financing, authority effective in obtaining
number of local comparables is available. restructurings and outsourcing double tax relief?
(especially if turnover drops in the
Do tax authorities have Almost always.
restructured entity post-restructuring),
requirements or preferences permanent establishments,
regarding databases for When may a taxpayer submit an
management fees, transactions adjustment to competent authority?
comparables? involving countries located in tax
After the taxpayer has been notified of
SKAT has no database requirements. havens, simultaneous audits (Nordic
the proposed adjustment. The taxpayer
However, the most commonly used and EU), intangible assets (IP transfers,
must submit an adjustment to SKAT no
databases include Amadeus, Orbis and royalty transactions etc.), loss-making
later than 6 months after notification.
RoyaltyStat. For financial transactions, companies (no or little tax payment in
SKAT uses Moody’s RiskCalc, Denmark in the last couple of years). May a taxpayer go to competent
Bloomberg and Thompson Reuters LPC
In addition, a special project was authority before paying tax?
LoanConnector.
announced in 2013 focusing on Permitted.
What level of interaction do tax companies within the oil industry.
authorities have with customs As stated above, SKAT continues Advance Pricing
authorities?
Low, but the level is expected to
to focus on loss-making entities. As Agreements
such, companies facing consecutive
increase going forward. income years with losses are likely What advance pricing agreement
to be challenged in a transfer pricing (APA) options are available, if any?
Are management fees deductible? audit. Companies having had a loss Unilateral (advance assessment notice),
For a company to be allowed to deduct for an average of the previous four bilateral, and multilateral.
management fees (i) the fees must years and companies engaging in
qualify as operating costs, i.e. the costs controlled transactions involving Is there a filing fee for APAs?
must relate to the company acquiring, low-tax jurisdictions may be ordered There is currently no filing fee for
securing and maintaining taxable by SKAT to submit a special auditor’s bilateral and multilateral APAs. There is
income, cf. section 6 of the Danish opinion regarding transfer pricing a filing
State Tax Act (statsskatteloven); (ii) no documentation stating whether the fee of DKK300 (approximately EUR40)
shareholder costs may be included in documentation complies with the arm’s for a binding advance assessment
the management fees; (iii) the services length principle. In such an opinion, the notice/
rendered must provide an actual and auditor must state whether: unilateral APA.
documented benefit to the recipient;
and (iv) the company must have taxable (i) the documentation gives a fair view Does the tax authority publish APA
income. and presentation; data either in the form of an annual
Are management fees subject to (ii) the documentation requirements are data in public forums?
withholding? fulfilled; and, SKAT publishes limited information
No. regarding APAs each year. The
(iii) the company’s intra-group information is provided in a published
Are year-end transfer pricing transactions are carried out on an response to the Danish Parliament.
adjustments permitted? arm’s length basis. The information contains the number
Yes, provided that the transfer pricing The provision came into force on of ongoing APAs, the number of closed
adjustments are in accordance with the 1 January 2013. APAs and the number of APAs taking
arm’s length principle and supported by effect in the year in question.

difficulties?
SKAT has quite substantial experience
in negotiating APAs and has concluded
several APAs as sufficient resources have
been provided. For example, in 2011,
Denmark was the first European country
to enter into a bilateral APA with China.
Language
Danish, English, Swedish or Norwegian
KPMG Acor Tax in Denmark
Simon Schaadt
Tel: +45 5374 7044
Email: simon.schaadt@kpmg.com
Henrik Lund
Tel: +45 5374 7066
Email: henrik.lund@kpmg.com
Martin Nielsen
Tel: +45 5374 7055
Email: martin.nielsen@kpmg.com

Dominican Republic | 73
Dominican Republic
KPMG observation
Transfer pricing in the Dominican Republic was introduced in Law 11–92, by
Article 281, Validity of Legal Acts Between Associated Taxpayers, but detailed
rules were established in General Standard 04–2011, published on 2 June 2011.
Even though the legislation is new, it is similar to rules in other Latin American
countries, based on the fact that the tax authority sought advice from different tax
authorities in the region. The legislation includes some additional issues that are
common in practice but not addressed by the transfer pricing legislation in other
countries, such as:
• The use of several years of financial information of the tested party.
• The use of adjustments for accounts receivable, accounts payable, inventory and
property plant and equipment.
• When a party enjoys exclusive agent, distributor or dealer status for the sale of goods,
services or rights and characters have contracts with ‘preferential’ terms, these will be
considered as related parties.
Based on comments by the tax authority, it seems that they will be very active in the area of
transfer pricing, as can be seen from the transfer pricing information requirements.
Basic information Effective date of transfer pricing capital was greater than 50 percent of
rules their total share capital and conducted
Tax authority name related party transactions with:
Transfer pricing documentation
Dirección General de Impuestos requirements start for fiscal years ended
Internos (DGII). • foreign related parties
on 31 March 2011. It is important to
note that in the Dominican Republic, • individuals, companies or
Citation for transfer pricing rules corporations domiciled in low tax
taxable years can conclude on any of the
Law 11–92, Article 281 Validity of Legal following dates: jurisdictions or tax havens
Acts Between Associated Taxpayers.
• 31 March • related parties benefiting from the
General Standard 04–2011 Transfer Free Trade Zone Regime.
Pricing Rules Applicable to Transactions • 30 June
As a result of the Tax Reform effective
Between Related Parties (the rules). • 30 September 10 November 2012, taxpayers must
Law No. 253-12 concerning the • 31 December. document the arm’s length nature
Strengthening of the collection ability of their intercompany transactions,
and Revenue capacity of the State What is the relationship threshold regardless of the ownership structure
for the Fiscal and Development for transfer pricing rules to apply of the organization. Taxpayers must
Sustainability (hereinafter the Tax between parties? document any commercial or financial
Reform), introduced significant For the taxable years ended between operations with:
changes to the scope and application 31 March 2011 and 30 September 2012, • A related party.
of Article 281 of the Dominican Tax the transfer pricing documentation
Code with reference to “Related Party requirements were only applicable to • Individuals or legal entities domiciled,
Transactions.“ local companies where their foreign incorporated or based in countries or
territories with preferential, nil or low Transfer pricing Transfer pricing study
tax regime or tax havens, regardless
of its composition as related parties. disclosure overview overview
Therefore, every transaction made Are disclosures related to transfer Is preparation of a transfer pricing
between related parties is subject to pricing required to be prepared or study required – i.e. can the
a transfer pricing analysis. submitted to the revenue authority taxpayer be penalized for mere
on an annual basis (e.g. with the tax failure to prepare a study?
Parties are deemed to be related:
return)? The preparation of a transfer pricing
• When one directly or indirectly All companies must submit the study is required for every transaction
participates in the management, Informative Return for Transactions with concluded between associated parties.
control or capital of the other. (For Related Parties (DIOR). This must be However, after the enactment of Decree
management: when one party filed annually electronically, no later than No. 78-14, certain associated parties are
occupies a position of senior 60 days after the deadline for filing the exempt from preparing a transfer pricing
management in both companies. For corporate income tax return. study. Taxpayers that comply with the
control or capital: having an interest following requirements do not need to
of at least 50 percent of the capital or The deadline for filing the Corporate
prepare a transfer pricing study:
voting control). Income Tax return is 120 days after the
fiscal closing date. • If the intercompany transactions with
• When one of the parties resident associated parties do not exceed
in the country has permanent What types of transfer pricing DOP10 million; and such entities have
establishments abroad. information must be disclosed? no transactions with entities located
• When a permanent establishment Among other information: in tax havens or under preferential
in the country has its headquarters tax regimes.
• Related parties with which the
abroad. • If local intercompany transactions
transactions were performed.
• When one of the parties enjoys held between entities residing in
• Type of transaction. the Dominican Republic) do not
exclusive agent, distributor or dealer
status for the sale of goods, services • Amount of the transaction. result in a tax deferral or reduction
or rights. of the taxable income. For this
• Documentation supporting case, the taxpayer should perform
• When one of the parties agrees to the transaction, as well as the a detailed analysis, in order to
contractual terms with ‘preferred’ methodology used to support determine if there are any indications
conditions. the arm’s length nature of the of tax deferral or reduction of the
transaction. taxable income.
• When one of the parties assumes
responsibility for any loss or expense • Number of the invoice or document The aforementioned exemption does
of the other. that contains the transaction with not exclude the requirement to file the
related parties. transfer pricing tax return (DIOR).
• When one of the parties receives or
transfers 50 percent or more of its What are the consequences Please be advised that the
production to another company. of failure to prepare or submit amendments of Law 253-12 includes
• When a company or business is a disclosures? as associated parties clients or
decision unit, or when a company is If a taxpayer does not file the DIOR, or providers with exclusive agreements. If
a ‘partner’ of another company. provide the Dominican Tax authorities an entity receives or provides 50 percent
with a Transfer Pricing study when or more of the company’s production,
What is the statute of limitations requested, then a fine of 85,000 then it is considered as associated party.
on assessment of transfer pricing Dominican Republic Peso (DOP) to Additionally, all the companies located
adjustments? DOP154,740 is applicable (around in specific special border-line zones in
Three years from the filing date of 2,073 United States dollars (USD) to the Dominican Republic are protected
the tax return, if the taxpayer filed USD3,774). by Law No. 28-01, and are not subject
the return, or 5 years if no tax return to transfer pricing policies; companies
Other penalties may apply, such belonging to the Free Zone sector are
was filed.
as generated interest and late also not subject to transfer pricing
penalties, for the income generated policies.
under intercompany transactions
not complying with the arm's
length principle.
Dominican Republic | 75
Other than complying with a Transfer pricing methods However, general tax penalties, interest
requirement per the previous and surcharges will apply (interest 1.73
question, describe the benefits, if Are transfer pricing methods percent monthly and surcharges 10
any, of preparing and maintaining a outlined in Chapter II of the OECD percent the first month, then 4 percent
transfer pricing study? Guidelines acceptable? on each subsequent month) on the
The burden of proof is shifted to the tax Yes adjustment.
authority when a company has transfer
Is there a priority among the To what extent are transfer pricing
pricing documentation.
acceptable methods? penalties enforced?
Also, having documentation will Yes. Comparable Uncontrolled Price No experience to date, since legislation
reduce the risk of a disallowance of (CUP) method should be applied first, only came into force in June 2011.
the deduction for tax purposes of the and then resale price method, cost
transactions performed with related plus method, and then the comparable What defenses are available with
parties. profit split method and the transactional respect to penalties?
net margin method. After the Tax Same as for tax adjustments, for
To satisfy the requirement and/or reform effective 10 November 2012 the example, documentation, negotiations.
obtain the benefits, are there any residual profit split method is no longer
requirements on when the transfer applicable. What trends are being observed
pricing study must be prepared and currently?
submitted? If there is no priority of methods, is No experience to date, since legislation
The Dominican tax authorities do not there a “best method” rule? only came into force in June 2011.
require the filing of a Transfer Pricing Not applicable.
study, and a specific date is not provided
to present such documentation. Special considerations
However, tax authorities may request Transfer pricing audit Are secret comparables used by tax
such documents in a tax audit, and and penalties authorities?
a transfer pricing study, if applicable, When the tax authority requests No.
should be in place. a taxpayer’s transfer pricing
In the event of a tax audit, there are no documentation, how long does Is there a preference, or
specific deadlines to submit the transfer the taxpayer have to submit its requirement, by the tax authorities
pricing study. However, the Dominican documentation? for local comparables in a
Tax Authorities usually allow 5-30 days The law does not indicate a time frame. benchmarking set?
following a request. No experience to date, since legislation
If an adjustment is proposed by the only came into force in June 2011.
On the other hand, the filing of the tax authority, are dispute resolution However, due to the limited number of
special transfer pricing tax return (DIOR) options available to the taxpayer local comparables DGII has indicated
is required 180 days after the end of the outside of competent authority? foreign comparables will be accepted.
Company’s annual tax period.
Yes, taxpayers can submit the resolution
to an administrative area within Do tax authorities have
When a transfer pricing study is requirements or preferences
prepared, should its content follow the DGII, in order to object to the
procedures. Also, taxpayers may appeal regarding databases for
Chapter V of the Organisation comparables?
for Economic Co-operation and to tax court.
No experience to date, since legislation
Development (OECD) Guidelines?
If an adjustment is sustained, can only came into force in June 2011.
Yes. However, a transaction-by- penalties be assessed? If so, what
transaction analysis must be conducted. rates are applied and under what What level of interaction do tax
conditions? authorities have with customs
Does the tax authority require an authorities?
advisor/tax practitioner to have Yes. However, since the transfer pricing
regulations are new in the Dominican High level, but not seen for transfer
Republic, there is no practical pricing, since the legislation came into
experience on how the authorities will force in June 2011.
study?
act or interpret its application.
No.
Are management fees deductible? Advance pricing Please provide some information
Yes, when the withholding tax is on how successful the APA program
agreements is and whether there are any known
applied.
What Advance Pricing Agreement difficulties?
Are management fees subject to (APA) options are available, if any? No current information due to the fact
withholding? Unilateral. Before the Tax reform only the transfer pricing regulations have
Yes, when management fees are paid to applied for those in the hotel industry. been recently established.
a foreign entity. After the Tax Reform by the 253-12 Law,
all taxpayers may request from the
Are year-end transfer pricing Fiscal Administration (DGII) an advance
Language
adjustments permitted? pricing agreement for intercompany In which language or languages can
Yes transactions, whether commercial or documentation be filed?
financial transactions, provided that Spanish.
Other unique attributes? such agreements have been pre-
None. established and for a specified period
of time. Accordingly, the pre-existing
limitations with regards to the APAs for
Other recent the hotel industry no longer apply.
developments In order to process an APA request
Transfer pricing rules were established from the DGII, the interested company
in General Standard 04–2011, published should previously perform a transfer
on 2 June 2011. pricing study, demonstrating the values
Tax Reform effective 10 November that independent parties would have
2012 includes specific changes in the established in similar transactions, taking
previous transfer pricing regulations. into account comparability factors.
In any case, the DGII would have the

Tax treaty/double tax last word regarding the acceptance or
not of an APA. In case the DGII does
resolution not accept to the APA requested by
What is the extent of the double tax the taxpayer, said taxpayer could not
treaty network? request another APA in a two year
Minimal, only with Canada. period after the APA was denied. If
the APA is accepted, the APA term
If extensive, is the competent will be the year it is requested and the
authority effective in obtaining subsequent three years.
double tax relief?
Not applicable.
No.
adjustment to competent authority? Does the tax authority publish APA
Not applicable.
May a taxpayer go to competent data in public forums?
authority before paying tax? No.
Not applicable.
KPMG in the Dominican Republic
Santo Domingo
Manuel Marrero
Tel: +1 809 566 9161
Email: manuelmarrero@kpmg.com

Ecuador | 77
Ecuador
KPMG observation
Since 2005, the tax administration, Servicio de Rentas Internas (SRI), has
increased the compliance requirements for transfer pricing. Taxpayers need to
prepare a transfer pricing study. This has resulted in an increase in the number of
transfer pricing audits, and by the end of 2011 the SRI had collected around 200
million United States dollars (USD) in tax from audits.
Basic information What is the relationship threshold them that those relations are non-
for transfer pricing rules to apply inherent to their position
Tax authority name between parties?
• the administrators and
Servicio de Rentas Internas (SRI). The following, among others, are commissioners of the society in
considered related parties: respect of the same, as long as it
• the head office and its subsidiaries, is established among them that
• unnumbered Article following Article
affiliates or permanent relations are non-inherent to its
4 of the Internal Tax Regime Law
establishments position
(LRTI)
• the branches, subsidiaries or • a society in respect of the spouse
• second section of Chapter 4 of the
permanent establishment among and relatives until the fourth
LRTI
them degree of blood relation, or second
• unnumbered Article following Article degree of affinity of the executives,
22 of the LRTI • the parties in which the same administrators, or commissioners of
natural person or society, participate the society
• Articles 4 and 84 to 91 of the Ruling indistinctly, directly or indirectly in the
for Application of the Internal Tax management, administration, control • a natural person or society, and trusts
Regime Law (RALRTI) or capital of such parties in which they have rights
• General Resolution of the SRI No. • the parties in which the decisions • when a natural person or society is a
NAC-DGER 2008–0464 are made by governing entities direct or indirect holder of 25 percent
consisting of mostly the same or more of the social capital or equity
• General Resolution of the SRI No.
members capital in another society
NAC-DGERCGC 09–00286
• the parties in which the same • the societies in which the same
• supplementary regulations
member group, partner or partners, stockholders or their
• Update of General Resolution of the stockholder, participate indistinctly, spouses/husbands or their relatives
SRI No. NAC-DGER 2008–0464, by directly or indirectly in the until the fourth degree of blood
resolution NAC – DGERCGC 13 - administration, management, control relation or second degree of affinity
00859. or capital of these participate directly or indirectly in at
least 25 percent of the social capital,
Effective date of transfer pricing • members of governing bodies of the or own funds or have commercial
rules companies in respect of the same, transaction, provide services or are in
1 January 2005. as long as it is established among a dependent relationship
• when a natural person or a company What types of transfer pricing • Transfer pricing report: taxpayers
is a direct or indirect holder of information must be disclosed? performing cross-border or domestic
25 percent or more from the transactions with related parties, for
common stock or own funding in The following information must be an accumulated amount exceeding
two or more companies disclosed: USD6 million during the fiscal year
• taxpayers must include in their under analysis.
• when a natural person or a society,
whether domiciled or not in Ecuador, annual income tax return the total The reform takes effect immediately,
performs 50 percent or more of its amount of transactions performed and applies for the submission of the
sales or purchases of goods, services with related parties abroad transfer pricing report and appendix
or another type of operations, with differentiated between fiscal haven related to intra-group transactions
a natural person or society, whether and other regimes disaggregated as carried out in the fiscal year 2012.
domiciled or not in the country. follows: assets, liabilities, income,
and expenses Other than complying with a
The tax authority may presume there requirement per the previous
is a relationship between the parties • in addition, the amount of
transactions with local and foreign question, describe the benefits, if
when their transactions do not follow any, of preparing and maintaining a
the arm’s length principle. Related related parties must be included in
the compliance tax report that is transfer pricing study?
parties are also considered to include
submitted to the tax authorities Mitigate risk of tax authority making
those parties carrying on transactions
adjustments using secret comparables.
with companies located in low-tax • transfer pricing report
jurisdictions or tax havens.
• transfer pricing appendix. To satisfy the requirement and/or
What are the consequences requirements on when the transfer
of failure to prepare or submit pricing study must be prepared and
adjustments?
disclosures? submitted?
The SRI can determine transfer pricing
If the taxpayer does not submit The transfer pricing appendix and the
adjustments: i) up to 3 years from the
either a transfer pricing appendix or transfer pricing report must be filed
return date, or ii) up to 6 years from the
a transfer pricing report, the Internal within 2 months after the return’s filing
due date in which the tax return should
Tax Regulations state that a penalty of date (the corporation’s income tax
have been filed, where the return has
USD15,000 will be assessed. returns are due between 10 April and
only been partially filed or not at all.
28 April, depending on the 9th digit of
the tax identification number).
Transfer pricing Transfer pricing study
disclosure overview overview When a transfer pricing study is
prepared, should its content follow
Are disclosures related to transfer Is preparation of a transfer pricing
pricing required to be prepared or study required – i.e. can the
taxpayer be penalized for mere Yes.
on an annual basis (e.g. with the tax failure to prepare a study?
return)? If the taxpayer does not prepare transfer advisor/tax practitioner to have
Yes, taxpayers who have cross-border pricing documentation, they incur a specific designation in order to
or domestic transactions with related penalty of approximately USD15,000. prepare or submit a transfer pricing
parties, for an accumulated amount Yes, for all transactions. Taxpayers who study?
exceeding USD3 million during the perform operations with related parties No.
fiscal year under analysis, must prepare inside or outside the country have to
and submit to the tax administration prepare or submit a transfer pricing study.
a Transfer Pricing Appendix. If the Transfer pricing methods
accumulated amount exceeds On 24 January 2012, the SRI amended Are transfer pricing methods
USD6 million during the fiscal year the rules concerning compliance with outlined in Chapter II of the OECD
under analysis, the taxpayer must transfer pricing formal requirements: Guidelines acceptable?
instead prepare and submit both a Yes, with some exceptions. In import
• Transfer pricing appendix: taxpayers
transfer pricing appendix and transfer and export transactions involving
performing cross-border or domestic
pricing report. products traded on transparent markets,
transactions with related parties, for
an accumulated amount exceeding stock markets or the like, there is
USD3 million during the fiscal year a presumption that prices on such
under analysis. markets would be used in comparable
uncontrolled price (CUP) analysis,
Ecuador | 79
except where it could be shown they To what extent are transfer pricing Are management fees deductible?
are not appropriate. This also applies penalties enforced? Yes, provided the fees are used to
to imports and exports transactions To the extent that the company did not obtain, maintain, and improve income
involving brokers. submit, or submitted an erroneous, of an Ecuadorian source. Additionally,
appendix or transfer pricing report. and with the purpose of ensuring the
expense deductibility, the SRI demands
acceptable methods? What defences are available with the existence of the economic substance
Yes, the application ruling to the LRTI respect to penalties? and clear confirmation that the service
sets forth the following order: The only defense available is to was provided.
• CUP have proper documentation of the
transactions performed. Are management fees subject to
• resale price withholding?
What trends are being observed Yes, 24 percent in 2011, 23 percent
• cost plus
currently? in 2012 and 22 percent in 2013
• profit split Since the transfer pricing regime came and thereafter, withholding tax is
• residual profit split and into force, the tax authority has primarily generally imposed on management
focused on controlled transactions of fees paid abroad. Certain bilateral
• transactional net margin method. international business groups dedicated tax treaties provide for a reduced
to exports, such as bananas, flowers, rate. There are treaties to avoid
pharmaceutical companies, automotive double taxation with countries such
companies, importers, etc. as Belgium, Canada, France, Chile,
Not applicable. Italy, Romania, Switzerland, Spain,
Germany, Brazil, Mexico, Uruguay and
Special considerations the Andean Community. Sanctions for
Are secret comparables used by tax not withholding include disallowing
penalties authorities? deductions for the expense, and
When the tax authority requests Yes. also the obligation to withhold the
a taxpayer’s transfer pricing withholding not performed to the
documentation, how long does Is there a preference, or payment beneficiary.
the taxpayer have to submit its requirement, by the tax authorities
Additionally, payment of the omitted
documentation? for local comparables in a
withholding tax could be required
Normal practice is to expect benchmarking set?
including the interest related to the
documentation within 20 days of No, due to the lack of local information. omission.
request.
Do tax authorities have Are year-end transfer pricing
If an adjustment is proposed by the requirements or preferences adjustments permitted?
tax authority, are dispute resolution regarding databases for
No.
options available to the taxpayer comparables?
outside of competent authority? No, the tax administration uses Other unique attributes?
Yes, a taxpayer may challenge the Compustat North America and global Safe harbor – taxpayers that carry out
adjustment in the respective fiscal court. databases but it is not required in operations with related parties will be
practice because other databases can exempt from the application of the
If an adjustment is sustained, can also be used. transfer pricing regulations provided that:
rates are applied and under what What level of interaction do tax • the tax incurred is greater than
conditions? authorities have with customs 3 percent of total taxable income
Yes, 20 percent of the income tax authorities?
• they do not carry out operations
payable, as determined by the tax High, since customs provide information with residents in fiscal havens or
authority. to the SRI when it is required by this preferential fiscal regimes
organization.
• they do not maintain an agreement Tax treaty/double tax Please provide some information
with the State for exploration or on how successful the APA program
exploitation of non-renewable resolution is and whether there are any known
resources. What is the extent of the double tax difficulties?
treaty network? Local regulations allows taxpayer to
Additionally, regulations allow the tax
authority to use secret comparables for Extensive. negotiate an APA with the tax authorities,
the establishment of the arm’s length nevertheless the tax authority haven’t
If extensive, is the competent provided any guidelines to the taxpayer
principle. The tax authority could use all
authority effective in obtaining for their practical application. Due to
of its information, as well as from third
double tax relief? the lack of guidelines, taxpayers haven’t
parties, as set forth in the tax code and
the LRTI. Frequently. relied on APAs.

Other recent adjustment to competent authority? Language
developments This depends on the timeframe allowed In which language or languages can
In 2012, the SRI has begun more by the tax treaty. documentation be filed?
intensive audits, requesting supporting Spanish.
documentation on methodology used, May a taxpayer go to competent
comparability analysis, and comparable authority before paying tax?
information and in most cases one or No.
all comparables have been challenged.
For this reason, it is now much more
important that the company has
Advance pricing
adequate support for its transfer pricing agreements
policies, as evidenced by a transfer What Advance Pricing Agreement
pricing study and other documentation to (APA) options are available, if any?
support the completion of transactions
It is possible for taxpayers to consult
with foreign related parties.
with the tax authorities so that
In 18 December 2013, the SRI modified a determination can be reached
Resolution NAC - DGER 2008-0464, with regard to the correct value of
published in Official Register 324 of transactions carried out between related
25 April 2008. According to the RES the parties prior to actually carrying out the
reports for the fiscal year 2013 must transactions.
include:
“Detail search in the respective database Not applicable.
for obtaining comparable to be used.
Such detail should include each of the Does the tax authority publish APA
search screens used, corresponding to data either in the form of an annual
each of the steps followed sequentially report or through the disclosure of
from the beginning of the process data in public forums?
to obtaining comparable with who No.
transfer pricing analysis will continue.
Bidders must also attach the details of
the selected for the application of the
method used comparable.”
KPMG in Ecuador
Gino A. Erazo
Tel: +59342290698
Email: gerazo@kpmg.com

Egypt | 81
Egypt
KPMG observation
Transfer pricing is now one of the most important topics for the Egyptian Tax
Authority. The Tax Authority issued the first of three planned parts of transfer
pricing guidelines on 29 November 2010. The first part mainly discussed the basis
of the arm’s length principle, the arm’s length pricing methods and the importance
of documentation. This first part is generally consistent with the Organisation for
Economic Co-operation and Development (OECD) Guidelines.
There has been no announcement from the Tax Authority regarding the date of issuing
the remaining two parts of the guidelines.
Basic information What is the statute of limitations What are the consequences
on assessment of transfer pricing of failure to prepare or submit
Tax authority name adjustments? disclosures?
Egyptian Tax Authority. Five years from the filing date of the The tax return will be considered
corporate tax return (which is four incomplete and the Tax Authority may
months after the financial year-end). refuse to accept it.
Tax law and tax treaties.
Effective date of transfer pricing Transfer pricing Transfer pricing study

rules disclosure overview
2005.
overview
What is the relationship threshold pricing required to be prepared or study required – i.e. can the
for transfer pricing rules to apply submitted to the revenue authority taxpayer be penalized for mere
between parties? on an annual basis (e.g. with the tax failure to prepare a study?
return)?
Ownership of greater than 50 percent, No. The Tax Authority does not require
based on voting power or share capital. Yes, it is a statutory requirement to a transfer pricing study and there
mention the transfer pricing method the is no penalty for failing to perform
Partnerships, the joint partners, and company has used for transactions with one. However, the Tax Authority has
silent partners therein. related parties in the annual tax return. the right to modify the transaction
Any two or more companies in which What types of transfer pricing price if they feel such a price is not
a third person possesses at least 50 information must be disclosed? at arm‘s length. Therefore, a study
percent of the number or value of the is recommended to defend the
shares or voting rights in them. The name of the related party, nature of company‘s position in front of any
the transactions, amount of transactions challenge from the Tax Authority.
and the transfer pricing method used.
Other than complying with a If there is no priority of methods, is Special considerations

requirement per the previous there a “best method” rule?
question, describe the benefits, if Are secret comparables used by tax
Not applicable.
any, of preparing and maintaining a authorities?
transfer pricing study? Unknown.
The purpose of the documentation is to Is there a preference, or
support the company’s transfer pricing
penalties
and avoid or delay fines and penalties When the tax authority requests for local comparables in a
which may be raised following a tax audit. a taxpayer’s transfer pricing benchmarking set?
Unknown. However, there is no Egyptian-
To satisfy the requirement and/or the taxpayer have to submit its
specific database available.
obtain the benefits, are there any documentation?
requirements on when the transfer There is no time frame stipulated in the Do tax authorities have
pricing study must be prepared and law. However according to the practice requirements or preferences
submitted? documentation should be submitted regarding databases for
The law is unclear but preparing as during the tax audit period. comparables?
early as possible is recommended. At this point in time, there is no public
While a transfer pricing study per se is If an adjustment is proposed by the
database in Egypt that can be used for
not required, the taxpayer is required tax authority, are dispute resolution
benchmarking. Therefore, there is no
maintain documents supporting the tax options available to the taxpayer
clear view on tax authority preferences.
return, which can be requested during outside of competent authority?
the tax audit. Yes. If a taxpayer disagrees with What level of interaction do tax
the adjustment proposed by the Tax authorities have with customs
When a transfer pricing study is Authority, the taxpayer may appeal to authorities?
prepared, should its content follow the Internal Committee. If not solved Unknown.
Chapter V of the OECD Guidelines? at the Internal Committee level, then
Not yet defined. However, the first part the taxpayer may appeal to the High Are management fees deductible?
of the Egyptian guidelines (the only part Committee. A formal court action may be Yes.
issued to date) is consistent with the taken if not solved at the level of the High
OECD Guidelines and therefore it is Committee. Are management fees subject to
suggested that Chapter V is followed. withholding?
Does the tax authority require an Yes, unless services are performed
advisor/tax practitioner to have outside of Egypt in a tax treaty country,
specific designation in order to in which case the applicable tax treaty
conditions?
prepare or submit a transfer pricing provision should be applied.
There are no special penalties for transfer
study? pricing adjustments. However, if the Are year-end transfer pricing
No. transfer pricing adjustment has affected adjustments permitted?
the taxable profits, then normal penalties
Yes. The common practice is that transfer
are imposed.
Transfer pricing methods pricing adjustments are made at the year-
end within the annual income tax return
Are transfer pricing methods To what extent are transfer pricing
required to be filed by the taxpayer.
outlined in Chapter II of the OECD penalties enforced?
Guidelines acceptable? Not applicable. Other unique attributes?
Yes.
None.
What defences are available with
Is there a priority among the respect to penalties?
acceptable methods? Not applicable. Other recent
According to the tax law, the comparable developments
uncontrolled price method is preferred. What trends are being observed
The Tax Authority has issued a formal
If the comparable uncontrolled price currently?
transfer pricing guideline. However,
method is not applicable, the taxpayer Not applicable. this is part one of three and there is no
should then look to the resale price information about when the other parts
or cost plus methods. If these are not will be issued.
applicable, any other method outlined
in Chapter II of the OECD Guidelines is
generally accepted.
Egypt | 83
Tax treaty/double tax Language

resolution In which language or languages can
What is the extent of the double tax documentation be filed?
treaty network? Arabic. However, the documents can be
Extensive. prepared in English. The Tax Authority
may require an official Arabic translation
If extensive, is the competent in the case of tax audits.
double tax relief?
Almost always.

During the 5 years after the adjustment
year, limited by the Tax Authority
inspection.

Advance pricing
agreements
What Advance Pricing Agreements
Unilateral; advance rulings (in the form of
pre-approved pricing agreement).

No.

No.

difficulties?
The Tax Authority has not yet issued any
APAs, and it is unclear when the first will
be issued.
KPMG in Egypt
Khaled Balbaa
Tel: +202 3536 2211
Email: kbalbaa@kpmg.com

El Salvador
KPMG observation
In El Salvador, the Tax Code includes transfer pricing rules from fiscal year 2010.
The rules require Salvadorian taxpayers to document the arm’s length nature of
the intra-group transactions conducted with domestic and foreign related parties
or with companies resident in low tax jurisdictions. The regulations require the
taxpayer to produce transfer pricing documentation.
Failure to comply with the arm’s length principle enables the Salvadorian tax authority
to perform adjustments required to reflect arm’s length transactions and to apply
corresponding penalties.
Basic information What is the relationship threshold –– most members of the board
for transfer pricing rules to apply of directors of the acquired
Tax authority name between parties? company are members or
Ministerio de Hacienda de El Salvador – Related parties are defined as follows: managers of the board of
Dirección General de Impuestos directors of the other company.
Internos. • when one person or company
directs or controls the other, or When two companies are part of
Citation for transfer pricing rules holds, direct or indirectly, at least each unit or business group decision
25 percent of its capital stock or in a third company, all companies will
• Art. 62-A of the Tax Code
voting rights be integrated into a decision unit or
Determination of prices.
business group.
• Art. 124-A and Art. 147 e) of • when five or fewer persons
direct or control both persons, or • it is also considered that a person
the Tax Code – Transfer Pricing
possess, direct or indirectly, at least posses participation in the capital
Documentation Requirements.
25 percent of participation in the stock or voting rights, when
• Art. 135 f) of the Tax Code – capital stock or voting rights of both the ownership direct or indirect
Obligations of the Certified Public persons belongs to the spouse or person
Accountant (CPA). connected by relationship in direct
• when companies belong to the or collateral, by consanguinity to
• Art. 199-A of the Tax Code – Tax same unit or business group the fourth degree or by affinity to
authority power to determine decision. Specifically, two the second degree
adjustment if the transactions are not companies are part of the same unit
conducted in accordance with the or business group decision if one of • in a union of persons, company
arm’s length principle. them is a member or participant of event or business cooperation
the other and it is related to it in any contract or joint venture
• Art. 199-B of the Tax Code –
of the following situations: agreement, when any of the
Definition of arm’s length principle.
contractors or partners participates
• Art. 199-C of the Tax Code – –– holds a majority of voting rights directly or indirectly in more than
Definition of Related Party. –– has the power to appoint or 25 percent of the profit of the
remove the majority of the contract activities resulting from
• Art. 199-D of the Tax Code –
members of the board of directors the association
Comparability Analysis and
Adjustments. –– can dispose, under agreements • a person resident in the country
with other partners of the majority and an exclusive distributor or
Orientation Guide DG-001/2012.
of the voting rights agency thereof residing abroad
Effective date of transfer pricing • a distributor or exclusive agent
rules –– has appointed only with its votes
the majority of the members of domiciled in the country of an
1 January 2010. the board of directors entity domiciled abroad
El Salvador | 85
• a person domiciled in the country of the domestic and cross-border preparing the transfer pricing study,
and its supplier abroad, when intra-group transactions. In addition, tax authorities will conduct appropriate
the resident in the country make taxpayers must file the transfer pricing analysis to determine the arm’s length
purchases, and the volume thereof information return. nature of the intra-group transactions
represents more than 50 percent and conduct the appropriate
What types of transfer pricing adjustments.
• a person domiciled in the country and information must be disclosed?
its permanent establishment abroad
• a permanent establishment located
The transfer pricing information return Transfer pricing study
requires disclosing the following
in the country and its parent information:
overview
company located abroad, another Is preparation of a transfer pricing
• taxpayer’s information:
permanent establishment of the study required – i.e. can the taxpayer
same or a person associated with it –– identification number be penalized for mere failure to
• taxpayers must also document –– legal name prepare a study?
the arm’s length nature of the Yes, the preparation of a transfer pricing
–– fiscal year (start and end date of
transactions carried out with entities report is required for all transactions
the fiscal year).
domiciled, incorporated, or located in for those taxpayers who carry out
countries, states or territories with • detail of the controlled transactions: operations or transactions with
preferential tax regimes, low or no related parties or parties domiciled,
–– legal name of the related parties
taxation jurisdictions, or tax havens. incorporated or located in countries,
Entities in preferential tax regimes, –– tax identification number of the states or territories with preferential
low or no taxation jurisdictions, or related party tax regimes, low or no taxation
tax havens are those that meet any jurisdictions or tax havens. Taxpayers
–– specification if the company is
of the following requirements: are also required to submit a transfer
domiciled or not in El Salvador
pricing information return disclosing
–– entities that are not taxed abroad,
–– code of the country of residence specific information of cross-border
those who compute income
of the related party and domestic intra-group transactions
tax on income or net income or
when such transactions (either
taxable, less than 80 percent of –– relationship code (reason why
individually or jointly) equals or exceeds
income tax that would be caused the taxpayer in El Salvador and
USD571,429.
in El Salvador the related party are considered
to be related parties and why the Other than complying with a
–– those classified by the
intra-group transaction is being requirement per the previous
Organisation for Economic
documented) question, describe the benefits, if
Co-operation and Development
(OECD) and the Financial Action –– code of the transaction any, of preparing and maintaining a
Task Force. transfer pricing study?
–– amount of the transaction in US
Failure to prepare a transfer pricing
What is the statute of limitations dollars (USD)
documentation study will need to be
on assessment of transfer pricing –– specification if the determination of disclosed in the annual tax opinion issued
adjustments? the market value took into account by a CPA. In addition, intra-group prices
Three years from filing date of the tax the following comparability criteria: could be reviewed and determined by El
return but transfer pricing documentation characteristics of the transactions, Salvadorian tax authorities.
must be maintained for 10 years. functional analysis, assets and
risks, contractual terms, micro and To satisfy the requirement and/or
macro economic situation, and obtain the benefits, are there any
Transfer pricing business strategies requirements on when the transfer
disclosure overview pricing study must be prepared and
–– specifications if the transfer submitted?
Are disclosures related to transfer pricing adjustments included:
pricing required to be prepared or payment term, freight and The transfer pricing information return
submitted to the revenue authority insurance must be filed by 31 March while the
on an annual basis (e.g. with the tax transfer pricing documentation study
return)? –– transfer pricing method used. must be ready 5 months after the end of
Yes. Taxpayers are required to provide the tax year.
specific information in the transfer of failure to prepare or submit
pricing studies to be prepared by When a transfer pricing study is
disclosures? prepared, should its content follow
taxpayers resident in El Salvador
If the taxpayers in El Salvador fail Chapter V of the OECD Guidelines?
documenting the arm’s length nature
to comply with the requirement of Yes.
Does the tax authority require an Transfer pricing audit and Is there a preference, or requirement,
advisor/tax practitioner to have by the tax authorities for local
penalties comparables in a benchmarking set?
prepare or submit a transfer pricing When the tax authority requests No.
study? a taxpayer’s transfer pricing
documentation, how long does Do tax authorities have requirements
No.
the taxpayer have to submit its or preferences regarding databases
Transfer pricing methods documentation? for comparables?
In practice, the taxpayer has 5 business No.
days but can request a 20-day extension.
in Chapter II of the OECD Guidelines What level of interaction do tax
acceptable? If an adjustment is proposed by the authorities have with customs
Yes. However, for the case of domestic, tax authority, are dispute resolution authorities?
import and export transactions, the options available to the taxpayer Low.
following methodologies will need to outside of competent authority?
be considered (or disregarded) before Are management fees deductible?
Yes, taxpayers can submit the resolution
applying OECD transfer pricing methods:
to an administrative area within the Yes. However, taxpayers must support
• Market price in domestic Ministry of Finance, in order to object the fact that intra-group services have
operations: The selling price of to the procedures. Also, taxpayers may been rendered before a deduction
the goods or services of entities appeal to tax court. is taken. That is, taxpayers must
or establishments within the demonstrate that the services:
country unrelated to the tested
penalties be assessed? If so, what 1. were actually rendered
party (third parties) that sell goods
or render services with the same 2. provided a benefit to the taxpayer
conditions?
characteristics.
3. were not duplicative services.
Yes. General tax penalties apply.
• Market value in transferring
To what extent are transfer pricing If no support can be provided, then the
goods or services abroad: The
penalties enforced? tax authority will consider them non-
price established by other entities
deductible.
(unrelated to the tested party) that Penalties are enforced in full by the
sell the same products or render the Commissioner General and where a Are management fees subject to
same services from El Salvador to court process is preferred; the sanctions withholding?
the same country abroad. imposed by the court would subsist. Yes. However, tax treaties may disallow
• Import market price: The price What defences are available with withholding.
established for the same goods and respect to penalties?
services between third parties within Are year-end transfer pricing
the country in which the product or No experience yet. adjustments permitted?
service is going to be acquired plus What trends are being observed Yes. However, it is important that the
the freight charges if it the case. currently? year-end adjustments are accounted
The transfer pricing rules are very for before the end of the fiscal year
Is there a priority among the to make sure tax and accounting
acceptable methods? recent and therefore there is no specific
information about the target of audits. figures are consistent. It is advisable
Yes. Before applying the OECD transfer to conduct periodic reviews in order to
However, according to the law, the tax
pricing methods, specific methods for avoid significant year-end adjustments.
authority may estimate the taxable
domestic, import and export transactions Customs issues must also be taken into
income if the prices or amounts of
will need to be used or disregarded. account.
compensation do not comply with market
If there is no priority of methods, is value in accordance with the established
there a “best method” rule? methodology.
None.
Not applicable
authorities?
No.
El Salvador | 87
Other recent Is there a filing fee for APAs?

developments Not applicable.
The first transfer pricing legislation was Does the tax authority publish APA
published in 2010 and the orientation data either in the form of an annual
guide or roadmap providing details on report or through the disclosure of
the production of documentation (i.e. data in public forums?
No. DG-001/2012) was published in
Not applicable.
March 2012.
Tax treaty/double tax how successful the APA program is
resolution and whether there are any known
difficulties?
Not applicable.
treaty network?
Minimal, only with Spain.
Language
If extensive, is the competent In which language or languages can
authority effective in obtaining documentation be filed?
double tax relief? El Salvadorian tax authorities require all
Not applicable. documentation to be in Spanish.

No formal rules.

No formal rules.
Advance pricing
agreements
No formal rules.
KPMG in El Salvador
Ana Gloria Hernandez

Tel: +503 2213 8402
Email: anaghernandez@kpmg.com

Estonia
KPMG observation
The number of tax audits covering transfer pricing issues is increasing. The need
to prepare documentation in full compliance with the local regulations is important
as proper documentation will significantly ease the audit process and help to avoid
the extension of the audit period.
Basic information 2. companies belonging to one group; Where ’legal person’ is broadly defined
as a company, ’natural person’ is an
Tax authority name 3. legal person and natural person who
individual, and ’person’ can be either a
owns at least 10 percent of the share
Eesti Maksu- ja Tolliamet (Estonian Tax legal or natural person.
capital, total number of votes or rights
and Customs Board).
to the profits of the legal person; What is the statute of limitations
Citation for transfer pricing rules 4. one person, together with other on assessment of transfer pricing
General rules are established by persons with whom the person adjustments?
the Income Tax Act. Organisation is associated, owns more than Three years from the filing date of the
for Economic Co-operation and 50 percent of the share capital, total tax return. In the event of intentional
Development (OECD) compliant number of votes or rights to the failure to pay or withholding an amount
methods and pricing principles are profits of a legal person; of tax, the limitation period for making
established with the Decree by the an assessment of tax is 5 years. In
5. legal persons where more than
Minister of Finance. Estonia, tax returns are submitted on a
50 percent of the share capital, total
monthly basis.
Effective date of transfer pricing number of votes or rights to the
rules profits belong to one and the same
Current general rules are effective from
person or associated persons; Transfer pricing
1 January 2000. Amended rules together 6. persons who own more than disclosure overview
with documentation requirements are 25 percent of the share capital, total Are disclosures related to transfer
effective from 1 January 2007. New number of votes or rights to the pricing required to be prepared or
regulations concerning related parties profits of one and the same legal submitted to the revenue authority
in the Income Tax Act are effective from person; on an annual basis (e.g. with the
1 January 2011. tax return)?
7. legal persons where all members
What is the relationship threshold of the management boards or No.
for transfer pricing rules to apply the bodies substituting for the
management boards are the same What types of transfer pricing
between parties?
persons; information must be disclosed?
According to the Estonian Income
8. employers and their employees, Not applicable.
Tax Act, persons are considered to
be associated if they have common employee’s spouses, cohabiters or
economic interests or if one person has direct blood relatives;
dominant influence over the other. The 9. a person is a member of the disclosures?
official translation of the legislations management or controlling body of a Not applicable.
defines associated persons as: legal person, or the spouse or a direct
1. spouses, cohabiters, direct blood or blood relative of a member of the
collateral relatives; management or controlling body.
Estonia | 89
Transfer pricing study Does the tax authority require an To what extent are transfer pricing
advisor/tax practitioner to have penalties enforced?
overview specific designation in order So far no penalties have been imposed.
Is preparation of a transfer pricing to prepare or submit a transfer
study required – i.e. can the pricing study? What defences are available with
taxpayer be penalized for mere No. respect to penalties?
failure to prepare a study? Documentation.
For companies which qualify under the
documentation requirement, yes, for all
Transfer pricing methods What trends are being observed
transactions. Are transfer pricing methods currently?
outlined in Chapter II of the OECD The number of audits covering
The documentation requirement Guidelines acceptable? transfer pricing issues is increasing.
applies to:
Yes. Also, in advance of a tax audit, the tax
• credit and financial institutions and authorities may request transfer pricing
insurance companies Is there a priority among the documentation from the taxpayers to
acceptable methods? determine the need for a tax audit. Focus
• if one party of the transaction is a
No. has not been set on any specific type
person domiciled in a low tax rate
of transaction and all the transactions
territory
If there is no priority of methods, is between the taxpayer and its related
• a company: there a “best method” rule? parties are subject to scrutiny with equal
Yes. level of detail. Audits tend to be long and
–– which employs 250 persons or
may be extended for a certain period of
more including the personnel of
time if sufficient documentation and/or
its associated companies Transfer pricing audit and evidence to prove arm’s length pricing
–– which has annual turnover penalties are not available.
(associated persons’ turnover
When the tax authority requests Documentation in the local language is
included) of 50 million Euros (EUR)
a taxpayer’s transfer pricing highly preferred by the tax authorities.
or more for the previous taxation
period
–– whose consolidated balance documentation? Special considerations
sheet total was EUR43 million or The documentation must be submitted Are secret comparables used by tax
more within 60 days of the tax authorities’ authorities?
• a non-resident through its permanent request. No.
establishment registered in Estonia:
If an adjustment is proposed by the Is there a preference, or
–– under the same conditions as a tax authority, are dispute resolution requirement, by the tax authorities
resident company. options available to the taxpayer for local comparables in a
outside of competent authority? benchmarking set?
Disputes are generally resolved between Yes. Estonian comparables are preferred,
taxpayers and the tax authorities. but if not available, foreign comparables
If they fail to reach an agreement, are accepted.
the taxpayer has the right to turn to
transfer pricing study? Do tax authorities have
administrative court. There is no tax
Penalty protection, shifting the burden arbitration institution or a special tax requirements or preferences
of proof. court in Estonia. regarding databases for
comparables?
To satisfy the requirement and/or If an adjustment is sustained, can No.
obtain the benefits, are there any penalties be assessed? If so, what
requirements on when the transfer rates are applied and under what What level of interaction do tax
pricing study must be prepared and conditions? authorities have with customs
submitted? authorities?
General rules are applicable, but there
The transfer pricing study must be is no special penalty for transfer pricing. Unknown, but in Estonia, tax and
submitted within 60 days of request. Thus, if the taxpayer fails to submit customs authorities operate as one
the documentation, a penalty up to institution.
When a transfer pricing study is EUR3,200 may be imposed.
Yes.
Are management fees deductible? When may a taxpayer submit an

Yes. adjustment to competent authority?
No formal rules. Basically anytime within
Are management fees subject to 3 years of the submission of the tax
withholding? return on the adjusted period.
Management fees are subject to
withholding tax only if a non-resident May a taxpayer go to competent
is rendering management services authority before paying tax?
in Estonia. If a double tax treaty can Yes, but no formal rules.
be applied, the obligation to withhold
income tax can be avoided.
Advance pricing
Are year-end transfer pricing agreements
Yes. any?
APAs are currently not available.
None. Is there a filing fee for APAs?
Not applicable.
Other recent
developments data either in the form of an annual
We are not aware of any planned report or through the disclosure of
significant developments in the data in public forums?
transfer pricing regulations. Not applicable.
Discussions regarding possible Advance
Pricing Agreement (APA) rules have taken Please provide some information
place. on how successful the APA program
difficulties?
Tax treaty/double tax Not applicable.
resolution
What is the extent of the double tax Language
treaty network?
The double tax treaty network of Estonia
is extensive, with 56 treaties altogether.
The documentation may be presented in
If extensive, is the competent a foreign language, but the tax authority
authority effective in obtaining may request that they be translated into
double tax relief? Estonian.
Almost always.
KPMG in Estonia
Maike Leppik
Tel: + 372 66 76 803
Email: mleppik@kpmg.com

Fiji | 91
Fiji
KPMG observation
Fiji is currently in the second year since the official introduction of Transfer
Pricing Guidelines in 2012. Apart from the traditional related party transactional
audits involving sales and purchases of goods and services, Fiji Revenue &
Customs Authority (FRCA) has plans to also look into areas covering royalty and
trademark payments as well as intra-group financing arrangements. Transactions
involving other intangibles are also covered under the same Guidelines.
As also outlined in the Fiji Transfer Pricing Guidelines 2012, the FRCA endorses
the positions outlined in the Organisation for Economic Co-operation and
Development (OECD) Transfer Pricing Guidelines for Multinational Enterprises and
Tax Administrations, and proposes to follow the OECD Guidelines in administering
Fiji’s transfer pricing rules. Consequently, the Fiji Guidelines are supplementary to
the OECD Guidelines, rather than supersede them. The OECD Guidelines should be
referred to if more detail is required in relation to issues referred to herein (e.g. concept
of tested party), or not included in the Fiji Guidelines at this stage e.g. cost contribution
arrangements and business restructuring. In this regard, FRCA has also indicated that they
will issue additional Guidelines as the need arises.
KPMG in Fiji observed that over the past few years, payment of significant amounts of intra-
group charges has become a very contentious area in a number of multinational company audits
and many taxpayers have had to defend their positions. Sometimes such defense is hampered by
a lack of documentation or evidence to support the arm‘s length nature of the changes.
Basic information persons and intra-group financing. Both between associated parties are to
local and cross-border transactions be conducted at arm’s length. As
Tax authority name are covered under Transfer Pricing previously stated, this means that the
Fiji Revenue & Customs Authority (FRCA). Guidelines 2012. transaction should have the substantive
financial characteristics of a transaction
Effective date of transfer pricing between independent parties where
rules each aims to get optimum benefit from
The arm’s length principle is set out the transaction.
The Transfer Pricing Guidelines became
under Section 34 of the Fijian Income
effective from 1 January 2012. Prior to
Tax Act 1974 (the Act) which requires What is the statute of limitations
this date, transfer pricing adjustments
taxpayers to determine and apply the on assessment of transfer pricing
were made based on the general anti-
arm’s length price for their transactions adjustments?
avoidance provision.
with an associated person. The statute of limitation is 6 years upon
What is the relationship threshold the expiration of a particular year of
Income Tax (Transfer Pricing) Guidelines
for transfer pricing rules to apply assessment, except in cases of fraud,
2012 (Transfer Pricing Rules 2012)
between parties? willful default, or negligence. Fiji is
was gazetted under Vol 13 No.8 of
There is no specific threshold being currently in year of assessment 2012.
January 2012. The scope of Transfer
outlined in the Transfer Pricing For example, in year of assessment
Pricing Guidelines 2012 applies to
Guidelines. However, the arm’s length 2012, an assessment can be issued as
the acquisition and supply of goods
principle is fundamental to transfer far back as year of assessment 2006.
(including tangible and intangible
goods), services between associated pricing and requires that transactions
Transfer pricing To satisfy the requirement and/or Transfer pricing audit and
disclosure overview requirements on when the transfer
penalties
Are disclosures related to transfer pricing study must be prepared and When the tax authority requests
pricing required to be prepared or submitted? a taxpayer’s transfer pricing
submitted to the revenue authority There is no requirement to submit the documentation, how long does
on an annual basis (e.g. with the tax documentation but it must be readily the taxpayer have to submit its
return)? available upon request by FRCA. From documentation?
It is to be noted that in Fiji, there is a a practical perspective, this means the At this stage, the time frame
statutory requirement for the taxpayer to taxpayer must prepare and maintain requirement is not clear. However, in
“record, in writing, sufficient information such documentation as is reasonable in most situations, the normal demand
and analysis to verify that its controlled the circumstances. Therefore it is up to situations, documentation should be
transactions are consistent with the arm’s local management of FRCA to determine made available to FRCA within 30 days
length principle”. documentation requirements in view of from the date of request.
the nature of the relevant transactions.
It is also noted that the documentation If an adjustment is proposed by the
must be contemporaneous and must be When a transfer pricing study is tax authority, are dispute resolution
in place prior to the due date for filing the prepared, should its content follow options available to the taxpayer
relevant tax return. Chapter V of the OECD Guidelines? outside of competent authority?
From a practical perspective, this means The Transfer Pricing Guidelines in 2012, The dispute resolution option available
the taxpayer must prepare and maintain specify that the following should be to taxpayers, apart from the competent
such documentation as is reasonable included: organizational structure, group authority process, is to appeal through
in the circumstances. Therefore it is financial report, nature of the business/ the judicial system. In Fiji, the first level
being emphasized that it is up to local industry and market conditions, controlled of appeal is generally to the Tax Tribunal.
management of the Fiji tax office to transactions, pricing policies, assumption,
determine documentation requirements strategies and information regarding If an adjustment is sustained, can
in view of the nature of the relevant factors that influenced the setting of penalties be assessed? If so, what
transactions. pricing policies, comparability, functional rates are applied and under what
and risk analysis, selection and application conditions?
What types of transfer pricing Where an adjustment is sustained, the
of the transfer pricing method.
information must be disclosed? Commissioner may assess penalties
Not applicable. Does the tax authority require an for omission of income. Penalty rates
advisor/tax practitioner to have range from 20 percent to 75 percent
What are the consequences of failure specific designation in order to calculated on the tax shortfall. The rate
to prepare or submit disclosures? prepare or submit a transfer pricing of 75 percent applies where the income
study? is knowingly or recklessly omitted,
Not applicable.
No. and in any other case the 20 percent
applies. In addition, penalties for late
Transfer pricing study filing (20 percent) and/or late payment
Transfer pricing methods
overview (25 percent) may also apply depending
Are transfer pricing methods outlined on the circumstances.
Is preparation of a transfer pricing in Chapter II of the OECD Guidelines
study required – i.e. can the taxpayer acceptable? To what extent are transfer pricing
be penalized for mere failure to penalties enforced?
Yes.
prepare a study? Based on limited known transfer pricing
It’s not clear at this stage whether this Is there a priority among the cases to date, it appears that penalties are
would be a requirement. However, acceptable methods? always enforced.
since the Fiji Transfer Pricing Guidelines
The Transfer Pricing Guidelines 2012
is OECD-based, KPMG in Fiji expects What defences are available with
provided that traditional transactional
that such requirement will apply in the respect to penalties?
methods should be considered first
near future. The availability of a local
before transactional profit methods.
contemporaneous transfer pricing
Other than complying with a documentation will assist taxpayers
requirement per the previous to appeal for a lower penalty rate. In
question, describe the benefits, if addition, if the taxpayer has acted
any, of preparing and maintaining a As noted, the preference is for traditional
transactional methods. However, the in good faith and extended full
transfer pricing study? cooperation during the tax audit,
Fiji Transfer Pricing Guidelines of 2012,
This serves as a first line of defense in the FRCA will also take into account
recognizes the method requiring the
event of a tax audit and avails the taxpayer these factors.
fewest adjustments and providing
to a lower penalty rate in transfer pricing
the most reliable measure of an arm’s
audit situations where an assessment or
length result is preferred.
additional assessments have been issued.
Fiji | 93
What trends are being observed Are management fees deductible? May a taxpayer go to competent
currently? Yes. Provided that the following criteria authority before paying tax?
Transfer pricing audits started in 2012 and have been met: KPMG in Fiji expects so, but needs further
it is expected to intensify and will continue clarification from FRCA.
• a service has been provided
to intensify in future. In addition to the
usual focus on transactions involving • the charge should meet the arm’s
sales and purchases of goods, the Fijian length standard. Advance pricing
tax authorities are also increasing their
The key focus is a realistic allocation, not agreements
scrutiny on payments for intra-group
accounting perfection and FRCA is looking
services as well as looking into intra-group What Advance Pricing Agreement
for a fair charge for the services provided
financing arrangements and payments in (APA) options are available, if any?
and a reasonable effort into establishing a
relation to intangible properties. According to the Transfer Pricing
basis for future calculations.
Guidelines 2012, at this stage FRCA is not
In most cases, common audit triggers
Are management fees subject to in a position to commit to an APA process.
include companies declaring consistent
losses, fluctuating profitability or those withholding?
making very low profits. Companies Yes, if payment of the management fees
with significant amounts of related party Not applicable.
is for services in Fiji by non-residents. If
transactions, especially payments for services were performed outside Fiji,
intra-group services and companies that withholding would not be applicable.
underwent supply chain or business
restructuring, are also likely to be Are year-end transfer pricing
selected for a tax audit. adjustments permitted?
Not applicable.
Yes, year-end adjustments are permitted
Special considerations to ensure that the arm’s length principle
is upheld.
Are secret comparables used by tax how successful the APA program is
authorities? and whether there are any known
difficulties?
Yes. Based on other international industry None.
information available to FRCA. Not applicable.
Is there a preference, or requirement, Other recent Language

by the tax authorities for local developments
comparables in a benchmarking set? In which language or languages can
None.
Yes. It is a preference of the Fijian tax
authority to use local companies as The documentation can be prepared in
comparables. Only in cases where no
Tax treaty/double tax English.
local comparable could be identified is the resolution
use of foreign comparable companies in a What is the extent of the double tax
benchmarking analysis an option. treaty network?
Do tax authorities have requirements Limited. Fiji has signed double tax treaties
or preferences regarding databases with 9 countries.
for comparables?
At the present, there are no good authority effective in obtaining
quality commercial databases for local double tax relief?
companies.
Not applicable.
adjustment to competent authority? KPMG in Fiji
authorities?
From an international practice
Presently low. However, after the Lisa Apted
perspective, taxpayers may initiate a
merger of the two departments in 1998, Tel: +679 3301 155
mutual agreement procedure if there is a
there has been a vast improvement Email: lapted@kpmg.com.fj
risk of double taxation and there is a treaty
in enforcement measures enhanced
agreement with the foreign counterparty.
through the implementation of
In most cases, this is after being issued
integrated operations with other relevant
the Notice of Additional Assessment.
agencies. It is expected that there will
However, in Fiji’s situation, this will need
be an increase in the level of interaction
to be clarified with the local tax authority.
between the two divisions in future. As email addresses and phone numbers change
Finland
KPMG observation
The Finnish tax authorities continue to increase their attention in regards to
transfer pricing matters. This is reflected in an increasing number of transfer
pricing audits in recent years. The tax authorities have also centralized all transfer
pricing issues in the Large Taxpayers’ Office in Helsinki and increased the number
of transfer pricing auditors.
Basic information Transfer pricing disclosure Recommendation, 2003/361/EC) are

exempted. Full-scope documentation
Tax authority name overview is required for transactions exceeding
Konserniverokeskus (KOVE, Large Are disclosures related to transfer 500,000 Euros (EUR) per counterparty.
Taxpayers’ Office). pricing required to be prepared or
submitted to the revenue authority Other than complying with a
Citation for transfer pricing rules on an annual basis (e.g. with the tax requirement per the previous
Sections 14 a-c, 31, and 32 of the return)? question, describe the benefits, if
Taxation Procedure Act. Yes, to be submitted together with the
corporate income tax return.
Effective date of transfer pricing Penalty protection, shifting of burden
rules What types of transfer pricing of proof.
The arm’s length principle was information must be disclosed?
implemented in 1965. The transfer To satisfy the requirement and/or
All companies must disclose whether obtain the benefits, are there any
pricing documentation requirements
they are obliged to prepare transfer requirements on when the transfer
came into force on 1 January 2007.
pricing documentation. Entities that pricing study must be prepared and
What is the relationship threshold are required to prepare transfer pricing submitted?
for transfer pricing rules to apply documentation under Section 14a of the
Taxation Procedure Act are required to Preparation deadline: within 6 months
between parties? of the end of the fiscal year.
file a specific tax form detailing the main
A company controls another company Submission deadline: within 60 days
functions of the entity, profitability of the
if it has: when requested by the tax authorities.
entity and the group it belongs to, and its
• direct or indirect ownership of more related party transaction volumes during Additional information such as
than 50 percent of the share capital the tax year by transaction type. comparables analysis must be made
available within 90 days.
• direct or indirect ownership of more What are the consequences of failure
than 50 percent of the voting power to prepare or submit disclosures? When a transfer pricing study is
Small penalty fees are possible. The tax prepared, should its content follow
• direct or indirect right to choose over
form is mainly for information collection Chapter V of the Organisation
half of the members of the board or
purposes. for Economic Co-operation and
members of other corresponding body
• other control. Yes, with some exceptions. The
Transfer pricing study documentation requirements
What is the statute of limitations overview are based on the Organisation
Is preparation of a transfer pricing for Economic and Co-operation
adjustments?
study required – i.e. can the taxpayer Development (OECD) Guidelines
Five years from tax year-end. but the Finnish tax authorities have
be penalized for mere failure to
prepare a study? published more detailed instructions
Yes, for all cross-border transactions, only
SMEs (as defined in the Commission
Finland | 95
on the different parts of transfer pricing To what extent are transfer pricing What level of interaction do tax
documentations. If the transactions penalties enforced? authorities have with customs
per counterparty amount to less than More commonly than in the past. authorities?
EUR500,000 during the tax year, The penalties relating to the Low.
functional analysis and comparables submission and quality of transfer
analysis are not required. pricing documentation have not been Are management fees deductible?
used regularly but this is expected to Yes.
increase. The general tax penalty on
advisor/tax practitioner to have Are management fees subject to
adjusted income has been imposed in
specific designation in order to withholding?
almost all cases, usually in the range of
5-10 percent of the adjusted income. No.
study?
However, the Supreme Administrative
No. Court held in a decision published in Are year-end transfer pricing
February 2014 that if the taxpayer can adjustments permitted?
Transfer pricing methods show that it has acted in good faith and Yes, provided that they result in arm’s
Are transfer pricing methods sought to comply with the arm’s length length pricing. Upward adjustments
outlined in Chapter II of the OECD principle with reasonable care, it is not can be made in the corporate income
Guidelines acceptable? as a rule considered to have met the tax return, downward adjustments if
gross negligence standard as stipulated they have been made in the financial
Yes.
in the tax assessment procedure act. statements.
Is there a priority among the This means that no tax penalty or only
acceptable methods? minor (up to EUR800) penalties could be Other unique attributes?
imposed in reassessments per tax year. The interest limitation regulations
In practice, priority among acceptable
methods is based on the OECD are effective from 1 January 2014
Guidelines (2010). onwards. Net interest expenses paid
to affiliate companies are deductible up
If there is no priority of methods, is Documentation, reasonable cause. to 25 percent of the taxpayer’s EBITDA
there a “best method” rule? (business profits before interest,
What trends are being observed depreciations and group contributions
As specified in the OECD Guidelines. currently? received, deducted with group
The number of transfer pricing related contributions granted).
Transfer pricing audit and tax audits is increasing every year.
The focus has been on business Limitations are not applied if the total
penalties restructurings, intangibles and intra- sum of net interest expenses does
When the tax authority requests group financing however, other transfer not exceed EUR500,000. Both the
a taxpayer’s transfer pricing pricing issues also surface in audits. The external and intra-group net interest
documentation, how long does audits have covered all industries and expenses are taken into consideration
the taxpayer have to submit its all kinds of transactions. Naturally, the in calculating the threshold, but the
documentation? loss-making group companies are often limitations do not affect deductibility
Within 60 days of the request. audited. of interest expenses paid to entities
others than affiliated companies. If the
If an adjustment is proposed by the equity ratio of Finnish group companies
tax authority, are dispute resolution Special considerations are higher or equal to the equivalent
options available to the taxpayer Are secret comparables used by tax ratio of the entire group, the intra-group
outside of competent authority? authorities? net interest expenses are deductible
without limitations.
Yes. No.
Non-deductible interest payments are
If an adjustment is sustained, can Is there a preference, or carried forward and can be deducted
penalties be assessed? If so, what requirement, by the tax authorities in the following fiscal years without
rates are applied and under what for local comparables in a time limits, taking into account the
conditions? benchmarking set? same annual tax EBITDA limitations
Yes, a maximum penalty of EUR25,000 No, European comparables are typically as in the tax year of interest expenses
per negligence may be imposed on accepted. incurred. Applicability of the limitations
a company failing to show complete does not require a purpose of tax
transfer pricing documentation. In Do tax authorities have avoidance. The intra-group loans should
addition, a tax increase (maximum 30 requirements or preferences always meet the requirements of arm’s
percent of adjusted income) is possible, regarding databases for length principle for the interests to be
according to the regulations on general comparables? deductible.
tax penalties. There are no such requirements.
Other recent Does the tax authority publish APA

developments report or through the disclosure of
The Finnish tax authorities have data in public forums?
centralized all transfer pricing issues in
No.
the Large Taxpayers‘ Office. Additionally,
the number of transfer pricing auditors Please provide some information on
has increased. how successful the APA program is
Tax treaty/double tax difficulties?
resolution No experience. The Finnish tax
authorities are in favor of APAs and it is
What is the extent of the double tax recommended especially for intra-group
treaty network? transactions with high values.
Extensive.
If extensive, is the competent Language

authority effective in obtaining In which language or languages can
Frequently. According to the Finnish rules, transfer
pricing documentation can be prepared
When may a taxpayer submit an in Finnish, Swedish or English. If the
adjustment to competent authority? documentation is prepared in English, a
After an adjustment is proposed to the Finnish or Swedish translation is required
taxpayer. only in exceptional cases.

Permitted.
Advance pricing
agreements
Advance rulings (unilateral APAs). In
theory, bilateral and multilateral APAs
also are possible according to the tax
treaties concluded by Finland. However,
there is no formal legislation or guidelines
nor case law concerning APAs in place,
although it is expected to be released in
the near future.

Based on the complexity of the case
and actual time needed to conclude the
advance ruling, the filing fee for advance KPMG in Finland
ruling is EUR1,480 or EUR2,200.
Sanna Laaksonen
Tel: +358 20 760 3417
Email: sanna.laaksonen@kpmg.fi
Mikko Palmu
Tel: + 358 20 760 3405
Email: mikko.palmu@kpmg.fi

France | 97
France
KPMG observation
In 2010, the French government introduced documentation requirements which
are now contained in tax administrative doctrine. While the full ramifications of this
legislative change remain to be seen as part of tax audits, multinational enterprises
operating in France have certainly taken note and geared up in putting together
transfer pricing documentation packages addressing specific French issues.
The French government also strives to implement regulations in line with the
Organisation for Economic Co-operation and Development (OECD) Base Erosion and
Profit Shifting (BEPS) initiative. For example, transparency is strengthened with the new
obligation to include in transfer pricing documentation rulings awarded to related parties
by foreign tax authorities, even without direct link to transfer prices. Collection of transfer
pricing data is also reinforced by the introduction of a compulsory annual submission of an
abridged transfer pricing report. A limitation of base erosion has also just been implemented
via a limit on interest deduction. Over the next months, further reinforcements are still
expected, in particular concerning business restructurings.
Finally, the French Tax Authority (FTA) is giving increased attention to, and making increased
allegations of, permanent establishments. These files have given rise to a number of search
and seizures gaining some of the public attention also present in other European countries in
respect of similar issues. New legislation should reinforce existing investigative powers against
multinational enterprises keeping records on servers located outside of France.
Basic information Citation for transfer pricing rules What is the relationship threshold
CGI (Code general des impôts (CGI) for transfer pricing rules to apply
Tax authority name between parties?
or French General Tax Code), Articles
Direction des Vérifications Nationales 57, New Article 223 quinquies B, 238A Ownership of more than 50 percent
et Internationales (DVNI) (National and and 238-OA; LPF (French Tax Procedure considered for companies to be under
International Audit Department) for Code), Articles L 13 AA, L 13 AB, L 13 B, common control. De facto control can
companies with a turnover higher than L 188A, L 80 B 7° (APA). also be applicable.
152.4 million Euros (EUR) (higher than
EUR76.2 million for service providers), Effective date of transfer pricing rules What is the statute of limitations
subsidiaries of such companies, and on assessment of transfer pricing
Transfer pricing regulation, 1933 (CGI
headquarters. adjustments?
Article 57).
Directions Interrégionales de Contrôle Three years, based on calendar year-
Reversal of the burden of proof in
Fiscal (DIRCOFI) (Interregional Tax Audits end. Three years also when the FTA
certain audit situations, April 1996
Department) for companies with a uses the international administrative
(LPF Article L13 B).
turnover ranging from EUR1.5 million to assistance procedure (Article L 188A
EUR152.4 million (up to EUR76.2 million Transfer pricing documentation of the French procedure code). When
for service providers). requirement, 2010 (LPF Article the FTA demonstrates the existence of
L 13 AA and L 13 B with tax tax fraud, it can also extend the statute
Directions des Services Fiscaux (DSF) of limitations from 3 to a maximum of
administrative doctrine (Bofip BOI-BIC-
(Departmental Tax Services Department) 5 years (Article L 187). In the case of
BASE-80-10-20-20140218)).
for small companies with turnover lower tax loss carry forwards, the statute of
than EUR1.5 million. Transfer pricing annual disclosure limitation is extended under certain limits
requirement, 2013 (CGI Article 223 and conditions.
quinquies B).
Transfer pricing Transfer pricing study completes the documentation within 30

days, with a possible additional 30 days
disclosure overview overview delay upon specific request.
pricing required to be prepared or study required – i.e. can the When a transfer pricing study is
submitted to the revenue authority taxpayer be penalized for mere prepared, should its content follow
on an annual basis (e.g. with the failure to prepare a study? Chapter V of the OECD Guidelines?
tax return)? Yes, for all transactions: Yes, with some additional specific items.
Yes, for large taxpayers (falling under the The transfer pricing study will include
• the transfer pricing documentation information on the group of which the
scope of Article L 13AA) whose tax return
requirement, codified as Article L 13 French taxpayer is part (including but not
filing deadline falls after December 8th
AA, was enacted into law in France limited to, general business overview,
2013 (New Article 223 quinquies B). An
in December 2009 and incorporated general description of the legal and
abridged transfer pricing documentation
in the tax administrative doctrine operational group structure, general
must be submitted to the French tax
(Bofip BOI-CF-IOR-60-50-20120912). description of the functions performed
administration within 6 months following
The scope of the transfer pricing and risks assumed by group entities that
the corporate income the tax return
documentation requirements is transact with the audited company, list
filing deadline (in practice this is within
limited to entities established in of the main intangible assets owned
9 months of the end of the fiscal year
France that meet a turnover or or used by the French entity, a general
or 10 months for enterprises with fiscal
gross assets threshold (set at description of the group’s transfer pricing
years ending on 31 December).
EUR400 million for both) or that policy) and information on the French
What types of transfer pricing own (or are owned by), directly company itself (activities, functional
information must be disclosed? or indirectly, more than half of a analysis, intra-group transactions, list
corporate entity’s capital or of a of cost sharing, Rulings or Advance
The annual transfer pricing information
corporate entity’s voting shares, Pricing Agreements (APAs), selection of
return, under the new law, consists
established in France or outside of transfer pricing methods and description
of an ‘abridged’ version of existing
France, meeting this EUR400 million of comparables), as well as rulings
transfer pricing documentation that large
threshold. These requirements apply awarded to related parties by foreign
taxpayers would have to present during
to financial years commencing on or tax authorities for transfer pricing
a tax audit. It includes both general
after 1 January 2010 documentation covering financial years
information on the group of associated
enterprises (general description of • all intra-group transactions which ending as from 1 January 2014.
the activity, list of main intangibles affect the audited company’s profit French entities that enter into
assets owned and general description and loss account and/or balance sheet transactions with related companies
of the group’s transfer pricing policy) are within the scope of the law located in ‘non-cooperative’ states or
and specific information on the French territories will need to provide additional
• if the taxpayer does not respond
taxpayer (description of the activity, information (balance sheet and profit and
or only partially responds to the
presentation of intragroup transactions loss account of those related parties).
requirement, it may face a penalty of
including the nature and the amount
up to 5 percent of the gross amount
when the aggregate amount per Does the tax authority require an
reassessed with a minimum of
transaction type exceeds EUR100,000, advisor/tax practitioner to have
EUR10,000 per audited financial year.
and a presentation of the transfer pricing specific designation in order
method(s) in accordance with the arm’s Other than complying with a to prepare or submit a transfer
length principle). Specific guidelines and requirement per the previous pricing study?
practical comments from the French tax question, describe the benefits, if No.
authorities are expected during 2014 with any, of preparing and maintaining a
respect to his new obligation. transfer pricing study?
The benefits of complying with the
requirement are mainly penalty Are transfer pricing methods
protection. outlined in Chapter II of the OECD
disclosures?
For the moment, there is no specific To satisfy the requirement and/or Yes.
penalty. As such, the general EUR150 obtain the benefits, are there any
penalty shall apply, in addition of requirements on when the transfer Is there a priority among the
inaccuracies or omissions subject to pricing study must be prepared and acceptable methods?
a EUR15 penalty per inaccuracy or submitted? The revised OECD Guidelines are
omission (with a minimum penalty
The transfer pricing documentation generally followed by FTA inspectors.
of EUR60 and a maximum up to
should be made available to the FTA at Therefore, the most appropriate method
EUR10,000).
the outset of a tax audit. If not, the FTA should be chosen based on – among
may require that the taxpayer provides or others – comparability factors. In
France | 99
practice, the transactional net margin distribution of a dividend. Therefore, if the tax authorities, even without direct
method is used quite often by the FTA. relevant double tax agreement allows for link to transfer pricing, illustrates the
it, withholding taxes will be calculated on strengthening of the FTA’s investigative
If there is no priority of methods, is the reassessed amounts. powers. For penalties and transfer pricing
there a “best method” rule? documentation, additional rules are still
Transfer pricing penalties
No. However, in accordance with the expected probably for 2014.
OECD Guidelines, the FTA will search for For companies falling within the ambit
the most appropriate method. of Article L 13 AA: the penalties range Special considerations
from a minimum of EUR10,000 per year
audited for which no (or insufficient) Are secret comparables used by tax
Transfer pricing audit and authorities?
transfer pricing documentation is
penalties available to a maximum of 5 percent of Yes, but in specific situations and very
When the tax authority requests gross amounts reassessed. rarely. Tax auditors use their knowledge
a taxpayer’s transfer pricing of other cases they have audited and may
documentation, how long does To what extent are transfer pricing refer to industry standards. However,
the taxpayer have to submit its penalties enforced? such secret comparables cannot be used
documentation? In the framework of the Draft Finance in the context of court cases.
Normal FTA practice is to expect receipt Bill for 2014, the French government
proposed to strengthen the penalty Is there a preference, or
of the documentation within 30 days
to 0.5 percent of the turnover of requirement, by the tax authorities
of a request. When the FTA applies the
the audited enterprise. The French for local comparables in a
L 13 B procedure, the documentation
Constitutional Council invalidated benchmarking set?
should be provided within 2 months,
although a 1 month extension may be this modification because of the Yes. FTA inspectors generally prefer
granted upon request. disproportionate severity of this penalty. French comparables, where available
Nonetheless, an automatic (i.e. even in because of the consistency of the
However, as previously mentioned, case of no reassessment) and higher generally accepted accounting
companies that fall within the remit of penalty is expected soon. principles (GAAP) used.
Article L 13 AA have 30 days to comply
with a (written) request from the FTA to What defences are available with Do tax authorities have
provide transfer pricing documentation, respect to penalties? requirements or preferences
with possible additional 30 days delay The exact amount of the 5 percent regarding databases for
upon specific request to FTA. Article L 13 penalty described above depends comparables?
AA applies for financial years starting on on the level of insufficiencies in the No specific requirements have been
or after 1 January 2010. documentation. Although it has been officially requested. However, the FTA
judged that tax penalties cannot be, in does make use of the French Diane
If an adjustment is proposed by the general, revisited by the tax courts, the database.
tax authority, are dispute resolution fact that the penalties for insufficient
options available to the taxpayer documentation may vary could open What level of interaction do tax
outside of competent authority? possibilities to have the degree of authorities have with customs
Yes. insufficiencies, and hence of penalties, authorities?
being revisited by French tax courts. Low, but trend is to increase
If an adjustment is sustained, can relationships.
penalties be assessed? If so, what What trends are being observed
rates are applied and under what currently? Are management fees deductible?
conditions? Recent audits have focused on transfer Yes. Management fees paid by a French
Yes. There are two types of penalties of intangibles resulting from group company are deductible for corporate
potentially applicable: general, and reorganizations, financial services tax purposes provided they meet the
transfer pricing-specific penalties. (namely guarantee fees) and unidentified following tax deductibility conditions:
embedded transactions in complex
General penalties I. the French entity must actually benefit
services agreements.
directly from the services rendered and
General tax penalties only (in limited
There also seems to be a trend whereby
cases, 40 percent of the tax avoided in
transfer pricing reassessments are II. the amount charged (costs and
case of bad faith behavior (where the
alternatively associated with permanent relevant markup, if appropriate) to the
purpose was to pay no or less tax), or
establishment reassessments of French company should be consistent
80 percent of the tax avoided in case of
activities such as ecommerce, where the with the services rendered and
acts of fraud) can be payable, in addition
activities are not physically performed on should not be excessive.
to interest on late payments.
French territory but utilize a client base
In addition, transfer pricing situated there. Are management fees subject to
reassessments are considered to be withholding?
The new obligation to include rulings
deemed transfers of a benefit, which No, unless it is demonstrated that the
awarded to related parties by foreign
attract the same treatment as a deemed management fees lead to a transfer of
profit abroad (please refer to deemed of EUR152.4 million and the taxpayer’s Please provide some information
distribution comment earlier). main activity is selling goods, or turnover on how successful the APA program
of EUR76.2 million for other taxpayers. is and whether there are any known
Are year-end transfer pricing difficulties?
Yes. They are permitted and commonly
Tax treaty/double tax The APA program is successful in France
(at least 50 agreements were granted
used for low-risk distributors. resolution since the creation of this program).
Nonetheless, taxpayers must also take What is the extent of the double tax On average, the FTA is reporting that
into consideration customs and VAT treaty network? it processes approximately 20 APAs
issues related to these adjustments per year.
Extensive (France has concluded
(subsequent customs regulations are
approximately 120 double tax treaties).
especially heavy).
A mandatory arbitration clause has been Language
introduced in the US-French double tax
Other unique attributes? In which language or languages can
treaty and with all EU member states
None. except Denmark. documentation be filed?
By statutes, for procedural purposes,
Other recent If extensive, is the competent all documents provided to the FTA are
authority effective in obtaining required to be drafted or translated in
developments double tax relief? French. However in practice, tax auditors
During the preparation of the Finance Bill may prove to be more flexible and accept
The 2006-2012 OECD statistics in
for 2014, the business restructuring issue English versions of documents provided
respect of France’s mutual agreement
was highly debated. The related provision by the group or a foreign affiliate.
procedure (covering approximately the
was controversial and was finally rejected Nevertheless, it should be noted that the
2000 to 2012 period) indicate that very
as unconstitutional by the Constitutional FTA has the right to demand a translation
few cases result in double taxation.
Court. The proposed provision was and that, from a practical standpoint,
requiring ‘compulsory remuneration’ for When may a taxpayer submit an DIRCOFI is less familiar with foreign
the transfer of risk(s) or function(s) that adjustment to competent authority? language documents than the DVNI
stem from a French entity’s transfers and is consequently more inclined to
It depends on the double tax treaty
to a foreign related entity. Subject to a request translations.
involved, but usually within 3 years after
tight definition of the notions of ‘risks’
an adjustment leading to double taxation
and ‘functions’ and a better approach of
is proposed by a tax authority.
restructuring, the French government
should reintroduce these measures soon May a taxpayer go to competent
with specific legislation. authority before paying tax?
Higher and systematic penalties Permitted. Nonetheless, automatic
should also be incorporated soon in postponement of tax collection
French regulations for non-compliance does not apply anymore to mutual
with transfer pricing documentation agreement procedures introduced as
requirements (during tax audits from 1 January 2014.
and annually).
A limit on the tax deductibility of Advance pricing

interest on related-party loans was agreements
enacted as from financial years ending
25 September 2013. Interest is not What advance pricing agreement
deductible in situations when the tax, at (APA) options are available, if any?
the lender level, is not equal to at least Unilateral (under strict conditions),
25 percent of the amount of corporate bilateral, and multilateral.
income tax that would have been due in
France under ordinary circumstances. Is there a filing fee for APAs?
No.
The Finance Bill for 2014 also included a
requirement for the mandatory supply Does the tax authority publish APA
of ‘analytical accounts’ to the French tax data either in the form of an annual Fidal International*
authorities during a tax audit (1) if the report or through the disclosure of
taxpayer has total gross assets of at least data in public forums? Pascal Luquet
EUR400 million, or (2) if the taxpayer’s Tel: + 33 (0)1 55 68 15 22
No.
turnover exceeds a threshold amount Email: pluquet@fidalinternational.com

*Fidal is an independent legal entity separate from KPMG International and KPMG member firms. contact us via the information noted above.
Germany | 101
Germany
KPMG observation
Transfer pricing is one of the highest priority issues for the German tax authorities
and is receiving increased attention and discussion during German tax audits. In
KPMG in Germany’s experience, German tax auditors often put forward a case
of insufficient transfer pricing documentation in order to make significant transfer
pricing adjustments to the taxable income by way of an estimate.
The authorized Organisation for Economic Co-operation and Development (OECD)
approach, stipulated in the new Article 7 of the OECD Model Tax Convention and its
commentary has been incorporated into national law by the 2013 Tax Act (Section 1,
Foreign Transactions Act – AStG). These fundamental changes with regard to transfer
pricing clarify the rules for cross-border profit allocation that apply to various investment
options such as corporation, partnership, and permanent establishment. The new provision
first applicable for the assessment period 2013 regulates that a partnership is also deemed
to be a taxable person within the meaning of the regulation and that a partnership may also
be a related party. Therefore the arm’s length principle directly applies to the partnership.
As of fiscal year 2008, the German tax authorities are allowed to aggressively audit business
restructuring cases. The recently adopted Base Erosion and Profit Shifting (BEPS) action plan
in 2013 fits into the German tradition of developing measures against profit shifting. Germany
has strongly advocated the adoption of the BEPS Action Plan and played a decisive role in the
shaping of the actions and supports all of the 15 actions envisaged by the OECD.
The German Federal Ministry of Finance is focusing on four key items: digital economy, hybrid
mismatch arrangements, prevention of treaty abuse and harmful tax competition.
Basic information Section 1 of the Foreign Transactions Tax What is the statute of limitations
Act in 2013. The 2013 Tax Act introduces on assessment of transfer pricing
Tax authority name changes which clarify the rules for cross- adjustments?
Federal Ministry of Finance border profit allocation that apply to In general, 4 years from tax filing
(Bundesministerium der Finanzen various legal structuring options such as year-end, but the respective tax
– BMF); Federal Tax Office corporation, partnership, and permanent rules and provisions are much more
(Bundeszentralamt für Steuern – BZSt). establishments. Documentation comprehensive.
requirements were introduced in 2003
Citation for transfer pricing rules and penalties in 2004. Transfer pricing
German Foreign Transactions Tax Act
(Außensteuergesetz – AStG) Section 1, What is the relationship threshold disclosure overview
General Tax Code (Abgabenordnung – for transfer pricing rules to apply
AO) Section 90 Para. 3 and Section 162 between parties?
Para. 3 and 4, Corporate Income Tax The taxpayer holds direct or indirect submitted to the revenue authority
Act (Körperschaftsteuergesetz – KStG) ownership of 25 or more percent in the on an annual basis (e.g. with the tax
Section 8 Para. 3. related party, or has direct or collateral return)?
possibility to exert a dominating
Effective date of transfer pricing Disclosures related to transfer pricing
influence to the related party; a third
rules are not required to be submitted to
party holds a share of 25 percent or
the revenue authority on an annual
The legal basis for the determination of more in the taxpayer and the related
basis, e.g. with filing a corporate
intra-group transfer prices has recently party or exerts indirectly or collaterally a
income tax return. The transfer
changed in Germany since the revision of dominating influence.
pricing documentation for so-called less than EUR500,000 for all other specific designation in order to
extraordinary transactions has to categories of transactions. For the prepare or submit a transfer pricing
be prepared within 6 months after relief, the taxpayer’s remuneration for study?
the business year-end in which the both types of intra-group transactions No. The German tax authorities do not
respective transaction took place. must be below the thresholds. Relief is require a specific designation for the
However, it is strongly recommended granted for the current business year if preparation or submission of relevant
to prepare contemporaneous transfer neither threshold has been exceeded in transfer pricing documentation. However,
pricing documentation. the preceeding business year. To avoid it is strongly recommended to look for
inappropriate arrangements, domestic professional advice and the assistance of
In general, the transfer pricing
related companies are assessed in total a transfer pricing specialist/practitioner in
documentation for all types of intra-
if the companies are jointly audited. all transfer pricing issues due to the local
group transactions has to be provided
to the revenue authority upon request, knowledge and experience they possess.
typically for the purposes of a tax requirement per the previous
audit. The time limit for submitting the question, describe the benefits, if Transfer pricing methods
documentation to the revenue authority any, of preparing and maintaining a
is 60 days following the request (30 days Are transfer pricing methods
transfer pricing study? outlined in Chapter II of the OECD
in case of extraordinary transactions).
The preparation and maintenance Guidelines acceptable?
What types of transfer pricing of a transfer pricing study cannot be Yes.
information must be disclosed? regarded as a simple compliance
issue but rather as a proactive risk Is there a priority among the
No, a specific disclosure is required. If management exercise with regard acceptable methods?
management identifies incorrect transfer to upcoming tax audits. In order to
pricing after filing the tax return, this In general, standard methods such as
reduce the risk of double taxation it
needs to be indicated and corrected the Comparable Uncontrolled Price
is best practice to have proper and
without delay. (CUP) method, the resale price method
consistent transfer pricing studies
and the cost-plus are preferred even
What are the consequences of failure across the group. Additionally, a transfer
though there is no hierarchy of methods.
to prepare or submit disclosures? pricing study plays an important role in
The Transactional Net Margin Method
defending against penalties in case of an
(TNMM), as well as the profit split
Not applicable. adjustment.
method, is applied in Germany. The
German government requires the use of
Transfer pricing study obtain the benefits, are there any a so-called hypothetical arm’s length test
overview where sufficient reliable third-party data
is unavailable. The hypothetical arm’s
Is preparation of a transfer pricing pricing study must be prepared and
length test is most relevant in the case of
study required – i.e. can the submitted?
a relocation of functions and/or a sale or
taxpayer be penalized for mere The deadline for submitting transfer license of intellectual property.
failure to prepare a study? pricing documentation to the revenue
authority is 60 days following the tax In practice the CUP method is most
No. In general, there is no obligation to
audit request. The documentation of preferred by the German tax authority,
prepare a complete study or a report.
extraordinary business transactions but it is frequently dismissed as being not
However, it is a common practice to
must be prepared within 6 months after comparable. Resale price for distribution
prepare a transfer pricing report in order
the year-end, in which the extraordinary functions and cost plus for service
to summarize all relevant information
business transaction took place and functions are most common. The TNMM
and to reduce penalty risks. Therefore,
should be submitted to the revenue can be used only for entities with routine
the taxpayer cannot be penalized for not
authority within 30 days following the functions, and entities involved in only
having prepared a transfer pricing study
tax audit request. one type of transaction.
or report.
If the taxpayer does not provide upon When a transfer pricing study is If there is no priority of methods, is
request appropriate transfer pricing prepared, should its content follow there a “best method” rule?
documentation within the previously Chapter V of the OECD Guidelines? No.
mentioned timeframe, the results Yes. The manner, content and extent
may be considerable sanctions and of documentation in a German transfer
penalties (e.g. additional tax payments, pricing study is determined by the
estimation of transfer prices and income “Decree-Law in the spirit of Sec. 90(3) penalties
corrections to the disadvantage of the of the General Tax Code (GTC)”, which When the tax authority requests
taxpayer and cash penalties). generally follows Chapter V of the OECD a taxpayer’s transfer pricing
Guidelines. documentation, how long does
A taxpayer is eligible for relief if the
remuneration received for intra-group the taxpayer have to submit its
Does the tax authority require an documentation?
deliveries of tangible goods amounts advisor/tax practitioner to have
to less than 5 million Euros (EUR) and See previous commentary.
Germany | 103
If an adjustment is proposed by the What trends are being observed Are management fees deductible?
tax authority, are dispute resolution currently? In general, management fees are
options available to the taxpayer German tax auditors often assume deductible assuming the services were
outside of competent authority? a case of insufficient transfer pricing rendered to the benefit of the service
In principle, the taxpayer can choose to documentation in order to make recipient (benefit test). It is generally
litigate a strategy rarely chosen because significant transfer pricing adjustments to not sufficient to just provide the costs
of the lack of economic experience at the taxable income by way of an estimate. of the service provider and a general
fiscal courts leading to unforeseeable Particular attention is currently being paid description of the services rendered.
results. The taxpayer can also choose to the outbound transfer of functions and The tax authorities usually require the
to submit an application for a mutual risks and to permanent establishments. taxpayer to provide examples of services
agreement procedure under Article 25 being rendered specifically for the
of the OECD Model Tax Convention at Special considerations German subsidiary. A second question
the Federal Tax Office. There is also the then is whether the services can be
possibility of using the complaints system Are secret comparables used by tax regarded as shareholder costs.
or the European Union (EU) arbitration authorities?
procedure. Yes, occasionally, but they have lesser Are management fees subject to
evidence value in court. withholding?
If an adjustment is sustained, can No.
penalties be assessed? If so, what Is there a preference, or
rates are applied and under what requirement, by the tax authorities Are year-end transfer pricing
conditions? for local comparables in a adjustments permitted?
Yes. benchmarking set? Yes, under certain circumstances.
No, there is no legal requirement to Germany does not have domestic
Section 162, Paragraph 4, General Tax
have local comparables. However, legislation allowing compensating/year-
Code provides that in the absence of
German tax authorities prefer local end adjustments. Under administrative
any useful documentation the higher
comparables in benchmarking studies. guidelines, adjustments made by the
of either EUR5,000 or a fraction of 5
Benchmarking studies that have no local taxpayer after controlled transactions
percent to 10 percent of the transfer
comparables are sometimes challenged have taken place are acceptable in cases
pricing adjustment made has to be
with regard to comparability. where a predetermined agreement about
assessed. Therefore, a penalty cannot
the controlled transaction is in existence
be removed if no documentation exists, Do tax authorities have and all relevant factors to determine
but the exact amount of the penalty is requirements or preferences the price were agreed in advance; thus,
subject to the tax authorities’ discretion regarding databases for the adjustment is a mere formality and
which may depend on the taxpayer’s comparables? both parties to the transaction have
degree of compliance or the nature of
There are no legal requirements to no influence on the adjustments (e.g.
the transfer pricing adjustments. The
use any particular database. It is an adjustment of interest payment
same applies for penalties sanctioning
most common to use the Amadeus following a reference interest rate).
late filing (maximum surcharge of EUR1
database for pan-European comparables Adjustments depending on the result
million, with a minimum of EUR100 for
searches, which is published by Bureau (e.g. the net profit) of one of the parties
each day after the 30/60 days time limit
van Dijk. The German tax authorities are explicitly excluded. In exceptional
is exceeded) and the tax administration’s
have licensed the database and have cases, adjustments are accepted, where
ability to use the full arm’s length range
started to use it, although in practice the taxpayer can credibly show that
to the detriment of the taxpayer in case
the application on the side of the independent parties in comparable cases
no useful documentation exists.
tax authorities is yet limited. The tax would accept such adjustments.
To what extent are transfer pricing authorities require that the information
from databases is verified through Other unique attributes?
penalties enforced?
internet research, i.e. to determine the No.
Always.
comparability of a certain company;
it is insufficient to rely only on the Other recent
information which is provided by the developments
database. The Dafne database with
With regard to cross-border transfer German comparables and the Orbis As the BEPS action plan enjoys
pricing issues, preparation of database for non-European comparables widespread backing from the G8,
comprehensive transfer pricing searches might also be used. G20 and the OECD, a positive result
documentation is required to avoid is expected for the BEPS project. The
penalties and surcharges. However, What level of interaction do tax consequences for Germany will be
if penalties are assessed they can authorities have with customs the assurance of tax revenue while
occasionally be negotiated with local tax authorities? ensuring its competitiveness. It can
authorities to a lower level. be expected that the debate on tax
Low interaction with customs authorities.
The customs service occasionally transparency is not going away any time
requests transfer pricing documentation. soon. The taxpayer will be called upon to
proactively address this topic.
Tax treaty/double tax in the application, a fee of EUR10,000 is

applicable. When the transaction volume
resolution covered by an APA is less than EUR5
million for the transfer of goods and less
than EUR500,000 for other cases, the
treaty network?
aforementioned fees are reduced to
There is an extensive double tax treaty EUR10,000, EUR7,500, and EUR5,000.
network. As of 1 January 2014, about 100
double tax treaties with other countries Does the tax authority publish APA
were in place. data either in the form of an annual
If extensive, is the competent data in public forums?
No.
double tax relief?
Almost always. Please provide some information on
When may a taxpayer submit an and whether there are any known
adjustment to competent authority? difficulties?
After an adjustment is proposed to the The attitude of the German tax authorities
taxpayer. on APAs recently changed in a positive
way, insofar as the tax authorities now
actively welcome and support APAs for
transfer pricing purposes. Multinational
Yes, it is permitted to go to the competent companies actively use the APA program
authority before paying taxes. in their transfer pricing policies.
Advance pricing Language

agreements
What advance pricing agreement documentation be filed?
(APA) options are available, if any? The official language is German. The
Bilateral and multilateral. The German tax taxpayer may apply for a submission of
authorities do not support unilateral APAs transfer pricing documentation in a foreign
except in cases where no tax treaty is in language (normally English). However,
place. approval is given on a case-by-case basis.

Yes. An application fee of EUR20,000
and a fee of EUR15,000 for a renewal of
an APA. Moreover, in case of a change
KPMG in Germany
Achim Roeder
Tel: +49 69 9587 1400
Email: achimroeder@kpmg.com

Greece | 105
Greece
KPMG observation
Enterprises must comply with different acts of legislation in relation to their
transfer pricing obligations depending on the financial year under review. More
specifically:
–
for financial years commencing 1 January 2012 onwards (therefore including FY 2013)
the transfer pricing provisions of Law 2238/1994 apply.
– for tax years commencing as of 1 January 2014 the new transfer pricing provisions apply
on the basis of the New Income Tax Code (Law 4172/2013) (which abolishes from 1
January 2014 Law 2238/1994).
In addition, the provisions of Article 26 of Law 3728/2008 on transfer pricing published
by the Ministry of Development have been abolished with effect from 23 January 2013.
Therefore, Greece no longer has two transfer pricing regimes (one from the Ministry of
Development and one from the Ministry of Finance).
The new transfer pricing provisions extend the scope of transactions that must be
documented and the definition of affiliated enterprises to include cases where enterprises
have the possibility of exerting substantial influence over one of the associated companies in
the group.
Ministerial Decision 1159/2011 (applicable to financial years ending 30 June 2011 onwards)
requires entities having the legal form of corporation – Anonymos Eteria (AE) and limited liability
company – Eteria Periorismenis Efthynis (EPE) to make transfer pricing documentation available
to the certified auditors for the issuance of Annual Tax Certificates under Article 82 of the Income
Tax Code. Those affected entities that do not comply will be issued an Annual Tax Certificate “with
reservation”, regarding the auditors’ inability to express an opinion on the arm’s length nature of the
transaction, and which in turn could result in the tax authorities initiating a tax audit of the respective
company’s tax affairs. According to the new Law 4110/2013, branches of foreign companies also come
under the obligation for financial years ending after 30 December 2012.
Financial year 2011 was the first year of issuance of the Annual Tax Certificates and it was therefore the
first year that transfer pricing documentation files were audited by the certified auditors (for the Annual
Tax Certificate). As far as the Ministry of Finance is concerned, no transfer pricing audit precedents exist
yet, but in practice the audits shall mainly focus on intra-group transactions within multinational groups,
on transactions involving intangibles and related royalty issues, on loss making companies and companies
having a substantial volume of international transactions.
Basic information Periorismenis Efthynis (EPE) will have For tax years commencing 1 January
their transfer pricing documentation 2014, Articles 50 and 51 of Law
Tax authority name audited by certified auditors for the 4172/2013 and Articles 21, 22 and 56 of
Transfer pricing audits will now be issuance of the Annual Tax Certificate. Law 4174/2013.
carried out by the Tax Office of Large
Incorporations. Furthermore, based Citation for transfer pricing rules Effective date of transfer pricing rules
on the Ministerial Decision 1159/2011, Articles 39, 39A, 39B and 39C of Income The provisions of Law 2238/1994
entities having the legal form of Tax Law 2238/1994 as amended. as amended apply to intra-group
Anonymos Eteria (AE) and Eteria transactions which have taken place in
financial periods beginning 1 January submitted to the revenue authority In general the basic documentation file
2012 onwards. For the financial year on an annual basis (e.g. with the tax is common for all group entities and
2013, the transfer pricing documentation return)? contains typical information for all the
file must be prepared and the relevant Yes, a transfer pricing study (transfer associated companies and the branches
summary information sheet concerning pricing documentation file) must be of the group. The Greek documentation
intra-group transactions must be prepared and provided by the companies file, which accompanies the basic
electronically submitted to the Ministry to their certified auditors before the documentation file, contains additional
of Finance within 4 months from the end issuance of the Annual Tax Certificate information regarding the Greek
of the company’s year end. (not all companies have an obligation entities of the group, the permanent
to obtain a tax certificate) and in any establishments of the foreign entity in
For tax years commencing 1 January 2014
case within 4 months from the end of Greece or the permanent establishments
the transfer pricing documentation file is
their financial year. The transfer pricing of the Greek entity abroad.
accompanied by the relevant summary
information sheet concerning intra-group documentation file is accompanied
transactions. The summary information by a summary information sheet. This
sheet must be electronically submitted to summary information sheet must be
disclosures?
the Ministry of Finance within 4 months electronically submitted to the General
Secretariat of Information Systems of the Where the summary information sheet
from the end of each tax year
Ministry of Finance within 4 months of and/or the transfer pricing documentation
What is the relationship threshold the end of the company’s financial year. file are not submitted to the competent
for transfer pricing rules to apply audit authority, a one-off penalty at
By virtue of the fact that the the rate of 1 percent of the company’s
between parties?
documentation file is prepared after the recorded gross revenues is imposed.
According to the amended Law end of each financial year, there is no The penalty imposed should not be less
2238/1994, the threshold relationship need for updates for changes carried out than 10,000 Euros (EUR) and should not
is substantial control or dependence at within the same financial year. exceed EUR100,000.
a percentage of 33 and is extended to
include cases where the possibility of For tax year 2014 onwards, an obligation Penalties also apply in relation to
substantial influence over one of the is stipulated that the transfer pricing the late submission of the summary
associated companies exists. Specific documentation file must be updated information sheet and/or the transfer
cases are also described in the relevant where there are changes in the market pricing documentation file. More
legislation. conditions that influence the information specifically, a one-off penalty at the
and data provided in the transfer pricing rate of 0.1 percent of the company’s
Law 4172/2013 which applies for tax documentation file. recorded gross revenues is imposed
years commencing 1 January 2014
in the case of late submission. The
broadens further the meaning of What types of transfer pricing penalty imposed should not be less
association introducing the concept information must be disclosed? than EUR1,000 and should not exceed
of “associated persons”. Specific and The summary information sheet must the amount of EUR10,000. When
broader cases are also described in the contain information regarding the the late submission of the summary
relevant legislation. functional identity of the company, i.e. information sheet is caused by a force
the group it belongs to, the functions majeure (burden of proof is borne
it performs and the risks it assumes, by the enterprise) and the summary
as well as a list of the intra-group information sheet is submitted within
adjustments?
transactions that require documentation 10 days of that event, no penalty is
Five years from tax year-end. The 5-year which have taken place within the imposed.
period commences at the end of the year respective financial year. It must also
in which the annual corporate income include a brief description of the transfer Law 4174/2013 applying for tax years
tax return was filed with respect to the pricing method followed. commencing as of 1 January 2014
previous accounting year. Under certain onwards stipulates the same penalties
conditions, the statute can be extended The transfer pricing documentation file as above. Moreover, the one-off penalty
to 10 years. consists of the “basic documentation file” at the rate of 1 percent of the company’s
and the “Greek documentation file". The recorded gross revenues is imposed in
exact information that must be included the case of submission of an inaccurate/
Transfer pricing in the transfer pricing documentation incomplete summary information sheet
disclosure overview file as well as the summary information (this penalty should not be less than
sheet is determined in Circular (i.e. POL EUR10,000 and should not exceed the
1179/2013) which has been issued by the amount of EUR100,000).
Ministry of Finance.
Greece | 107
Transfer pricing study any, of preparing and maintaining a In general the basic documentation
transfer pricing study? file is common for all the group entities
overview and contains typical information for
The benefits of preparing the transfer
Is preparation of a transfer pricing pricing file are the avoidance of penalties all the associated companies and
study required – i.e. can the for non-submission, the shifting of the branches of the group, while the
taxpayer be penalized for mere burden of proof from the company to the Greek documentation file, which
failure to prepare a study? supervising authority and the mitigation accompanies the basic documentation
Yes, for certain transactions. of the risk of the tax authority making file, contains additional information
adjustments. regarding the Greek entities of the
The preparation of a transfer pricing file group, the permanent establishments
is required and penalties are imposed in To satisfy the requirement and/or of the foreign entity in Greece or the
the case of failure to submit within the obtain the benefits, are there any permanent establishments of the Greek
time stipulations provided by legislation. requirements on when the transfer entity abroad.
Under Law 2238/1994, intercompany pricing study must be prepared and
Law 4174/2013 which applies for tax
transactions of the company exceeding submitted?
years commencing 1 January 2014
EUR20,000 per category and per The documentation file must be onwards stipulates that the content
counterparty should be documented submitted to the competent tax authority of the documentation file will be
for Greek Transfer Pricing purposes if in case of a tax audit within 30 days determined by a Ministerial Circular
(a) the gross revenues of the Company of request. However, please note which is expected to be issued.
and its associated enterprises do not that apart from the obligation towards However, it is expected that the content
exceed the amount of EUR5 million the competent tax authority, the law of the documentation file will take into
and the intercompany transactions of stipulates that the transfer pricing file consideration the OECD Guidelines
the Company exceed the amount of is required to be completed within 4 and will not differentiate from the one
EUR100,000 or if (b) the gross revenues months from the closing date of the stipulated in POL 1179/2013.
of the Company and its associated company’s financial year. If the company
enterprises exceed the amount of has an obligation for the issuance of a tax Does the tax authority require an
EUR5 million and the intercompany certificate, then it should be audited by advisor/tax practitioner to have
transactions of the Company exceed the the certified auditors of the Company at specific designation in order
amount of EUR200,000. an earlier stage, i.e. before the issuance to prepare or submit a transfer
of the Annual Tax Certificate. pricing study?
For tax years commencing 1 January
2014 and according to Law 4174/2013 A sample of at least 9 percent of the No, specific requirement is provided in
Greek companies must maintain a companies under audit by certified the legislation but in practice advisors
transfer pricing documentation file for auditors and audit firms will be selected are used.
their intra-group transactions with one to be further audited by the tax authorities
or more associated enterprises which based on criteria set by the Ministry of Transfer pricing methods
exceed the amount of: Finance in accordance with the provisions
of Article 80 of Law 3842/2010. Are transfer pricing methods
–– either EUR100,000 in total, if the outlined in Chapter II of the OECD
gross revenues of the company in When a transfer pricing study is Guidelines acceptable?
question for the respective tax year prepared, should its content follow The transfer pricing methods to be used
does not exceed the amount of Chapter V of the Organisation are determined by virtue of Ministerial
EUR5 million; for Economic Co-operation and Circular POL 1179/2013 issued by the
–– or EUR200,000 if the gross revenue Development (OECD) Guidelines? Ministry of Finance on 18 July 2013.
of the company in question for the Yes. According to the transfer pricing These are the transfer pricing methods
respective tax year exceeds the provisions, the tax authority’s audit outlined in Chapter II of the OECD
amount of EUR5 million. will take into consideration the OECD Guidelines.
Guidelines. It is further specifically
Law 4174/2013 as currently in force does stipulated that a transfer pricing Is there a priority among the
not stipulate a minimum amount for the documentation file consists of the acceptable methods?
transitions that must be documented if “basic documentation file” and the Ministerial Circular POL 1179/2013
the above thresholds are met. “Greek documentation file". The exact stipulates that there is a priority of the
information which must be included is traditional transfer pricing methods (e.g.
stipulated in the respective Ministerial Comparable Uncontrolled Price (CUP)
Circular (POL 1179/2013). method, resale price method and cost
plus method) over the transactional onwards) the deadline for making the company. The additional profits arising
transfer pricing methods (transactional documentation file available to the tax are added to the gross revenues of the
net margin method and profit split authority in case of a tax audit as well company and taken into consideration for
method). In cases where there is as the penalties imposed for failure to the calculation of taxes, fees and levies.
insufficient or no data for the use of the submit the documentation file to the tax
Where the enterprise does not
traditional transfer pricing methods, authorities remain the same. Similarly,
comply with the arm’s length principle,
taxpayers may use the transactional apart from the obligation towards the tax
the provisions of Law 2523/1997
transfer pricing methods provided that authority in the context of a ordinary tax
(Administrative and Penal Sanctions)
justification for their selection is included audit, the transfer pricing file is required to
apply (e.g. an additional tax is imposed/
in the transfer pricing documentation file. be completed prior to the issuance of the
applied on the tax avoided due to
Annual Tax Certificate by the taxpayer’s
In regards to the acceptable methods, inaccuracy of the income tax return
certified auditors (if the taxpayer is
we do not expect major changes to be submitted by the taxpayer).
subject to such certificate). However,
introduced by virtue of the expected
contrary to the previous regime, Law Law 4172/2013 which applies for tax
Ministerial Circular that will be used
4172/2013 as currently in force does not years commencing 1 January 2014
under the new transfer pricing regime
provide that the transfer pricing file must onwards does not include any provisions
of Law 4172/2013 (applying to tax years
be completed within 4 months from the in this respect.
commencing from 1 January 2014
closing date of the taxpayer’s tax year
onwards).
(such deadline is provided only for the To what extent are transfer pricing
electronic submission to the Ministry penalties enforced?
of Finance of the Summary Information Regarding the transfer pricing regime
Sheet of intercompany transactions). which applied until 31 December 2011,
Not applicable.
certain penalties have been imposed by
the Ministry of Development. Respective
Transfer pricing audit tax authority, are dispute resolution
audits from the Ministry of Finance have
and penalties outside of competent authority?
not been finalized and there has not been
a precedent set.
When the tax authority requests No, upon the issuance of a tax
a taxpayer’s transfer pricing assessment note the taxpayer may What defences are available with
documentation, how long does file a request for re-examination at the respect to penalties?
the taxpayer have to submit its Department of Internal Re-Examinations It is imperative to have the stipulated
documentation? of the General Secretariat of Public transfer pricing file in place in order
The documentation file must be Revenues. The taxpayer has a right of to avoid penalties. If documentation
submitted to the competent tax authority appeal against the administrative decision evidences that transactions are not
in case of a tax audit within 30 days of before the administrative courts. arm’s length, then justification must be
request. However, please note that provided. It remains to be seen what
apart from the obligation towards the If an adjustment is sustained, can
the position of the tax authorities will be
competent tax authority, the transfer penalties be assessed? If so, what
once audits are completed.
pricing file is required to be completed rates are applied and under what
before the issuance of the Annual Tax conditions? What trends are being observed
Certificate and in any case within 4 Article 39 of Law 2238/1994 provides that currently?
months from the closing date of the where transactions between associated Regarding the transfer pricing regime
company’s financial year. Failure to companies (as these are determined in force until 31 December 2011, the
submit the documentation file is subject in paragraph 2 of Article 39 of Law Ministry of Development has imposed
to a one-off penalty at the rate of 1 2238/1994) are carried out under financial certain fines. From the companies
percent of the company’s recorded gross conditions different than those that selected for audit by the Ministry of
revenues. The penalty imposed should would have been agreed upon between Development, the authorities appear to be
not be less than EUR10,000 and should unrelated parties, the profits that should focusing on entities trading in consumer
not exceed the amount of EUR100,000, have arisen to the Greek company (but goods as well as pharmaceuticals. As far
as discussed earlier. indeed did not arise due to the different as the Ministry of Finance is concerned,
financial conditions), are added to the no transfer pricing audit precedents exist
Under Law 4174/2013 (applying to tax net profits, or decrease the losses, of the
years commencing from 1 January 2014 yet, but in practice the audits mainly
Greece | 109
focus on intra-group transactions within What level of interaction do tax If extensive, is the competent
multinational groups, on transactions authorities have with customs authority effective in obtaining
involving intangibles and related royalty authorities? double tax relief?
issues, on loss making companies and High. Greece has limited experience with
companies having a substantial volume of mutual agreement procedures (MAP).
international transactions. Are management fees deductible?
Yes, if in compliance with the arm’s When may a taxpayer submit an
In addition to the above, Law 4172/2013
length principle and other general tax adjustment to competent authority?
(which applies for tax years commencing
1 January 2014) introduced the requirements. Taxpayers may submit a supplementary
application of the arm’s length principle income tax return with an adjustment
Are management fees subject to any time before a tax audit of the year
to business restructurings either local
withholding? in question. Any procedures under a tax
or cross-border. More specifically,
Law 4172/2013 provides that business Yes, subject to tax treaty provisions. treaty must take place within a 3 year
restructurings consisting of a transfer of period. However, please note that the
operations, assets, risks and/or business Are year-end transfer pricing right to initiate procedures before the
opportunities between related parties adjustments permitted? competent administrative bodies is within
as well as any transfer or granting of a No, specific stipulation exists and in a 30-day period.
right to use goodwill or intangible assets practice there can be year-end transfer
pricing adjustments if they are sufficiently May a taxpayer go to competent
effected in the context of such business
stipulated in writing (e.g. agreements, authority before paying tax?
restructurings must be performed at a
price that is in compliance with the arm’s transfer pricing documentation). They are There are no formal rules.
length principle. usually highly scrutinized.
Other unique attributes? Advance pricing

Special considerations None agreements
Are secret comparables used by tax What advance pricing agreement
authorities? (APA) options are available, if any?
Other recent
Although there is no precedence in this For the first time, APAs are introduced
respect in practice tax authorities may developments by virtue of the new transfer pricing
use secret comparables. This remains to Law 4172/2013 introduced the provisions of Law 4174/2013 and apply to
be determined. application of the arm’s length principle tax years commencing from 1 January
to business restructurings either local 2014 onwards. More specifically, by
Is there a preference, or or cross-border. More specifically, virtue of the new provisions, enterprises
requirement, by the tax authorities Law 4172/2013 provides that business may enter into APAs relating to the
for local comparables in a restructurings consisting of a transfer of pricing of specific future transactions
benchmarking set? operations, assets, risks and or business with associated companies.
This is yet to be determined under the opportunities between related parties
new rules. However, for the transfer as well as any transfer or granting of a Is there a filing fee for APAs?
pricing regime in force until 31 December right to use goodwill or intangible assets
Yes. The applicable fees (payable by the
2011, in practice pan-European effected in the context of such business
applicant) throughout the APA procedure
benchmarking studies were used. restructurings must be performed at a
are determined by Ministerial Circular
price that is in compliance with the arm’s
POL. 1284/2013, as follows:
Do tax authorities have length principle.
requirements or preferences –– Fee of EUR1,000 at the time of
regarding databases for the submission of the Preliminary
comparables?
Tax treaty/double tax Consultation Application.
No.
resolution
–– Fee of EUR5,000 at the time of the
What is the extent of the double tax submission of the APA application, or
treaty network? of the APA revision application.
Extensive.
–– Fee of EUR10,000 in the case of a
request for collaboration with foreign
tax authorities.

No precedent yet, since APAs apply
for tax years commencing from
1 January 2014.

difficulties?
This is yet to be determined
Language
According to the Ministerial Circular POL.
1179/2013 the Basic Documentation
File (containing information regarding
the Group) may be prepared in English
but it must be translated in Greek upon
request by the tax authorities. The
Greek Documentation File (containing
information regarding the Company)
should be prepared in Greek.
KPMG in Greece
Effie Adamidou
Tel: +30 2106062120
Email: eadamidou@cpalaw.gr

Guatemala | 111
Guatemala
KPMG observation
Transfer pricing documentation requirements were published in 2012. However,
the first year taxpayers in Guatemala must comply with transfer pricing
documentation requirements is 2015.
Basic information to be part of the same business Also considered related parties are the
group if one of them is a member or following:
Tax authority name participant of the other and is related
Superintendencia de Administración • a resident of Guatemala and a
to it in any of the following situations:
Tributaria. distributor or exclusive agent of a
• holds a majority of voting rights foreign territory
Citation for transfer pricing rules • has the power to appoint or • a distributor or exclusive agent
Decree No.10-2012 published in remove members or through its resident in Guatemala of an entity
the Central America Official gazette legal representative to intervene resident abroad and the latter
(amendment by Decree No.19-2013). decisively in the other entity
• a resident of Guatemala and abroad
Effective date of transfer pricing • may have, under agreements with its permanent establishments
rules other partners, most of the voting
• a permanent establishment located
rights
1 January 2015. in Guatemala and its foreign parent
• has appointed exclusively by company, another permanent
What is the relationship threshold their votes to the majority of the establishment of the same company
for transfer pricing rules to apply members of the board or a person associated with it.
between parties?
• a majority of the members of What is the statute of limitations
Two entities can be considered related the governing body of the legal
parties when one of them is a resident on assessment of transfer pricing
entity are ombudsmen, managers adjustments?
of Guatemala and the other is resident or members of the board of
in a foreign tax jurisdiction, if one of the Four years from filing date of the tax
the related party or other one
following cases applies: return.
dominated by it.
1. when one of them directs or controls When two companies comprise a Transfer pricing
the other, or holds, directly or decision group with respect to a third
indirectly, at least 25 percent of its disclosure overview
company, all these companies are
capital stock or voting rights, whether considered a business group. Are disclosures related to transfer
a domestic or foreign entity
It is also considered that an individual
2. when five or fewer people direct submitted to the revenue authority
has a stake in the capital stock or voting
or control both related parties, or on an annual basis (e.g. with the tax
rights when the owner of the share or
possess directly or indirectly at least return)?
shares, directly or indirectly is the spouse
25 percent of participation in the The transfer pricing information return
or person connected by relationship, by
capital stock or voting rights of both must be completed. Taxpayers should,
blood relation to the fourth degree or
entities however, be able to support the
affinity to the second degree. The term
3. legal entities resident in Guatemala person refers to individuals, corporations arm’s length nature of the intra-group
or abroad belonging to the same and other organizations with or without transactions at the moment of filing
corporate group are considered legal personality. the income tax return. The transfer
pricing documentation must include
the information that the taxpayer used for all intercompany transactions is methods (RPM) should be used. When
to determine the arm’s length nature required. No exception applies. not applicable due to the complexity
of the intra-group transactions. This of operations, lack of publicly available
documentation will need to be prepared To satisfy the requirement and/or information, or other factors such that
on an annual basis. obtain the benefits, are there any there is an inexistence of comparable
requirements on when the transfer data, the following methods should be
What types of transfer pricing pricing study must be prepared and applied: profit split or transactional net
information must be disclosed? submitted? margin method (TNMM). This order must
Along with the Income Tax return, an The transfer pricing documentation study always be observed.
appendix that summarizes the main must be ready 3 months after the end of
information must be attached, but the the fiscal year. If there is no priority of methods, is
form is not available. there a “best method” rule?
When a transfer pricing study is Not applicable.
What are the consequences prepared, should its content follow
of failure to prepare or submit Chapter V of the Organisation
disclosures? for Economic Co-operation and Transfer pricing audit and
Not applicable. Development (OECD) Guidelines? penalties
Yes. When the tax authority requests
Transfer pricing study Does the tax authority require an documentation, how long does
overview advisor/tax practitioner to have the taxpayer have to submit its
specific designation in order to documentation?
study required – i.e. can the taxpayer The taxpayer has 20 days.
study?
prepare a study? Not as of today. If an adjustment is proposed by the
No. tax authority, are dispute resolution
Transfer pricing methods options available to the taxpayer
Other than complying with a outside of competent authority?
requirement per the previous Yes. Taxpayers can submit the resolution
in Chapter II of the OECD Guidelines
question, describe the benefits, if to an administrative area within the
acceptable?
any, of preparing and maintaining a tax authorities in order to object to the
transfer pricing study? Yes. However, the following procedures. Also, taxpayers may appeal to
methodologies will need to be the tax court.
The burden of proof is shifted to the tax
considered (or disregarded) before
authority when a company has transfer
applying methods outlined in Chapter II: If an adjustment is sustained, can
pricing documentation. Also, having
documentation will reduce the risk of penalties be assessed? If so, what
• market value in transferring goods or
a disallowance of the deduction for tax rates are applied and under what
services abroad: the price established
purposes of the transactions performed conditions?
by other entities (non-related with
with related parties. the tested party) that sell the same Yes. General tax penalties apply.
products or render the same services
According to the Fiscal Code, To what extent are transfer pricing
from Guatemala to the same country
there is no specific penalty for not penalties enforced?
abroad
preparing supporting transfer pricing Not yet known.
documentation; however, if a taxpayer • import market price: the price
does not comply with the transfer established for the same goods and What defences are available with
pricing documentation requirements, services between third parties within respect to penalties?
Guatemala tax authorities might deny the country in which the product or None.
the deduction of expenses resulting from service is going to be acquired plus the
the intra-group transactions with foreign freight charges if it the case. What trends are being observed
related parties, or modifying the reported currently?
income in intra-group transactions. They Is there a priority among the
acceptable methods? The transfer pricing requirements are very
may also conduct an appropriate analysis
recent in Guatemala. The first legislation
to determine the arm’s length nature of Whenever appropriate data exists
was published in 2012 and applicable in
the intra-group transactions and make the comparable uncontrolled price
2015. Therefore, as of yet there have been
adjustments accordingly. Documentation (CUP), cost plus (CPLM) or resale price
no transfer pricing audits.
Guatemala | 113
Special considerations Other recent Please provide some information

Are secret comparables used by tax developments is and whether there are any known
authorities? The first legislation was published in difficulties?
No. 2012 and the first year of application
No experience yet.
of the transfer pricing documentation
Is there a preference, or requirement, requirements is 2015.
by the tax authorities for local Language
Tax treaty/double tax In which language or languages can
Based on experience in Guatemala, North documentation be filed?
American comparable companies are
resolution
The Guatemala tax authorities require all
used for benchmarking purposes. What is the extent of the double tax documentation to be in Spanish.
treaty network?
Do tax authorities have Not applicable.
regarding databases for If extensive, is the competent
comparables? authority effective in obtaining
Not yet known. double tax relief?
Not applicable.
authorities have with customs When may a taxpayer submit an
authorities? adjustment to competent authority?
High. No formal rules exist in this area.
Are management fees deductible? May a taxpayer go to competent
Yes. However, taxpayers must support authority before paying tax?
the fact that intra-group services have No formal rules exist in this area.
been rendered before a deduction
is taken. That is, the taxpayer must Advance pricing
demonstrate that the services
(1) were actually rendered, (2) provided
agreements
a benefit to the taxpayer and (3) were not
What Advance Pricing Agreement
duplicative services. If no support can
be provided, then the tax authority will
consider them non-deductible. The APA should be submitted before
the intra-group transaction takes place.
Are management fees subject to The APA has effect with respect to the
withholding? transactions carried out after the date of
approval and is valid during the period of
Yes.
time agreed in that agreement, but shall
Are year-end transfer pricing not exceed four periods subsequent
adjustments permitted? to the date of approval. The effect of
the APA will be valid for the operations
Yes. However, it is important that the
carried out in the current period.
year-end adjustments are accounted
for before the end of the fiscal year Is there a filing fee for APAs?
to make sure tax and accounting
No.
figures are consistent. It is advisable
to conduct periodic reviews in order to
avoid significant year-end adjustments.
data either in the form of an annual KPMG in Guatemala
Customs issues must also be taken into
account.
Felipe Gómez
Other unique attributes? Not clear yet as APAs are new. Tel: +502 2334 2628
Mutual agreement procedures (MAPs) Email: fagomez@kpmg.com
are not available.

Honduras
KPMG observation
The Honduran Transfer Pricing Law became effective on January 2014; however,
regulations regarding the correct application of the Law have not been issued
yet. In 2015, tax authorities will likely demand a transfer pricing report for
Honduran entities with intra-group transactions with related parties both within
the country and abroad. Currently, tax authorities are not providing information
about this matter since they are undergoing training, and also awaiting the issuance
of regulations.
Basic information or remove the majority of the Transfer pricing

members of board of directors
Tax authority name disclosure overview
Dirección Ejecutiva de Ingresos. – could have, under agreements with
other partners, most of the voting
Citation for transfer pricing rules rights
Decreto ley No. 232-2011. – has appointed only with its votes on an annual basis (e.g. with the tax
most of the members of the board return)?
Effective date of transfer pricing of directors Yes. When filing the income tax return,
rules
taxpayers should also file information
1 January 2014. • they participate in direct or indirect
that supports the arm’s length nature of
commercial and financial transactions
the intra-group transactions.
What is the relationship threshold (not yet defined by the tax
for transfer pricing rules to apply authorities) What types of transfer pricing
between parties? • a person resident in the country has information must be disclosed?
Two or more entities are related parties permanent establishments abroad Tax authorities have not provided specific
when: detail about the information that should
• a company has the same directors or
be included in the transfer pricing
• a person or entity participates managers as a related company
disclosures/documentation study.
directly or indirectly in the
• when the relationship between
management, control or capital of
potentially related parties is considered What are the consequences
both legal entities
in terms of the social capital or control of failure to prepare or submit
• a person or a company participates in of voting rights, such participation disclosures?
the management, control or capital must be more than 50 percent If taxpayers in Honduras fail to comply
of another entity, both entities or with the obligation to prepare the transfer
• when a company or business is a
the person and the entity are related pricing disclosures/documentation
decision unit, or when a company is
parties study, the tax authorities will conduct an
a ‘partner’ of another company.
• entities comprise a decision unit. An appropriate analysis to determine the
entity is considered to be a member What is the statute of limitations arm’s length nature of the intra-group
of another and if they are in any of on assessment of transfer pricing transactions and make adjustments
the following situations: adjustments? accordingly.
Five years from filing date of the income
– hold a majority of voting rights. If the
tax return.
member has the power to appoint
Honduras | 115
Transfer pricing study prepare or submit a transfer pricing options available to the taxpayer
study? outside of competent authority?
overview
No. Yes. Taxpayers can submit the resolution
Is preparation of a transfer pricing to an administrative area within the
study required – i.e. can the Ministry of Finance to object to the
taxpayer be penalized for mere Transfer pricing methods procedures. Taxpayers may also appeal to
failure to prepare a study? Are transfer pricing methods the tax court.
There is a requirement for taxpayers outlined in Chapter II of the
to file information supporting the Organisation for Economic Co- If an adjustment is sustained, can
arm’s length nature of intra-group operation and Development (OECD) penalties be assessed? If so, what
transactions. At this time, there are no Guidelines acceptable? rates are applied and under what
specific requirements of the nature Yes. However, for the case of export conditions?
of the information needed, because transactions of goods with an Yes. Penalties vary depending on the
the rules have not been published by international quote, before applying classification of the tax contingency.
the tax authorities. However, once the OECD transfer pricing methods, the
rules are published, it is expected that following methodology will need to be To what extent are transfer pricing
Honduran taxpayers will be penalized considered or disregarded. penalties enforced?
in the instance they fail to submit Not yet known.
documentation or if they submit • Applicable method for the exports
false, incomplete or inappropriate of goods with international quote: What defences are available with
documentation. In the case of exports of goods with respect to penalties?
international quote in transparent
Occasionally. Congress approves tax
Other than complying with a markets, the exporter subject to
breaks that reduce the impact of the
requirement per the previous income tax will have the choice to
penalties if the taxpayer decides to
question, describe the benefits, if apply the comparable uncontrolled
avail them while making the penalty
any, of preparing and maintaining a price (CUP) method using third
payments.
transfer pricing study? parties information, regarding the
The burden of proof is shifted to the tax prices agreed with third parties as What trends are being observed
authority when a company has transfer the market value of those goods in currently?
pricing documentation. Appropriate similar conditions.
The transfer pricing requirements
documentation will reduce the risk of are very recent in Honduras. The first
a disallowance of the deduction for tax legislation was published in 2011 and is
acceptable methods?
purposes of the compensation for the applicable in 2014. Therefore, there have
transactions performed with related Yes. Before applying the OECD transfer
been no transfer pricing audits.
parties. pricing methods, specific methods
for export transactions will need to be
To satisfy the requirement and/or considered or rejected. Special considerations
obtain the benefits, are there any Are secret comparables used by tax
requirements on when the transfer If there is no priority of methods, is
there a “best method” rule? authorities?
Not applicable. No.
submitted?
Currently, there are no specific formal Is there a preference, or
requirements in addition to the fact that Transfer pricing audit and requirement, by the tax authorities
documentation of the arm’s length nature for local comparables in a
of the intra-group transactions will need
penalties
benchmarking set?
to be in place. When the tax authority requests
Based on the experience in Honduras,
North American comparable companies
When a transfer pricing study is documentation, how long does
will be used for benchmarking purposes.
prepared, should its content follow the taxpayer have to submit its
Chapter V of the OECD Guidelines? documentation? Do tax authorities have
Yes. There is no specific detail regarding The law does not indicate a timeframe. requirements or preferences
the information that the transfer pricing However, taxpayers must have all the regarding databases for
documentation study must include. information and analysis when filing their comparables?
tax return. No specific information of databases
used by Honduras tax authorities is
advisor/tax practitioner to have If an adjustment is proposed by the
available.
specific designation in order to tax authority, are dispute resolution
What level of interaction do tax Other recent Does the tax authority publish APA
authorities have with customs data either in the form of an annual
authorities?
The first legislation was published in data in public forums?
Low.
2011 and the first year of application
Not available.
Are management fees deductible? of the transfer pricing documentation
requirements will be in 2014. Please provide some information
Yes. However, taxpayers must support
the fact that intra-group services have on how successful the APA program
been rendered before a deduction Tax treaty/double tax is and whether there are any known
difficulties?
is taken. That is, taxpayer must resolution
demonstrate that the services: No experience yet.
(i) were actually rendered treaty network?
None.
Language
(ii) provided a benefit to the taxpayer
(iii) were not duplicative services. If extensive, is the competent documentation be filed?
authority effective in obtaining The Honduras tax authorities require all
If no support can be provided, then the double tax relief?
tax authority will consider them non- documentation to be in Spanish.
deductible. Not applicable.
Are management fees subject to When may a taxpayer submit an

withholding? adjustment to competent authority?
Yes. However, tax treaties may eliminate No formal rules exist in this area.
withholding.
Are year-end transfer pricing authority before paying tax?
adjustments permitted? No formal rules exist in this area.
Yes. However, it is important that the
year-end adjustments are accounted Advance pricing
for before the end of the fiscal year to
make sure tax and accounting figures
agreements
are consistent. Periodic reviews What Advance Pricing Agreement
are recommended in order to avoid (APA) options are available, if any?
significant year-end adjustments. The transfer pricing law provides the
Customs issues must also be taken into possibility that the tax authorities might
account. accept, deny or amend APAs.
Other unique attributes? Is there a filing fee for APAs?

Not applicable. No.
KPMG in Honduras
Ruben Alonzo
Tel: + 504 2238 5605
Email: realonzo@kpmg.com

Hong Kong | 117
Hong Kong
KPMG observation
The Hong Kong Inland Revenue Department (IRD) released comprehensive transfer
pricing guidelines in December 2009 with potential retroactive effect. The guidelines
were released in the form of Departmental Interpretation and Practice Notes No. 46
(DIPN 46) and they indicate the IRD’s interpretation and practices regarding transfer
pricing methodologies and related issues.
DIPN 46 is generally consistent with the Organisation for Economic Co-operation and
Development (OECD) Guidelines and with international transfer pricing practices. DIPN
46 states that the IRD will apply the arm’s length principle and follows the preference
of traditional transaction methods over the profit-based methods instead of the most
appropriate method approach outlined in the revised OECD Guidelines in 2010. In practice,
profit based methods are commonly applied.
The IRD released DIPN No.48 Advance Pricing Arrangement in March 2012 establishing the
procedure for enterprises seeking an Advance Pricing Agreement (APA) in Hong Kong. APAs
are generally available on bi- or multilateral basis with counterparty jurisdictions with which Hong
Kong has a DTA, although unilateral APAs are possible in certain limited circumstances.
Following the recommendation of the OECD’s Global Forum on Transparency and Exchange of
Information for Tax Purposes, Hong Kong introduced a Bill that allows Hong Kong to enter into
standalone Tax Information Exchange Agreements (TIEAs) and enhances the existing exchange of
information (EoI) under a double taxation agreement (DTA). The Bill was passed by Legislative Council
in July 2013. The enactment of the Bill demonstrates Hong Kong’s commitment to implementing
internationally agreed standards. Going forward, the tax information to be exchanged under a DTA/
TIEA will have much coverage and the Commissioner will have wider powers to collect and disclose tax
information.
In response to the OECD’s release of Action Plan on Base Erosion and Profit Shifting (BEPS) in July 2013,
the IRD has no immediate plan to change the current practices yet but has indicated under a press release in
November 2013 that they will closely monitor the international development in this respect, including OECD
discussions, with a view to assess the need for any corresponding measures. The IRD will embark on studies
and engage local stakeholders for appropriate follow-up actions in due course.
Basic information DIPN 45, which was also released during Effective date of transfer pricing
2009, provides guidance with regard rules
Tax authority name to relief from double taxation arising There is no specific date, but provisions
Hong Kong Inland Revenue Department from transfer pricing adjustments in the of DIPN 46 may apply retroactively to all
(IRD). context of DTAs. open tax years. APA applications will be
Citation for transfer pricing rules DIPN 47, sets out the current practice considered as of April 2012 onwards and
on exchange of information upon the IRD has indicated that rollbacks may
DIPN 46 refers to relevant articles of be considered in some cases.
requests received from treaty partners.
double taxation treaties signed by Hong
DIPN 48 establishes the procedure
Kong when applicable, and to sections
for enterprises seeking an APA in
14, 16(1), 17(1) (b), 17(1) (c), 20 and 61A
Hong Kong.
of the Inland Revenue Ordinance (IRO) in
other circumstances.
What is the relationship threshold DIPN 46. Further, taxpayers are required the taxpayer have to submit its
for transfer pricing rules to apply to maintain sufficient documents to documentation?
between parties? substantiate their compliance with the Generally within 30 days of request,
No numeric threshold. Association is arm’s length principle under Section subject to extension.
established via common management 51C of the IRO. The IRD are increasingly
control or shareholding. addressing transfer pricing as part of If an adjustment is proposed by the
general tax audits and transfer pricing tax authority, are dispute resolution
What is the statute of limitations documentation will increasingly options available to the taxpayer
on assessment of transfer pricing represent a mechanism to mitigate the outside of competent authority?
adjustments? risk of a transfer pricing adjustment. Yes. DIPN 6 provides an overview of
The IRD is empowered to raise additional the objection channels and appeal
assessment(s) for a year of assessment procedures.
at any time within 6 years after the
requirements on when the transfer If an adjustment is sustained, can
end of that year of assessment if it
pricing study must be prepared and penalties be assessed? If so, what
considers that the taxpayer has been
submitted? rates are applied and under what
under-assessed, or has not been properly
assessed for that year. Preparation deadline: not applicable. conditions?
Submission deadline: upon request. Yes. General tax penalties apply. The
Generally within 30 days, subject to extent of these penalties depends on the
Transfer pricing disclosure extension. degree of the offence. Where the taxpayer
overview does not have a “reasonable excuse” for
Are disclosures related to transfer the offence, the maximum penalty that
pricing required to be prepared or can be imposed is HKD10,000 plus three
submitted to the revenue authority times the amount of undercharged tax.
Broadly, yes. DIPN 46 refers to the OECD
on an annual basis (e.g. with the
Guidelines for the type of information To what extent are transfer pricing
tax return)?
which would be useful to be included in a penalties enforced?
Yes. transfer pricing study. Penalties are less common in practice.
What types of transfer pricing Does the tax authority require an
information must be disclosed? What defences are available with
advisor/tax practitioner to have respect to penalties?
Transaction amounts and jurisdiction(s) specific designation in order
of related parties with which transactions Preparation of transfer pricing
to prepare or submit a transfer
have been conducted. documentation. Generally, in the
pricing study?
absence of fraud or tax evasion the
No. penalties may not be enforced.
What are the consequences of failure
to prepare or submit disclosures?
Transfer pricing methods What trends are being observed
In case of a failure to prepare or submit
currently?
the tax return where the taxpayer does Are transfer pricing methods
not have a “reasonable excuse” for the There are increasing audit cases which
outlined in Chapter II of the OECD
offence, the maximum penalty that can involve transfer pricing issues and the
be imposed is 10,000 Hong Kong dollars tax authority is continuously seeking to
Yes. develop its transfer pricing resources
(HKD) plus three times the amount of tax
undercharged. and skills. The IRD has recently launched
Is there a priority among the a large number of tax audits of asset
acceptable methods? managers in Hong Kong and it is highly
Transfer pricing study Traditional transaction methods are likely that the IRD will look to target
overview preferred over profit-based methods other prevailing industry sectors.
under DIPN 46. In practice, profit based
Is preparation of a transfer pricing methods are commonly applied. Continued tax scrutiny was
study required – i.e. can the taxpayer foreshadowed in Hong Kong’s 2014-2015
be penalized for mere failure to If there is no priority of methods, is fiscal budget, where the Hong Kong
prepare a study? there a “best method” rule? government has specifically singled out
No. No. the IRD to “step up tax enforcement and
to combat tax evasion and avoidance” to
Other than complying with a preserve the territory’s revenue base.
requirement per the previous Transfer pricing audit and
Hong Kong is also actively expanding its
question, describe the benefits, if penalties double tax treaty network which brings
When the tax authority requests with it the potential for an increased
a taxpayer’s transfer pricing number of corresponding adjustments,
Transfer pricing documentation is documentation, how long does APA negotiations and Mutual Agreement
explicitly recommended by the IRD under Procedures (MAPs).
Hong Kong | 119
Special considerations yet but has announced it will closely Is there a filing fee for APAs?
monitor and engage local stakeholders for No.
Are secret comparables used by tax follow up actions in due course.
authorities? Does the tax authority publish APA
Generally no. Tax treaty/double tax report or through the disclosure of
Is there a preference, or requirement, resolution data in public forums?
by the tax authorities for local What is the extent of the double tax Program commenced on 2 April 2012
comparables in a benchmarking set? treaty network? therefore no data has been generated
No. Minimal but developing. as yet.
Do tax authorities have requirements If extensive, is the competent Please provide some information on
or preferences regarding databases authority effective in obtaining how successful the APA programme
for comparables? double tax relief? is and whether there are any known
No. No experience yet due to relatively limited
difficulties?
(but expanding) treaty network. Program commenced on 2 April 2012
What level of interaction do tax therefore no evidence is yet available.
authorities have with customs When may a taxpayer submit an
Language
Low. Subject to applicable DTA, generally only
after the first notification of actions giving In which language or languages can
Are management fees deductible? rise to taxation not in accordance with the documentation be filed?
Yes. Subject to the general requirement DTA has been issued by the DTA state. English or Chinese.
that the expense must be incurred in
earning profits chargeable to tax. May a taxpayer go to competent
Are management fees subject to Currently there are no formal rules in this
withholding? respect.
No.
Are year-end transfer pricing Advance pricing

adjustments permitted? agreements
Generally yes. In Hong Kong there is What APA options are available, if
no specific law addressing subsequent any?
transfer pricing adjustments. However, in
A resident enterprise or non-resident
order to be reflected in the tax return for
enterprise with a permanent
the year in which the adjustment relates, it
establishment in Hong Kong may apply for
should be included in the audited financial
a bilateral or multilateral APA. A unilateral
statements for that year and be supported
APA may be available in cases when the
by the relevant documentation.
DTA partner(s) do not wish to participate
Other unique attributes? in developing an APA, agreement stalls
with the DTA partner(s) when negotiating
None. a bilateral or multilateral APA and in
cases when a non DTA state is prepared
Other recent to agree a unilateral APA regarding
transactions that are integrally linked to
developments the controlled transactions covered by a
Inland Revenue (Amendment) bilateral or multilateral APA. The IRD has
(No. 2) Ordinance was enacted in July also set a threshold for an application of
2013 to provide a legal framework for HKD80 million for each year covered in
standalone TIEAs and enhance the the APA if the controlled transactions
existing EoI under a DTA. Hong Kong involve sale and purchase of goods, a
will strive to expand its DTA network and KPMG in Hong Kong
threshold of HKD40 million per annum
will fulfil its international obligations by if the application relates to services
providing information exchange under Kari Pahlman
and a threshold of HKD20 million if the
TIEAs with jurisdictions with which Hong Tel: +852 2143 8777
application relates to intangible property.
Kong has not entered into a DTA. Email: kari.pahlman@kpmg.com
The threshold may be waived on a case
With regard to the recent developments by case basis following review by the
of BEPS, the IRD has no immediate plans Commissioner. As email addresses and phone numbers change
Hungary
KPMG observation
The tax authorities are paying special attention to transfer pricing issues.
Previously, the mere availability of transfer pricing documentation was sufficient,
but recent experience is showing that tax audits are moving towards more
in-depth analysis of transactions (questioning qualitative screening, testing
comparables, challenging benchmarking studies, examining or excluding loss
making comparables in the benchmarking set and functional analysis). In addition,
tax authorities are focusing on a comprehensive review of documentation (including
contracts, calculations that support the arm’s length pricing of transactions and
deductibility of costs).
Basic information • Section 172 (16) default penalty could be also applied for the fulfillment
of the obligations in connection with
Tax authority name • Section 132/B-C Advance Pricing
financial year 2009. From 1 January 2011,
Agreement (APA)
Nemzeti Adó- és Vámhivatal (NAV) – Section 18 of the CIT incorporated profit
National Tax and Customs Administration • Section 178.17 definition of the split and transactional net margin method
of Hungary. related parties. (TNMM) as equivalent approaches
with traditional transactional methods.
Citation for transfer pricing rules Act CXXVII of 2007 on VAT:
However, note that this modification is
Act LXXXI of 1996 on Corporate Income • Section 67 determination of VAT base only applied on business years starting in
Tax and Dividend Tax (CIT): provided the consideration is not 2011 and onwards.
considered as arm’s length
• Section 4 (23) a–e determines the As of 1 January 2012 certain sections
concept of related parties • Section 255 determination of arm’s of 22/2009 MF Decree changed. These
length principle regarding VAT modifications aimed to decrease the
• Section 18 (1)-(4) regulates the
administrative burden on taxpayers.
determination of the arm’s length • MF Decree 18/2003 detailed
However, note that the understanding
price and the applicable methods regulation of transfer pricing
of the new regulation is still uncertain
documentation (replaced by MF
• Section 18 (5) determines transfer due to possible differences in the
Decree 22/2009 effective from 1
pricing documentation requirements interpretation of the wording of the
January 2010)
for taxpayers. Decree 22/2009 of the new sections. Further clarification was
Ministry of Finance effective from 1 • MF Decree 22/2009 detailed published in 2013.
January 2010 determines the formal regulation of transfer pricing
requirements for transfer pricing As of 21 June 2013 a new modification
documentation
documentation of the MF Decree 22/2009 was released.
• MF Decree 38/2008 detailed The purpose of the Decree was to
• Section 18 (6)-(8) special cases (e.g. regulation on APA procedures. decrease the administrative burden on
dividend payment in-kind, capital taxpayers – which was the aim of the
decrease/increase in-kind etc.) are Effective date of transfer pricing previous change as well – and also to
listed which have to be supported by rules clarify some vague provisions of the
transfer pricing documentation. The new Decree (MF Decree 22/2009) former regulation.
on detailed regulation of transfer pricing
Act XCII of 2003 on Rules of Taxation: For 2009 and prior financial years,
documentation was effective from 1
• Section 23 (4) (b) notification of January 2010 and is generally applicable transfer pricing obligations were
related parties (both the start and the for the 2010 financial year. However, if a regulated by the 18/2003 MF Decree.
cessation of relationship) company wished, the new regulations
Hungary | 121
What is the relationship threshold The exemptions are, briefly, as follows: (approximately EUR28,000) per missing
for transfer pricing rules to apply or incomplete documentation per
• to date, a taxpayer has been exempt
between parties? business year.
from transfer pricing document
Direct or indirect ownership with greater preparation liability in the case of To satisfy the requirement and/or
than 50 percent voting power, or the agreements concluded with private obtain the benefits, are there any
existence of majority control. Majority individuals and being a small or requirements on when the transfer
control means when any party has the medium sized enterprise pricing study must be prepared and
right to appoint or dismiss the majority of
• effective 1 January 2012, the submitted?
executive officers and supervisory board
members. exemption rules were extended. The transfer pricing documentation
Accordingly, taxpayers are not should be prepared for every financial
What is the statute of limitations liable to prepare transfer pricing year. The deadline is the submission date
on assessment of transfer pricing documents: of the corporate tax return. However,
adjustments? this date must not be later than the
– for transactions covered by an APA
Five years after the last day of the 150th day after the end of the financial
calendar year in which taxes should have – for cost recharges originally invoiced year. If the tax authorities request the
been declared or reported, or paid in the by third (independent) parties documentation during an audit of the
absence of a tax return or declaration. company, it must be presented within 3
– for cash gifts days of the request.
– for transactions performed between
Transfer pricing the taxpayer’s foreign branch office
disclosure overview and related parties (where the
Chapter V of the Organisation
Are disclosures related to transfer exemption method might apply in
for Economic Co-operation and
pricing required to be prepared or order to avoid double taxation under
submitted to the revenue authority the double taxation arrangement
between the relevant country and Yes. However, it should be noted that
on an annual basis (e.g. with the tax Chapter V is not directly applicable, rather
return)? Hungary)
only through the 22/2009 MF Decree on
Yes. – for any transactions where the detailed regulation of transfer pricing,
accumulated value does not exceed which is based on the OECD Guidelines,
What types of transfer pricing 50 million Hungarian forints (HUF) including Chapter V.
information must be disclosed? (175,000 Euros (EUR)), in the tax
A company should declare in the year (as of 21 June 2013). Does the tax authority require an
tax return that the transfer pricing advisor/tax practitioner to have
documentation has been prepared in Other than complying with a specific designation in order to
line with the European documentation requirement per the previous prepare or submit a transfer pricing
standards. question, describe the benefits, if study?
any, of preparing and maintaining a No.
What are the consequences transfer pricing study?
of failure to prepare or submit The benefit of preparing a transfer pricing
disclosures? study is that the taxpayer shifts the Transfer pricing methods
If the taxpayer does not prepare its burden of proof to the tax authorities. Are transfer pricing methods
transfer pricing documentation before outlined in Chapter II of the OECD
Otherwise, the preparation of transfer
the statutory deadline, a default penalty Guidelines acceptable?
pricing documentation is obligatory
can be imposed. Yes.
based on the relevant Hungarian
regulations. If a company fails to prepare
Transfer pricing study its documentation or the documentation
acceptable methods?
overview prepared is incomplete, it will be subject
Up to 31 December 2010, the traditional
to a default penalty of up to HUF2 million
Is preparation of a transfer pricing (approximately EUR7,000 per missing methods (comparable uncontrolled price
study required – i.e. can the documentation per year. (CUP) method, resale price method
taxpayer be penalized for mere (RPM), cost plus method (CPLM)) were
failure to prepare a study? Where a taxpayer repeatedly fails preferred. Basically, the traditional
Yes. For certain intra-group transactions. to comply with the transfer pricing methods should have been applied, but if
However, there are different transfer documentation obligation, the upper cap these methods were not applicable, then
pricing documentation requirements of the default penalty can be doubled. other methods could have been used.
(e.g. simplified, standalone, In the case of repeated transgressions,
four times the general penalty might While the traditional transaction methods
consolidated, European transfer pricing
be applicable. The upper cap of the are still preferred by the tax authorities,
documentation).
default penalty can reach HUF8 million according to the modification of Section
(18) of CIT, effective from 1 January 2011, What trends are being observed Are management fees subject to
the TNMM and profit split method should currently? withholding?
be treated equally with the traditional More and more attention is being paid to No.
transaction methods. the transfer pricing requirements during
tax audits, and tax authority inspectors Are year-end transfer pricing
If there is no priority of methods, is adjustments permitted?
are being trained accordingly. Although
special industry focus or transaction Year-end adjustments are permitted, but
In line with the above the OECD “most focus has not yet been observed, they should be sufficiently justified by
appropriate method” rule is generally management fees and royalties are the taxpayer as to economic necessity
applied, however, it is not laid down by usually inspected thoroughly, as well as (e.g. in order to achieve a targeted level
the law. benchmarking studies (the screening of profitability in line with the functional
steps, geographical selection, qualitative profile of the taxpayer etc.) i.e. their
Transfer pricing audit and screening, and loss making comparables business nature should be defensible.
in the benchmarking set, etc.) Where the tax authorities do not
penalties recognize such adjustments – true-ups –
When the tax authority requests as costs that arose in the business
Special considerations interest of the taxpayer, its tax base
documentation, how long does Are secret comparables used by tax might be increased with the amount of
the taxpayer have to submit its authorities? the true-ups and taxed accordingly.
documentation? Generally no.
In certain cases, such adjustments
Normal practice is to expect might also entail VAT or local business
documentation within 3 days of request. Is there a preference, or requirement,
by the tax authorities for local tax issues (e.g. if the adjustments are
comparables in a benchmarking set? directly related to transactions subject to
VAT, the costs of goods sold or services
tax authority, are dispute resolution Yes. The tax authorities prefer local
intermediated are adjusted etc.).
options available to the taxpayer comparables. Where existing local
outside of competent authority? comparables are left out of the Year-end adjustments are generally
After unsuccessful exhaustion of benchmarking set, the tax authorities recordable in the financial statements,
administrative procedures, a company may challenge the benchmarking study pursuant to Hungarian generally
is entitled to bring the matter before the prepared by the taxpayer and perform its accepted accounting principles (GAAP),
competent court. own search. i.e. no special treatments are required.
If an adjustment is sustained, can Do tax authorities have requirements Other unique attributes?
penalties be assessed? If so, what or preferences regarding databases Effective from 1 January 2012, in the
rates are applied and under what for comparables? case of certain low value-added services
conditions? Databases used by the taxpayer are (as defined by the 22/2009 MF Decree
If the applied price is not in line with obliged to be publicly available or verifiable e.g. IT services, translation, interpreting,
arm’s length prices, the adjustment by the tax authorities. The preferred accounting and legal activities, language
will have an effect on the amount of tax database is Amadeus, published by BvD, education, administrative services,
payable. Accordingly, a default penalty of but not required. storage, canteen service, etc.) special
50 percent and a late payment penalty rules were introduced in order to ease
interest might be levied on the basis of the What level of interaction do tax the associated burden to prepare transfer
tax arrears due to such adjustments. authorities have with customs pricing documentation. This rule was
authorities? further modified as of 21 June 2013.
To what extent are transfer pricing Medium, but cooperation is increasing
penalties enforced? According to the new rules on simplified
due to the merger of the National Tax and
documentation applicable for these
Unknown. Customs Administrations in 2011.
services, if the service provider applies
Are management fees deductible? a margin between 3 and 10 percent,
the price applied is qualified as an arm’s
respect to penalties? In principle. Yes, but only if it can be
length price without any further analysis
Default penalties can only be avoided supported that the management
or benchmark study. Accordingly, the
by complying with transfer pricing fees incurred are in the interest of the
transfer pricing documentation can be
requirements. company.
prepared with limited content. However,
Hungary | 123
the condition for applying the new rule is May a taxpayer go to competent Does the tax authority publish APA
that the arm’s length price of the service authority before paying tax? data either in the form of an annual
needs to be assessed by means of the Yes. The possibility to file an APA exists. report or through the disclosure of
cost-plus method. data in public forums?
No.
Please note that, pursuant to the MF Advance pricing
Decree, there are a limited number of
conditions that if not met, can result
agreements Please provide some information on
in the simplified documentation being What APA options are available, if
rejected. First, if the margin applied any?
difficulties?
falls outside the previously mentioned Advance rulings and APAs have been
range of 3 and 10 percent or the pricing Unilateral APAs are quite common now
available since 1 January 2007 (unilateral,
method of cost-plus 3 and 10 percent due to the 2009 decrease in procedure
bilateral and multilateral). Completion of
does not reflect the arm’s length price, fees. Contemporaneously bilateral
an APA can help mitigate transfer pricing-
the taxpayer is not entitled to apply the APAs, nontraditional approaches or more
related risks arising from price setting.
simplified documentation. Furthermore, complex cases may cause difficulties
Note, effective from 1 January 2012,
the net value of the services, taking into for the tax authorities. Based on general
the taxpayer is not obligated to prepare
consideration all transactions which can experience, an APA procedure might be
transfer pricing documentation covering
be consolidated in one document, cannot time consuming (depending on the type of
a transaction supported by an APA. This
exceed HUF150 million (EUR526,000), the APA, the complexity of the intra- group
rule was further amended effective
5 percent of the seller’s net sales revenue transaction as well as the capacity of the
from 21 June 2013 clarifying that the
and 10 percent of the operation costs of tax authorities).
exception applies from the year in which
the purchaser in the tax year. the application is submitted up to the last
However, note that the understanding of
day of the tax year in which the decision Language
ceases to be valid.
the new regulation is currently uncertain In which language or languages can
due to possible differences in the documentation be filed?
interpretation of the wording of the new The documentation needs to be prepared
sections. Yes. The filing fee depends on the type
of APA (unilateral, bilateral, or multilateral in Hungarian for financial years 2008
procedure) and on the type of applicable and before. Effective 1 January 2010
Other recent approach (transfer pricing methods). (applicable retroactively for financial year
2009 as well) the documentation may
developments • for unilateral procedures with traditional be prepared in a language other than
None. methods (i.e. CUP method, RPM Hungarian. However, it should be made
and CPLM), the fee payable is from available in Hungarian within a defined
Tax treaty/double tax HUF500,000 (approximately EUR1,700) period of time upon request of the tax
to HUF5 million (approximately authority.
resolution EUR17,500)
What is the extent of the double tax In the case of tax investigations carried
• for unilateral procedures with other out by the tax authorities after 1 January
treaty network?
methods, the fee payable is from HUF2 2012, where documentation is prepared
Extensive. million (EUR7,000) to HUF7 million in English, German or French (besides
(approximately EUR24,500) Hungarian), translation cannot be
• for bilateral procedures the fee payable requested by the tax authorities.
double tax relief? is from HUF3 million (approximately
In the case of transfer pricing issues, it is EUR10,500) to HUF8 million
not usually effective. (approximately EUR28,000)
• for multilateral procedures the fee
When may a taxpayer submit an payable is HUF5 million (approximately
adjustment to competent authority? EUR17,500) to HUF10million
The taxpayers are entitled to submit (approximately EUR35,000).
an adjustment to the tax authorities,
If the exact arm’s length price could
as competent authority, at any time.
not be established or the subject of the
However, we would note that such claims KPMG in Hungary
agreement is only the methodology, the
made directly to the tax authorities are
filing fee is the minimum amount of the
very rare in the Hungarian market. Csaba László
fee ranges shown above.
Tel: + 36 (1) 887 7420
Email: csaba.laszlo@kpmg.hu

Iceland
KPMG observation
The law that enacted the transfer pricing rules was passed year end 2013
and came into effect 1 January 2014. The Ministry of Finance aims to issue
regulations in relation to transfer pricing in summer 2014, specifically expected
to further describe the workings of the law and what should be included in the
documentation.
As the transfer pricing rules became applicable on 1 January 2014 it is difficult to
predict what Iceland´s approach to Base Erosion and Profit Shifting (BEPS) will be.
However, it is likely that a similar approach as the other Nordic countries will be taken.
Basic information 3. legal entities that are directly or What are the consequences
indirectly in majority ownership or of failure to prepare or submit
Tax authority name controller by individuals that are disclosures?
Directorate of Internal Revenue related by family, i.e. married, siblings, If affected taxpayers do not submit the
(Ríkisskattstjóri). etc. The same applies to individuals form, the tax filings could be deemed
that are connected through business incomplete. Providing insufficient or
Citation for transfer pricing rules relations and investments. wrongful information can lead to penalty
Paragraphs 3-6 of Article 57 of the taxes being imposed on adjusted transfer
Icelandic Income Tax Act No 90/2003. What is the statute of limitations
pricing amounts in tax audits.
Effective date of transfer pricing adjustments?
rules The statute of limitation is 6 years from Transfer pricing study
1 January 2014. the tax year end. overview
What is the relationship threshold Is preparation of a transfer pricing
for transfer pricing rules to apply Transfer pricing study required – i.e. can the
between parties? disclosure overview taxpayer be penalized for mere
Direct or indirect ownership of more than Are disclosures related to transfer
50 percent. No, there is no special penalty for
the mere failure to prepare a study.
According to the law: However, there is a risk that a
on an annual basis (e.g. with the
subsequent reassessment made by the
tax return)?
1. Legal entities that are part of a group tax authorities in a tax audit will attract
Yes, there will be a special form to be penalty tax, due to providing insufficient
according to Article 2 of Act 3/2006
filed with the tax return. information.
on Annual Accounts or are under the
direct or indirect ownership of control What types of transfer pricing There is a requirement for affected
of two or more companies within the information must be disclosed? taxpayers to prepare transfer pricing
same group or studies for each financial year. Taxpayers
To be decided in the regulation by the
Ministry of Finance. are given 45 days to submit the
2. there is a majority ownership over a documentation upon written request
legal entity jointly by group companies from the Icelandic tax authorities, so
either directly or indirectly or
Iceland | 125
there is some time to finalize the report Is there a priority among the Special considerations
if targeted by the tax authorities. The acceptable methods?
transfer pricing study must be kept on file Are secret comparables used by tax
No.
for 7 years. authorities?
If there is no priority of methods, is Not applicable.
Other than complying with a there a “best method” rule?
requirement per the previous Is there a preference, or
No.
question, describe the benefits, if requirement, by the tax authorities
any, of preparing and maintaining a for local comparables in a
transfer pricing study? Transfer pricing audit and benchmarking set?
The benefits of having a prudent penalties Not applicable.
transfer pricing study are meeting the
When the tax authority requests Do tax authorities have
expectation of the tax authorities, i.e.
a taxpayer’s transfer pricing requirements or preferences
mitigating the risk of the tax authority
documentation, how long does regarding databases for
making adjustments on a discretionary
the taxpayer have to submit its comparables?
basis, since preparing a prudent transfer
documentation?
pricing study will shift the burden of proof Not applicable. Amadeus will most likely
onto the tax authorities. In addition, the Forty-five days. be used.
preparation of a prudent transfer pricing
study might reduce the risk of penalty If an adjustment is proposed by the What level of interaction do tax
tax if a reassessment is made by the tax tax authority, are dispute resolution authorities have with customs
authorities. options available to the taxpayer authorities?
Medium.
To satisfy the requirement and/or The taxpayer can bring the case to the
obtain the benefits, are there any tax state internal revenue board and/or Are management fees deductible?
requirements on when the transfer the courts. Yes.
submitted? If an adjustment is sustained, can Are management fees subject to
According to the law, the transfer pricing penalties be assessed? If so, what withholding?
study must be submitted within 45 rates are applied and under what
No.
days of a written request from the tax conditions?
authorities. Yes. General tax penalties only: up to 25 Are year-end transfer pricing
percent of the tax avoided for transfer adjustments permitted?
When a transfer pricing study is pricing adjustments. Not applicable.
Chapter V of the Organisation To what extent are transfer pricing Other unique attributes?
for Economic Co-operation and penalties enforced?
Not applicable.
Development (OECD) Guidelines? Not yet known as the rules just took
To be decided by the Ministry of Finance. effect 1 January 2014.
However likely, yes. Other recent
What defences are available with developments
Does the tax authority require an respect to penalties?
Not applicable.
advisor/tax practitioner to have Taxpayers are obliged to disclose
specific designation in order to sufficient and correct information about
prepare or submit a transfer pricing their transfer pricing. The defense Tax treaty/double tax
study? would thus generally be to argue that resolution
No. the taxpayer has complied with these
requirements.
treaty network?
Transfer pricing methods What trends are being observed Extensive. Treaties with about 40
Are transfer pricing methods currently? countries.
outlined in Chapter II of the OECD Not applicable.
Yes. double tax relief?
No experience.


Permitted. Meetings with the Directorate
of Internal Revenue. However, taxes
become payable upon the tax office’s
decision being made, so generally taxes
have to be paid prior to going to the
competent authority.
Advance pricing
agreements
None.

Not applicable.

Not applicable.

difficulties?
Not applicable.
Language
To be decided.
KPMG in Iceland
Ágúst Karl Guðmundsson

Tel: + 354 5456152
Email: akgudmundsson@kpmg.is

India | 127
India
KPMG observation
India has been actively involved in various action points of the Organisation
for Economic Co-operation and Development’s (OECD) Base Erosion and Profit
Shifting (BEPS) action plan and is engaging closely with other G20 member
countries in respect of the BEPS initiative. India is part of the BEPS Bureau which
is coordinating and guiding the work being done and will seek to implement the
guidelines issued by OECD from time to time under the BEPS initiative.
Indian transfer pricing (TP) authorities have been adopting the OECD’s proposed
approach on BEPS in relation to intangible-related returns and concur that such returns
should reside with the entity which takes strategic decisions around creation of the
intangibles and not with the entity which has mere ownership of title and funding
capacity. India therefore believes that by adopting the ‘‘significant people functions’’
approach in determining the economic owner of intangibles, the problem of disconnect
between profit and economic activity would be significantly resolved.
In respect of the OECD’s draft guidance on Transfer Pricing documentation and country-
by-country reporting, the Indian Revenue authorities are of the view that the proposed two
tier structure would assist in making a proper risk assessment of cases where TP audits are
required and should also be beneficial to taxpayers. Taxpayers on the other hand seem to be
concerned and wait to see how the rules relating to sharing of master file etc., are finalized,
considering the current scenario of TP audits in India.
The UN Practical Manual on Transfer Pricing for Developing countries (Manual) contains
information that could be useful for both taxpayers in developing countries and tax authorities in
administration of transfer pricing regime.
The Indian chapter highlights emerging TP issues and difficulties in implementation of the arms
length principle. It remains to be seen how the Manual will be used by the tax administration during
the TP audits as well as how it will influence the ongoing litigation. Taxpayers on the other hand should
factor in the impact of these aspects covered in the Manual while preparing their TP documentation
defense strategies.
Basic information What is the relationship threshold Significant conditions include:

Tax authority name • direct/indirect shareholding giving rise
between parties?
Central Board of Direct Taxes (CBDT). to 26 percent or more of voting power
The transfer pricing provisions
incorporate a very wide definition • 90 percent or more purchase of raw
Citation for transfer pricing rules materials/sale of manufactured goods
of associated enterprises to include
Sections 92 to 92F of Income-tax Act, direct and indirect participation in the by an enterprise from/to the other
1961 (Act); Rules 10A to 10E of Income- management, control or capital as enterprise at prices and conditions
tax Rules, 1962. well as certain conditions wherein influenced by the latter
two enterprises are “deemed” to be • authority to appoint more than
Effective date of transfer pricing
associated enterprises. 50 percent of the board of directors or
rules
one or more of the executive directors
1 April 2001.
• dependency in relation to intellectual to be prepared by the taxpayer and Transfer pricing study
property rights (know-how, patents, submitted to the revenue authorities.
trademarks, copyrights, trademarks, The report has to be obtained from a overview
licenses, franchises, etc.) owned by Chartered Accountant and submitted to Is preparation of a transfer pricing
either party. the revenue authorities by the statutory study required – i.e. can the
due date (presently 30 November after taxpayer be penalized for mere
• dependency relating to borrowings –
the end of the relevant financial year). failure to prepare a study?
i.e. advancing of loans amounting
to not less than 51 percent of total Yes. In cases where the aggregate value
What types of transfer pricing of international transactions exceeds
assets or provision of guarantee information must be disclosed?
amounting to not less than 10 percent INR10 million.
As previously stated, the Accountant’s
of the total borrowings, etc. Failure to maintain the prescribed
Report is required to certify that
What is the statute of limitations appropriate documentation has been information in the documentation
on assessment of transfer pricing maintained by the taxpayer and the contemporaneously attracts a penalty of
adjustments? information disclosed is true and correct. 2 percent of the value of the international
transaction. Further, failure to furnish
The time limit for completion of a transfer The following information is generally information/documents during a transfer
pricing audit is typically 33 months disclosed: pricing audit can also attract an additional
from the end of the assessment year penalty of 2 percent of the value of the
(the year immediately following the tax • name, address, permanent account
international transaction.
year). The tax year in India is the financial number and status of the taxpayer
year i.e. 1 April – 31 March. Further, the • name, nature of relationship and Other than complying with a
time limit for completion of the regular other details (as prescribed) of the requirement per the previous
tax audit (scrutiny by the Assessing Associated Enterprise with whom question, describe the benefits, if
Officer) is 36 months from the end of the the taxpayer has entered into any, of preparing and maintaining a
assessment year. international transactions/ domestic transfer pricing study?
However, even after the 36 months have transactions during the year Maintenance of transfer pricing
passed, if the tax authority has reason • description of international documentation assists in demonstrating
to believe that at least 100,000 Indian transactions entered into, including that the taxpayer made bonafide
rupees (INR) of taxable income has quantity, value, paid/payable, attempts to determine and ensure that
escaped assessment for any assessment received/receivable and the method its transfer prices are at arm’s length.
year, they may reopen the assessment used to test arm’s length criteria. In such cases where the taxpayer has
for those particular years, provided they determined its transfer prices as above,
issue the required notice for reopening What are the consequences should the tax authorities question the
the assessment within 6 years from the of failure to prepare or submit taxpayers’ approach towards transfer
end of the relevant assessment year. disclosures? pricing, the burden of proof shifts to the
The Indian Transfer Pricing Regulations tax authorities.
Further, in all cases where it is found that
have penal provisions for failure to
an international transaction has not been To satisfy the requirement and/or
prepare or submit disclosures:
reported (either by non-filing or non- obtain the benefits, are there any
inclusion in the Accountant’s Report) it is • failure to maintain prescribed requirements on when the transfer
considered as avoidance of income and information/documents: 2 percent of pricing study must be prepared and
could be reopened under the provisions value of international transactions submitted?
of the Act. The transfer pricing documentation must
• failure to file Accountant’s report by
deadline: 100,000 India Rupees (INR) be prepared on a contemporaneous
Transfer pricing (approximately 2,000 United States basis, and should be maintained by the
taxpayer for a period of 9 years from
disclosure overview dollars (USD))
the end of the relevant financial year.
Are disclosures related to transfer • failure to report any international Generally, the notice of audit (issued by
pricing required to be prepared or transaction which is required to be the revenue authorities to the taxpayer,
submitted to the revenue authority reported: 2 percent of the value of initiating a transfer pricing audit) specifies
on an annual basis (e.g. with the tax international transactions the period within which the taxpayer
return)? • Providing incorrect information or is required to furnish information as
Filing of the Accountant’s Report in Form documents: penalty of 2 percent specified in the notice.
No. 3CEB certifying the arm’s length of the value of international
nature of the international transactions transactions.
with Associated Enterprises is required
India | 129
When a transfer pricing study is The methods prescribed in the Indian within which the taxpayer is required to
prepared, should its content follow Transfer Pricing Regulations are similar provide the required documentation.
Chapter V of the OECD Guidelines? to those outlined in Chapter II of the
OECD Guidelines. However, the Indian If an adjustment is proposed by the
India is not a member of the OECD thus
Transfer Pricing Regulations permits the tax authority, are dispute resolution
does not follow the OECD Guidelines.
Central Board of Direct Taxes (CBDT) to options available to the taxpayer
However, the taxpayers and the Indian
prescribe any other method. And under outside of competent authority?
tax authorities have resorted to the
OECD Guidelines to support principles this provision CBDT inserted “Other There is an appellate mechanism if
found in the Indian Transfer Pricing Method” in addition to the above five the taxpayer contests an adjustment
Regulations. The Indian Transfer Pricing prescribed methods in the Transfer proposed by the revenue authorities. It
Regulations are relied upon where Pricing rules via a Notification applicable includes several stages:
there are differences from the OECD from financial year 2011-12.
• Appellate Commissioner
Guidelines. The “Other Method” is described (complemented by Dispute
as “any method which takes into Resolution Panel)
account the price which has been
advisor/tax practitioner to have • Jurisdictional Appellate Tribunals
charged or paid, or would have been
charged or paid, for the same or similar • Jurisdictional High Courts
uncontrolled transaction, with or
study? • National Supreme Court.
between non-associated enterprises,
Yes. Filing of the Accountant’s Report under similar circumstances, It can take 3 to 8 years for a taxpayer to
in Form No. 3CEB certifying the arm’s considering all the relevant facts”. obtain a conclusive decision by the Indian
length nature of the international judiciary.
transaction with Associated Enterprises Proper documentation specifying the
is required. This report must be issued rejection reasons for non-application The assessment/appellate procedure in
by a Chartered Accountant and filed of the above five prescribed methods India are generally rules-based and the
with the revenue authorities by the and the appropriateness of the “Other authorities typically will not negotiate a
due date (presently 30 November Method” based on the facts and settlement.
after the end of the relevant financial circumstances of the case would have
to be maintained by the taxpayer. Use of mutual agreement procedure
year). The transfer pricing regulations
(MAP) under the tax treaties can be
do not prescribe/mandate a specific
Is there a priority among the invoked as an alternative dispute
designation which one must have to
acceptable methods? resolution mechanism. India has
prepare transfer pricing documentation.
entered into various double taxation
Nevertheless, considering the onerous No.
treaties to avoid tax disputes whether
requirements of the law, taxpayers
If there is no priority of methods, is jurisdictional conflicts or matters of
generally prefer to have the required
there a “best method” rule? interpretation.
transfer pricing documentation prepared
by professionals who have requisite Yes. The most appropriate method will In matters pertaining to potential double
knowledge and expertise with regards be that which is best suited to the facts taxation or taxation not in accordance
to the same. Further, this would and circumstances of each particular with a double tax convention, the option
become especially important in light international transaction. It would also available before or after exhaustion of any
of the stringent penalty provisions for provide the most reliable measure of domestic administrative appeals process
non-reporting or incorrect reporting of an arm’s length price in relation to an is either to apply for MAP under the
international transactions. international transaction. relevant tax treaty; or litigate the matter
through the courts.
Transfer pricing methods Transfer pricing audit and The Advance Pricing Agreements
Are transfer pricing methods penalties (APA) mechanism was introduced in
outlined in Chapter II of the OECD July 2012, and provides the taxpayers
Guidelines acceptable? with an alternate mechanism for
resolution of potential transfer pricing
The transfer pricing methods in the documentation, how long does
disputes. The response to the Indian
Indian Transfer Pricing Regulations are to the taxpayer have to submit its
APA program has been very positive so
be followed when preparing the transfer documentation?
far and a few APAs are expected to be
pricing study. Generally, the notice of an audit by the signed in 2014.
revenue authorities specifies the period
If an adjustment is sustained, can What trends are being observed if any. While earlier the focus in such
penalties be assessed? If so, what currently? audits had largely been on the level of
rates are applied and under what Audit trends: mark-ups, recently the Indian Revenue
conditions? authorities have classified in some cases
Indian Revenue authorities are becoming these services as ‘high value’ and have
The Indian Transfer Pricing Regulations
increasingly aggressive in the course of sought to apply the Profit Split Method
have prescribed the following penalty
conducting transfer pricing audits and (PSM) for performing a TP adjustment.
provisions summarized below.
the nature of issues that are scrutinized The basis of the adjustment assumed
have also matured to cover more that the R&D centre performed non-
Default Penalty
complex transactions such as valuation routine functions and contributed to the
In case of a 100-300 percent of equity share infusions, creation of creation of unique intellectual property
post-inquiry of tax on the marketing intangibles, intra-group cross which in-turn was transferred to the
adjustment, there adjusted amount charges, financial transactions including foreign affiliates without appropriate
is deemed to be guarantees and business receivables etc. compensation.
a concealment of
income In respect of equity infusions in Indian To illustrate, in the most recently
entities, the Indian Revenue authorities completed round of transfer pricing
Failure to maintain 2 percent of
have alleged undervalued share audits concluded, in January 2014 the
documents the value of
investments made by multinational Indian transfer pricing authorities have
transaction
enterprises (MNEs) in their Indian made adjustments of approximately
Failure to furnish 2 percent of Associated Enterprises (AEs) and have INR600 billion i.e. approximately
documents the value of initiated adjustments on the difference USD10 billion. Domestic transactions
transaction between the actual issue price and the included in the ambit of transfer pricing:
Maintaining 2 percent of Arm’s Length Price (ALP) by considering From financial year ended March 2013
or furnishing the value of it as notional income. In some cases, the the existing transfer pricing regulations
incorrect transaction Indian Revenue authorities have also re- for international transactions have
information or characterized such shortfall as a deemed been extended to certain domestic
documents loan advanced by the Indian AE to its transactions defined as Specified
Failure to furnish INR100,000 overseas parent company and have even Domestic Transactions (SDT) covering
accountant’s (USD2,000) imputed notional interest income to the the following:
report Indian taxpayers.
• Payments (i.e. only expenditure) to
Failure to report 2 percent of As regards marketing intangibles related specific related parties (as referred
a transaction the value of issue, in cases where the Advertisement, to in Section 40A (2) (b) of the Indian
in accountant’s transaction Marketing and Promotion (AMP) spends Income-tax Act, 1961).
report of Indian taxpayers have been found
to be excessive (i.e. above a bright- • Transactions between tax holiday
Source: Indian Income Tax Act 1961 and Income Tax
Rules 1962. line benchmark), it has been held that eligible units and other business
such effort has led to development of (units) of the same taxpayer.
To what extent are transfer pricing ‘Marketing Intangibles’ that are legally • Computation of ordinary profits of tax
penalties enforced? owned by the foreign affiliate, and an holiday unit of the taxpayer where
The above imposition of penalties arm’s length compensation (by way of there are transactions with entities
is discretionary and depends upon reimbursement of excessive cost with or with close connection.
the facts and circumstances of each without a profit margin/ mark-up thereon)
individual case. should be recovered by the Indian • Such other transactions, as may be
affiliate. In many cases, Indian Revenue prescribed.
What defences are available with authorities have determined the arm’s These provisions are applicable to all
respect to penalties? length value of the intra-group services cases where the aggregate amount of
Please refer to the information provided as “Nil” alleging that such charges are such domestic transactions exceeds INR
previously. In addition, the intent of the simply a means of profit repatriation and 50 million in a financial year.
taxpayer is also given due consideration, leads to erosion of India’s tax base.
i.e. whether the intent is mala fide Accordingly, taxpayers entering
or whether the taxpayer had made Taxpayers providing captive R&D into such SDTs would be required
bona fide attempts to comply with the services have typically been to file Accountant’s Report and
prescribed regulations. Establishing bona remunerated with a mark-up on total maintain prescribed transfer pricing
fide intent can provide some defense for costs and the foreign AE has been documentation. Non-maintenance of
the taxpayer. entitled to the intangible related returns mandatory documentation can result
and a large part of the location savings, in a penalty of 2 percent of the value
India | 131
of the SDTs between related parties. tax authorities prefer local comparables Are year-end transfer pricing
All the other penalty provisions that are in the benchmarking set and often reject adjustments permitted?
applicable to International Transactions foreign comparables on the basis of Yes, but only upward adjustments to
will also apply to SDTs. geographical differences or cite lack of income are permitted. In the course of
data availability as reasons. conducting the benchmarking analysis
Financial year 2012-13 was the first year
of compliance for SDTs and taxpayers (forming part of the preparation of the
faced a lot of hardship due to ambiguities transfer pricing documentation of the
in law on various aspects. taxpayer), where the taxpayer believes
that the value of the international
Extension/ Clarification of definition of comparables?
transaction reported in the financial
‘International Transaction’: The tax authorities generally use two statements is different from the arm’s
The Finance Act 2012 clarified that the Indian databases, being Prowess and length price, the taxpayer may only make
definition of international transactions CapitalinePlus. In practice these two an upward adjustment for the additional
would be extended to include databases are also widely used by the amount of income to be offered to tax
guarantees, extended credit period taxpayers. in the corporate tax return, to the extent
on outstanding receivables, business of the difference between the actual
reorganizations or restructuring, What level of interaction do tax transaction price and the arm’s length
(irrespective of whether the same has authorities have with customs price determined. The adjustment would
an impact on current year’s profits, authorities? also be required to be carried out prior to
income, losses or assets) intangible There is a lack of consistency between filing the Transfer Pricing Accountant’s
properties including marketing customs valuation procedures and Report in Form No.3CEB. However,
intangibles, human assets, technology transfer pricing regulations under downward adjustments are not permitted.
related intangibles etc. Since this tax laws. The departments work at
amendment is retroactive from the divergent purposes in relation to the Other unique attributes?
inception of the Transfer Pricing same transactions. Suitable methods
Arm’s length range
regulations (i.e. 2001) taxpayers are for valuation of imported goods should
expected to face challenges vis-a-vis the be established which are acceptable The transfer pricing regulations require
disclosures made in the earlier years. to both customs law and the transfer the arm’s length price in relation to
pricing regulations. To this end, the an international transaction to be
Indian revenue authorities set up a determined by any of the prescribed
Special considerations Joint Working Group, comprising methods, whichever is the most
Are secret comparables used by tax transfer pricing and customs officers. appropriate method. In a case where
authorities? Considering the lack of synchronization, more than one price is determined by
this initiative was undertaken by the the most appropriate method, the arm’s
Yes, although the transfer pricing
revenue authorities in order to bring length price will be the arithmetical mean
regulations contain no guidance on the
greater harmonization, coordination of such prices.
use of secret comparables. Practically,
the Indian revenue authorities have and communication between the two Further, the transfer pricing regulations
been using secret comparables in the departments as regards valuation of permit an allowable variation in case of
course of transfer pricing audits. There imported goods. deviation from arm’s length price. Earlier,
are judicial rulings which have held that the price of the international transaction
secret comparables (which are not Are management fees deductible?
was deemed to be at arm’s length in
available to the taxpayer at the time of Management fees are deductible. cases where the difference between
setting its transfer prices) should not be However, a commercial expediency the arm’s length prices determined
used in the course of transfer pricing test and a benefits test are rigorously and the price at which the international
audits against the taxpayer. applied by tax authorities with respect to transaction took place did not exceed 5
payment of management fees. percent of the latter.
requirement, by the tax authorities Are management fees subject to The Government has now narrowed
for local comparables in a withholding? the above tolerance band to 3 percent
benchmarking set? Management fees are subject to indicating that considering the transfer
withholding tax and the rates specified pricing regulations have been introduced
Yes. In transfer pricing audits conducted,
in the domestic tax laws/the relevant tax more than a decade ago and have come
the Indian revenue authorities have
treaty, whichever is more favourable to of age, MNEs and Indian companies alike
consistently shown a marked preference
the taxpayer would apply. should at present be in a much better
for selecting Indian comparables
position to determine the appropriate
and accordingly, in accepting the
arm’s length price in relation to their
corresponding economic analysis. The
international transactions.
On 15 April 2013 the Central Government “services” companies, non-tolerance Safe Harbor Rules (SHRs) announced
stipulated via a Notification that a of losses for routine distributors, and The Government published the
tolerance band of 1 percent for wholesale seeking appropriate benefit tests for SHRs in September 2013. The Indian
traders and 3 percent in all other cases headquarter cross-charges. It has also Safe Harbor mechanism provides
shall be applicable for FY 2012-13, i.e. been held that in some cases that for circumstances in which certain
Assessment Year 2013-14. an arm’s length interest should be categories of taxpayers can choose
recovered on outstanding receivables an option whereby the transfer
Multiple-year data and debtors balances with AEs. Other prices declared by them would
The Indian Revenue authorities do not recent approaches adopted include automatically be accepted by Indian
generally permit use of multiple-year compensation for sourcing support tax authorities, subject to fulfilment
data. The data pertaining to the relevant services determined on the basis of of certain conditions. The mechanism
financial year has to be benchmarked value of goods sourced instead of a cost covers specific kinds of services,
against comparable data of the same plus mark-up, etc. including Information Technology
financial year. As per the regulations, (IT) /Information Technology
CBDT has announced the insertion of the
comparable data of two previous Enabled Services (ITES), contract
“Other Method” in the Transfer Pricing
years may only be considered if it is R&D, manufacture of automobile
Rules via a Notification applicable from
substantiated that the previous years components and financial transactions
FY2011-12. This “Other Method” could
have had an impact on the current year in the nature of loans and guarantees.
assist in the determination of the arm’s
data of the comparables. However, there Taxpayers choosing the option would
length price computation in respect
is no option to use the previous year’s be able to safeguard their transfer
of newer/more complex international
data for the tested party. prices against potential litigation for
transactions, especially those which
a maximum period of 5 years. See
would arise due to the various
Figure 1 for the final rules prescribing
Other recent amendments introduced in the Finance
the following threshold margins/
developments Act 2012 like expansion/clarification of the
prices for the covered categories of
definition of “international transaction”
The transfer pricing authorities international transactions.
and introduction of domestic transfer
continue to adopt aggressive positions,
pricing. (e.g. intangibles, exit charge).
including higher mark-ups for
Figure 1: Indian Safe Harbor Rules

Value of Intercompany
Intercompany Transaction Safe Harbor
Transaction
Software Development or Back- • Up to USD80 million • 20 percent or higher
office support Services
• Exceeds USD80 million • 22 percent or higher
ITES being knowledge processes • No monetary limit • 25 percent or higher
outsourcing services
Contract R&D services • No monetary limit • 30 percent or higher
Intra-group loan to wholly owned • Up to USD8 million • State Bank of India (SBI) base rate plus 150 basis
subsidiary points
• Exceeds USD8 million
• SBI base rate plus 300 bps
Corporate guarantee • Does not exceed USD16 million • Commission rate not less than 2 percent per
annum on the amount guaranteed
• Exceeds USD16 million and
the credit rating of the AE is of • Commission rate not less than 1.75 percent per
the adequate to highest safety annum on the amount guaranteed
Source: Notification issued by CBDT on 18 September 2013.
India | 133
Some of the areas of concern are that May a taxpayer go to competent • The most appropriate method could
most of the margins prescribed under the authority before paying tax? be any of the six transfer pricing
Safe Harbor mechanism are considerably Yes, however before invoking MAP methods provided in the Act.
higher than industry standards, even procedures, in some cases a bank • APA team would include experts
after factoring in a premium for the guarantee generally needs to be in economics, statistics, law or any
element of certainty accorded by a Safe submitted for the tax demand in question. other field.
Harbor. The Safe Harbor regime also This has been the procedure to date in
provides no dispensation to taxpayers on MAP cases involving the US and UK. • The applicants need to furnish
mandatory maintenance of prescribed detailed information regarding
documentation. Further, denying the various aspects of its business in the
benefit of Safe Harbor to a taxpayer Advance pricing application and the fees payable at
where the foreign transacting party is agreements the time of making the application is
located in a Nil or low (< 15 percent) linked to the quantum of transactions
income tax jurisdiction could lead to proposed to be covered under
if any?
litigation in affected cases. the APA.
APAs have been introduced with
effect from 1 July 2012 and the salient • Every person proposing to enter into
Tax treaty/double tax legislative provisions of the same are as an APA shall be able to enter into a
resolution follows: pre-filing consultation (potentially on
an anonymous basis) with the APA
What is the extent of the double tax • The ALP shall be determined on the authorities.
treaty network? basis of prescribed methods or any
other method. • The applicant would be required to
India has an extensive tax treaty network
file an annual compliance report to
and has entered into comprehensive • Valid for a maximum of consecutive the DGIT (International Tax) for each
tax treaties with 85 countries. India is five years unless there is a change year covered in the APA. Transfer
also party to a series of treaties under in provisions of the Code having Pricing Officer (TPO) shall carry out
negotiation. a bearing on the international a compliance audit for each year
transaction. covered in the agreement.
authority effective in obtaining • In case APA covering a particular year • The APA Rules contain provisions for
double tax relief? is obtained after filing the return of cancellation, revision, renewal and
Sometimes, India’s general experience income, modified return to be filed withdrawal.
with MAPs is quite recent. Most MAP based on the APA and assessment
or reassessment to be completed The proposal of introduction of APAs in
cases that the Indian Competent
based on such modified return. India is a positive step and ought to be a
Authority has dealt with have been with
welcome relief to taxpayers.
the US, Japan and a few countries in • APA to be declared void ab
Europe. initio if obtained by fraud or Is there a filing fee for APAs?
In practice, MAP as a mechanism for misrepresentation of facts. The schedule of fees payable at the time
dispute resolution in regards to transfer The detailed rules governing the APA of making the application is as follows:
pricing has not been found to be very regime have been notified by the CBDT
successful until recently in India. The as follows. Transaction
Fee Amount
reason is that even after the consultation Value
process has commenced, the process • Indian APA regime provides for Not exceeding INR1 million
lasts for a long time and its outcome is unilateral, bilateral and multilateral INR1000 million
uncertain. However, recent experience APAs. For unilateral APAs, the
Not exceeding INR1.5 million
indicates that this may be changing. applications are to be filed with
INR2000 million
the Director General of Income
When may a taxpayer submit an Tax (DGIT) (International Tax) and Exceeding INR INR2 million
adjustment to competent authority? bilateral/multilateral APA applications 2000 million
There are no formal rules. are to be filed with the Competent Source: Notification No. 36 of 2012 issued by CBDT on
Authority of India. 30 August 2012.

No.

difficulties?
In the first year of APAs 146 formal APA
applications were filed with the Indian
Government. Multinational corporations
dealing in diverse industries such as
pharmaceuticals, consumer electronics,
media, cement, telecom, etc. have
filed applications. Several rounds of
discussions are already in process and
the experience has been satisfactory
so far. International TP experts have
welcomed the collaborative approach of
the Indian APA team. It is being hoped
that a few APA agreements shall be
finalised between the taxpayers and the
Indian Government in 2014.
The option of APAs can be explored

in case of complex and high value
transactions or where the company is
already undergoing TP audit scrutiny
and hence would be selected for audits
again or where the company needs
financial certainty with regard to future
tax implications. APAs would reduce
the need for documentation and costs
associated with audit and appeals over
APA term and facilitate TP planning.
Double taxation can be avoided in case of
Bilateral/ Multilateral APAs.
Language
English.
KPMG in India
Rohan K Phatarphekar
Tel: +91 22 3090 2000
Email: rohankp@kpmg.com

Indonesia | 135
Indonesia
KPMG observation
Indonesian transfer pricing has seen a flurry of activity since 2009 with the
introduction of a number of transfer pricing-related regulations and a concurrent
drive by the Indonesian Tax Office (ITO) to enforce them.
It is increasingly important for Indonesian taxpayers to ensure that they keep
abreast of the developments to allow for both offensive and defensive strategies
to avoid potentially significant adjustments and the prospect of difficult and costly
dispute resolution. While they can provide no guarantee, experience shows that
robust documentation and a sound understanding of transfer pricing policies can
mitigate the impact of what may be seen as an aggressive approach by the ITO against
even the most straightforward related party arrangements.
In many cases, documentation which may be seen as compliant in other jurisdictions is not
accepted by the ITO and can increase the burden on the taxpayer. As the ITO moves into
new phases of development in transfer pricing application, we expect to see an increase in
trained resources and an accompanying increase in sophistication in approach and scope.
Mutual agreement procedures (MAPs) and Advance Pricing Agreements (APAs) are now
possible in practice.
Directorate General of Taxation/ Five years from tax year-end filing It is likely that lack of disclosure will lead
Indonesian Tax Office (ITO). date, phased in by 2013 from previous to increased attention by the ITO with
10 years. the ultimate outcome being the need to
Citation for transfer pricing rules submit documentation.
Article 18 of the Income Tax Law.
Regulation PER43/2010 as amended by
Transfer pricing
PER32/2011. disclosure overview Transfer pricing study
Are disclosures related to transfer overview
Effective date of transfer pricing rules
1984 – ability of tax authority to adjust pricing required to be prepared or Is preparation of a transfer pricing
related party transactions. 2009 marks submitted to the revenue authority study required – i.e. can the
the introduction of current regulations. on an annual basis (e.g. with the tax taxpayer be penalized for mere
return)? failure to prepare a study?
What is the relationship threshold Yes. No.
between parties? What types of transfer pricing Other than complying with a
Ownership of 25 percent, under information must be disclosed? requirement per the previous
common control, and family relationship. Details of transactions with related question, describe the benefits, if
parties including amounts, pricing any, of preparing and maintaining a
methodologies and reasons, together transfer pricing study?
with declarations by way of 15 yes/no There is no specific penalty for failure
questions regarding the existence of to provide a study. However, in
transfer pricing documentation. practice the absence of Indonesian or
Organisation for Economic Co-operation
and Development (OECD) compliant Transfer pricing audit and question economic/benchmarking
documentation has resulted in transfer analyses or performing its own
pricing adjustments upon tax audit. Such penalties benchmarking analyses.
documentation is recommended to fulfil When the tax authority requests
compliance disclosure requirements and a taxpayer’s transfer pricing
to shift the burden of proof in tax audit documentation, how long does
situations. the taxpayer have to submit its Are secret comparables used by tax
documentation? authorities?
To satisfy the requirement and/or According to the Tax Procedures Law, Yes. However should not be admissible
obtain the benefits, are there any within 30 days of request. In practice to Tax Court.
requirements on when the transfer certain questionnaires are issued and
pricing study must be prepared and the taxpayer is given 7 days to complete Is there a preference, or
submitted? them. However, practical experience requirement, by the tax authorities
Declarations that certain documentation has shown that in many cases these for local comparables in a
is available are necessary deadlines are flexible. benchmarking set?
contemporaneously with the tax Yes, but there is a recognition that
return. In addition, specific regulations If an adjustment is proposed by the choices are limited and in practice pan-
(PER43/2010 amended by PER32/2011) tax authority, are dispute resolution Asian sets may be accepted.
covering transfer pricing guidance and options available to the taxpayer
documentation requirements state that outside of competent authority? Do tax authorities have
there is a need to submit documentation, The taxpayer is able to object to a transfer requirements or preferences
although no date is yet specified. In a tax pricing assessment and further appeal an regarding databases for
audit situation, documentation must be unfavorable decision in the same way as comparables?
submitted within 30 days of request. with any tax assessment. The ITO uses Osiris and Oriana but has
publicly stated that any database may
When a transfer pricing study is If an adjustment is sustained, can be used. In practice they also perform
prepared, should its content follow penalties be assessed? If so, what internet searches in an attempt to
Chapter V of the OECD Guidelines? rates are applied and under what apply CUPs.
Yes. conditions?
Yes. General tax penalties only: 2 percent What level of interaction do tax
Does the tax authority require an per month on late payment of resulting authorities have with customs
advisor/tax practitioner to have tax, 50 percent surcharge if an objection authorities?
specific designation in order to to an assessment is lost. Surcharge None. There has been some discussion,
prepare or submit a transfer pricing increases to 100 percent if the amount is but no action.
study? appealed and the appeal is lost.
No. Are management fees deductible?
To what extent are transfer pricing Yes, if properly documented.
penalties enforced?
Transfer pricing methods Are management fees subject to
Always.
Are transfer pricing methods withholding?
outlined in Chapter II of the OECD What defences are available with Yes, but subject to treaty relief.
Guidelines acceptable? respect to penalties?
Yes. Penalties will be imposed on late Are year-end transfer pricing
payment of taxes following an adjustments permitted?
Is there a priority among the adjustment. The defenses against Yes, as there are no regulations
acceptable methods? penalties are therefore the same as forbidding their application. In practice,
The interpretation of the arm´s length those against adjustments – robust downward adjustments will most
principle is in alignment with the OECD documentation and a good working certainly be questioned.
Guidelines. knowledge of how it relates to the
taxpayer’s situation. Other unique attributes?
If there is no priority of methods, is Focus on evidence of price-setting
there a “best method” rule? What trends are being observed mechanism even where benchmarking
Yes. Transaction methods are stated currently? tests show prices are at arm’s
within the law (profit methods appear in The ITO still focuses on services and length. Denial of certain related party
the Elucidation) and the original transfer licensing transactions and more often transactions at tax audit stage – deferring
pricing regulation (PER43/2010) clearly than not denies deductibility. For other decision to Tax Court. Adjustments
favored a hierarchical approach. However, transactions, it is moving away from assessed without full analysis or
the amendment to the regulation (PER applying the comparable uncontrolled sound basis.
32/2011) now takes a ’most appropriate’ price (CUP) method and starting to
method approach.
Indonesia | 137
Other recent Advance pricing

developments agreements
Initial discussions are being held What advance pricing agreement
regarding a number of MAP and (APA) options are available, if any?
APA applications. As of the date of
Implementing regulation covering
publication, several applications have
unilateral and bilateral APAs introduced
been submitted, although none have
31 December 2010.
been concluded to date.
At the date of publication it is also Is there a filing fee for APAs?

understood that revisions to transfer No.
pricing regulations have been drafted and
are awaiting approval. Does the tax authority publish APA
resolution Not applicable yet, but unlikely to be the
What is the extent of the double tax case when APAs are concluded.
treaty network?
Extensive. on how successful the APA
programme is and whether there
authority effective in obtaining are any known difficulties?
double tax relief? Not applicable.
No experience yet, although we
understand that several negotiations are Language
being conducted.
When may a taxpayer submit an documentation be filed?
adjustment to competent authority? Tax return disclosure is in Indonesian.
No formal rules exist in this area. Documentation currently accepted in
English, although it is expected that
May a taxpayer go to competent Indonesian language documentation will
authority before paying tax? be required soon. Indonesian translation
Yes. Taxpayers may object to may be required in dispute cases.
assessments and this defers the
payment date, subject to sanctions on
any losses at objection or later appeal. In
the meantime, the issue may be raised
to competent authority.
KPMG in Indonesia
Iwan Hoo
Tel: +62 570 4888
Email: iwan.hoo@kpmg.co.id

Ireland
KPMG observation
Transfer pricing legislation was introduced as part of the 2010 Finance Act,
effective for accounting periods on or after 1 January 2011 and applicable to
trading transactions (not to non-trading activities taxed at a 25 percent rate).
Transactions entered into prior to 1 July 2010 are grandfathered, unless the terms
and conditions under which they are conducted do change.
The Irish transfer pricing rules generally follow the Organisation for Economic Co-
operation and Development (OECD) Guidelines. The Irish transfer pricing regime
applies to both cross-border and domestic transactions.
In November 2012, the Irish Revenue announced Transfer Pricing Compliance Reviews
(TPCRs) as the primary process to monitor compliance with the transfer pricing regime.
Transfer pricing audits may be conducted if a TPCR is not conducted in a satisfactory manner.
Some of the structures established by multinational companies with residency in Ireland
may be regarded as primary targets of the OECD’s Base Erosion and Profit Shifting (BEPS)
initiative. The Irish government has repeatedly declared that it perceives the transfer pricing
regulations in Ireland as fully compliant with the OECD Guidelines and that they will remain
so. Irish Revenue has not yet taken action in response to the BEPS initiative, but is staffing up
its resources to enforce compliance with the existing rules.
Basic information are conducted in accordance with the What types of transfer pricing
wishes of the controlling party by virtue information must be disclosed?
Tax authority name of shareholding, voting power or articles Not applicable.
Office of the Revenue Commissioners. of association.
Citation for transfer pricing rules There is no fixed participation quota or
Part 35A, Section 835, Taxes shareholding stated in the regulations.
disclosures?
Consolidation Act 1997. Not applicable.
Effective date of transfer pricing on assessment of transfer pricing
adjustments?
rules Transfer pricing study
There are no specific limitations for
1 January 2011.
transfer pricing, but the general rule is
overview
What is the relationship threshold 4 years from the year-end, in which tax Is preparation of a transfer pricing
for transfer pricing rules to apply return is filed. study required – i.e. can the
between parties? taxpayer be penalized for mere
The transfer pricing rules will apply if Transfer pricing
(1) one of the parties participates in the There is a statutory requirement to
disclosure overview prepare and retain supporting transfer
management, control, or capital of the
other party, or (2) if both parties fall under Are disclosures related to transfer pricing documentation for companies
the management, control or capital of pricing required to be prepared or not falling under the small and medium
another party. submitted to the revenue authority enterprise (SME) exemption (a
on an annual basis (e.g. with the multinational group with less than 250
A party will have control over another tax return)? employees and either a turnover of less
party if it is able to control the affairs of than 50 million Euros (EUR) or assets
No.
the other party in such a way that they of less than EUR43 million qualifies as
Ireland | 139
SME, in line with European Union (EU) documentation takes will be dictated If an adjustment is sustained, can
recommendations) and the tax legislation by the facts and circumstances of the penalties be assessed? If so, what
cross references to the documentation transactions and that the costs involved rates are applied and under what
provisions of the OECD Guidelines. No in preparing the documentation should conditions?
transfer pricing specific penalties apply if be commensurate with the risk involved. Yes. No specific transfer pricing penalties
documentation is not prepared. Additionally, if documentation exists in are included within the legislation,
another territory which supports the Irish so the standard interest and general
Other than complying with a arrangement, this will also be sufficient tax penalty provisions will apply.
requirement per the previous from an Irish transfer pricing perspective Under general tax penalties provision,
question, describe the benefits, if as long as the documentation is in English. interest arises on underpaid tax at a
daily rate of 0.0219 percent (equivalent
transfer pricing study? Does the tax authority require an
to 7.99 percent per annum). The Irish
General tax penalties will apply if advisor/tax practitioner to have
tax authorities charge penalties for
transactions are not conducted at arm’s specific designation in order
three categories of negligence on the
length terms. An appropriate transfer to prepare or submit a transfer
part of the taxpayer. The categories
pricing study provides the basis to pricing study?
are insufficient care (20 percent of
evidence arm’s length compliance. No. tax underpaid), careless behavior
Under Ireland’s self-assessment system, (40 percent) and deliberate behavior
the burden of proof, in the event of an (100 percent). These standard penalties
audit by the Irish tax authorities, will fall
can be reduced by co-operation and by
on the taxpayer. The burden of proof is Are transfer pricing methods disclosure of the taxpayer.
not shifted to the tax authorities if the outlined in Chapter II of the OECD
taxpayer has prepared transfer pricing Guidelines acceptable? To what extent are transfer pricing
documentation, but the taxpayer is Yes. penalties enforced?
perceived to have fulfilled its obligations It remains to be seen how the Irish tax
to co-operate, provided the transfer Is there a priority among the authorities will enforce penalties to
pricing documentation is complete and acceptable methods? transfer pricing transactions. It is expected
accurate. No. Ireland follows the OECD Guidelines that penalties will be levied in the same
and the guidance contained within on the manner as general tax penalties.
To satisfy the requirement and/or determination of the most appropriate
obtain the benefits, are there any method. What defences are available with
requirements on when the transfer respect to penalties?
pricing study must be prepared and If there is no priority of methods, is Sufficient transfer pricing documentation.
submitted? there a “best method” rule?
There are no specific deadlines for Not applicable. What trends are being observed
preparation or submission, other than currently?
the TPCR submission deadline, which is TPCR have started during 2013. Irish
3 months. However, the Irish legislation Transfer pricing audit and Revenue is in the process of increasing
states that documentation must be penalties its resources both in terms of staffing
prepared on a timely basis. It is best and transfer pricing specific databases.
practice that the documentation is
prepared at the time the terms of the
documentation, how long does Special considerations
transaction are agreed upon. In order for
a company to be in a position to make Are secret comparables used by tax
documentation?
a correct and accurate and complete authorities?
tax return, appropriate transfer pricing Documentation should be prepared
on a timely basis, but no specific time No.
documentation should exist at the time
the tax return is filed i.e. 9 months after deadline is outlined. Normal practice in
a tax audit is to expect documentation
accounts year-end. requirement, by the tax authorities
within 28 days of request. If a company
is selected for a TPCR, the timeline for
submission is 3 months.
benchmarking set?
Chapter V of the OECD Guidelines? No.
Yes. While there are no specific Do tax authorities have
requirements set down in the legislation, requirements or preferences
the OECD Guidelines should be followed regarding databases for
when preparing a transfer pricing study. comparables?
The Irish tax authorities have stated Yes. The standard tax appeal procedures
are available. No.
that the form and manner that the
What level of interaction do tax Tax treaty/double tax Please provide some information
authorities have with customs on how successful the APA program
authorities?
Low. What is the extent of the double tax difficulties?
treaty network? The Irish tax authorities have been willing
Are management fees deductible? The Irish double tax treaty network is to enter into bilateral APA negotiations
Yes. extensive. once a case has been successfully
accepted into the APA program of the
Are management fees subject to If extensive, is the competent other jurisdiction. It remains to be seen
withholding? authority effective in obtaining whether Ireland will formalize its APA
No. double tax relief? procedures.
Almost always.
Are year-end transfer pricing Language
adjustments permitted? When may a taxpayer submit an
adjustment to competent authority? In which language or languages can
Yes. The arm’s length standard of any
There is no specific timing or form documentation be filed?
adjustments should be explained in the
transfer pricing documentation prepared. for making a Competent Authority English and Irish.
request. There is no specific document
Other unique attributes? requirement either.
None.
Other recent No.
developments
Irish Revenue has recently started
Advance pricing
enforcing compliance with the arm’s
length principle by requesting some agreements
multinationals to conduct TPCRs. A What APA options are available, if
TPCR means that the taxpayer assesses any?
its compliance with the transfer pricing Bilateral and multilateral. There is no
regulations via a self-review. The result legislation that specifically empowers
of the self-review is reported to the Irish the Irish Revenue to formally conclude
Revenue, who decides about the further unilateral APAs or rulings. In practice,
proceedings. however, it is possible to agree on
In the TPCR announcement, the general principles in advance of a
Irish Revenue have also stated that transaction, and the Irish Revenue will
if a company wishes to rely on the adhere to them.
grandfathering provision as described
above, they expect the company to be Is there a filing fee for APAs?
able to establish that: No.
1. the relevant agreement envisaged Does the tax authority publish APA
the arrangement or transaction data either in the form of an annual
concerned; report or through the disclosure of
2. the relevant agreement provides the
price; and No.
3. the relevant agreement is not merely

an agreement for future agreements.
KPMG in Ireland
Eoghan Quigley
Tel: +353 1 410 2327
Email: eoghan.quigley@kpmg.ie
Warren Novis
Tel: +353 1 700 4154
Email: warren.novis@kpmg.ie

Israel | 141
Israel
KPMG observation
The transfer pricing regulations require companies to list all international transactions
on the corporate tax return (Form 1385) and to declare that the transactions were
conducted according to “market conditions”.
As a member of the Organisation for Economic Co-operation and Development (OECD),
Israel will be affected by the planned changes relating to transfer pricing as a result of the
OECD’s Base Erosion and Profit Shifting (BEPS) work plan/initiative. The potential effects
and implications will be clearer as the specifics of the initiative take form and move closer
to implementation.
Basic information submitted to the revenue authority Yes for all transactions, unless it is a one-
on an annual basis (e.g. with the tax time transaction with prior approval from
Tax authority name return)? the tax assessor.
Israel Tax Authority. Yes. The Market Conditions Survey
should be prepared and a special
Citation for transfer pricing rules requirement per the previous
declaration form should be submitted
Israel Tax Ordinance Section 85A and question, describe the benefits, if
with the corporate tax return (form 1385).
Israel Tax Regulations (Market Conditions any, of preparing and maintaining a
Determination), 2006. What types of transfer pricing transfer pricing study?
information must be disclosed? Penalty reduction and shifting of burden
Effective date of transfer pricing of proof to the tax authorities.
Ongoing or one-time transaction,
rules
description of intra-group transaction,
29 November 2006. To satisfy the requirement and/or
details and location of foreign related
party to the transaction, and total
What is the relationship threshold requirements on when the transfer
transaction price. The form must be
for transfer pricing rules to apply pricing study must be prepared and
signed under the declaration that the
between parties? submitted?
transaction was conducted under
In general, any special relationship “market conditions” as described in Transfer pricing analysis must be
(controlled directly or indirectly by the Section 85A and the transfer pricing prepared before submission of tax return
same interest). Specifically (but not regulations. and a full study must be submitted within
limited to): ownership or control of 50 60 days of request.
percent or more. What are the consequences
of failure to prepare or submit When a transfer pricing study is
What is the statute of limitations disclosures? prepared, should its content follow
on assessment of transfer pricing Chapter V of the OECD Guidelines?
Statute of limitations begins following
adjustments? Yes.
full submission. Burden of proof falls on
Three years from end of year of tax return taxpayer.
submission. May be extended in special Does the tax authority require an
cases. advisor/tax practitioner to have
Transfer pricing study specific designation in order to
Transfer pricing overview prepare or submit a transfer pricing

study?
disclosure overview Is preparation of a transfer pricing
study required – i.e. can the No.
Are disclosures related to transfer taxpayer be penalized for mere
pricing required to be prepared or failure to prepare a study?
Transfer pricing methods In addition, the Tax Authority has taken When may a taxpayer submit an
an aggressive approach and is assessing adjustment to competent authority?
Are transfer pricing methods secondary adjustments in cases where No formal domestic rules, depends on
outlined in Chapter II of the OECD a transfer pricing adjustment is made. treaties.
Yes. May a taxpayer go to competent
Special considerations authority before paying tax?
Is there a priority among the Are secret comparables used by tax No formal domestic rules, depends on
acceptable methods? authorities? treaties.
Comparable uncontrolled price is No.
preferable to all other methods. The
transaction-based methods (cost plus Is there a preference, or Advance pricing
or resale price) have priority over the requirement, by the tax authorities agreements
transactional net margin method. for local comparables in a
benchmarking set? What advance pricing agreement
If there is no priority of methods, is (APA) options are available, if any?
No.
there a “best method” rule? Unilateral and advance rulings.
Not applicable. Do tax authorities have
requirements or preferences Is there a filing fee for APAs?
regarding databases for At this stage, there are no filing fees.
Transfer pricing audit and comparables?
penalties No specific requirements (in practice,
When the tax authority requests Israeli tax authorities use Osiris and
a taxpayer’s transfer pricing Amadeus databases).
the taxpayer have to submit its What level of interaction do tax No.
documentation? authorities have with customs
authorities? Please provide some information
Within 60 days of request. on how successful the APA
Low.
programme is and whether there
Are management fees deductible? are any known difficulties?
options available to the taxpayer The APA procedure is lengthy.
Yes, if conducted at arm’s length terms.
Yes – appeals, courts, treaties. Are management fees subject to Language
withholding?
If an adjustment is sustained, can No.
rates are applied and under what Are year-end transfer pricing English or Hebrew. In some instances,
conditions? adjustments permitted? the tax authorities request translation for
Yes, but we recommend seeking documentation filed in English.
No specific transfer pricing penalties;
general tax penalties. professional advice before doing so.
To what extent are transfer pricing Other unique attributes?

penalties enforced? Not applicable.
Not applicable
What defences are available with Other recent

respect to penalties? developments
Documentation or negotiation. Not applicable.

currently?
Restructuring and intellectual property (IP) resolution KPMG in Israel
migration are under scrutiny from the What is the extent of the double tax
Israeli Tax Authority. treaty network? David Ravia
Tel: +972 3 684 8928
The Tax Authority takes the position that Extensive, approximately 40 countries.
Email: dravia@kpmg.com
stock options must be included in the
cost base. It should be noted that in many
authority effective in obtaining As email addresses and phone numbers change
circumstances, stock options are not
double tax relief? frequently, please email us at transferpricing@
deductible expenses for tax purposes. kpmg.com if you are unable to contact us via the
Sometimes. information noted above.
Italy | 143
Italy
KPMG observation
At this stage, there are no official observations from the Italian Tax Authorities
on the Base Erosion and Profit Shifting (BEPS) initiative. Most of the comments
from Italian tax and legal firms on the discussion drafts issued by the Organisation
for Economic and Co-operation Development (OECD) emphasize the need to
find a balanced approach between new requests for information deriving from the
country-by-country report and the additional administrative burden on the taxpayer.
In this regard, it is suggested that more certain and objective criteria are introduced
to evaluate the materiality of intra-group transactions to be included in the new
documentation requirements. In addition, some advise entrusting judgment on the
adequacy of transfer pricing documentation to an independent arbitrator.
With regard to the UN Practical Transfer Pricing Manual for Developing Countries, it is
observed that the report is consistent with the OECD Guidelines and offers adequate
operational details on transfer pricing methods and comparability analyses. Therefore, it is
deemed to represent a good opportunity to help developing countries in defining their transfer
pricing policies. However, also in this regard, no public comments from Italian tax authorities
are currently available.
Transfer pricing continues to be an area of focus in Italy. The number of multinationals under
scrutiny for transfer prices persists on a steady increasing trend, following instructions by
the Italian tax authorities on tax inspection activities and the introduction of transfer pricing
documentation rules. The presence of transfer pricing documentation for Italian companies that are
part of multinational groups, although not mandatory (see below), is now considered as an ordinary
requirement in practice during tax audits.
Basic information of 30 July 2010. Documentation rules What is the relationship threshold
are contained in the Decision of the for transfer pricing rules to apply
Tax authority name Commissioner of Italian Revenue Agency between parties?
Ministero dell’Economia e delle Finanze dated 29 September 2010. Clarifications Ownership of greater than 50 percent,
(Italian Ministry of Economy and on transfer pricing documentation rules based on voting power, share capital, and
Finance). were provided with Circular Letter no. parties that are under common control.
58/E, dated 15 December 2010.
Citation for transfer pricing rules What is the statute of limitations
Basic transfer pricing rules are contained Advance Pricing Agreement (APA)
in Article 110 (7) of the Italian Income regulations are contained in Article 8 of
adjustments?
Tax Code (Presidential Decree of 22 the Law Decree no. 269/2003 converted
with modifications into Law no. 326/2003 Four years from filing date of the
December 1986, no. 917 and subsequent relevant tax return. The exact term is 31
amendments). and in the related regulations issued on
24 July 2004. December of the 4th year subsequent
The penalty protection regime for to the one in which the tax return is
taxpayer preparing transfer pricing Mutual Agreement Procedure (MAP) filed. In the event of a violation implying
documentation is contained in Article 1, Guidelines were provided by Circular criminal sanctions as provided for by the
paragraph 2-ter of Legislative Decree of Letter no. 21/E, dated 5 June 2012. tax criminal law (legislative decree no.
18 December 1997, no. 471, introduced 74 dated 10 March 2000), the terms for
Effective date of transfer pricing an assessment of the tax periods during
by Article 26 of Law Decree no. 78 of 31
rules which the crime was committed are
May 2010, converted into Law no. 122
1 January 1988. doubled.
Transfer pricing disclosure Transfer pricing study When a transfer pricing study is
overview overview Chapter V of the OECD Guidelines?
Are disclosures related to transfer Is preparation of a transfer pricing Yes, in principle. Nevertheless, in
pricing required to be prepared or study required – i.e. can the order to obtain penalty protection,
submitted to the revenue authority taxpayer be penalized for mere the documentation must be prepared
on an annual basis (e.g. with the tax failure to prepare a study? in accordance with the provisions of
return)? No. the above mentioned Article 26 that
Yes. outlines a rigid formal structure and
Other than complying with a detailed information on the content of
What types of transfer pricing requirement per the previous the transfer pricing documentation.
information must be disclosed? question, describe the benefits, if The structure of the documentation
Disclosure of the existence of intra-group any, of preparing and maintaining a makes also reference to the guidance
relationships and the amount of costs transfer pricing study? provided by the European Union (EU)
and revenues relating to intra-group Penalty protection is provided for those Code of Conduct on Transfer Pricing
transactions must be disclosed in the tax taxpayers that, having communicated Documentation. Consequently, the
return. A description and amount of intra- the existence of transfer pricing documentation must follow the “master
group transactions must also be indicated documentation in the tax return or prior file/country specific documentation”
in the annual financial statements. to a tax audit, make available during concept, depending on the qualification
a tax audit transfer pricing studies in of the company (i.e. holding, sub-holding
From fiscal year 2010, taxpayers may or subsidiary).
line with the Italian transfer pricing
choose to, but they are not obliged
documentation rules and considered
to, communicate the existence of the Does the tax authority require an
appropriate by the tax authorities. In
transfer pricing documentation every advisor/tax practitioner to have
addition, preparing and maintaining a
year in the tax return. Therefore, the specific designation in order to
transfer pricing study may reduce the
preparation, as well as the disclosure, prepare or submit a transfer pricing
risk of challenges, and consequent
of transfer pricing documentation is not study?
claims for additional taxes, on intra-
mandatory.
group transactions and is generally No.
expected by tax authorities during a tax
audit. There is no materiality threshold
for having to prepare transfer pricing
The failure in submitting disclosure of documentation. Nevertheless, entities Are transfer pricing methods
the existence of intra-group relationships classified as small-to-medium sized outlined in Chapter II of the OECD
and the amount of costs and revenues (i.e. whose annual turnover is less than Guidelines acceptable?
relating to intra-group transactions is EUR50 million), will benefit from certain Yes.
subject to the ordinary tax penalties simplified procedures for the updating/
applying for formal inaccuracies (ranging preparation of the documentation. Is there a priority among the
from 251.73 to 1,006.91 Euros (EUR)), acceptable methods?
pursuant to the provisions of article To satisfy the requirement and/or
The comparable uncontrolled price
8 of Legislative Decree no. 471 of 18 obtain the benefits, are there any
method is recommended, followed
December 1997. requirements on when the transfer
by the other traditional transactional
However, an incorrect or missing methods (resale price, cost plus) and
submitted?
disclosure of the existence of intra-group subsequently by the Transactional
relationships could be considered an In order to benefit from penalty Net Margin Method (TNMM) Profit
obstacle to the assessment activity protection, the existence of transfer Split Method (PSM). Italian transfer
performed by the Italian tax authorities pricing documentation must be pricing documentation rules expressly
and therefore may cause an increase in communicated to the tax authorities in require that specific explanations are
the penalties ordinarily applying in case of advance (within the relative tax return). provided for not applying Comparable
tax adjustments (ranging from 100 to 200 Furthermore, as previously noted, Uncontrolled Price (CUP) and traditional
percent of additional taxes due). documentation must be considered transactional methods whenever such
to be “appropriate” by the Italian tax methods could potentially be applied.
The disclosure of existence of transfer authorities. Documentation must be
pricing documentation is one of the contemporaneous with the tax return If there is no priority of methods, is
conditions required to prevent application and, in any event, it must be handed there a “best method” rule?
of the ordinary tax penalties that would over to the tax authorities upon their Not applicable.
apply in the case of transfer pricing request during a tax audit in a timely
adjustments. Therefore, a failure to manner (10 days).
prepare or submit disclosures would
mean that penalties are applied to
taxpayers.
Italy | 145
Transfer pricing audit and tax court. In this case, a reduction of or specifically dedicated departments
penalties is provided up to 40 percent of the tax authorities. Sometimes the
penalties of the amount of taxes resulting from Italian tax authorities tend to adopt an
When the tax authority requests the agreement. aggressive approach, by requiring further
a taxpayer’s transfer pricing documentation (in addition to that the
documentation, how long does If an adjustment is sustained, can company makes available at the beginning
the taxpayer have to submit its penalties be assessed? If so, what of a tax audit) with a very challenging
documentation? rates are applied and under what deadline, exerting considerable pressure
conditions? on personnel involved in the tax
The documentation must be submitted
in a timely manner, i.e. within 10 days Yes. If the taxpayer does not qualify for inspection.
from request. Supplementary information the penalty protection regime, general
tax penalties apply in an amount ranging Furthermore, the measure of the
must be provided within 7 days of request penalties due upon transfer pricing
or in a longer time period depending on from 100 to 200 percent of the additional
taxes resulting from the transfer pricing adjustments resulting in additional taxes
the complexity of the transaction, to the is sometimes higher than the minimum
extent that such period is consistent adjustments.
(100 percent), ranging around 120-150
with the time of the audit. According to percent of the additional tax assessed. In
Italian law, tax audits must be finalized in a addition, there are sometimes challenges
penalties enforced?
maximum of 30 working days, which can on transfer pricing documentations by
be extended by an additional 30 days. If the taxpayer does not qualify for the
the Italian tax authorities, related to a
penalty protection regime, penalties are
tendency aiming at trying to dispute
If an adjustment is proposed by the always applied in case additional taxes
the application of the penalty protection
tax authority, are dispute resolution arise from transfer pricing adjustments.
regime.
outside of competent authority? What defences are available with Additionally, with regard to the type of
respect to penalties? intra-group transactions analyzed during
Yes. The taxpayer may choose from a
range of different dispute resolution “Appropriate” documentation, as tax audits, there is a growing interest on
options. detailed previously. In cases where intangibles and related royalty issues by
no documentation is prepared, or it is the Italian tax authorities and financial
• Agreement on the ”note of not be considered as “appropriate” to transactions. In recent years the Italian
inspection” (“adesione al pvc”), qualify for penalty protection, penalties tax authorities have focused more on
which implies accepting in full all the can be reduced under the above “relocation abroad” (esterovestizione)
adjustments proposed subsequently described dispute resolution options (i.e. and “permanent establishments” issues,
to a tax inspection and paying the agreement on the note of inspection, including attribution of profits and free
relevant taxes, penalties and interest voluntary assessment procedure, judicial capital to permanent establishments.
due within 30 days. Under this conciliation).
procedure, penalties are reduced to
one-sixth of the amount of taxes due. In the case of tax losses in the current Special considerations
year or carried forward, they can offset the
• So-called “voluntary assessment Are secret comparables used by tax
amount of the transfer pricing adjustment
procedure” (“accertamento authorities?
and, consequently, reduce the amount
con adesione”), which implies a of taxes due and resultant penalties No.
negotiation with the tax authorities, (however this only applies in respect to
in order to reduce the amount of the Is there a preference, or requirement,
IRES (corporate income tax) and not for
adjustment and consequent additional by the tax authorities for local
IRAP (local tax) purposes).
taxes, penalties and interest. Under comparables in a benchmarking set?
this procedure, the amount of What trends are being observed Yes. In principle, the presence of local
penalties is reduced to one-third of currently? comparables in a benchmarking set
the final amount of taxes resulting The attention of tax authorities on intra- is preferred, although it is recognized
from the agreement. This procedure group transactions during tax audits that the choice between local
interrupts the terms for litigation continues to remain very high and comparables and broader sets depends
and – if an agreement is reached – no the number of audits (i.e. inspections on the comparability of economic
further litigation is possible. and assessments) on intra-group circumstances, including characteristics
transactions within multinational groups of the market of reference for the
• “judicial conciliation” (“conciliazione
has risen. Transfer pricing audits are transaction under analysis.
giudiziale”), which consists of
reaching an agreement with the tax usually performed every 2-3 years
authorities during the litigation phase (particularly on large companies), and
but before the first hearing of the carried out by more skilled officials and/
Do tax authorities have requirements Therefore, it would be preferable to the Italian financial administration, the
or preferences regarding databases support year-end adjustments with so-called “standard international ruling
for comparables? detailed documentation and by means agreements” (see below), will be valid
No. The database should be selected of a specific provision in the relative for 5 years instead of three, which was
depending on whether the benchmarking agreements. the term provided by the former version
study is performed in order to identify of the Law. In addition, this new Law
In addition, downward year-end
local comparables (Aida) or international provides that the ruling procedure may
adjustments must be recorded in the
comparables (Amadeus/Orbis). also be used to ascertain the existence
accounts to be tax deductible, whereas
of a permanent establishment in Italy.
only upward adjustments can be made
to taxable income in the tax return Further developments may be found
when they have not been recorded in in the recent Law no. 147/2013 (i.e.
authorities?
the accounts. However, in this latter the 'Stability Law' for 2014) which has
Low. The interaction appears to be very case, in order to support the reliability clarified, eliminating previous uncertainty,
low in practice, although in principle of the accounts, under local generally that transfer pricing rules also apply in the
it has been expressly admitted that in accepted accounting principles (GAAP), determination of the IRAP (the regional
some cases the tax authorities may take it is considered appropriate to make a income tax) taxable basis. However, in
into consideration the value defined for specific note in the financial statements. view of such uncertainty, penalties for
customs purposes in order to appraise the VAT and customs implications need to unfaithful tax return will not be applied in
transfer prices. be appropriately addressed and also case of transfer pricing adjustments to
Intrastat reporting fulfilments. Specific the IRAP taxable basis for FYs from 2008
penalties may apply for failure to such to 2012.
Yes. However, note that deduction accomplishments.
of management fees, in addition to
compliance to transfer pricing rules, is Other unique attributes? Tax treaty/double tax
also subject to certain domestic rules The analysis on the arm’s length nature resolution
requiring compliance to the so-called of the intra-group transactions should What is the extent of the double tax
“inherence” requisite. Accordingly, be performed on a yearly basis and not treaty network?
apart from respect of the arm’s length on multiple year data. However, for
principle, deduction of management fees Extensive.
benchmarking purposes, reference is
requires the demonstration of the actual made to comparable data of the last If extensive, is the competent
provision of services and of the potential three years proceeding the year under authority effective in obtaining
benefit for the recipient, to be provided examination. double tax relief?
by means of appropriate documentation,
supplementary to transfer pricing Some indications about arm’s length Frequently. It is generally effective
documentation. royalty rates were provided by the Italian within the EU under the EU Arbitration
Ministry of Economy and Finance in 1980, Convention. Outside the EU, competent
Are management fees subject to which are still used as reference during authority procedures cannot be
withholding? tax audits and, in some cases, also by considered as effective. However, there
No. Withholding tax is not applied tax courts. However, their widespread are some signs of improvement.
on services. However, should the application is under discussion and more
complex analyses are now carried out by When may a taxpayer submit an
management fee include compensation
tax authorities on intangibles. adjustment to competent authority?
for the exploitation of an intangible
property or industrial, commercial, or The procedure is regulated in accordance
with the applicable tax treaties (if any)
scientific equipment, the withholding tax Other recent either by referring to the corresponding
should be applied.
developments adjustment provided by Article 9 (2) of
Are year-end transfer pricing The recent Law Decree no. 145/2013 the OECD Model Tax Convention or to
adjustments permitted? converted with modifications into the mutual procedure provided by Article
Yes, in principle year-end transfer Law no. 9/2014 has extended the 25 of the OECD Model Tax Convention.
pricing adjustments or true-ups are duration of APAs concluded with the In addition, for adjustments between
permitted. However, in managing Italian Tax Authority. From 22 February EU countries, the Arbitration Convention
such adjustments close attention 2014, the day of the entry into force would apply.
should be paid as they are deeply of the Law no. 9/2014, arrangements
scrutinized by the Italian tax authorities. concluded between taxpayers and
Italy | 147
May a taxpayer go to competent Language

Yes, if a competent authority procedure
is started following a tax assessment,
under the MAP suspension of payment Italian. The only exception is for the
of additional taxes due may be obtained. Masterfile prepared by an EU holding
company and submitted by an Italian sub-
holding company, which can be drafted in
Advance pricing English. Intra-group agreements, which
agreements must be attached to the transfer pricing
report, may also be provided in English.
any?
Unilateral advance rulings are expressly
provided for by the law, but bilateral and
multilateral advance rulings are also
admitted in practice.

No.

Ruling agreements are confidential.
However, the APA office so far has issued
two public reports on its official website
containing statistics on APAs under
discussion or concluded. The most recent
statistics on the APA program were
issues on 19 March 2013.

difficulties?
The number of APAs under discussion KPMG in taly
in Italy has largely increased and the
timing for the conclusion of an APA has Gianni De Robertis
significantly been reduced, according to Tel: +39 06 8096 3563
the latest statistics (from 18-20 months, Email: gianniderobertis@kstudioassociato.it
to 15 months on average, in the last
3 years). Maria Eugenia Palombo
Tel: +39 06 8096 3584
Email: mpalombo@kstudioassociato.it
Filippo Bertoletti
Tel: +39 02 6764 4712
Email: fbertoletti@kstudioassociato.it
Samuel Marinelli
Tel: +39 02 6764 4712
Email: samuelmarinelli@kstudioassociato.it
Stefano Rota
Tel: +39 02 6764 4708
Email: srota@kstudioassociato.it
As email addresses and phone numbers change frequently,

please email us at transferpricing@kpmg.com if you are
unable to contact us via the information noted above.
Japan
KPMG observation
The 2012 Tax Reform does not include major changes in transfer pricing
areas, although it has some important changes in tax investigation procedures
in general that could make quite a impact on transfer pricing investigation.
Additional important developments were contained in the 2011 Tax Reform
(following on from the 2010 Reform that included the Japanese transfer pricing
documentation rules).
The 2011 Tax Reform is comprehensive, trying to follow the 2010 Organisation for
Economic Co-operation and Development (OECD) Guidelines, and introduces several
important concepts, such as the most appropriate method rule, arm’s length range,
secret comparables, clarification of three profit split methods and transactional profit
method etc. Transfer pricing is a key focus of the Japanese tax authorities and there will
be increased enforcement activity in this area going forward.
Basic information Transfer pricing Transfer pricing study

Tax authority name disclosure overview overview
Kokuzei-cho; National Tax Agency (NTA). Are disclosures related to transfer Is preparation of a transfer pricing
pricing required to be prepared or study required – i.e. can the
Citation for transfer pricing rules submitted to the revenue authority taxpayer be penalized for mere
Special Taxation Measures Law, Article on an annual basis (e.g. with the tax failure to prepare a study?
66–4 and Enforcement Cabinet Order return)? No. See below.
of Special Taxation Measures Law, Yes. Some information relating to
Article 39-12. companies’ related party transactions Other than complying with a
are required to be submitted with the tax requirement per the previous
Effective date of transfer pricing return. question, describe the benefits, if
rules any, of preparing and maintaining a
1 April 1986, in general. What types of transfer pricing transfer pricing study?
information must be disclosed? Preparation of transfer pricing
What is the relationship threshold One must disclose the nature of documentation significantly reduces
for transfer pricing rules to apply the transaction and name of the the risk of presumptive taxation. If the
between parties? counterparties, the selected transfer taxpayer fails to present or submit,
Ownership of 50 percent or greater. pricing methods, the amounts without delay, certain information
of the transactions, and whether (essentially a transfer pricing study)
What is the statute of limitations any transactions are subject to an requested by the transfer pricing examiner
on assessment of transfer pricing Advance Pricing Agreement (APA). during a transfer pricing audit, the tax
adjustments? This information is required on specific authorities have the authority to presume
Six years after the fiscal year-end in forms within the tax return. an arm’s length price. This can be based
principle but details are complicated. on, for instance, information gathered
What are the consequences through ‘secret’ inquiries and inspections
of failure to prepare or submit of the taxpayer’s peer companies (such
disclosures? authority to gather information from peer
Nothing specifically mentioned in the companies is specified under Article 66–
regulations. 4(9) (now 66–4(8)), and to reassess the
Japan | 149
taxpayer’s taxable income accordingly. Is there a priority among the Special considerations
The presumptive taxation provision is acceptable methods?
essentially a taxpayer sanction, and the Are secret comparables used by tax
No.
’presumed’ arm’s length price does authorities?
not necessarily have to be an arm’s If there is no priority of methods, is In very limited cases. If used, they have
length price, which is defined in other there a “best method” rule? reduced evidence value in court.
sections of the Japanese transfer pricing Yes. The OECD Guidelines’ “most
related regulations. Is there a preference, or requirement,
appropriate method” approach is
followed.
To satisfy the requirement and/or comparables in a benchmarking set?
obtain the benefits, are there any Yes. It is usually not acceptable to omit
requirements on when the transfer Transfer pricing audit and Japanese comparables where the
pricing study must be prepared and penalties Japanese entity is the tested party.
submitted?
When the tax authority requests Do tax authorities have requirements
The taxpayer must present or submit
a taxpayer’s transfer pricing or preferences regarding databases
the transfer pricing study upon request
documentation, how long does for comparables?
from the transfer pricing examiner
‘without delay’. The law does not specify They have access to OLBIS, Compustat
documentation?
what constitutes a delay. However, it and others, but they have no special
is expected the tax authorities would No specific rule, but possibly 30 days. preferences.
possibly use 30 days from the date of the
request as a general reference period. If an adjustment is proposed by the What level of interaction do tax
tax authority, are dispute resolution authorities have with customs
When a transfer pricing study is options available to the taxpayer authorities?
prepared, should its content follow outside of competent authority?
Very Low.
Chapter V of the OECD Guidelines? Domestic administrative protest
Yes, with some exceptions. Specific procedures available to the taxpayer Are management fees deductible?
documents required are listed under include a request for reinvestigation Yes, if they are arm’s length.
Special Taxation Measures Law (STML) followed by a request for reconsideration
Enforcement Regulations Order, Article and appeal at district court level. Are management fees subject to
22–10, but major elements include withholding?
company overview, description on intra- If an adjustment is sustained, can
No.
group transactions, functional and risk penalties be assessed? If so, what
analysis, industry analysis, selection of rates are applied and under what Are year-end transfer pricing
method, description of comparables, and conditions? adjustments permitted?
economic analysis. Yes, general tax penalties only. Yes, but it should be carefully executed.
It has to be pre-agreed and clearly show
Does the tax authority require an To what extent are transfer pricing
a change of transfer prices (not transfer
advisor/tax practitioner to have penalties enforced?
of profit).
specific designation in order to There is no transfer pricing specific
prepare or submit a transfer pricing penalty, if the taxpayer received a transfer Other unique attributes?
study? pricing (TP) assessment; penalties are None.
No. However, in order to attend the imposed in the same manner with general
transfer pricing audit to support the corporate tax audit.
taxpayer, the firm needs an appropriate Other recent
license. What defences are available with developments
None.
Not applicable.
Are transfer pricing methods outlined What trends are being observed Tax treaty/double tax
in Chapter II of the OECD Guidelines currently? resolution
acceptable? More and more audits are focused
Yes, with some exceptions. Use of on intangible and intra-group service
treaty network?
the so-called ‘other method’, even in transactions as well as transactions
within Asia. Extensive.
cases where there is no other choice,
has no clear authority in the Japanese
regulations.
If extensive, is the competent Please provide some information

authority effective in obtaining on how successful the APA
double tax relief? programme is and whether there
Frequently. are any known difficulties?
Very successful.
Where double taxation occurs, or the
Language
possibility of occurrence of double In which language or languages can
taxation is very high. In practice, an documentation be filed?
adjustment to competent authority is Japanese.
submitted after an assessment is issued.

Taxpayers can request a grace period
under certain conditions.
Advance pricing
agreements
any?
Unilateral and bilateral. Multilateral could
be possible depending on the situation.

No.

Yes.
KPMG in Japan
Jun A Tanaka
Tel: +81362298322
Email: jun.a.tanaka@jp.kpmg.com

Kenya | 151
Kenya
KPMG observation
Although the introduction of transfer pricing rules in Kenya is fairly recent, the
Kenya Revenue Authority (KRA) has since started to conduct transfer pricing
audits. The KRA currently chairs the Africa Tax Administrators Forum Transfer
Pricing roundtable and assists other African tax authorities in performing transfer
pricing audits. The KRA has so far issued assessments (deficiency notices) of up to
50 million United States dollars (USD) to taxpayers and it is expected that this focus
will continue because all on-going tax audits must incorporate a report of findings on
taxpayer transfer pricing activities.
We note that there is increased cooperation with other competent authorities around the
world for both information sharing and settling transfer pricing disputes through mutual
agreement procedures (MAPs).
Basic information The transfer pricing rules apply to cross- Transfer pricing documentation should
border transactions and to transactions be reviewed annually to ensure that it
Tax authority name undertaken between a permanent remains relevant in view of changes in
Kenya Revenue Authority (KRA). establishment and its head office or other the business environment. According
related branches. to the transfer pricing rules (paragraph
Citation for transfer pricing rules 10), the Commissioner can request
Legal Notice no. 67 of 2006 and Section What is the statute of limitations documentation at any time – thus
18 (3) of the Income Tax Act (ITA). on assessment of transfer pricing documentation must be readily available.
adjustments?
Effective date of transfer pricing Seven years from the year to which the What types of transfer pricing
rules income relates. information must be disclosed?
1 July 2006. The following information must be
disclosed:
What is the relationship threshold Transfer pricing
for transfer pricing rules to apply disclosure overview • the selection of the transfer pricing
between parties? method and the reasons for the
Are disclosures related to transfer selection
An enterprise will be deemed to be pricing required to be prepared or
related to another: submitted to the revenue authority • the application of the method,
on an annual basis (e.g. with the including the calculations made and
• if one of the enterprises participates price adjustment factors considered
tax return)?
directly or indirectly in the
management, control or capital of Although the ITA does not require • the global organization structure of
the other enterprise or a third person taxpayers to include copies of transfer the enterprise
participates directly or indirectly in pricing documentation when submitting
• the details of the transaction under
the management, control or capital the annual tax return, the KRA has, in the
consideration
of both enterprises past, released a form (as an appendix
to the tax return) where taxpayers • the assumptions, strategies, and
• where an individual who participates should disclose details of related party policies applied in selecting the
in the management, control or capital transactions. Given the significance method
of the business of one, is associated of transfer pricing as a source of tax
by marriage, consanguinity or affinity • other background information on the
revenues, this form is likely to be
to an individual who participates in transaction may be necessary.
introduced as a formal requirement when
the management, control or capital filing tax returns.
of the other.
What are the consequences • assisting in aligning cost bases for When a transfer pricing study is
of failure to prepare or submit tangible products for indirect taxes prepared, should its content follow
disclosures? such as excise and customs duty Chapter V of the OECD Guidelines?
The consequences of not preparing • helping the company in the Yes.
or submitting transfer pricing realignment of its activities, risks and
documentation that contains related assets
party disclosures includes the advisor/tax practitioner to have
potential shifting the burden of proof • reducing the risk of tax audits and specific designation in order to
to the taxpayer, penalties, interest on adjustments prepare or submit a transfer pricing
additional taxes, higher audit risk and • the ability to meet the expectation
study?
the possibility of double taxation. that the taxpayer will have No. However, effective 1 July 2014, all
documentation prepared for tax advisors must be licensed by the
Commissioner to practice in Kenya.
Transfer pricing study submission if the KRA requests it.
overview Where the Commissioner has made a

transfer pricing adjustment that results Transfer pricing methods
in the collection of any tax due and Are transfer pricing methods
not paid, such tax shall be deemed to outlined in Chapter II of the
be additional tax which, under the ITA Organisation for Economic Co-
will attract penalties (20 percent of the operation and Development (OECD)
Yes. There is a statutory requirement to unpaid tax) and interest for the period Guidelines acceptable?
prepare a transfer pricing policy study of time the tax has been understated
for the following transactions: Yes. However, the Commissioner may
(two percent per month or part thereof
prescribe other methods where in his
• the sale or purchase of goods shall be charged on the amount of tax
opinion, the Chapter II methods (which
remaining unpaid for more than one
• the sale, purchase or lease of are similar to those in the transfer pricing
month after the due date until payment).
tangible assets rules) do not yield an arm’s length price.
Any taxpayer who, in relation to any year
• the provision of services of income, knowingly omits any amount Is there a priority among the
from their income tax return is liable acceptable methods?
• the transfer, purchase or use of
intangible assets to additional tax equal to double the Paragraph four of the transfer pricing rules
difference between the tax chargeable states that the taxpayer may choose the
• the lending or borrowing of money according to the submitted return and most appropriate method to employ in
• other transactions which affect the normal tax properly chargeable in determining the arm’s length price from
the profit or loss of the enterprise respect of the total income assessable. among the methods set out in paragraph
involved. If the taxpayer acted with negligence, seven (these include the methods noted
a penalty equal to one half of such previously). However, the Commissioner
Failure to document a transfer pricing additional tax is payable. may from time-to-time prescribe other
policy may result in price adjustments methods where in view of the nature
and subsequent tax on the adjusted To satisfy the requirement and/or of transactions, the arm’s length price
transaction price. obtain the benefits, are there any cannot be determined using any of the
requirements on when the transfer previously mentioned methods.
Compliance penalties apply when a
taxpayer fails to file the required returns
submitted? If there is no priority of methods, is
in a timely manner. The penalty is an
Where a person claims to apply arm’s there a “best method” rule?
additional tax of five percent of the
normal tax or 10,000 Kenyan shillings length pricing on transactions with Yes. The taxpayer should apply the most
(KES), whichever is higher. related non-resident entities such appropriate method with due regard to
person is required to develop and the nature of the transaction, or class of
Other than complying with a document an appropriate transfer transaction, or class of related persons
requirement per the previous pricing policy. or function performed by such persons
question, describe the benefits, if in relation to the transaction.
Such documentation should be
provided to the Commissioner The best method is seen as the method
on request. However, with most that:
The benefits are as follows: African tax authorities now requiring
• best approximates the arm’s length
• shifting burden of proof contemporaneous documentation,
result
it is likely that contemporaneous
• penalty protection documentation requirements will be in • uses the most reliable data
• reduced tax exposures place in the near future.
• has the fewest adjustments to the
data.
Kenya | 153
Transfer pricing audit The Commissioner may recover the Do tax authorities have
taxes due from the person assessed requirements or preferences
and penalties e.g. through attaching bank balances and regarding databases for
When the tax authority requests registering liens over fixed assets. comparables?
a taxpayer’s transfer pricing No. The KRA does not have requirements
documentation, how long does What defences are available with
the taxpayer have to submit its respect to penalties? to be used for comparables. However
documentation? Documentation forms the basis for the larger the database to be used,
The KRA may require a taxpayer to penalty protection. A taxpayer is expected the more optimal the transfer pricing
furnish documentation within a specified to capture all justification in the transfer benchmarking results. As stated earlier,
time, usually no less than 30 days. pricing documentation for demonstrating KRA is at an advantage as it uses a more
the arm’s length nature of prices charged comprehensive database (Orbis). This
If an adjustment is proposed by the on intra-group transactions. may result in differing benchmarking
tax authority, are dispute resolution results as compared to other databases,
options available to the taxpayer What trends are being observed consequently resulting in tax exposures
outside of competent authority? currently? to the particular companies involved.
An aggrieved taxpayer has recourse The tax authority is vigilant on training
through an appeal procedure system its staff on transfer pricing to ensure What level of interaction do tax
established under the ITA. The order of enforcement of the transfer pricing rules. authorities have with customs
appeal for an adjustment proposed by For example, transfer pricing audit teams authorities?
the tax authorities is as follows: are specializing based on the different In Kenya, all domestic taxes are
aspects of a documentation report. Thus administered under the Commissioner
• first level: Local Committee the KRA audit team will have an expert of Domestic Taxes of the KRA, even
• second level: High Court of Kenya on functional analysis, asset analysis, risk though Customs is headed by a
analysis, economic analysis etc. Commissioner. These domestic taxes
• third level: Court of Appeal
include: customs and excise duties,
Additionally, the tax authority has
• fourth level: Supreme Court of Kenya. VAT and corporation tax among others.
subscribed to Orbis as a benchmarking
As such, the level of interaction among
If an adjustment is sustained, can tool. This tool has over 65 million
these tax administration departments is
penalties be assessed? If so, what companies in its database and is more
relatively high.
rates are applied and under what advanced than the benchmarking tools
conditions? currently in use by most tax advisors. Are management fees deductible?
A sustained adjustment results in unpaid The KRA is conducting more audits on Yes, except if the management fees
corporation tax. Any assessment raised multinational corporations and levying tax are paid by a branch to its non-resident
is arrived at based on the impact of the penalties on transfer pricing adjustments head office.
existing transfer pricing policy on taxable on sale of goods and services, financial
profits and consequently on corporation transactions, shared services, etc. Are management fees subject to
tax. Therefore, in arriving at the tax withholding?
payable on the revised taxable profit, the Management fees are subject to
KRA applies the corporation tax rates of Special considerations withholding tax at a rate of 20 percent if
30 percent on residents and 37.5 percent Are secret comparables used by tax paid to a non-resident person. However,
on non-residents. authorities? this rate may vary depending on whether
No secret comparables are used by the Kenya has a Double Tax Agreement (DTA)
Under the ITA, penalties accrue on
revenue authorities. with the country which the management
unpaid taxes at the rate of 20 percent.
fees are being paid to.
Additionally, the principal tax outstanding
attracts interest at two percent per On the other hand, withholding tax is not
month over the period it remains unpaid. applicable on management fees paid by a
However, because of the in duplum rule, branch to its non-resident head office.
benchmarking set?
the interest is capped to a maximum
of the principal tax assessed on Yes. KRA has expressed a preference Are year-end transfer pricing
adjustment. for local comparables, especially where adjustments permitted?
comparable uncontrolled prices are
Yes, but it should be carefully executed.
To what extent are transfer pricing readily available and have intimated
It has to be pre-agreed and clearly show
penalties enforced? the possibility of making country risk
a change of transfer prices (not transfer
Transfer pricing penalties are enforceable adjustments where comparables from
of profit).
to the full extent of the Income Tax Act. different geographical locations such as
Europe are used.
Other unique attributes? May a taxpayer go to competent

Before the issuance of the specific authority before paying tax?
transfer pricing legislation, the KRA had Yes, we have previous experience with
engaged a Kenyan multinational in the competent authority in UK (HMRC).
High Court with regard to transfer pricing
issues. The KRA has also proposed to
amend the annual tax return to include a
Advance pricing
section on transfer pricing disclosures. agreements
Other recent (APA) options are available, if any?
developments No APAs or advance rulings of any kind
are unavailable. However, a taxpayer may
From a country perspective, the
seek a non-binding opinion from the KRA
government has embarked on the
on the interpretation or administration of
enhancement of the capacity of the
the tax provisions.
KRA in terms of staff skills in the area of
transfer pricing, not only for the purposes Is there a filing fee for APAs?
of keeping abreast of emerging tax
Not applicable.
planning trends, but also to ensure that
adequate measures are put in place Does the tax authority publish APA
to address tax avoidance whenever data either in the form of an annual
it arises. report or through the disclosure of
Tax treaty/double tax Not applicable.
resolution
What is the extent of the double tax on how successful the APA program
treaty network? is and whether there are any known
Minimal. difficulties?
Not applicable.
double tax relief? Language
Sometimes. In which language or languages can
English.
In the event that the tax adjustment
will affect both countries and may
involve transfer of profits and therefore
impact on tax paid with respect to the
respective years.
KPMG in Kenya
Peter Kinuthia
Tel: +254 20 2806 000
Email: pkinuthia@kpmg.co.ke

Latvia | 155
Latvia
KPMG observation
As of 1 January 2013 the legislation requires a written transfer pricing study with
specific information included, if a taxpayer’s annual net turnover exceeds
1.43 million Euros (EUR) and intra-group transactions undertaken exceed EUR14,300.
Valsts ienemumu dienests. Transfer pricing adjustments and a penalty A penalty can be applied for late filing of a
can be applied by the tax authority for tax return varying from EUR70 – 700. If no
Citation for transfer pricing rules the previous 5 years – starting from the return is filed, the maximum penalty can
General transfer pricing requirements corporate income tax payment date. be applied EUR700.
to carry out related party transactions
at arm’s length prices are set out in the
Latvian Law on Corporate Income Tax.
Transfer pricing Transfer pricing study
disclosure overview overview
The Latvian Law on Taxes and Duties
sets the requirement for particular Are disclosures related to transfer Is preparation of a transfer pricing
taxpayers in preparing transfer pricing pricing required to be prepared or study required – i.e. can the
documentation. It lists the information submitted to the revenue authority taxpayer be penalized for mere
that must be included in the transfer on an annual basis (e.g. with the tax failure to prepare a study?
pricing documentation. return)? Yes, for certain transactions. If the annual
An entity is required to disclose related net turnover of a Latvian resident or a
The Cabinet of Ministers regulation party transactions to the tax authority in non-resident’s permanent establishment
No. 556 as of 1 July 2006 provides the the annual corporate income tax return. in Latvia exceeds EUR1.43 million and
methods to be used when determining the intra-group transaction value exceeds
arm’s length prices. The tax legislation in What types of transfer pricing EUR14,300, they are required to prepare
Latvia allows the use of Organisation for information must be disclosed? a full transfer pricing study. If a transfer
Economic Co-operation and Development Along with the annual corporate income pricing study cannot be submitted
(OECD) Guidelines when choosing a tax return, the following information must within a month of request, as a penalty
transfer pricing method. be submitted: the tax authority is free to determine
the arm’s length prices based on its
Effective date of transfer pricing rules • the name of the related party to the own information.
1 April 1995 in general. 1 July 2006 for transaction
transactional net margin method (TNMM) Other than complying with a
• the registration number and country of
and profit split. 1 January 2013 for transfer requirement per the previous
registration
pricing documentation requirements question, describe the benefits, if
and Advance Pricing Agreements (APAs). • the transaction type and amount any, of preparing and maintaining a
• the transfer pricing method applied transfer pricing study?
Shifting the burden of proof, and
for transfer pricing rules to apply • the amount for which taxable income
requirement in practice/expectation of
between parties? is increased (the amount of transfer
tax authorities.
Any transaction between foreign related pricing adjustment), if any.
companies (20 percent ownership and The taxpayer also must show in the
above) or Latvian companies belonging corporate income tax return the amount
to the same group of companies (at least by which its Latvian-related party has
90 percent ownership or voting rights) increased its taxable income for non-
must be carried out on an arm’s length compliance with the arm’s length
basis, i.e. market value. principle, if any.
To satisfy the requirement and/or Transfer pricing audit and Is there a preference, or
obtain the benefits, are there any requirement, by the tax authorities
penalties for local comparables in a
pricing study must be prepared and When the tax authority requests benchmarking set?
submitted? a taxpayer’s transfer pricing Yes, if local comparables can be found.
If the taxpayer is required to prepare documentation, how long does If local comparables are not available,
a full transfer pricing documentation the taxpayer have to submit its a European benchmarking study
(net turnover and transaction value documentation? is acceptable.
criteria are met), it must be submitted A month, if the taxpayer is required
If local comparables are found by the
to the tax authority within a month of to prepare full transfer pricing
tax authority but they are not included in
the request. documentation.
the entity’s benchmarking study, the tax
Based on KPMG in Latvia’s experience, If an adjustment is proposed by the authority could use that as an argument
extensions are possible. However, each tax authority, are dispute resolution to challenge the entity’s results.
case must be negotiated. options available to the taxpayer
When a transfer pricing study is requirements or preferences
prepared, should its content follow No. Options available are just appealing regarding databases for
Chapter V of the OECD Guidelines? to General Director and then to the court. comparables?
Yes, with some exceptions. If an adjustment is sustained, can No. The tax authority itself uses the
penalties be assessed? If so, what Amadeus database. However, there are
Latvia is not a member of the OECD,
rates are applied and under what no requirements or recommendations
thus the OECD Guidelines are not
conditions? on the use of any specific database.
applicable. However, Latvian legislation
Some entities prefer to use the Amadeus
is based on the OECD Guidelines, Yes. A penalty of 20 percent or
database because it is more likely that
and the court practice shows that the 30 percent is applied. It can be halved
the tax authority would obtain the
taxpayer and tax authorities should take i.e. 10 percent or 15 percent if the tax
same, or at least similar, benchmarking
into consideration the provisions of the infringement is not considered as a
study results.
OECD Guidelines. repeated tax infringement and the
taxpayer has complied with the statutory What level of interaction do tax
Does the tax authority require an due dates for submitting tax declarations authorities have with customs
advisor/tax practitioner to have and tax payments as well as has been authorities?
specific designation in order to cooperative with the tax administration.
prepare or submit a transfer pricing High. It is combined – customs and
study? To what extent are transfer pricing transfer pricing audit specialists work
penalties enforced? side by side in the audit team.
No.
Always. Are management fees deductible?
Transfer pricing methods What defences are available with Yes, provided the benefit can be
respect to penalties? demonstrated.
Are transfer pricing methods
outlined in Chapter II of the OECD Transfer pricing documentation. Are management fees subject to
Guidelines acceptable? withholding?
Yes. All five methods are acceptable. What trends are being observed
currently? Yes,10 percent unless service provider
submits residence certificate to apply the
Is there a priority among the The tax authority’s interest in transfer
relief under the double tax treaty.
acceptable methods? pricing has increased and as a result
Comparable uncontrolled price (CUP) more transfer pricing audits are Are year-end transfer pricing
method, resale price method and cost- performed by the tax authority. adjustments permitted?
plus method are preferred. Yes. The taxpayer may reduce its
If there is no priority of methods, is Special considerations corporate income tax base by the
difference between intra-group prices
there a “best method” rule? Are secret comparables used by tax
and market prices by which its qualified
Not applicable. authorities?
related party has increased its corporate
KPMG in Latvia has no information about income tax base.
the use of any secret comparables.
Latvia | 157
Furthermore, the taxpayer is in certain Is there a filing fee for APAs?

cases even required to make period (e.g. The fee per APA is EUR7,114.
year-end) adjustment for ongoing related
party transactions if actual payments Does the tax authority publish APA
over the year are not arm’s length. data either in the form of an annual
If the transfer pricing adjustment is made
in the tax return and one of the parties is
engaged in VAT exempt transactions, VAT No.
adjustments for the transactions might
be required.
Other unique attributes? is and whether there are any known
difficulties?
None.
APAs were introduced only a year ago,
thus there is no established practice or
Other recent trend yet.
developments
Not applicable. Language
Tax treaty/double tax documentation be filed?
resolution There are language requirements.
What is the extent of the double tax According to Official Language Law all
treaty network? documents prepared in Latvia (including
business supporting documents) should
Extensive. be in the Latvian language. Thus, the
tax authority is entitled to ask for a
translation to Latvian language of either
the full documentation or its parts.
double tax relief?
KPMG in Latvia has no experience with
double tax relief being requested for
transfer pricing adjustments under the
double tax treaty.

No formal rule.

Yes.
Advance pricing
agreements
What APA options are available, KPMG in Latvia
if any?
The following options are available: Steve Austwick
Tel: +371 67 038 000
• advance rulings
Email: saustwick@kpmg.com
• APAs are possible.
Ilze Berga
Tel: +371 67 038 000
Email: iberga@kpmg.com

Lithuania
KPMG observation
Transfer pricing rules were implemented in Lithuania in 2004. In general, they
are a condensed form of the Organisation for Economic Co-operation and
Development (OECD) Guidelines.
Over the past few years, transfer pricing has been subject to higher scrutiny. The
tax authorities are increasingly requesting companies to submit transfer pricing
documentation for review.
The Lithuanian tax authorities have direct access to the BvD Amadeus database
allowing them to analyze benchmarking studies and perform adjustments. It is more
likely than in previous years that benchmarking studies will be challenged in terms of
the methodology of benchmarking analysis and comparability of transactional parties.
They are also increasing investigations of transactions involving management services,
centralized purchasing services, loans and license agreements.
Basic information Transfer pricing of intangibles, sale/purchase of raw

materials, goods, production items,
Tax authority name disclosure overview and provision/acquisition of financial
Valstybine mokesciu inspekcija (State Are disclosures related to transfer services, provision/acquisition of
Tax Inspectorate). pricing required to be prepared or other services, sale/purchase of
submitted to the revenue authority shares and/or derivatives, lease of
Citation for transfer pricing rules on an annual basis (e.g. with the tax real estate and other property, as well
Order No. 1K-123 of the Minister of return)? as any other transactions).
Finance (9 April 2004). Disclosures related to transfer pricing The statement must specify income
(form FR0528 for declaring transactions received/expenses incurred for each
Effective date of transfer pricing with related parties) must be submitted type of transaction. Also, the accrued
rules to the tax authorities with the annual interest on loans and the amount of
2004. corporate income tax return. Transfer loans granted by related parties must
pricing documentation must be prepared be specified.
What is the relationship threshold but not submitted.
for transfer pricing rules to apply A transfer pricing study must be
between parties? What types of transfer pricing prepared every year (if the criteria are
information must be disclosed? met) but submitted to tax authorities
Ownership higher than 25 percent,
An annual statement (form FR0528) only upon request.
based on voting power, or under
common control, or in cases where should include the following information:
the parties can otherwise influence
• identification details of a taxpayer and of failure to prepare or submit
each other.
associated parties disclosures?
What is the statute of limitations • number of transactions Administrative penalties for non-
on assessment of transfer pricing submission may be imposed. In practice,
• type of transactions performed with one does not observe penalties being
adjustments?
each associated party (sale/purchase imposed.
Generally, the current year and of tangible fixed assets, sale/purchase
5 previous taxable years.
Lithuania | 159
Transfer pricing study To satisfy the requirement and/or If an adjustment is proposed by the
obtain the benefits, are there any tax authority, are dispute resolution
overview requirements on when the transfer options available to the taxpayer
Is preparation of a transfer pricing pricing study must be prepared and outside of competent authority?
study required – i.e. can the submitted? The procedure of ordinary dispute
taxpayer be penalized for mere The law states that the taxpayer resolution should be followed, i.e. the
failure to prepare a study? should be in possession of transfer taxpayer may file a claim with the central
Yes, for all transactions. A requirement to pricing documentation. There are no tax authorities or with the Commission of
prepare a written transfer pricing study is guidelines on when the transfer pricing Tax Disputes.
applicable to companies if at least one of documentation should be prepared.
the criteria listed below is met: Documentation must be submitted within If an adjustment is sustained, can
30 days of a written request from the tax penalties be assessed? If so, what
• sales income of the entity before the rates are applied and under what
authorities.
taxable year when the transaction conditions?
was actually carried out exceeded When a transfer pricing study is Generally, the tax penalties imposed
10 million Lithuania litas (LTL) prepared, should its content follow range from 10 to 50 percent of the
(approximately 2.9 million Euros Chapter V of the OECD Guidelines? outstanding tax amount.
(EUR))
Yes.
• financial companies, credit To what extent are transfer pricing
institutions or insurance companies Does the tax authority require an penalties enforced?
advisor/tax practitioner to have Often.
• foreign entities engaged in activities specific designation in order to
in Lithuania through a permanent prepare or submit a transfer pricing What defences are available with
establishment if the sales income study? respect to penalties?
of the permanent establishment
No. The penalties can be reduced by up to
during the taxable period, proceeding
the taxable period during which 10 percent of the outstanding corporate
income tax if the taxpayer properly
the transaction was performed, Transfer pricing methods communicates with the tax authorities
exceeded 10 million Lithuanian litas
Are transfer pricing methods and presents all requested documents/
(approximately EUR2.9 million).
outlined in Chapter II of the OECD explanations.
If one of these criteria is met, a Guidelines acceptable?
transfer pricing study should include all Yes. What trends are being observed
transactions with associated parties. currently?
Is there a priority among the The number of tax audits (by the tax
Other than complying with a acceptable methods? authority) related to transfer pricing
requirement per the previous issues is increasing. As well, the
Yes. There is a priority rule in Lithuanian
question, describe the benefits, if number of disputes and proposed tax
legislation: the taxpayer has to choose
any, of preparing and maintaining a adjustments has increased. Transfer
the comparable uncontrolled price (CUP)
transfer pricing study? pricing audits are particularly likely for
method. If the information available is
The following benefits can be identified: not sufficient, the resale price method loss making companies, companies
or the cost-plus method will be chosen following reorganization and companies
• shifting of the burden of proof. Tax
before the application of the profit-based having substantial volume in international
authorities will accept the methods
methods. transactions. The transactions subject
used by the taxpayer unless it
to an increased scrutiny are: financial
is proven that the methods are
If there is no priority of methods, is transactions, royalty payments and
inappropriate
there a “best method” rule? intra-group services (particularly
• mitigating the risk that the tax Not applicable. management services).
authority will propose adjustments
based on secret comparables (the
tax authorities are entitled to use Transfer pricing audit and Special considerations
comparables/information not available penalties Are secret comparables used by tax
to the taxpayer if the taxpayer has authorities?
provided incorrect information) Yes, the tax authorities can use
• penalty protection documentation, how long does comparables which are not disclosed to
the taxpayer have to submit its the taxpayer.
• meets the tax authority’s
documentation?
expectations.
The statutory requirement is to present
transfer pricing documentation within
30 days of the request.
Is there a preference, or Tax treaty/double tax Please provide some information

requirement, by the tax authorities on how successful the APA program
benchmarking set? What is the extent of the double tax difficulties?
No. treaty network? No information yet.
Extensive. Currently, Lithuania has 50
Do tax authorities have double tax treaties.
requirements or preferences Language
regarding databases for If extensive, is the competent In which language or languages can
comparables? authority effective in obtaining documentation be filed?
No. double tax relief? Documentation can be prepared in any
No experience (in transfer pricing cases). language but it must be translated into
What level of interaction do tax Lithuanian at the request of the tax
authorities have with customs When may a taxpayer submit an authorities.
High. Generally, in the current year and for
5 previous taxable years.
Generally, yes. May a taxpayer go to competent
Are management fees subject to Not permitted. The tax due would have
withholding? to be paid on the due date even though
No. the case has been referred to competent
authority.
Advance pricing
Yes. Year-end adjustments should
preferably be reflected in the financial
agreements
statements. It is, however, also possible What APA options are available,
to make the year-end adjustments in the if any?
tax return. Adjustments may have both Unilateral and bilateral.
customs and VAT implications. Year-end
adjustments must be substantiated. Is there a filing fee for APAs?
No.
None. Does the tax authority publish APA
Other recent data in public forums?
developments No information yet.
As of 1 January 2012, it is possible to
apply for an Advance Pricing Agreement
(APA). Some changes to the transfer
pricing rules have been initiated but not
yet approved.
KPMG in the Baltics
Biruté Petrauskaité
Tel: +370 (5) 2 102 613
Email: bpetrauskaite@kpmg.com

Luxembourg | 161
Luxembourg
KPMG observation
Transfer pricing is now a hot topic in Luxembourg. The focus is currently on
financing structures but it is rapidly expanding to include allocation of profits to
branches, licensing, change of business models and restructuring. In this respect,
the Luxembourg government has announced that having general provision on
transfer pricing documentation is top on its list.
Basic information What is the statute of limitations are mainly based on the Luxembourg
on assessment of transfer pricing administrative practice. Where an
Tax authority name adjustments? Advance Pricing Agreement (APA)
Ministère des Finances. Five years from the issuance of the tax is submitted to the tax authorities
assessment by the tax authorities (10 (frequently for intra-group financing
Citation for transfer pricing rules activities), a transfer pricing study must
years in the case of fraud).
Luxembourg Income Tax Code; General be enclosed.
Tax Law, Article 56, Article 97 (1), Article
164; paragraph 5 and 6 StAG. Circular LIR Transfer pricing What are the consequences
164/2 of 28.01.11. Circular LIR 164/2 bis of disclosure overview of failure to prepare or submit
08.04.11. disclosures?
Where no APA has been concluded, the
Effective date of transfer pricing pricing required to be prepared or
tax authorities may consider readjusting
rules submitted to the revenue authority
the remuneration of a company,
28 January 2011 for intra-group financing potentially leading to an increase of the
return)?
activities. Not applicable for all other taxable base and, thus, of the overall tax
cases. Yes for intra-group financing activities. charge.
Not applicable for all other cases. In
What is the relationship threshold addition, the administrative practice With regard to intra-group financing
for transfer pricing rules to apply requires more and more transfer activities, there is a risk of exchange
between parties? pricing documentation for trading and of information with the country of
intellectual property activities. residence of the borrower and hence a
Transactions with non-residents,
potential non-application of the benefit
whether directly or indirectly, which
What types of transfer pricing of the double tax treaties with resultant
do not comply with the arm’s length
information must be disclosed? withholding tax issues.
principle (Article 56 LIR) and such
transactions with direct or indirect On a general basis, there is no specific
shareholders or persons close to them required information to be disclosed. Transfer pricing study
(Article 164 LIR). No thresholds apply. However, disclosures related to
transactions of special interest to the overview
For intra-group financing transactions,
threshold as defined by Article 9(1) of the tax authority or related to specific Is preparation of a transfer pricing
Organisation for Economic Co-operation computations/tax treatment must study required – i.e. can the
and Development (OECD) Model Tax be made in the tax returns in order taxpayer be penalized for mere
Convention for associated enterprises. to evidence that the pricing and/or failure to prepare a study?
tax treatment previously agreed is No.
respected. These disclosures are not
listed in any specific regulation and
Other than complying with a Transfer pricing audit and What level of interaction do tax
requirement per the previous authorities have with customs
penalties authorities?
any, of preparing and maintaining a When the tax authority requests None.
transfer pricing study? a taxpayer’s transfer pricing
For intra-group financing transactions, a documentation, how long does Are management fees deductible?
transfer pricing study enclosed with an the taxpayer have to submit its Yes.
APA submission enables the taxpayer documentation?
to obtain binding information from the Normal Administrative Tax Office (ATO) Are management fees subject to
Luxembourg tax authorities. practice is to expect documentation withholding?
within 28 days of request. No.
obtain the benefits, are there any If an adjustment is proposed by the Are year-end transfer pricing
requirements on when the transfer tax authority, are dispute resolution adjustments permitted?
pricing study must be prepared and options available to the taxpayer Yes, but only upward adjustments in the
submitted? outside of competent authority? corporate tax returns in order to restate
Where an APA is requested by the No. market conditions that would not have
taxpayer, the transfer pricing study needs been commercially respected.
to be done when the APA is filed with the If an adjustment is sustained, can
tax authorities. penalties be assessed? If so, what Other unique attributes?
rates are applied and under what Not applicable.
If no APA is requested, the transfer conditions?
pricing study must only be prepared in
Yes. General tax penalties only, 25
case the tax authorities challenge the
percent of the tax avoided for transfer Other recent
arm’s length character of remuneration in
the tax returns of the company and ask
pricing adjustments and 50 percent developments
of the tax avoided where the primary Transfer pricing documentation is still
for a transfer pricing justification.
purpose was to pay minimal or no tax. not required by law. However, the
When a transfer pricing study is Luxembourg tax authorities issued on
To what extent are transfer pricing 28 January 2011 a Circular on intra-group
penalties enforced? financing companies, followed by a new
Rarely. Circular on 8 April 2011. This reinforces
Yes
the administrative practice that has
What defences are available with been evolving over the last few months
respect to penalties? in the sense that documentation of
specific designation in order to Documentation. transactions and prices is recommended
prepare or submit a transfer pricing (and required for intra-group financing
What trends are being observed transactions in order to obtain binding
study?
currently? agreement from the Luxembourg tax
No.
More and more transfer pricing authorities).
documentation requests for trading
This Circular gives taxpayers performing
Transfer pricing methods activities and royalties.
intra-group financing activities the
Are transfer pricing methods opportunity to get an agreement from
outlined in Chapter II of the OECD Special considerations the tax authorities on the arm’s length
Guidelines acceptable? character of their remuneration, where
Yes. authorities? they respect specific conditions of
economic and organizational substance.
Is there a priority among the No.
Many taxpayers already comply with this
acceptable methods? Circular in order to get certainty on their
No. financing transactions.
benchmarking set? Tax treaty/double tax
No.
No. resolution
Do tax authorities have What is the extent of the double tax
requirements or preferences treaty network?
regarding databases for Extensive.
comparables?
No.
Luxembourg | 163

authority effective in obtaining on how successful the APA program
double tax relief? is and whether there are any known
Almost always. difficulties?
Currently, APAs can be filed by the tax
When may a taxpayer submit an authorities without constraint. However,
adjustment to competent authority? KPMG in Luxembourg is watching the
After an adjustment is proposed to the administrative practice with interest as to
taxpayer. how this will evolve.

authority before paying tax? Language
Permitted. In which language or languages can
The documentation can be filed in
Advance pricing English, German and French.
agreements
any?
APAs are available.

No.

No.
KPMG in Luxembourg
Philippe Neefs
Tel: +352 225 151 5531
Email: philippe.neefs@kpmg.lu

Malaysia
KPMG observation
The Malaysian tax authority is serious about implementing and monitoring
transfer pricing compliance. This is signalled by a new check box that has been
inserted in/on the 2014 tax return form. Transfer pricing guidelines were first
introduced in Malaysia in 2003. While the Malaysian tax authority continues its
scrutiny of traditional related party transactions involving sales and purchases of
goods and provision of intra-group services, they are now scrutinizing royalty and
trademark payments as well as intra-group financing arrangements. In addition, they
have developed new concepts on marketing intangibles.
KPMG in Malaysia observes that transfer pricing audits are intensifying year-by-year.
In particular, payment of significant intra-group charges has become a very contentious
area. Many taxpayers are now fighting an uphill audit battle due to a lack of documentation
supporting the arm’s length nature of such charges. Also, more companies are beginning to
appeal through the judicial system to settle their transfer pricing disputes with the Malaysian
tax authority. The first transfer pricing case was heard by the Special Commissioner of Income
Tax in 2010. A decision in favor of the taxpayer was recently announced in November 2013.
Having in place robust transfer pricing documentation and the availability and accessibility
of supporting source documentation were the key lessons learnt from this maiden transfer
pricing court case. The Malaysian tax authority has subsequently appealed to the High Court. The
Malaysian tax authority is also encouraging taxpayers to apply for Advance Pricing Agreements
(APAs) to achieve certainty on their transfer prices rather than wait for an audit.
It is noteworthy to mention that the Malaysian Inland Revenue Board (MIRB) is continuing to
enhance its transfer pricing knowledge through participation in international seminars, meetings and
conferences. In this regard, the MIRB has co-authored and contributed a section on the Malaysian
transfer pricing capacity building experiences to the United Nations Practical transfer pricing manual for
Developing Countries, which was issued in October 2012.
Basic information Income Tax (Transfer Pricing) Rules 2012 The transfer pricing guidelines issued in
(TP Rules 2012) were released to the 2003 were revised in July 2012.
Tax authority name public on 11 May 2012. The scope of
Lembaga Hasil Dalam Negeri (Malaysian Transfer Pricing (TP) Rules 2012 applies What is the relationship threshold
Inland Revenue Board or MIRB). to the acquisition and supply of goods for transfer pricing rules to apply
(including tangible and intangible goods), between parties?
Citation for transfer pricing rules services between associated persons The scope of TP Rules 2012 applies
The arm’s length provision is set out in and intra-group financing. Both local and to transactions between ‘associated
Section 140A of the Malaysian Income cross-border transactions are covered persons.’ Generally, a relationship is
Tax Act 1967 (the Act). Section 140A under TP Rules 2012. deemed to exist if there is a shareholding
requires taxpayers to determine and relationship of more than 50 percent.
apply the arm’s length price for their Effective date of transfer pricing
However, the Malaysian transfer pricing
transactions with an associated person rules
guidelines also consider a relationship to
for the acquisition or supply of property Section 140A became effective from exist if one party participates directly or
or services. Along with the introduction 1 January 2009. Prior to this date, indirectly in the management, control,
of Section 140A, the concept of thin transfer pricing adjustments were made or capital of the other party or the same
capitalization was also introduced, but based on the general anti-avoidance person participates directly or indirectly in
implementation has been deferred until provision. TP Rules 2012 are applied the management, control and capital of
the end of December 2015. retroactively, from 1 January 2009. both companies.
Malaysia | 165
What is the statute of limitations On the other hand, the Form MNE Under the self-assessment system,
on assessment of transfer pricing [2/2012] can be segregated into four the burden of proof is on the taxpayer
adjustments? sections: to show that its transactions with
The statute of limitation is 5 years associated persons have been carried
• general information
upon the expiration of a particular year out on an arm’s length basis. To
of assessment, except in cases of • particulars of transaction with foreign demonstrate this, taxpayers are required
investigations, fraud, willful default, or related companies to prepare contemporaneous transfer
negligence. Malaysia is currently in year pricing documentation based on TP
• particulars of financial assistance
of assessment 2014. For example, in year Rules 2012 and the Malaysian transfer
with foreign related companies
of assessment 2014, an assessment pricing guidelines.
can be issued as far back as year of • other information including a
declaration whether transfer pricing To satisfy the requirement and/or
assessment 2009.
documentation has been prepared obtain the benefits, are there any
for the relevant year, a declaration requirements on when the transfer
Transfer pricing of any business restructuring for the pricing study must be prepared and
disclosure overview taxpayer and its related parties in the submitted?
group during the year or the last 5 Documentation should be prepared
years, and an overall characterization contemporaneously (that is, taxpayers
of the company. need to ensure that transfer pricing
documentation is prepared when
on an annual basis (e.g. with the tax What are the consequences developing or implementing a
return)? of failure to prepare or submit transaction with associated person(s).
As previously mentioned, with effect disclosures? Where there are material changes, the
from year of assessment 2014, taxpayers For disclosures which are part and parcel transfer pricing documentation should
are required to declare in the annual of the annual tax return forms, failure be updated prior to the due date for
tax return forms, whether they have to furnish information relating to the furnishing a tax return for that year of
prepared transfer pricing documentation. disclosures could render the annual tax assessment).
Besides that, the amount of transactions return form as an incorrect return, which
There is no requirement to submit the
with associated persons are also on conviction, could result in a fine of
documentation but it must be readily
needed to be disclosed in the annual tax not less than 1,000 Malaysian ringgits
available upon request by the MIRB.
return forms. (MYR) and not more than MYR10,000
(approximately 3,000 US dollars (USD)).
In July 2011, Form MNE [2/2012] was
introduced by the MIRB to collect certain
information from taxpayers relating to Transfer pricing study Chapter V of the Organisation
for Economic Co-operation and
their cross-border transactions. This is overview Development (OECD) Guidelines?
issued only to selected taxpayers and Is preparation of a transfer pricing
aims to complement the information Yes.
already disclosed in the annual tax taxpayer be penalized for mere
returns. The introduction of this Form can Does the tax authority require an
failure to prepare a study? advisor/tax practitioner to have
be viewed as a major step towards the
introduction of formal transfer pricing No. specific designation in order to
returns in the future. prepare or submit a transfer pricing
Other than complying with a study?
What types of transfer pricing requirement per the previous No.
information must be disclosed? question, describe the benefits, if
The annual tax return forms require transfer pricing study? Transfer pricing methods
taxpayers to declare whether they have The documentation can serve as a first Are transfer pricing methods
prepared transfer pricing documentation, line of defense in the event of a tax outlined in Chapter II of the OECD
as well as the disclosure of the amount of audit and may assist the taxpayer to Guidelines acceptable?
transactions with associated persons for obtain a lower penalty rate. With transfer
the following type of transactions: Yes.
pricing documentation, transfer pricing
• sales to associated persons adjustments made during tax audits Is there a priority among the
• purchases from associated persons by the MIRB will be subject to a lower acceptable methods?
penalty rate of 25 percent as opposed to
TP Rules 2012 provide that traditional
• other payments to associated persons 35 percent. Further, based on the transfer
transactional methods should be
• loans to/from associated persons pricing audit framework, the taxpayer can
considered first before transactional
have penalty protection (i.e. nil penalty)
profit methods.
• receipts from associated persons. if its transfer pricing documentation is
deemed contemporaneous.
If there is no priority of methods, is the MIRB will also take into account if the Department have signed a memorandum
there a “best method” rule? taxpayer has acted in good faith and fully of understanding on joint audit, where
As indicated above, the preference is cooperated during the tax audit. auditors from both departments will
for traditional transactional methods. work together.
However, the Malaysian transfer pricing currently? Are management fees deductible?
guidelines recognize that the method
Transfer pricing audits have intensified and Yes, except for those relating to
requiring the fewest adjustments and
are expected to continue to intensify in shareholder or custodial activities,
providing the most reliable measure of
Malaysia. In addition to the usual focus on duplicative services, services that provide
an arm’s length result is preferred by
transactions involving sales and purchases incidental or passive association benefits
the MIRB.
of goods, the Malaysian tax authorities are and on-call services (note: the deductibility
also increasing their scrutiny on payments of on-call services can be reviewed on a
Transfer pricing audit and for intra-group services as well as looking case-by-case basis), or when taxpayers fail
into intra-group financing arrangements
penalties and payments in relation to intangible
to provide evidence to support the receipt
of management services and commercial
When the tax authority requests properties. benefits accrued to the local entity. The
Common audit triggers include MIRB is intensifying their review on
companies exhibiting consistent payments for intra-group services during
losses, fluctuating profitability or those transfer pricing audits to determine
documentation?
making very low profits. Companies whether the payments comply with the
Documentation should be made available arm’s length principle. The MIRB has been
with significant amounts of related
to the MIRB within 30 days from the date very strict and in many recent transfer
party transactions, especially payments
of request. pricing audits, companies are finding it
for intra-group services, royalties or
intangible property and companies that difficult to produce sufficient and reliable
have undergone supply chain or business evidence to justify the arm’s length nature
restructurings are also likely to be selected of their payments.
outside of competent authority? for a tax audit.
A dispute resolution department has withholding?
been set up recently by the MIRB Special considerations Yes, if payment of the management fees
to resolve matters prior to court is for services performed by non-residents
proceedings. With respect to the judicial in Malaysia. If services were performed
authorities?
system the first level of the appeal is outside Malaysia, withholding tax would
generally to the Special Commissioner Yes, based on the MIRB’s internal
database. not be applicable.
of Income Tax through the submission of
a Form Q. Are year-end transfer pricing
Is there a preference, or requirement,
by the tax authorities for local adjustments permitted?
comparables in a benchmarking set? Yes. However, they may attract enquiries
Yes, it is a preference of the MIRB to use from MIRB and there are also indirect tax
local companies as comparables. The use implications to be considered in respect of
conditions?
of foreign comparable companies in a such adjustments.
Transfer pricing adjustments made during
a tax audit which result in additional benchmarking analysis will most likely not
tax payable will be subject to a general be sufficient to convince the MIRB of the
arm’s length outcome. None.
penalty rate of 35 percent of the additional
taxes payable. A lower penalty rate of
25 percent will apply where transfer
Other recent
pricing documentation is prepared and nil
for comparables? developments
where the transfer pricing documentation
In Malaysia, a local benchmarking analysis The Malaysian transfer pricing guidelines
meets the contemporaneous requirement
is carried out manually based on publicly revised in July 2012, prescribed certain
available directories and by extracting thresholds for the application of the
financial accounts from the Companies guidelines to ease taxpayers’ compliance
penalties enforced?
Commission of Malaysia. At present, cost burden. The guidelines are applicable
Always. where at least one person is assessable
there are no good quality commercial
databases for local companies. and chargeable to tax in Malaysia, the
taxpayer’s gross income exceeds MYR25
What level of interaction do tax million, and total amount of related party
The availability of a local authorities have with customs transactions exceeds MYR15 million or,
contemporaneous transfer pricing authorities? where the taxpayer receives or provides
documentation will assist taxpayers to financial assistance, the financial
Presently low, however, the MIRB
appeal for a lower penalty rate. In addition, assistance exceeds MYR50 million.
and the Royal Malaysian Customs
Malaysia | 167
For a person carrying on a business, Advance pricing

taxpayers who fall outside the scope
of the guidelines may still opt to agreements
comply fully or comply with limited What advance pricing agreement
documentation requirements (that (APA) options are available, if any?
is, organization chart, description Effective 1 January 2009, Section 138C
of controlled transaction (including was introduced in the Act. Section 138C
functional analysis) and pricing policies). allows taxpayers to apply for APAs to
A transfer pricing audit framework reach an agreement with the MIRB
effective from 1 April 2013 was released on prices of goods and services that
to provide clarity and guidance on how would be transacted in the future with
transfer pricing audits would be carried associated persons.
out. MIRB has acknowledged that good In addition, the Income Tax APA Rules
quality contemporaneous transfer pricing 2012, released on 11 May 2012 provide
documentation can provide penalty guidance on the application process
protection for the taxpayer and also and timeline. The APA Rules 2012 apply
introduced a new penalty regime for retrospectively, with effect from
voluntary disclosure. 1 January 2009.
An application for unilateral, bilateral

Tax treaty/double tax or multilateral APAs is done via a
resolution prescribed form which contains details
as may be required by the Director
General of the MIRB.
treaty network?
Extensive. Is there a filing fee for APAs?
At the moment, to encourage taxpayers
to apply for APAs, no fees are imposed.
However, taxpayers will bear any
double tax relief?
overseas traveling and accommodation
Sometimes. expenses incurred by the Malaysian
government in relation to bilateral or
multilateral APAs.
Normally, a taxpayer may initiate a mutual Does the tax authority publish APA
agreement procedure (MAP) if there data either in the form of an annual
is a risk of double taxation and there report or through the disclosure of
is a treaty agreement with the foreign data in public forums?
counterparty. In most cases, this is after To date, there is no published data on
being issued the Notice of Additional APAs.
Assessment.
May a taxpayer go to competent on how successful the APA program
authority before paying tax? is and whether there are any known
Yes. The taxpayer is permitted to initiate difficulties?
a competent authority negotiation even KPMG in Malaysia
Not applicable.
before the issuance of the Notice of
Additional Assessment and paying taxes. Bob Kee
Once the Notice of Assessment/Notice Language Tel: +603 7721 7029
of Additional Assessment is issued, the In which language or languages can Email: bkee@kpmg.com.my
taxpayer needs to remit payment within documentation be filed? Chang Mei Seen
30 days; otherwise a penalty for late
The documentation can be prepared in Tel: +603 7721 7028
payment will be imposed.
Bahasa Malaysia or English. Email: meiseenchang@kpmg.com.
my
Ivan Goh
Tel: +603 7721 7220
Email: ivangoh@kpmg.com.my

Mexico
KPMG observation
Mexico has been very active in transfer pricing. The tax authority has been
performing a considerable number of audits in different industries. One hot
topic is service fees paid to a foreign related party. A frequent concern is lack of
sufficient evidence to establish that the services were provided, and that there was
a business reason that the services were required. In many cases, the deductibility
of such service fees is being challenged. Additionally, documentation and reporting
requirements have increased considerably, so it is very important to prepare a
transfer pricing documentation study. Failure to do so may result in non-deductibility of
payments to related parties.
Basic information What is the statute of limitations What types of transfer pricing
on assessment of transfer pricing information must be disclosed?
Tax authority name adjustments? • Transfer Pricing Documentation
Servicio de Administración Tributaria Five years from filing date of the tax Report of Domestic Intra-Group
(SAT). return. Transactions:
Citation for transfer pricing rules –– methodology used to show that
Ley del Impuesto Sobre la Renta Transfer pricing the transactions were conducted
(Mexican IncomeTax Law) Articles 86-XII, disclosure overview in accordance with the arm’s
86-XIII, 86-XV, 215, 216, and 216-Bis. length principle.
Ley del Impuesto Empresarial a Tasa pricing required to be prepared or • Transfer Pricing Documentation
Unica (Mexican Business Flat Tax Law) submitted to the revenue authority Report of Cross-Border Intra-Group
Article 18-III. on an annual basis (e.g. with the tax Transactions:
return)? –– name, domicile, tax residence
Effective date of transfer pricing Yes. Mexican taxpayers are required and detail of the direct or indirect
rules to provide specific information in the participation between or among
Ley del Impuesto Sobre la Renta: transfer pricing studies documenting the related parties
1 January 1997. the arm’s length nature of domestic and
–– information of functions, assets,
Cross-Border Intra-Group Transactions.
Ley del Impuesto Empresarial a Tasa and risks borne by each type of
These studies are not to be filed with the
Unica: 1 January 2008. operation
tax authority unless they are requested
What is the relationship threshold by the SAT. In addition, taxpayers must –– detail of the controlled transactions
for transfer pricing rules to apply also disclose information regarding
–– transfer pricing methodology used.
between parties? the conclusions of the transfer pricing
documentation studies as part of the Companies that file a statutory tax audit
Direct or indirect ownership of
appendices of the Statutory Tax Audit report must also submit the following
capital, administration or control. No
report (i.e. Dictamen Fiscal) or the appendices with regard to transfer
specific threshold for the entities to
information alternative to the Statutory pricing (the numbers of the appendices
be considered related parties (i.e.
Tax Audit Report. Taxpayers are also might vary depending on the type of
even if there is a 1 percent ownership
required to submit information regarding company):
of the shares, the entities are
transactions with foreign-resident related
considered related). • Appendix 32 of the Statutory Tax
parties during the immediately preceding
Audit Report (Dictamen Fiscal):
calendar year.
Mexico | 169
Type and amount of intra-group Transfer pricing study which is due on 30 June. In addition, the
transactions by related party, transfer Transfer Pricing Information Return for
pricing method used, whether overview Cross-Border Intra-Group Transactions
the intra-group transaction is at Is preparation of a transfer pricing must be filed contemporaneously with
arm’s length, and amount of the study required – i.e. can the the Dictamen Fiscal.
adjustment so that the transaction is taxpayer be penalized for mere
Companies not filing the Dictamen
at arm’s length. failure to prepare a study?
Fiscal: Both the Transfer Pricing
• Appendix 33 of the Statutory Tax Audit Yes, for all transactions. Transfer pricing Information Return for Cross-Border
Report (Dictamen Fiscal): Business documentation is required by Mexican Intra-Group Transactions and the transfer
activity of the taxpayer, ownership legislation. However, taxpayers whose pricing documentation must be ready by
of intangible assets used, date in revenues during the previous fiscal the time the income tax return is due, i.e.
which the information return was year did not exceed 13 million Mexican 31 March.
submitted and whether the taxpayer pesos (MXN) are not required to
has supporting documentation of produce supporting documentation When a transfer pricing study is
the arm’s length nature of intra- with regard to intra-group transactions. prepared, should its content follow
group transactions, Advance Pricing In addition, there is no exception to Chapter V of the Organisation
Agreements (APAs) under negotiation, the requirement of conducting the for Economic Co-operation and
Tax ID of transfer pricing advisors, transactions at arm’s length. Development (OECD) Guidelines?
interests deemed to be dividends, According to the Federal Fiscal Code, Yes, provided that the analysis is
prorate expenses, financial derivative there is no specific penalty for not conducted by using a transaction-by-
transactions with related parties, thin preparing supporting transfer pricing transaction approach.
capitalization issues, corresponding documentation. However, if a taxpayer
adjustments, etc. does not comply with the transfer pricing Does the tax authority require an
documentation requirements stated in advisor/tax practitioner to have
• Transfer Pricing Questionnaire: The
Fractions XII and XV of Article 86 of the specific designation in order to
external auditors of the Mexican
Mexican Income Tax Law, Mexican tax prepare or submit a transfer pricing
taxpayer filing the Statutory Tax Audit
authorities might deny the deduction of study?
Report will also have to complete
a transfer pricing questionnaire expenses resulting from the intra-group No. However, companies filing the
confirming that all transactions transactions with foreign related parties. Dictamen Fiscal must disclose the
were at arm’s length and that personal tax identification number of
documentation requirements Other than complying with a the person that prepared the transfer
were met. requirement per the previous pricing study or provided transfer pricing
question, describe the benefits, if assistance to the taxpayer, when it is
Companies that meet the threshold any, of preparing and maintaining a not prepared by the taxpayer. When the
for filing the Dictamen Fiscal but transfer pricing study? transfer pricing study is prepared by the
choose not to do so must also submit taxpayer, it should disclose the taxpayer’s
Article 76 of the Federal Fiscal Code
additional information that is similar tax ID number.
provides for a 50 percent reduction in the
to the Appendices 32 and 33 of the
penalty imposed for underpaid taxes or
Dictamen Fiscal.
for excess tax loss filed due to transfer Transfer pricing methods
pricing, if the taxpayer keeps supporting
What are the consequences Are transfer pricing methods
transfer pricing documentation.
of failure to prepare or submit outlined in Chapter II of the OECD
disclosures? The burden of proof is also shifted to Guidelines acceptable?
Tax authorities might deny the the tax authority, when a company has
Yes.
tax deductions of the intra-group transfer pricing documentation.
transactions that represent expenses Is there a priority among the
Also, having documentation will reduce
for the Mexican taxpayer, (i.e. inbound acceptable methods?
the risk of a disallowance of the tax for
transactions), if the Mexican taxpayer
the transactions with related parties. Yes. Comparable uncontrolled price
did not comply with the obligation of
(CUP) should be applied first, then the
preparing the transfer pricing study or To satisfy the requirement and/or resale price or cost plus methods, and
in those cases where the Information obtain the benefits, are there any then the profit-based methods (i.e.,
Return for Cross-Border Intra-Group requirements on when the transfer comparable profit split method, residual
Transactions was not filed. A penalty may pricing study must be prepared and profit split method, and transactional
also be imposed if the taxpayer fails to submitted? operating profit margin method).
submit the Information Return for Cross-
Border Intra-Group Transactions. Companies filing the Dictamen Fiscal: The
transfer pricing information must be filed If there is no priority of methods, is
in the appendices of the Dictamen Fiscal, there a “best method” rule?
Not applicable.
Transfer pricing audit Income Tax Law (LISR). The article also not prorated, as well as information
provides for a 50 percent reduction in the demonstrating that the services (1)
and penalties penalty imposed for underpaid taxes or were actually rendered; (2) provided
When the tax authority requests for excess tax loss filed due to transfer a benefit to the Mexican taxpayer; (3)
a taxpayer’s transfer pricing pricing, if the taxpayer keeps transfer were not duplicative services. When
documentation, how long does pricing supporting documentation. supporting evidence can be provided,
the taxpayer have to submit its However, if imposed, penalties cannot service fees might be considered to be
documentation? be negotiated. deductible, otherwise the tax authority
The taxpayer has 15 business days. An will consider them as non-deductible.
extension of 10 business days could
be granted by the tax authorities upon
currently? Are management fees subject to
request. Current audits focus on business withholding?
restructuring, domestic intra-group Yes. However, tax treaties may disallow
If an adjustment is proposed by the transactions, sales of shares that trigger withholding.
tax authority, are dispute resolution tax losses and management fees that
options available to the taxpayer Mexican tax authorities might consider Are year-end transfer pricing
outside of competent authority? to be pro rata expenses. adjustments permitted?
Yes, taxpayers can submit the resolution Yes, year-end adjustments might be
conducted to support that the intra-
to an administrative area within the Special considerations group pricing could be concluded
Ministry of Finance, in order to object
to the procedures. Also, taxpayers may Are secret comparables used by tax to be at arm’s length. However, it is
appeal to tax court, or if the related authorities? important that the year-end adjustments
party of the adjustment is a resident Yes. Any information to which the tax are accounted for before the end of
of a country with which Mexico has a authority has access may be used. the fiscal year to make sure tax and
tax treaty, Competent Authority may However, use of secret comparables is accounting figures are consistent. It is
be applied. not very common. advisable to conduct periodic reviews
in order to avoid significant year-end
If an adjustment is sustained, can Is there a preference, or adjustments. Customs issues must also
penalties be assessed? If so, what requirement, by the tax authorities be taken into account.
rates are applied and under what for local comparables in a
conditions? benchmarking set? Other unique attributes?
Yes. General tax penalties only: 55 to Usually North American comparable Pro rata expenses (cost-sharing) made
75 percent of the omitted income tax or companies are used by the SAT for audit to foreign entities are considered non-
30 to 40 percent of excess loss if due to purposes. deductible.
transfer pricing. However, if the taxpayer
prepared transfer pricing documentation, Do tax authorities have
requirements or preferences Other recent
they may be entitled to a 50 percent
reduction in the penalty. regarding databases for developments
comparables? On 12 November 2012, Miscellaneous
To what extent are transfer pricing The Mexican tax authorities use Rule I.3.8.3 was published in the
penalties enforced? Compustat (i.e. North American public Mexican Official Gazette. This
Often. companies) and RoyaltyStat. establishes that Mexican taxpayers
are not required to comply with the
What defences are available with What level of interaction do tax obligation of preparing a transfer
respect to penalties? authorities have with customs pricing report supporting the arm’s
Article 76 of the Federal Fiscal Code authorities? length nature of domestic intra-group
allows the Mexican tax authority to Low. transactions to the extent that their
assess penalties (i.e. 55 to 75 percent annual gross receipts the previous
of the omitted income tax or 30 to 40 Are management fees deductible? tax year did not exceed MXN13
percent of excess loss if due to transfer Yes. It should be taken into account million or, in the case of taxpayers
pricing) in cases in which it deems that pro rata expenses from foreign providing professional services, their
a company’s transfer pricing is not parties/ service providers are non- gross receipts did not exceed MXN3
consistent with the arm’s length standard deductible from a Mexican tax million. Therefore, based on the new
under the Mexican transfer pricing standpoint. Therefore, taxpayers must tax provision, the exception for the
regulations detailed in the Mexican have evidence showing they were requirement to prepare supporting
Mexico | 171
documentation of the arm’s length Does the tax authority publish APA
nature of the intra-group transactions data either in the form of an annual
does apply not only to cross- border report or through the disclosure of
intra-group transactions but also to data in public forums?
domestic intra-group transactions. As of January 2013, there is no official
publication of APA data. However, APA
Tax treaty/double tax information is usually disclosed by
Mexican tax authorities in public forums.
resolution
What is the extent of the double tax Please provide some information
treaty network? on how successful the APA program
Extensive. Mexico has double
tax treaties with 58 countries and difficulties?
negotiations in progress with another The APA program can be viewed as
20 countries. successful if we compare the number
of APAs filed with the number of APAs
If extensive, is the competent that have been concluded. However,
authority effective in obtaining there are still opportunities to reduce the
double tax relief? length of the process.
Sometimes. However, it should be
noted that there have not been many
competent authority cases submitted by
Language
Mexican taxpayers. In most cases the In which language or languages can
competent authority has been effective documentation be filed?
is obtaining double tax relief. The Mexican tax authorities require
all documentation to be in Spanish.
When may a taxpayer submit an However, in those cases in which the
adjustment to competent authority? initial documentation is provided in
Depends on the time frame allowed by English, a translation by a certified
the tax treaty. translator will be subsequently required.
The time to provide the information will
May a taxpayer go to competent be 15 business days.
Yes.
Advance pricing
agreements
if any?
Unilateral and bilateral.

Yes. Approximately 1,000 US dollars
(USD) for the first year and USD100 for a
review to be conducted every year of the
APA term.
KPMG in Mexico
M.Teresa Quiñones
Tel: +52 (55) 5246-8347
Email: teresaquinones@kpmg.com.
mx

Montenegro
KPMG observation
Transfer pricing rules have been present for more than a decade in Montenegrin
Corporate Income Tax (CIT) Law, but specific and detailed regulations on the
application of these rules have never been published by the Ministry of Finance.
However, due diligence should be taken with respect to the transfer pricing rules
stipulated in the CIT Law (even though they are not applied in practice) since the tax
authorities may change their current practice retroactively.
Basic information • if two entities are subsidiaries of the What are the consequences
same entity or of failure to prepare or submit
Tax authority name disclosures?
• if entities are under direct or indirect
Tax Administration of Montenegro. No consequences are defined in the
control of a third entity.
CIT Law for failure to prepare or submit
What is the statute of limitations disclosures.
Articles 19, 20 and 38 of the Corporate on assessment of transfer pricing
Income Tax (CIT) Law. adjustments?
Effective date of transfer pricing Generally 5 years from the end of the
rules year in which a tax liability should have overview
been determined. The absolute period of Is preparation of a transfer pricing
1 January 2002. limitation is 10 years. There is no special study required – i.e. can the
statute of limitations on assessment of taxpayer be penalized for mere
transfer pricing adjustments. failure to prepare a study?
between parties? No. However, supporting
A company is defined as being related Transfer pricing documentation for disclosed transfer
prices is recommended (specific form
to another company or an individual if disclosure overview is not prescribed).
this other company or the individual
has a direct effect on the conditions or Other than complying with a
economic results of the transactions requirement per the previous
between these entities. question, describe the benefits, if
Special conditions are: return)? any, of preparing and maintaining
Yes. a transfer pricing study?
• participation in the capital or in the Since there are no specific
voting power of at least 25 percent, What types of transfer pricing requirements regarding the
• the existence of a subordinated information must be disclosed? documentation, preparing a transfer
relationship between two entities, Income and expenses generated from pricing study provides a benefit of
related party transactions during the shifting the burden of proof to the tax
• if one entity is under control (direct authorities.
year must be separately disclosed in the
or indirect) of another entity,
CIT return.
Montenegro | 173
To satisfy the requirement and/or declared at the moment of request Is there a preference, or
obtain the benefits, are there any from the tax authorities. Time may requirement, by the tax authorities
requirements on when the transfer be granted for the preparation of for local comparables in a
pricing study must be prepared and documentation during the tax audit. benchmarking set?
submitted? No.
If an adjustment is proposed by
No specific requirements.
the tax authority, are dispute Do tax authorities have
When a transfer pricing study is resolution options available to the requirements or preferences
prepared, should its content follow taxpayer outside of competent regarding databases for
Chapter V of the Organisation authority? comparables?
for Economic Co-operation and Adjustments assessed by the tax No, none in practice.
Development (OECD) Guidelines? authorities must be applied and then
As there is no required documentation the taxpayer has an option to appeal to What level of interaction do tax
necessary to support transfer prices the second instance degree procedure authorities have with customs
applied, taxpayers are advised to follow with the tax authorities or finally to the authorities?
the OECD Guidelines. administrative court. Interaction between tax and customs
authorities regarding VAT is high.
Does the tax authority require an If an adjustment is sustained, can
However, it is not possible to estimate
advisor/tax practitioner to have penalties be assessed? If so, what
the level of interaction regarding
specific designation in order to rates are applied and under what
transfer pricing.
prepare or submit a transfer pricing conditions?
study? No penalties are defined in the CIT Law Are management fees deductible?
No. for underpayment of tax due to transfer Generally, yes. Please note that non-
pricing. documented costs are non-deductible
as well as costs that are not incurred for
Transfer pricing methods To what extent are transfer pricing
business purposes.
Are transfer pricing methods penalties enforced?
outlined in Chapter II of the OECD Not applicable. Are management fees subject to
Guidelines acceptable? withholding?
Yes. However, please note that only the Yes, a 9 percent withholding tax applies
traditional methods are prescribed by the unless there is a double taxation treaty
regulations i.e. comparable uncontrolled Not applicable. between Montenegro and the country of
price (CUP) resale minus and cost plus. the beneficial owner of the income.
Is there a priority among the currently? Are year-end transfer pricing
acceptable methods? The government is currently rarely adjustments permitted?
Yes. When CUP is not possible, the cost performing transfer pricing audits due No.
plus method or the resale price method to lack of experience and a relatively
should be used. low corporate income tax rate (9 Other unique attributes?
percent), which results in much more Not applicable.
If there is no priority of methods, is attention paid to indirect and payroll
there a “best method” rule? taxes. Taking into account that the tax
Not applicable. authorities in neighboring countries in Other recent
South Eastern Europe have started to developments
pay much more attention to transfer Not applicable.
Transfer pricing audit and pricing, it is expected that this trend
penalties will spread to Montenegro as well.
a taxpayer’s transfer pricing Special considerations resolution
documentation, how long does Are secret comparables used by What is the extent of the double tax
the taxpayer have to submit its tax authorities? treaty network?
documentation? Minimal.
No.
The taxpayer should in principle possess
documentation to support transfer prices
If extensive, is the competent Does the tax authority publish APA

authority effective in obtaining data either in the form of an annual
double tax relief? report or through the disclosure of
No experience. data in public forums?
Not applicable.
adjustment to competent authority? Please provide some information
No formal rules exist in this area. on how successful the APA program
May a taxpayer go to competent difficulties?
authority before paying tax? Not applicable.
Language
Advance pricing In which language or languages can
agreements documentation be filed?
What Advance Pricing Agreement Montenegrin.
No APAs or advance rulings of any kind
are available.

Not applicable.
KPMG in Montenegro
Igor Loncarevic
Tel: +381112050570
Email: iloncarevic@kpmg.com

Namibia | 175
Namibia
KPMG observation
Namibia introduced transfer pricing legislation on 14 May 2005. The legislation
in the form of Section 95A to the Namibian Income Tax Act is aimed at enforcing
the arm’s length principle in cross-border transactions carried out between
connected persons.
During September 2006, the Directorate of Inland Revenue issued Practice Note
2 of 2006 (PN 2/2006) containing guidance on the application of the transfer
pricing legislation.
We note that the Directorate of Inland Revenue has recently started raising transfer
pricing related queries with taxpayers.
Basic information • any other company that holds at least Transfer pricing disclosure
20 percent of the equity share capital,
Tax authority name where no other shareholder holds the overview
Directorate of Inland Revenue (DIR). majority shares Are disclosures related to transfer
• any other company if that other
Citation for transfer pricing rules submitted to the revenue authority
company is managed or controlled by
Section 95A of the Income Tax Act and on an annual basis (e.g. with the tax
a connected person in relation to the
Practice Note 2 of 2006. first company or a connected person in return)?
relation to the first connected person. The disclosures in the tax return are not
Effective date of transfer pricing rules specific to connected persons, except
Additionally, Practice Note 2 also provides dividends to shareholders.
14 May 2005.
that the transfer pricing rules apply to
What is the relationship threshold transactions between a head office and a There is currently no statutory
for transfer pricing rules to apply branch and branches of the same person requirement that the transfer pricing
between parties? dealing with each other. policy should be submitted to the DIR as
part of the Annual Income Tax Return.
In relation to a company, the following are What is the statute of limitations
regarded as connected persons: on assessment of transfer pricing What types of transfer pricing
• its holding company adjustments? information must be disclosed?
In terms of section 69 of the Income Tax Not applicable.
• its subsidiary
Act, the Commissioner may at any time
• any other company, where both issue additional assessments – there is no What are the consequences of failure
companies are subsidiaries of the statute of limitations. to prepare or submit disclosures?
same holding company Not applicable.
In practice, DIR allows for amended
• any person (other than a company) tax returns to be submitted by the
that holds individually or jointly with taxpayer until the taxpayer is assessed. Transfer pricing study
any connected person in relation to In terms of section 71 of the Income overview
that person at least 20 percent of the Tax Act a taxpayer has only 90 days to
equity share capital or voting rights in object to a notice of assessment by the Is preparation of a transfer pricing
the company Commissioner. study required – i.e. can the taxpayer
prepare a study?
No. There is no absolute requirement to
prepare a transfer pricing study.
However, there is a requirement set out in sound transfer pricing policy in terms If an adjustment is proposed by the
Practice Note 2 that the taxpayer should of which transfer prices are determined tax authority, are dispute resolution
exercise judgment in determining the in accordance with the arm’s length options available to the taxpayer
level of documentation required. principle by documenting the policies and outside of competent authority?
procedures for determining those prices”. Objections to assessments may be
In terms of section 64 of the Income Tax
Act, the DIR may require a taxpayer to The transfer pricing documentation should made, in writing, within 90 days after the
produce certain documentation. Where include the policies and procedures for date of issue of the assessment. If the
a taxpayer fails or neglects to furnish determining the arm’s length prices. taxpayer is not happy with the Minister’s
documentation required by the DIR, that However, the taxpayer is expected to response on the objection, the taxpayer
person shall be guilty of an offence and use judgment in determining the level of may appeal to a special court for hearing
will be liable upon conviction to a fine not documentation required. Practice Note 2 income tax appeals or a tax tribunal if all
exceeding 300 Namibian dollars (NAD) makes reference to paragraph 5.4 of the the requirements are met. Such notice of
and/or imprisonment not exceeding OECD Guidelines. appeal must be furnished to the Minister
3 months. If subsequently the taxpayer within 30 days after the notice issued by
fails to furnish the information in the Does the tax authority require an the Minister on the objection.
time period allowed, they will be guilty advisor/tax practitioner to have
specific designation in order to If an adjustment is sustained, can
of an offence and liable on conviction to
prepare or submit a transfer pricing penalties be assessed? If so, what
a fine of NAD30 for every day the default
continues, or imprisonment not exceeding study?
conditions?
three months. No. Practice Note 2 does not prescribe
Yes.
who must prepare the transfer pricing
Other than complying with a documentation, other than to say that the On late payment:
requirement per the previous taxpayer must develop the transfer pricing
question, describe the benefits, if policy. • 10 percent penalty on tax outstanding
any, of preparing and maintaining a on due date for each month or part
transfer pricing study? thereof during which the amount
Penalty protection; shifting of the burden Transfer pricing methods remains unpaid
of proof; requirement in practice. In Are transfer pricing methods outlined • interest at 20 percent per annum.
addition where the DIR makes transfer in Chapter II of the OECD Guidelines
pricing adjustments, it would be difficult acceptable? On underestimation of the provisional tax
for the taxpayer to rebut these in the payments:
Yes.
absence of adequate transfer pricing
• first provisional payment:
documentation. Is there a priority among the
acceptable methods? –– additional tax of 100 percent of
To satisfy the requirement and/or 50 percent of the taxable income
obtain the benefits, are there any No. DIR follows the OECD Guidelines,
for the year less payments
requirements on when the transfer so there is no priority when using the
already made
pricing study must be prepared and acceptable methods.
submitted? • second provisional payment:
Practice Note 2 merely states that the –– additional tax of 100 percent of
taxpayer should be in possession of the taxable income for the year
transfer pricing documentation. Yes. DIR follows OECD Guidelines, and less payments already made.
therefore the “most appropriate method”
There are no guidelines on when the rule applies. To what extent are transfer pricing
transfer pricing documentation should penalties enforced?
be prepared. As previously mentioned,
the transfer pricing documentation need Transfer pricing audit and DIR generally always enforces penalties
if errors are detected. Only recently have
not be submitted with the return unless penalties we seen DIR starting to question transfer
requested by the DIR.
When the tax authority requests pricing matters.
When a transfer pricing study is a taxpayer’s transfer pricing
documentation, how long does What defences are available with
the taxpayer have to submit its respect to penalties?
for Economic Co-operation and documentation? Generally, one can request a waiver of
Development (OECD) Guidelines? The Income Tax Act does not specify penalties if it can be shown that the error
a time period. However, Practice was not a result of intent to evade tax
Yes, with exceptions.
Note 2 says that the taxpayer must or circumstances arose of which the
Per Practice Note 2, the “Taxpayer needs be in possession of transfer pricing taxpayer was not aware at the time of
to demonstrate that it has developed a documentation. payment of the provisional tax payments.
Namibia | 177
However, KPMG in Namibia has not yet Are management fees subject to May a taxpayer go to competent
seen objections specific to transfer pricing withholding? authority before paying tax?
being raised in practice. If it falls within the definition, Not applicable.
Where the taxpayer has transfer pricing management fees are subject to a
25 percent withholding tax subject to any
documentation it would be easier to
double tax agreement relief. Advance pricing
substantiate any connected person/
transaction value queries by DIR. agreements
What trends are being observed adjustments permitted?
currently? No.
No. However, a company may obtain
DIR has not raised transfer pricing queries • the tax return does not make provision from the tax authorities a ruling on the
in the past. However, KPMG in Namibia for year-end adjustments. The DIR has application of particular provisions in the
has recently seen an increase in transfer not provided any guidance surrounding tax law.
pricing queries i.e. to substantiate values year-end adjustments.1
of cross-border connected person Is there a filing fee for APAs?
transactions. • the underestimation of provisional
payments penalties discussed above Not applicable.
may apply.
Special considerations Does the tax authority publish APA
Other unique attributes? data either in the form of an annual
Are secret comparables used by tax report or through the disclosure of
authorities? In practice a 3:1 debt-to-equity ratio is data in public forums?
Not as far as KPMG in Namibia are aware. used for thin capitalization transactions.
Not applicable.

Other recent Please provide some information on
comparables in a benchmarking set? developments and whether there are any known
No. None other than that it appears that DIR difficulties?
is focusing more on connected person
transactions. Not applicable.
for comparables?
Tax treaty/double tax Language
No.
resolution In which language or languages can
What level of interaction do tax documentation be filed?
authorities have with customs treaty network? English.
authorities?
Minimal.
Unknown, but we expect minimal as
regards to corporate tax matters (import If extensive, is the competent
VAT matters are handled with reference to authority effective in obtaining
customs documentation). double tax relief?
Not applicable.
In order to be deductible fees charged for When may a taxpayer submit an
management services must be at arm’s adjustment to competent authority?
length and must meet the requirements Not applicable.
of the general deduction formula.
KPMG in Namibia
Adeline Beukes
Tel: +264 61 387 532
Email: adelinebeukes@kpmg.com

1
There may be indirect tax implications on such adjustments.
Netherlands
KPMG observation
The Dutch Tax Authorities intend to adhere to the Organisation for Economic
Co-operation and Development (OECD) Guidelines and Base Erosion and Profit
Shifting (BEPS) work plan/initiative. The Netherlands also has an accessible and
professional Advance Pricing Agreement (APA)/Advance Tax Ruling (ATR) practice.
As transfer pricing is becoming ever more important in the Netherlands, the tax
authorities have doubled their transfer pricing staff in addition to having a transfer
pricing specialist coordination group.
Basic information What is the relationship threshold What are the consequences of failure
for transfer pricing rules to apply to prepare or submit disclosures?
Tax authority name between parties? Potential reversal of the burden of proof
Dutch Tax Authorities (DTA). OECD definition (direct or indirect and (general tax) penalties, where the
participation in management, control or DTA requests documentation and it is not
capital). submitted in time.
Article 8b of the Dutch Corporate
Income Tax Act (Wet op de What is the statute of limitations
Vennootschapsbelasting 1969). on assessment of transfer pricing Transfer pricing study
• Decree IFZ/2013/184,
adjustments? overview
14 November 2013 Five years from the tax year-end plus any Is preparation of a transfer pricing
extensions granted for filing of the tax study required – i.e. can the taxpayer
• Decree IFZ 2010/457M, return. In certain (international) cases this be penalized for mere failure to
15 January 2011 period may be extended to 12 years. prepare a study?
• Decree IFZ 2008/248M, Yes, for all transactions it is a statutory
29 September 2008 Transfer pricing disclosure requirement and transfer pricing
documentation is not optional. Penalties
• Decree DGB 2004/1339M, overview apply, although not specifically for
17 August 2004
Are disclosures related to transfer noncompliance with transfer pricing
• Decree IFZ 2004/126M, pricing required to be prepared or documentation requirements.
11 August 2004 submitted to the revenue authority
on an annual basis (e.g. with the tax Other than complying with a
• Decree IFZ 2004/127M,
return)? requirement per the previous
11 August 2004
The annual Dutch corporate income tax
• Decree DGB 2004/1338M, any, of preparing and maintaining a
return includes one question on whether
11 August 2004 transfer pricing study?
there are any transactions with related
• Decree DGB 2004/1337M companies. In the absence of sufficient
documentation, the burden of proof will
• Decree IFZ 2004/124M, What types of transfer pricing shift from the DTA to the Dutch taxpayer
11 August, 2004. information must be disclosed? to demonstrate that the transfer prices are
If a company has any transactions with at arm’s length.
related companies, a brief description
Codification as of 1 January 2002. needs to be included on the corporate tax
return form.
Netherlands | 179
To satisfy the requirement and/or If an adjustment is proposed by the Do tax authorities have
obtain the benefits, are there any tax authority, are dispute resolution requirements or preferences
requirements on when the transfer options available to the taxpayer regarding databases for
pricing study must be prepared and outside of competent authority? comparables?
submitted? Local litigation or mediation, or Yes, a strong preference for the
No. requesting a unilateral Dutch APA with a extended Amadeus database. For
roll back provision. financial and licensing transactions,
When a transfer pricing study is other databases may be used.
prepared, should its content follow If an adjustment is sustained, can
Chapter V of the OECD Guidelines? penalties be assessed? If so, what What level of interaction do tax
Yes. Documentation should be, in rates are applied and under what authorities have with customs
principle, prepared contemporaneously. conditions? authorities?
Yes, general tax penalties only. High.
advisor/tax practitioner to have To what extent are transfer pricing Are management fees deductible?
specific designation in order to penalties enforced? Yes, if provided on an arm’s length basis
prepare or submit a transfer pricing There are no specific transfer pricing and a benefit test has been met.
study? penalties. General tax penalties (up to
No. 100 percent) may apply in the case of an Are management fees subject to
intentional act (e.g. the taxpayer took a withholding?
non-defendable standpoint) leading to No, unless such fees are reclassified
Transfer pricing methods underpayment of taxes. by the DTA as dividends and may then
Are transfer pricing methods attract Dutch dividend withholding tax.
outlined in Chapter II of the OECD What defences are available with Furthermore, the 14 November 2013
Guidelines acceptable? respect to penalties? Decree covers in great depth the transfer
Yes. Transfer pricing documentation and to pricing treatment of management fees.
argue that any incorrect transfer pricing
Is there a priority among the is not intentional and not of gross Are year-end transfer pricing
acceptable methods? negligence. adjustments permitted?
No, as long as the outcome is at arm’s Yes, provided they are on an arm’s
length. What trends are being observed length basis.
currently?
If there is no priority of methods, is The DTA is enforcing the new Other unique attributes?
there a “best method” rule? 14 November 2013 Decree on transfer The DTA generally refers to multiple year
No. Where a traditional transaction pricing. Issues specifically dealt within data and the interquartile range in terms of
method and a transactional profit this Decree are headquarter services, benchmarking.
method (e.g. the transactional net intra-group financing, guarantee
margin method) can be applied in an provisions, captives, intangibles and
equally reliable manner, the former centralized procurement. Other recent
is preferred over the latter method. A developments
The number of transfer pricing audits
Comparable Uncontrolled Price (CUP) • The Netherlands issued a new 14
still increases. Business restructuring
method prevails over all other methods, November 2013 Decree, replacing
and exit (valuation) issues continue to be
if equally reliable. both the 2001 and 2004 transfer
focus areas in audits.
pricing decrees.
Transfer pricing audit and Special considerations • The previously released January 2011
Decree is also being enforced in
penalties Are secret comparables used by tax practice on the attribution of profits
When the tax authority requests authorities? and transfer pricing issues in relation
a taxpayer’s transfer pricing Yes, but only for case selection. to permanent establishments, which
documentation, how long does explains how the DTA is to apply the
the taxpayer have to submit its Is there a preference, or 2010 OECD report on permanent
documentation? requirement, by the tax authorities establishments.
In principle, within 30 days of the for local comparables in a
• There is enhanced attention on
request. However, this may be extended benchmarking set?
business restructurings, intra-group
by the DTA depending on the complexity No. Benchmarking helps to demonstrate guarantees, central procurement,
of the case. that transfer prices are at arm’s length, intangibles, and captive insurance
and the DTA accepts pan-European transactions following the
benchmarks, provided they meet 14 November 2013 Decree.
comparable search strategy standards
set by the DTA.
• Integrated transfer pricing, VAT and and either no extension for payment of short time frames. In particular, new
customs actions by the Dutch tax/ any tax is available or the assessment investments into the Netherlands are
customs authorities, with rulings are will trigger substantial interest which welcomed under the Dutch APA program
possible. might cause immediate financial (to agree in advance on an arm’s length
difficulties for the taxpayer, the Dutch outcome).
• DTA is pursuing a high-level of
competent authority is willing to assist
transparency with taxpayers and
the taxpayer by commencing bilateral
is prepared to commit itself to
discussions immediately, namely an extra-
Language
high-speed resolution/response of
accelerated MAP. The Dutch competent In which language or languages can
issues. The Dutch tax authorities
authority might even contact its foreign documentation be filed?
have indicated they are prepared to
counterparts before any tax assessment Dutch is the official language for
address double taxation issues at an
(including a transfer pricing adjustment) documentation. In practice, however,
early stage by means of “multilateral
is received by the Dutch taxpayer in documentation in English is also widely
controls” (i.e. joint tax audits of the
the other jurisdiction, and before a accepted. Other languages are not
Dutch and foreign tax authorities).
position paper is received from the other common. If documentation is drafted in a
Accordingly, a pilot study between
jurisdiction’s competent authority (e.g. foreign language, the DTA may request a
the Netherlands and Germany
See the above pilot study for Germany.) translation.
(launched 1 January 2013) relies on
the early exchange of information, or May a taxpayer go to competent
multilateral controls, as a means of authority before paying tax?
avoiding double taxation arising as a
Yes, see previous.
result of transfer pricing adjustments.
Tax treaty/double tax Advance pricing

resolution agreements
What is the extent of the double tax What APA options are available, if
treaty network? any?
Extensive. The Netherlands has one of the Unilateral, bilateral, multilateral, and
largest tax treaty networks in the world. combined APA/ATRs.
If extensive, is the competent Is there a filing fee for APAs?

authority effective in obtaining No.
double tax relief?
Almost always.
When may a taxpayer submit an report or through the disclosure of
adjustment to competent authority? data in public forums?
The Netherlands aims to eliminate double Statistical data is published once a year
taxation as early as possible. Therefore, when sending the data to the European
in the Dutch Decree of 29 September Union (EU), which publishes this data in
2008, IFZ2008/248M, dealing with the annual EU report on APAs.
mutual agreement procedures (MAPs),
a distinction is made between “ordinary”,
“accelerated” and “extra-accelerated”
procedures. If a Dutch taxpayer can
difficulties?
show that due to an action by foreign tax
authorities there will be taxation which The APA program is very successful, and
is not in accordance with the tax treaty, Dutch APAs may be concluded within
KPMG in Meijburg & Co

in the Netherlands
Jeroen Dijkman
Tel: +31 10 453 6843
Email: dijkman.jeroen@kpmg.nl

New Zealand | 181
New Zealand
KPMG observation
New Zealand's tax authority, Inland Revenue, has publicly endorsed the work
of the Organisation for Economic Co-operation and Development (OECD) on
Base Erosion and Profit Shifting (BEPS). New Zealand is an active participant at
discussions regarding BEPS and has signalled that it will take a principled and co-
operative approach to the recommendations of the OECD around this global focus.
The 2013/14 focus area for Inland Revenue continues to be intercompany financing,
with a growing number of disputes revolving around group financing transactions.
These include loans, guarantee fees, debt factoring and foreign exchange risk
management. We note that the New Zealand Government has increased the funding
available to Inland Revenue to use in reviewing structured finance transactions and has
invested in developing significant expertise in the field of banking and financing.
Inland Revenue supports the concept of implicit credit support in relation to intra-group
financial arrangements and this influences the perceived credit-worthiness of related party
borrowers, with the potential to have a significant impact on Inland Revenue’s determination
of an arm’s length interest rate.
Unilateral Advanced Pricing Agreements (APAs) remain popular and tend to be resolved quickly
(6 to 12 months) at a relatively low cost to taxpayers.
Basic information Transfer pricing disclosure Transfer pricing study

Tax authority name overview overview
Inland Revenue. Are disclosures related to transfer Is preparation of a transfer pricing
pricing required to be prepared or study required – i.e. can the taxpayer
Citation for transfer pricing rules submitted to the revenue authority be penalized for mere failure to
Sections GC 6 – GC 14 of the Income Tax on an annual basis (e.g. with the tax prepare a study?
Act 2007. return)? No statutory requirements, but
Yes, for New Zealand-owned outbound requirements in practice.
multinational groups. Disclosures
1997. are required for Controlled Foreign Other than complying with a
Companies (CFCs). requirement per the previous
What is the relationship threshold question, describe the benefits, if
for transfer pricing rules to apply What types of transfer pricing any, of preparing and maintaining a
between parties? information must be disclosed? transfer pricing study?
Cross-border arrangement between The primary activity of the CFC, details of Penalty protection, shifting of burden
associated persons, based on 50 percent gross revenue, royalty income, earnings of proof, requirement in practice/
or greater common shareholding or before interest and tax, among other expectation of authorities.
effective control. detailed financial information.
What is the statute of limitations What are the consequences of failure obtain the benefits, are there any
on assessment of transfer pricing to prepare or submit disclosures? requirements on when the transfer
adjustments? pricing study must be prepared and
None specifically related to the failure to
Four years from the end of year in which prepare or submit the disclosure. submitted?
the tax return is filed. No.
When a transfer pricing study is • litigation, if both parties cannot reach What level of interaction do tax
prepared, should its content follow an agreement in the earlier steps of authorities have with customs
Chapter V of the OECD Guidelines? the process. authorities?
Yes. Moderate. Inland Revenue and the
New Zealand Customs Service have
Does the tax authority require an penalties be assessed? If so, what
entered into a Memorandum of
advisor/tax practitioner to have rates are applied and under what
Understanding allowing the sharing of
specific designation in order to conditions?
information. KPMG in New Zealand are
prepare or submit a transfer pricing Yes. General tax penalties only, normally aware of the sharing of information for
study? 20 to 40 percent of the tax shortfall. the purposes of enforcing the transfer
No. pricing rules.
penalties enforced? Are management fees deductible?
Transfer pricing methods Sometimes. Yes, provided they meet the
Are transfer pricing methods outlined requirements of the normal
in Chapter II of the OECD Guidelines What defences are available with
deductibility rules.
acceptable? respect to penalties?
Yes. Specific legislative and Inland Revenue Are management fees subject to
ruling requirements dictate when withholding?
Is there a priority among the penalties may be imposed. Taxpayers No, unless they include an amount that
acceptable methods? may be able to make a case that the is subject to the withholding tax rules
penalty provisions should not apply in (such as royalties or interest).
No.
their circumstances (e.g. reasonable
If there is no priority of methods, is care has been taken in relation to their Are year-end transfer pricing
there a “best method” rule? transfer prices evidenced through adjustments permitted?
supporting documentation), or may be Yes, subject to meeting the arm’s
Yes.
able to apply for a reduction in penalties length requirement.
on the basis of prior compliance with
Transfer pricing audit and income tax rules. Other unique attributes?
penalties What trends are being observed Inland Revenue has reserved its
When the tax authority requests position on Article 7 of the OECD
currently?
a taxpayer’s transfer pricing Model Tax Convention. The Inland
KPMG in New Zealand has observed a Revenue supports the single entity
documentation, how long does continuing increase in the level of transfer
the taxpayer have to submit its concept rather than the separate legal
pricing audit activity, with transfer pricing entity concept for branch taxation.
documentation? questionnaires being issued in all general
Normal Inland Revenue practice is to income tax audits of multinationals in
specify a due date. This is generally at the last 4 to 5 years. There is also an Other recent
least 28 days from the receipt of the increasing use of APAs to resolve audit developments
information request. However, deadlines disputes.
None.
may be extended via negotiation.
If an adjustment is proposed by the Special considerations Tax treaty/double tax

tax authority, are dispute resolution Are secret comparables used by tax
resolution
authorities?
outside of competent authority? What is the extent of the double tax
Yes, but only for the purposes of transfer
Yes. Taxpayers can follow a prescribed treaty network?
pricing risk assessment by Inland
dispute resolution process which Revenue prior to an audit. Medium. New Zealand’s double tax
includes: treaty network is focused on countries
Is there a preference, or requirement, with strong trading and investment ties
• Inland Revenue issuing a notice of by the tax authorities for local to New Zealand, as well as developing
proposed adjustment to the taxpayer comparables in a benchmarking set? countries that New Zealand may have
• a conference between taxpayer and No. In practice it is difficult to identify trading ties with in the future.
Inland Revenue sufficient qualitative and quantitative
information on New Zealand comparables.
• disclosure by both parties authority effective in obtaining
• adjudication and review Do tax authorities have requirements double tax relief?
or preferences regarding databases Sometimes.
• assessment/amended assessment
for comparables?
by Inland Revenue
No specific database required.
New Zealand | 183

It depends on the mutual agreement
provisions of the relevant double tax
agreement.

Yes.
Advance pricing
agreements
any?
Unilateral, bilateral, and multilateral.

Yes, the fee is 322 New Zealand dollars
(NZD).

No.

difficulties?
Unilateral APAs are highly successful
and most APAs are concluded in a timely
manner. Bilateral APAs are generally
reserved for high value or high risk
transactions.
Language
English.
KPMG in New Zealand
Kim Jarrett
Tel: +64 9 363 3532
Email: kmjarrett@kpmg.co.nz

Nigeria
KPMG observation
Income Tax (Transfer Pricing) Regulations were recently introduced in Nigeria.
The Regulations were made public on 21 September 2012 with an effective date
of 2 August 2012. Companies are required to comply with the Regulations from
the basis period beginning after the aforementioned effective date. For instance,
companies with a 31 August accounting year-end will comply from 1 September
2012, the first basis period beginning after the effective date.
Companies are required to conduct transactions with related parties at arm’s
length and appropriate documentation must be available to verify that the pricing of
controlled transactions is consistent with the arm’s length principle.
The required documents include a contemporaneous compliance documentation which
should be in place before the filing of the taxpayer’s tax returns for the year of interest
and the completion and filing of Statutory forms (transfer pricing (TP) Declaration &
Disclosure Forms) along with the tax returns.
Finally, in line with the spirit of increased transparency under the Base Erosion and Profit
Shifting (BEPS) Action 13, the Federal Inland Revenue Service (FIRS) has sent letters to some
taxpayers with related party transactions to submit their group/global transfer pricing policies as
well as local transfer pricing policies to aid with their transfer pricing risk assessment.
Tax authority name adjustments? The transfer pricing Declaration Form
Federal Inland Revenue Service (FIRS). The Transfer Pricing Regulations do requires the disclosure of general
not provide for a statute of limitations information about the reporting
on assessment of transfer pricing company’s legal form and ownership
The Income Tax (Transfer Pricing) adjustments. However, the Companies’ structure. Specifically, companies are
Regulations No. 1, 2012. Income Tax Act (CITA) provides that the to provide detailed information on the
statute of limitation is 6 years except in following:
cases of fraud, wilful default, or neglect
rules • particulars of the reporting company
with respect to any tax payable, in which
2 August 2012. or entity
case there is no statute of limitation.
• particulars of immediate parent
company
for transfer pricing rules to apply Transfer pricing
between parties? disclosure overview • particulars of the directors of the
The Regulation covers all transactions reporting company or entity
entered into by connected taxable • major shareholders of reporting
persons. Enterprises are considered company or entity
to be associated where one party
on an annual basis (e.g. with the • particulars of subsidiaries and
participates directly or indirectly in the
tax return)? other connected persons to the
management, control or in the capital of
the other; or the same person or persons Yes, the Regulations require companies reporting entity
participate directly or indirectly in the to file statutory transfer pricing forms –
management, control or in the capital of Declaration Form and Disclosure Form –
both enterprises. along with their annual tax returns.
Nigeria | 185
• particulars of external auditors, Other than complying with a Does the tax authority require an
company secretary and tax requirement per the previous advisor/tax practitioner to have
consultants to the reporting company question, describe the benefits, if specific designation in order to
any, of preparing and maintaining a prepare or submit a transfer pricing
• particulars of the person completing
transfer pricing study? study?
the declaration form.
Preparing and maintaining a transfer No.
The transfer pricing Disclosure Form pricing study has the added benefit
requires the disclosure of the nature of of helping mitigate any potential
connected transactions. Specifically, transfer pricing audit by the FIRS.
companies are to provide detailed The Disclosure Form asks whether Are transfer pricing methods
information on the following: taxpayers with related party transactions outlined in Chapter II of the OECD
• particulars of the reporting company have compliance transfer pricing Guidelines acceptable?
or entity documentation in place. As such, a Yes. In addition, if a taxpayer is of the
response to the contrary is a red flag for view that none of the methods stated in
• income from controlled transactions potential transfer pricing audit. Chapter II are appropriate for determining
• costs of controlled transactions the arm’s length pricing, a taxable person
In addition, prior to the introduction of the
may apply transfer pricing methods other
• transfer pricing method and Regulations, the tax authority had usually
than those listed in the Regulations,
documentation adjusted connected taxable transactions
so long as they can show that the
based on the need to maximize tax
• basic financial information transactions are at arm’s length.
revenue. This was usually subjective
• particulars of the person completing and it was difficult for the taxpayer to
the Disclosure Form. justify the terms of connected taxable
acceptable methods?
transactions.
What are the consequences No.
of failure to prepare or submit It is expected that with the introduction
of the Regulations, there will be an If there is no priority of methods, is
disclosures?
objective basis to discuss and possibly there a “best method” rule?
The penalties for failure to submit defend the terms of connected taxable The Regulations does not explicitly have
disclosures are the same as the penalties transactions with the tax authority. a ‘best or most appropriate method’
for not filing tax returns, and are provided
rule. However, considering that the
for in the income tax legislation. To satisfy the requirement and/or Regulations make reference to the
Further, the failure to submit the obtain the benefits, are there any OECD Guidelines for detailed guidance
disclosures may be a potential audit requirements on when the transfer for compliance with the arm’s length
trigger and result in unilateral income pricing study must be prepared and principle, it is expected that taxpayers
adjustment by the tax authority. Any submitted? will select the most appropriate method
resulting additional tax liability may also The Regulations state that the based on facts and circumstances.
be subject to both penalties and interest. contemporaneous compliance
documentation should be in place prior
to the due date of filing the income tax
Transfer pricing study return for the year to which it relates. penalties
overview When the tax authority requests
The contemporaneous compliance
Is preparation of a transfer pricing documentation must be provided to the a taxpayer’s transfer pricing
study required – i.e. can the FIRS upon request within 21 days. documentation, how long does
taxpayer be penalized for mere the taxpayer have to submit its
failure to prepare a study? When a transfer pricing study is documentation?
Yes. The taxpayer is required to prepare a prepared, should its content follow Twenty-one days. However, upon a
contemporaneous transfer pricing study Chapter V of the Organisation reasonable request, the tax authority
and the necessary documentation prior for Economic Co-operation and has discretionary power to grant an
to filing its income tax return for the year Development (OECD) Guidelines? extension.
in which the documented transactions Yes. The Regulations did not provide
occurred. There is, however, no express specific information regarding If an adjustment is proposed by the
penalty for failure to comply other than the content of transfer pricing tax authority, are dispute resolution
the potential penalties and interest that documentation. It is therefore acceptable options available to the taxpayer
may arise from additional tax liabilities if it follows Chapter V of the OECD outside of competent authority?
that may be payable in the event of any Guidelines. Yes.
adjustment to the value of related party
transactions by the tax authority.
If an adjustment is sustained, can What level of interaction do tax to conducting transfer pricing risk
penalties be assessed? If so, what authorities have with customs assessment on taxpayers ahead of the
rates are applied and under what authorities? filing deadlines.
conditions? Minimal.
Yes. The applicable penalty rates are as
follows:
Management fees are deductible only if
resolution
• Companies’ income tax – in addition
the taxpayer has obtained prior approval What is the extent of the double tax
to the principal tax liability chargeable
of the National Office for Technology treaty network?
at 30 percent, the law imposes
Acquisition and Promotion (NOTAP) and Minimal. Nigeria currently has double
penalties of 10 percent plus interest
the tax authority is satisfied that they are tax agreements with nine countries
at Central Bank of Nigeria’s rediscount
at arm‘s length. that have been ratified by the National
rate.
Assembly.
• Value Added Tax (VAT) – in addition Are management fees subject to
to the principal liability chargeable at withholding? If extensive, is the competent
5 percent, the law imposes penalties Yes. authority effective in obtaining
of 5 percent plus interest at the double tax relief?
commercial rate. Are year-end transfer pricing Sometimes.
To what extent are transfer pricing Yes. There is no express provision in this When may a taxpayer submit an
penalties enforced? regard. It is KPMG in Nigeria’s view that adjustment to competent authority?
No experience to date. this will be permitted. The Regulation is silent on the timing for
submission of adjustments. The enabling
What defences are available with Other unique attributes? legislation (i.e. Companies Income Tax
respect to penalties? There are safe harbor provisions in the Act 2007) however permits a taxpayer
No experience to date. Regulations. They provide that a taxpayer to file revised tax returns as often as
will no longer be required to prepare necessary within 6 years after the
What trends are being observed transfer pricing documents if the pricing accounting year-end date.
currently? arrangement is approved by relevant
No observations. government agencies and the tax May a taxpayer go to competent
authority is satisfied that the transactions authority before paying tax?
are at arm’s length. The agencies include
Special considerations Department of Petroleum Resources
Yes.
Are secret comparables used by tax (DPR), Central Bank of Nigeria (CBN),
authorities? NOTAP, among others. Advance pricing
No. agreements
Is there a preference, or Other recent What Advance Pricing Agreement
requirement, by the tax authorities developments
for local comparables in a The FIRS has recently written to APAs are provided for in the Regulations.
benchmarking set? companies requesting their group However, the FIRS has indicated
transfer pricing policy. The group transfer informally that it will be ready to process
No.
pricing policy is expected to address APA requests after two years of the
Do tax authorities have dealings among group members effective date of the transfer pricing
requirements or preferences generally and Nigerian group entities regulations.
regarding databases for in particular. We understand that the
comparables? FIRS made this request with a view
No.
No.
Nigeria | 187

None. Nevertheless, information
obtained from taxpayers is generally not
released to the public.

difficulties?
Not applicable.
Language
English only.
KPMG in Nigeria
Tayo Ogungbenro
Tel: + 234 803 402 1016
Email: togungbenro@kpmg.com

Norway
KPMG observation
The focus on transfer pricing in Norway remains strong. There are several court
cases being decided on transfer pricing issues and the Norwegian tax authorities
have increased the number of tax audits conducted on various transfer pricing
topics. Furthermore, new interest deduction limitation rules have been implemented
with effect from 1 January 2014. The new rules will have a significant impact on
multinationals with intra-group financing relating to their operations in Norway.
The Norwegian tax authorities are following the development of the Organisation for
Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting
(BEPS) Action Plan closely. As an example, the Ministry of Finance has gathered a group
of tax experts in Norway which is evaluating the entire tax system and its alignment
with international practice. The recommendations of the working group are expected in
October 2014.
Finally, there is a particular focus on the quality of the comparability analysis presented to the
tax authorities. This is in line with the updated OECD Guidelines and there is an expectation of
a much more analytical approach to the determination and evaluation of transfer prices.
Tax authority name adjustments? The value range of related party
Norwegian Tax Authorities (Skatteetaten The statute of limitations is 10 years transactions to be disclosed depends on
in Norwegian). from tax year-end if the taxpayer has not the category of the transaction such as
provided sufficient factual information services, tangible property transactions,
Citation for transfer pricing rules about the transfer pricing in an appendix loans and interest, etc. On the front
Section 13–1 in the General Tax Act (GTA). to the tax return. If taxpayers include an page of the yearly tax return, taxpayers
Income can be adjusted based on the appendix to the tax return setting out have to confirm whether they are
general clause in section 13–1 of the GTA. sufficient factual information about the covered by the formal transfer pricing
transfer pricing, the statute of limitations documentation requirements and/or
Section 6-41 in the GTA sets out the new
will be two years after the financial year. reporting requirements (RF–1123). There
rules on interest deduction limitation.
is no requirement to file the transfer
Section 4-12 in the Tax Assessment pricing study before being requested
Act (TAA) includes the requirements to
Transfer pricing by the tax authorities to do so. In cases
prepare transfer pricing documentation. disclosure overview of uncertainty one should consider an
Are disclosures related to transfer appendix to the tax return in order to
Effective date of transfer pricing pricing required to be prepared or limit the open years of re-assessment to
rules submitted to the revenue authority two years after the financial year and/or
Formal transfer pricing documentation on an annual basis (e.g. with the tax to avoid tax penalties if an adjustment is
requirements commenced on 1 return)? sustained.
January 2008, cf. Section 4-12 of the Tax Yes. From financial year 2007, taxpayers
Assessment Act with regulations. What are the consequences
are obliged to file the form RF–1123 of failure to prepare or submit
regarding intra-group transactions with disclosures?
the annual tax return, if the total amount of
for transfer pricing rules to apply If affected taxpayers do not submit form
controlled transactions exceed 10 million
between parties? RF–1123, the tax filings can be deemed
Norwegian krone (NOK) or if the total
Direct or indirect ownership or control of incomplete. Providing insufficient or
amount of outstanding accounts exceeds
at least 50 percent. NOK 25 million.
Norway | 189
wrongful information can lead to penalty be adhered to. The study must include If an adjustment is sustained, can
taxes being imposed on adjusted transfer a company overview, industry analysis, penalties be assessed? If so, what
pricing amounts in tax audits. functional analysis, selection of transfer rates are applied and under what
pricing method and comparability conditions?
analyses. There is no specific requirement
Transfer pricing study to perform a database search although
Yes. General tax penalties could apply.
This means that a penalty, generally of
overview this is advisable if a net margin method is 30 percent of the tax avoided, may be
Is preparation of a transfer pricing applied. The tax authorities can request levied for transfer pricing adjustments.
study required – i.e. can the such an analysis and the taxpayer The penalty exposure can be reduced by
taxpayer be penalized for mere will get an additional 60 to 90 days to including an appendix to the tax return
failure to prepare a study? file according to the transfer pricing where the intra-group transactions and
documentation regulations in Norway. methods applied are described in a correct
No. There is no penalty for mere failure
to prepare a study. However, there is a and sufficient manner. The rate of penalty
risk that a subsequent re-assessment tax can be increased to 60 percent in
made by the tax authorities in a tax audit cases of gross negligence by the taxpayer.
will attract penalties, due to provision prepare or submit a transfer pricing
of insufficient information. Affected
study? penalties enforced?
taxpayers are required to prepare transfer
No. In recent years we have noted that the
pricing studies for each financial year.
Taxpayers are given 45 days to submit the tax authorities enforce penalties more
documentation upon written request from Transfer pricing methods frequently in transfer pricing cases. On the
the Norwegian tax authorities, so there is other hand, according to a new Supreme
Are transfer pricing methods Court decision, an increase in taxable
some time to finalize the report if targeted
outlined in Chapter II of the OECD income should not automatically lead to
by the tax authorities. The transfer pricing
Guidelines acceptable? a penalty if the taxpayer has acted in a
study must be kept on file for 10 years.
Yes. prudent manner.
requirement per the previous Is there a priority among the What defences are available with
question, describe the benefits, if acceptable methods? respect to penalties?
any, of preparing and maintaining a No, although the Norwegian tax Taxpayers are obliged to disclose
transfer pricing study? authorities have shown a preference for sufficient and correct information about
The benefits of having a prudent transfer the transactional profit method where their transfer pricing. The defense
pricing study are meeting the expectation no comparable uncontrolled prices would thus generally be to argue that
of the tax authorities, i.e. mitigating are available. the taxpayer has complied with these
the risk of the tax authority making requirements.
adjustments on a discretionary basis,
there a “best method” rule? What trends are being observed
since preparing an acceptable transfer
pricing study will shift the burden of proof Yes, the Norwegian tax authorities currently?
onto the tax authorities. In addition, the acknowledge the 2010 version of There is a particular focus on the quality of
preparation of an acceptable transfer the OECD Guidelines, so the “most the comparability analyses presented to
pricing study will reduce the risk of penalty appropriate method” rule applies. the tax authorities. This is in line with the
tax if a reassessment is made by the tax updated OECD Guidelines, and there is
authorities. an expectation of a much more analytical
Transfer pricing audit and approach to the determination and
To satisfy the requirement and/or penalties evaluation of transfer prices. In particular,
obtain the benefits, are there any When the tax authority requests intra-group financial arrangements
requirements on when the transfer a taxpayer’s transfer pricing and the treatment of intangible assets
pricing study must be prepared and documentation, how long does are currently areas of great interest to
submitted? the taxpayer have to submit its the Norwegian tax authorities. A wide
The transfer pricing study must be documentation? range of industries is being questioned
submitted within 45 days of a written by the tax authorities, however,
Within 45 days of a written request.
request from the tax authorities. the pharmaceutical, software and
Generally, no extension is granted.
Generally, no extensions are granted. telecommunication industries are often
If an adjustment is proposed by the shown particular attention with regard
When a transfer pricing study is tax authority, are dispute resolution to questions about intangible assets.
prepared, should its content follow options available to the taxpayer Finally, the Norwegian tax authorities have
Chapter V of the OECD Guidelines? outside of competent authority? stated that they will continue to scrutinize
Yes. There are specific transfer pricing Norwegian subsidiaries and branches
The taxpayer can bring the case to the tax
documentation regulations which must with low margins or losses.
complaint board and/or the courts.
Special considerations Other recent Advance pricing

Are secret comparables used by tax developments agreements
authorities? The use of mutual agreement What APA options are available, if
Yes. procedures (MAPs) has increased. We any?
are still awaiting possible Advance Pricing
Advance rulings are only available for
Is there a preference, or Agreement (APA) rules and there is
companies under the Petroleum Taxation
requirement, by the tax authorities currently a pilot project on MAP APAs.
Act. There are currently no formal
for local comparables in a Furthermore, we are aware that the
APAs available in Norway. Therefore,
benchmarking set? Norwegian tax authorities are favourably
unilateral APAs are thus not available in
No. There is no requirement to use local inclined to APAs based on the general
Norway, however, the Norwegian tax
comparables. However, it is preferable provisions in tax treaties.
authorities regularly enter into bilateral
since the tax authorities have more APA negotiations based on the general
information on such comparables than Tax treaty/double tax provisions in tax treaties.
others. That being said, the Norwegian
tax authorities generally acknowledge resolution Is there a filing fee for APAs?
that it is difficult to find proper What is the extent of the double tax Not applicable.
comparables looking at the Norwegian treaty network?
market in isolation. Extensive. Does the tax authority publish APA
Do tax authorities have If extensive, is the competent report or through the disclosure of
requirements or preferences authority effective in obtaining data in public forums?
regarding databases for double tax relief? Not applicable.
comparables?
Almost always. However, there is
There are no specific requirements. The pressure on the Norwegian tax authorities Please provide some information
Norwegian tax authorities use several to handle MAP cases more rapidly. on how successful the APA program
databases when conducting database is and whether there are any known
searches, with Amadeus being the most When may a taxpayer submit an difficulties?
frequently used. adjustment to competent authority? Not applicable.
There are no formal rules in this area.
authorities have with customs May a taxpayer go to competent Language
authorities? authority before paying tax? In which language or languages can
Medium. This is permitted and meetings with the documentation be filed?
relevant tax authorities are possible. English, Norwegian, Swedish, or Danish.
However, taxes become payable upon
Yes. the tax office’s decision being made,
so generally taxes have to be paid prior
to going to the competent authority.
withholding?
Taxpayers can postpone payment by
No. obtaining a parent or bank guarantee.

Yes.

None.
KPMG in Norway
Marius Basteviken
Tel: +47 4063 9032
Email: marius.basteviken@kpmg.no

Oman | 191
Oman
KPMG observation
The Oman Tax Department is increasingly focusing on the pricing of related party
transactions and, in the context of tax law the guidance includes only very broad,
related party principles. This can present a challenge to a company in terms of
demonstrating that the transactions have been concluded on an arm’s length basis.
The Oman income tax law provides for a full tax assessment system. The Tax
Department has 5 years from the end of the tax year in which the income tax return
was submitted to raise enquiries. Typically, enquiries will be raised between 3 and 5
years from the date of filing, often with enquiries into multiple tax years issued at the
same time.
Although there is no requirement to prepare formal transfer pricing documentation or to
have documentation in place at the time of filing the income tax return, an extended enquiry
period of 10 years could apply and may impact a company’s ability to respond to enquiries,
e.g. where the people with relevant knowledge have left the company and/or documents may
have been lost or misplaced etc.
In the majority of cases where related party transactions exist, the Oman Tax Department will
usually seek supporting information. This need not, necessarily, take the form of a full, formal
transfer pricing documentation study, provided the documentation that is submitted is adequate
and appropriate to support the pricing adopted between the related parties.
The Tax Department will typically make adjustments if supporting documentation is not provided or,
despite some documentation being provided or if they determine that transactions were not carried
out at arm’s length. A company would, therefore, be better placed to respond to enquiries if they
were to prepare contemporaneous documentation, and hold this in readiness for the Tax Department’s
enquiries.
Basic information The related party rules sit alongside What is the relationship threshold
wider reaching, anti-avoidance rules, for transfer pricing rules to apply
Tax authority name which give power to the Tax Department between parties?
Secretary General for Taxation, Ministry of to adjust a taxpayer’s taxable income For the purpose of the related party
Finance. where it is felt that the “principle provisions, persons will be treated as
objective” of any transaction (or the related if one party has control over the
Citation for transfer pricing rules combined effect of two or more other or a third party has control over both
Income Tax Law No 28 / 2009 – Part Four, transactions) is the avoidance of tax. of them.
Chapter Two, Section One: Cases of
Avoidance between related individuals – Effective date of transfer pricing rules Individuals will be treated as related if
Articles 125 to 128. The current related party rules are one person is a relative of the other, up to
included in Income Tax Law No. 28/2009, the third lineage, i.e. from grandparents
The Oman income tax law includes through to grandchildren.
effective 1 January 2010.
related party provisions (not specifically
referred to as “transfer pricing” provisions) Broadly similar related party rules Control may be direct or indirect. Control
under which the value of related party were also included in the old income will exist where a person has the right
transactions can be ignored and taxable tax law, the Law of Income Tax on to exercise control over the activity
income can be calculated, instead, on the Companies of 1981. and commercial matters of a company.
basis of an independent price.
In particular, this will be the case where What types of transfer pricing return, these extended time limits may
a person: information must be disclosed? impact a company’s ability to respond to
There is no prescribed format for the enquiries, e.g. where people with relevant
• owns the greater part of the
disclosures that are required with knowledge may have left the company
company’s capital or voting rights
the income tax return and reference and/or documents may have been
• is entitled to the greater part of is typically made to the related party misplaced etc.
distributions by the company (where disclosures in the audited financial
the company to distribute its total To satisfy the requirement and/or
statements that are submitted with the
income) obtain the benefits, are there any
income tax return.
• is entitled to the greater part of the pricing study must be prepared
company’s assets on dissolution or and submitted?
cessation.
There are no specific penalties relating There is no requirement to have any
The ‘control’ test shall take into account to the related party disclosures supporting transfer pricing study
entitlement to future rights, interests or required within the income tax return. or other documentation in place by
authority, as well as: As noted, there is no requirement to a particular point in time, provided
provide documentation, nor to provide the taxpayer can respond to the
• rights vested in another person in the Tax Department’s enquiries by the
capacity of representative confirmation that documentation has
been prepared at the time of filing the deadlines specified in their enquiry
• rights that are required to be return, correspondingly, no specific letter (typically 30 days but generally
exercised by another person under penalties exist either. extendable). If any form of transfer
directions Failure to provide full disclosures of pricing and/or benchmarking study has
related party transactions within the been prepared, it should be submitted
• rights held by relatives up to the third in response to enquiries raised in the
lineage (whether direct or indirect). income tax return would likely amount
to deception and would allow the Tax course of the assessment process.
What is the statute of limitations Department to apply the extended 10 year
on assessment of transfer pricing When a transfer pricing study is
assessment period.
adjustments? prepared, should its content follow
The Oman income tax law provides for Transfer pricing study for Economic Co-operation and
a full assessment system and the Tax
overview Development (OECD) Guidelines?
Department have 5 years from the end of The income tax law does not contain
the tax year in which the income tax return Is preparation of a transfer pricing
any guidance as to the format that
is filed to raise enquiries into any aspect of study required – i.e. can the taxpayer
related party documentation or
the income tax return. be penalized for mere failure to
evidence should take. That said,
prepare a study?
Where no income tax return has been the Tax Department considers the
No. There is no requirement to submit OECD Transfer Pricing Guidelines
filed, the period shall be extended to 10
additional related party documentation for Multinational Enterprises and Tax
years from the end of the tax year for
with, or at the same time as filing, the Administrations (2010) (“the OECD
which the return was due to be submitted.
income tax return, nor to provide any Guidelines”) to provide a suitable
The assessment period shall also confirmation that documentation has basis for the pricing of related party
be extended to 10 years in cases of been prepared prior to the filing of the transactions and we would, therefore,
deception or fraud. return. consider Chapter V to be a suitable
basis, if any documentation were being
Transfer pricing disclosure prepared.
overview question, describe the benefits, if The Tax Department will generally ask
any, of preparing and maintaining a for “supporting documentation” in
Are disclosures related to transfer transfer pricing study? generic terms and enquiries may be
Oman operates a full tax assessment resolved without the need for formal
system and the Tax Department has documentation following the format set
5 years, from the end of the tax year out in Chapter V. It may be sufficient to
return)?
in which the income tax return was provide, for example, copies of intra-
The income tax return requires taxpayers group agreements and the basis for the
submitted, to raise enquiries. The Tax
to disclose details of related party calculation of the price under enquiry.
Department has a period of 10 years
transactions. There is no prescribed
(from the end of the tax year) in which to
format for these disclosures and Our advice to taxpayers, though, would
request such documentation.
reference is typically made to the related always be to prepare some, minimum
Although there is no requirement
party disclosures in the audited financial documentation and benchmarking,
to prepare formal transfer pricing
statements that are submitted with the to give the best defence against
documentation, or to have documentation
income tax return. enquiries.
in place at the time of filing the income tax
Oman | 193
Does the tax authority require an If the matter is not resolved through Special considerations
advisor/tax practitioner to have Objection, an Appeal can be made to
specific designation in order to the Tax Committee and, ultimately,
authorities?
prepare or submit a transfer pricing a further appeal can be made to the
study? Commercial Court. Yes, the Tax Department maintains its own
databases and comparative information.
No. If an adjustment is sustained, can
penalties be assessed? If so, what Is there a preference, or requirement,
rates are applied and under what by the tax authorities for local
Transfer pricing methods conditions? comparables in a benchmarking set?
in Chapter II of the OECD Guidelines The due date for payment of any No.
acceptable? additional tax is specified on the Tax
Department’s Assessment Order. Do tax authorities have requirements
Yes, the Tax Department considers Failure to pay by the date specified or preferences regarding databases
Chapter II of the OECD Guidelines to will attract additional tax at 1 percent for comparables?
provide a suitable basis for the pricing of per month on the unpaid amount (or No.
related party transactions. balance thereof) until settled.
Is there a priority among the To what extent are transfer pricing authorities have with customs
acceptable methods? penalties enforced? authorities?
No. Transfer pricing adjustments form There is a good level of interaction with
If there is no priority of methods, is part of the overall assessment of a the Customs authority. The income
there a “best method” rule? company’s tax position for a particular tax law gives specific powers to the
year. Any additional penalty tax resulting Tax Department to request information
The most appropriate method is selected from non-payment is normally enforced. and documentation from a wide
based on the facts of the case and the range of ministries and other public
availability of comparable data. Although What defences are available with
respect to penalties? establishments and public juristic
there is no requirement for formal persons, and it uses this power regularly
documentation, some minimum level The Secretary General for Taxation has during the assessment process.
of analysis would be advised in order to the power to grant exemption, in full or
support the characterization of the ‘tested in part, from the additional penalty tax. Are management fees deductible?
entity’ and the use of the particular pricing
What trends are being observed Yes, but the tax deduction is subject to the
method.
currently? fees being reasonable with respect to the
services provided to the local company and
Transfer pricing audit and The Tax Department is very active to the fees being for necessary services.
in requesting taxpayers to provide
penalties Are management fees subject to
documentary evidence to support their
When the tax authority requests withholding?
related party transactions.
documentation, how long does The Tax Department has a back-log Yes, a 10 percent withholding applies.
the taxpayer have to submit its of unassessed tax years and it is not Are year-end transfer pricing
documentation? uncommon for taxpayers to have 3, adjustments permitted?
4, or 5 years’ income tax returns that
A company normally has 30 days to No.
have not yet been assessed. There is
respond to requests for information from
now a drive, within the Tax Department,
the Tax Department, although a time Other unique attributes?
to clear these open tax years and
extension may be granted, if required.
assessments are being accelerated, None.
The Tax Department’s questions will likely with several years’ assessments being
enquire into the taxpayer’s related party dealt with at the same time, to bring
things up to date.
Other recent
pricing in more general terms, rather than
specifically requesting formal transfer developments
Taxpayers are, therefore, being asked
pricing documentation. Where a related party pricing adjustment
to provide supporting documentation
is made by the Tax Department,
If an adjustment is proposed by the for multiple years. If documentation
the income tax law provides for
tax authority, are dispute resolution was not prepared at the time of
corresponding relief to be claimed by the
options available to the taxpayer completing the tax return, this imposes
related party, provided they are subject
outside of competent authority? a significant burden on the company
to tax in Oman. The corresponding relief
and, if adequate documentation cannot
If a related party pricing adjustment is is not granted automatically and must be
be provided, they may find themselves
included in the Tax Department’s final claimed (by written request) by the related
disadvantaged by the Tax Department’s
assessment, the taxpayer can file a party. The claim must be made within
final assessment.
formal Objection. 12 months, from the date on which the
adjusting assessment is made.

What is the extent of the double tax What advance pricing agreement
treaty network? (APA) options are available, if any?
Oman has approximately 30 double tax The income tax law does not contain any
treaties in place. APA mechanism and there are no other
routes by which a taxpayer could obtain
If extensive, is the competent an APA.
double tax relief? Is there a filing fee for APAs?
In our experience, very few (if any) cases Not applicable.
have been escalated to the level of the
competent authority and it remains to be
seen how effective the mutual agreement
procedure would be in obtaining double
tax relief.
Not applicable.
adjustment to competent authority? Please provide some information on
We would expect to rely on the time limits
included in the relevant tax treaty and to
approach the Tax Department, prior to
difficulties?
making any formal application, to discuss Not applicable.
the process.

authority before paying tax? In which language or languages can
This would have to be agreed with the Tax documentation be filed?
Department at the time of discussing the English or Arabic.
application process. Objections to tax assessments, and
higher appeals, must be filed in Arabic.
KPMG in Oman
Neil Allmark
Tel: +968 2474 9246
Mob: +968 9139 5309
Email: neilallmark@kpmg.com

Panama | 195
Panama
KPMG observation
Panama has recently enacted transfer pricing legislation in order to comply
with international standards and to meet the necessary requirements so that
the country is excluded from the Organisation for Economic Co-operation and
Development (OECD) tax haven list. Following the signing of a tax treaty with
France, Panama reached the 12 agreements necessary to meet the international
standard of transparency and exchange of information.
On 7 June 2011, Panama was removed from the OECD´s list of countries that were
classified as tax havens and is now on the list of jurisdictions that the OECD considers
have substantially implemented the standards for exchange of information.
It is important to mention that on 28 August 2012, by means of Law No. 52 of 2012,
Panama approved legislation widening the scope of its transfer pricing provisions, to
include all taxpayers that carry out transactions with related parties abroad entering into
force for the fiscal year 2012. This amendment modified the previous scope of application of
Law 33, which applied only to the taxpayers that conducted transactions with related parties
that were fiscal residents in countries which qualify as Treaty Partners from the perspective
of the Republic of Panama (i.e. countries which entered into Tax Treaties with the Republic of
Panama) and therefore may attempt to benefit from more favourable tax rules provided in any
relevant tax treaty.
On 7 August 2013 Panama’s Finance Ministry (Ministerio de Economía y Finanzas) issued a
decree with new rules for transfer pricing documentation and studies. The new Panama transfer
pricing documentation rules are intended to comply with OECD Guidelines. According to the
transfer pricing legislation adopted in the Republic of Panama, the OECD Guidelines are to be
considered as technical reference on the interpretation of its provisions.
Basic information Effective date of transfer pricing rules What is the statute of limitations
Transfer pricing rules have been in place on assessment of transfer pricing
Tax authority name adjustments?
since 1 July 2010 but were mandatory
Autoridad Nacional de Ingresos Públicos only for certain taxpayers (i.e. those Three years from the filing date of the
(ANIP). benefiting from the application of a tax income tax return.
treaty). The current scope of application
to all intra-group operations with foreign
Law No. 33, published in the Official based related parties is effective as of
Transfer pricing
Gazette No. 25,566-A of 30 June 2010, fiscal year 2012. disclosure overview
Articles 762-A through 762-Ñ in the
Panamanian Fiscal Code. Modified by What is the relationship threshold
Law No. 52 published in the Official for transfer pricing rules to apply
Gazette No. 27,108 of 28 August 2012, between parties?
Articles 7 through 14, and Executive Direct or indirect ownership of capital, return)?
Decree No. 958 published in the official administration or control. No specific
gazette No. 27,347 of 7 August 2013. Yes. The taxpayer must submit a transfer
threshold for the entities to be considered
pricing return (i.e. Form 930) during the
related parties (i.e., even if there is a 1
6 months following the fiscal year end.
percent ownership of the shares, the
entities are considered related).
What types of transfer pricing Other than complying with a Transfer pricing audit and
information must be disclosed? requirement per the previous
penalties
The information must include data
related to the name of the related any, of preparing and maintaining a When the tax authority requests
parties with which the transactions transfer pricing study? a taxpayer’s transfer pricing
were entered, country of residency Reduce the risk of a disallowance of documentation, how long does
of such related parties, type of the deduction for tax purposes of the the taxpayer have to submit its
transactions, whether the transactions transactions performed with related documentation?
were income or expenses; nature and parties. The burden of proof is also 45 days.
amounts of the transactions with related shifted to the tax authority.
parties. Likewise, information regarding If an adjustment is proposed by the
the transfer pricing analysis must be To satisfy the requirement and/or tax authority, are dispute resolution
disclosed, such as, whether grouped obtain the benefits, are there any options available to the taxpayer
or individual analysis was performed, requirements on when the transfer outside of competent authority?
transfer pricing method selected, pricing study must be prepared and Yes, taxpayers can submit the resolution
entity selected as tested party (i.e., the submitted? to an administrative review before the
taxpayer or the related party) type of The transfer pricing information must ANIP. Subsequently, taxpayers may
margin used in the analysis (i.e., gross or be prepared contemporaneously with appeal before the Tax Court. Finally,
operating), and percentage of profit, loss the tax return and must be submitted taxpayers are allowed to submit the case
or rate obtained in the transaction. within 45 days following the request for judicial review before the Supreme
from the ANIP. Court of Justice (Third Chamber).
of failure to prepare or submit When a transfer pricing study is If an adjustment is sustained, can
disclosures? prepared, should its content follow penalties be assessed? If so, what
In the Article 8 of Law 52 (modified Chapter V of the OECD Guidelines? rates are applied and under what
Article 762-I of Law 33) it is established Yes. conditions?
the sanction of one percent of the Yes, there is a late payment interest of
total of the operations carried out with Does the tax authority require an 1 percent per month until final
related parties in the event that the advisor/tax practitioner to have settlement.
taxpayer failed to submit Form 930. specific designation in order to
prepare or submit a transfer pricing To what extent are transfer pricing
The Law 114 enacted late on December study? penalties enforced?
10, 2013 modified the article 762-I of the
No. There is globally a strengthening in the
Fiscal Code establishing the maximum
application of tax penalties in general. The
amount for this penalty at 1 million
transfer pricing specific penalty regime
of Balboas. Transfer pricing methods was introduced in 2010, therefore it is too
Are transfer pricing methods early to comment on whether penalties
Transfer pricing study outlined in Chapter II of the OECD are being enforced, but it is expected
overview Guidelines acceptable? they will be.
Yes.
Is preparation of a transfer pricing What defences are available with
study required – i.e. can the Is there a priority among the respect to penalties?
taxpayer be penalized for mere acceptable methods? Not applicable.
The priority is among the transactional
Yes, for all transactions that have an methods and if the taxpayer cannot apply What trends are being observed
effect on the taxable income (i.e. those methods due to the characteristics currently?
incomes, costs and/or expenses). of the operations or lack of information, There is no experience locally yet.
According to the Fiscal Code, the the profit-based methods should be
applied.
sanction is established for failure Special considerations
to submit Form 930, as mentioned
If there is no priority of methods, is Are secret comparables used by tax
previously. Even though there
there a “best method” rule? authorities?
is no specific penalty for not
preparing supporting transfer pricing Yes, the method that allows to obtain Currently, there is no sufficient
documentation, the tax authorities the most reliable result taking into experience on how the Tax
might deny the deduction of expenses consideration the nature of the Administration will handle the secret
resulting from the intra-group transactions. comparable issue.
transactions with foreign related parties.
Panama | 197
Is there a preference, or Are year-end transfer pricing Advance pricing

requirement, by the tax authorities adjustments permitted?
agreements
The transfer pricing rules do not mention
benchmarking set? this type of adjustment and there is no What APA options are available, if
experience to date with the tax authority. any?
No. The transfer pricing decree expressly
states that in searching for external None.
comparables, taxpayers can use reliable
None. Is there a filing fee for APAs?
commercial databases created by
public information companies. If these Not applicable.
commercial databases contain no Other recent Does the tax authority publish APA
information on Panamanian companies or
with respect to comparable transactions
developments data either in the form of an annual
As previously mentioned, the scope of report or through the disclosure of
within Panama, taxpayers can use
the transfer pricing regulations in Panama data in public forums?
information available to companies in
other countries. is widening. Not applicable.
Do tax authorities have Please provide some information

Tax treaty/double tax on how successful the APA program
regarding databases for resolution is and whether there are any known
comparables? difficulties?
No specific requirements have been treaty network? Not applicable.
officially made. Minimal.

Language
authorities have with customs authority effective in obtaining In which language or languages can
authorities? double tax relief? documentation be filed?
Low. No experience. Panamanian tax authorities require all
documentation they request to be in
Are management fees deductible? When may a taxpayer submit an Spanish language.
Yes, when evidence can be provided that adjustment to competent authority?
the services were actually rendered. If No formal rules. Depends on the time
no support can be provided, then the tax frame allowed by the tax treaty.
authority will consider them as non-
deductible. May a taxpayer go to competent
Are management fees subject to Permitted after the assessment. There is
withholding? no requirement to pay the assessment
Yes. However, tax treaties may reduce before going to the competent authority.
or eliminate the withholding tax upon
certain conditions.
KPMG in Panama
Luis Laguerre
Tel: +507 207 0800
Email: llaguerre@kpmg.com

Peru
KPMG observation
The tax authority in Peru is informed about Organisation for Economic
Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS)
Action plan, and the United Nations (UN) Practical Transfer Pricing Manual for
Developing Countries, but they have not made public their opinion.
The Peruvian tax authority was very active in 2013 with respect to transfer pricing
audits. According to our experience they have focused in the primary sector and
important local groups. Audits are very thorough and the gathering of experience by
the audit team appears to be one of the aims.
Audits are triggered by size of transactions, continuous losses and analysis of industry
ratios performed by the tax authority based on information they have of taxpayers they
regard as comparable. The information provided by taxpayers in their transfer pricing
return is also used to select taxpayers to be inspected.
The annual transfer pricing return and the transfer pricing study need to be presented to
the tax authority in June of the following year.
Basic information Advance Price Agreement rules are Transfer pricing

defined by Superintendency Resolution
Tax authority name N° 377-2013-SUNAT. disclosure overview
Superintendencia Nacional de Are disclosures related to transfer
Administración Tributaria (SUNAT) Effective date of transfer pricing pricing required to be prepared or
(National Superintendency of Tax rules submitted to the revenue authority
Administration). January 2001. on an annual basis (e.g. with the tax
return)?
Citation for transfer pricing rules What is the relationship threshold Yes. A transfer pricing return is required
Market value and transfer pricing rules for transfer pricing rules to apply for taxpayers based on certain thresholds
are defined in Articles 32 and 32-A of between parties? (revenues and amounts transacted
Income Tax Law. Direct or indirect ownership greater with related parties and/or existence
than 30 percent of capital. Companies of transactions with tax havens). The
More specific regulations are included
can also be considered related if they transfer pricing return is not submitted
in Articles 108 to 119 of Income Tax Law
share common directors, managers with the Income Tax Return, but it is
Rulings.
or executives with decision power. submitted in June of the year following
Penalties are defined in Article 176, Additional criteria for determining the fiscal year under analysis.
numbers 2) and 4); Article 177, numbers economic relationships also exist.
25) and 27); and Article 178 number 1) of The transfer pricing study is required to
the Tax Code. What is the statute of limitations be attached to the transfer pricing return.
Thresholds and exceptions issued adjustments? What types of transfer pricing
with Superintendency Resolutions N° information must be disclosed?
Four years, counting from 1 January
175-2013-SUNAT. The transfer pricing return has two main
of the year following the date of
presentation of the Income Tax Return. sections:
Peru | 199
• the first section reports the For taxpayers that do not formally need instead of five. The difference is Peruvian
identification of the taxpayer, to prepare a transfer pricing study it legislation differentiates the profit split
the related parties with which still can be desirable to do so since method and the residual profit split
transactions exist, and the types and the tax authority can always require method as independent methodologies.
amounts of transactions the submission of documentation that
In addition, Peruvian transfer pricing
sustains the market value of transactions
• the second section must be legislation includes a special way of
with related parties.
completed when the taxpayer passes applying the comparable uncontrolled
the thresholds and is required to For minority shareholders, a transfer price method when the transaction
have a transfer pricing study. In this pricing study can provide some level of under analysis is the purchase or sale
second section, the taxpayer must comfort that profit is not being extracted of commodities. In this case, the arm’s
report the methodologies used in through pricing policies. length price needs to be estimated
the transfer pricing analysis and the based on the international price of the
adjustments made, if applicable. When working with related parties,
commodity.
a transfer pricing study can provide
What are the consequences management with comfort that at Is there a priority among the
of failure to prepare or submit arm´s length transactions helps ensure acceptable methods?
disclosures? there are no cross-subsidies between
Although there is no clear priority it
In case the taxpayer fails to file its business units.
seems that in practice the tax authority
transfer pricing return, a fine of prefers the comparable uncontrolled
approximately 30,000 US dollars (USD) is price as the initial method.
applicable. In addition, failure to present
the transfer pricing return may trigger an If there is no priority of methods, is
audit by the tax authority on the taxpayer. there a “best method” rule?
submitted?
There is no formal priority of methods.
The transfer pricing study must be
Transfer pricing study included in the transfer pricing return,
Most appropriate rule applies.
overview which has to be presented in June of the

following year, 2 or 3 months after having Transfer pricing audit and
presented the annual Income Tax Return. penalties
taxpayer be penalized for mere When a transfer pricing study is When the tax authority requests a
failure to prepare a study? prepared, should its content follow taxpayer’s transfer pricing documentation,
Yes, for all transactions with related Chapter V of the OECD Guidelines? how long does the taxpayer have to
parties and tax havens, taking into submit its documentation?
No. Peruvian legislation is very specific
account that the obligation applies on the issues a transfer pricing study Formally, transfer pricing documentation
once certain thresholds regarding should contain. Even though most of needs to be provided within three
the company income and amount of the issues are similar to what is outlined working days of request. Nevertheless,
transactions with related parties are in Chapter V of the OECD Guidelines, the tax authority could set a time limit
exceeded. the taxpayer is required to follow the of 1 to 2 weeks, depending of the
The transfer pricing study needs to be more specific requirements detailed in complexity of the information requested
submitted with transfer pricing return. If Peruvian legislation. and the stage of the inspection process.
the taxpayer does not present the study
required, it may be penalized (penalty is
Does the tax authority require an If an adjustment is proposed by the
approximately USD30,000).
advisor/tax practitioner to have tax authority, are dispute resolution
specific designation in order to options available to the taxpayer
Other than complying with a prepare or submit a transfer pricing outside of competent authority?
requirement per the previous study? Yes. Once an adjustment is proposed by
question, describe the benefits, if No. the tax authority, it can be challenged by
any, of preparing and maintaining a the taxpayer through an administrative
transfer pricing study? process within the same tax authority.
Transfer pricing methods After that, the case can be taken to
Besides helping to avoid penalties,
preparing and maintaining a transfer Are transfer pricing methods a specialized fiscal court outside the
pricing study helps shift the burden of outlined in Chapter II of the OECD jurisdiction of the tax authority. And
proof towards the tax authority and Guidelines acceptable? after that, if there is still conflict with the
reduces the risk of unforeseeable Yes. However, Peruvian transfer pricing decision, the case can be taken to regular
adjustments. legislation considers six methods Peruvian courts.
If an adjustment is sustained, can that further changes will be issued soon, If the service qualifies as technical
penalties be assessed? If so, what in order to increase transfer pricing assistance, the rate is 15 percent
rates are applied and under what enforcement. (regardless of the place where services
conditions? are rendered). If the service qualifies
It is expected that audits will focus on
Yes. 50 percent of the tax omitted, plus as digital services or royalties, the
the imports/exports of commodities
interest counting from the moment the rate is 30 percent regardless of the
such as mineral, agricultural and other
tax should have been paid. place where services are rendered.
similar products. Intra-group services and
In all other cases, when services
financial transactions are also expected
To what extent are transfer pricing are rendered abroad there is no
to be audited.
penalties enforced? withholding tax.
There is little experience but some Withholding tax can also be adjusted if
companies have already been assessed, Special considerations the price agreed between the two parties
adjusted and charged with penalties. Are secret comparables used by tax is not arm’s length.
authorities?
What defences are available with Are year-end transfer pricing
Secret comparables may be used to
respect to penalties? adjustments permitted?
determine which taxpayers should
The main defense is the documentation be inspected. Nevertheless, there Yes. There is no explicit prohibition in the
i.e. the transfer pricing study. Related is no evidence that the tax authority legislation about year-end transfer pricing
documentation, such as intra-group uses secret comparables to perform adjustments. However, these kinds of
contracts, invoices, or other documents, adjustments. adjustment need to be carefully analyzed
can also be useful as a means of in each case, in order to evaluate whether
defense. Is there a preference, or it would be accepted or not by the tax
Penalties can also be reduced if, during
requirement, by the tax authorities authority.
an audit from the tax authority, the
benchmarking set? Other unique attributes?
taxpayer agrees that the transfer pricing
adjustment suggested by the tax Yes, there is a preference, but Transactions with local related parties fall
authority during its review is correct and information about local comparables is into the scope of transfer pricing rulings.
accepts to pay the omitted tax without scarce, so international comparables are
The tax authority usually expects the
further discussion. In this case, the also accepted.
transaction analyzed to be tested
penalties arising from having omitted tax against same-year data. In addition,
payments can be reduced to 50 percent Do tax authorities have
requirements or preferences complete information about comparable
or 70 percent, depending on the timing of companies, including complete annual
the payment. regarding databases for
comparables? reports or 10-K’s are necessary for
In addition, penalties can be avoided the company to be regarded as a valid
The tax authority has a specific database,
if the taxpayer negotiates an Advance comparable.
but does not require that taxpayers use
Pricing Agreement (APA) with the tax the same database for their studies. Transactions involving commodities need
authority. to be analyzed taking into account the
What level of interaction do tax international price of the commodity,
What trends are being observed authorities have with customs following specific rules detailed in
currently? authorities? Peruvian transfer pricing legislation.
Over the last year, the Peruvian Tax Tax and customs authorities are part of
Authority has significantly increased the the same institution (SUNAT). Over the
number of specific requests to taxpayers last year, the customs team has been
Other recent
to present transfer pricing studies and reviewing the transfer pricing reports developments
related documentation. The number of in order to see if there are potential An increasing number of transfer
transfer pricing audits has also increased, customs issues. pricing inspections are under way.
resulting in adjustments and penalties for Some taxpayers have already been
some taxpayers. Are management fees deductible? adjusted in relation to transfer pricing.
Currently, the principal of SUNAT is a Generally yes, but proper documentary This trend is expected to continue,
specialist in transfer pricing, and the support is needed and special attention taking into account that the new tax
transfer pricing team of SUNAT has been needs to be given to business necessity. authority principal is a specialist in
hiring professionals with experience in transfer pricing, and the tax authority’s
transfer pricing. Are management fees subject to transfer pricing team has been
withholding? growing, with new hires from private
In addition, changes to the transfer Yes. The rule is that if services are companies.
pricing regulations have been issued rendered in Peru the rate is 30 percent.
during the last year, and it is expected
Peru | 201
Tax treaty/double tax Is there a filing fee for APAs?

resolution No.
What is the extent of the double tax Does the tax authority publish APA
treaty network? data either in the form of an annual
Minimal. Peru currently has double tax report or through the disclosure of
treaties with Brazil, Canada, Chile, the data in public forums?
Andean region and Korea. The Treaty No.
with Mexico beginning in 2015. This
network is expected to grow in the short Please provide some information
and medium term, including countries on how successful the APA program
such as China, Finland, Portugal, Spain, is and whether there are any known
Switzerland and others. difficulties?
No APAs have been filed yet, but
If extensive, is the competent taxpayers are expected to be interested
authority effective in obtaining in APAs. In 2013, the tax authority
double tax relief? published the Superintendency
Not applicable. Resolution N° 377-2013-SUNAT with
specific rules about APAs.
There is no experience or specific
Language
guidance on when a taxpayer may In which language or languages can
submit an adjustment to competent documentation be filed?
authority. All documentation, including the financial
information of the comparables, needs to
May a taxpayer go to competent be formally translated into Spanish.
There is no experience or specific
guidance on when a taxpayer may go to
competent authority.
Advance pricing
agreements
if any?
The law considers APAs for international
and domestic transactions.
KPMG in Peru
Manuel del Rio

Tel: +51 6113000
Email: madelrio@kpmg.com
Juan Carlos Vidal

Tel: +51 6113000
Email: jcvidal@kpmg.com

Philippines
KPMG observation
While the tax office has not yet taken concrete steps to enforce the transfer
pricing regulations, there is an indication that they will follow the Organisation
for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines.
This will allow taxpayers to be consistent with the transfer pricing strategies of
the group of companies they belong to.
Basic information Transfer pricing Other than complying with a

Tax authority name disclosure overview question, describe the benefits, if
Bureau of Internal Revenue (BIR). Are disclosures related to transfer any, of preparing and maintaining a
pricing required to be prepared or transfer pricing study?
Citation for transfer pricing rules submitted to the revenue authority The taxpayers to be able to:
Section 50 of the National Internal on an annual basis (e.g. with the tax
Revenue Code (Tax Code): Revenue return)? 1. defend their transfer pricing analysis
Regulations No. 02-2013, dated 23 No. 2. prevent transfer pricing adjustments
January 2013 (RR No. 02-2013).
arising from tax examinations, and
Effective date of transfer pricing information must be disclosed? 3. support their applications for MAP
rules
Under Revenue Regulations No. 02- However, separate guidelines will have to
9 February 2013. 2014, dated 24 January 2014, the top 20 be issued for the applications of Mutual
stockholders of a corporation, including Agreement Procedures (MAPs).
their capital contribution and percentage
for transfer pricing rules to apply To satisfy the requirement and/or
of ownership, must be provided in the
between parties? obtain the benefits, are there any
new forms of the annual corporate
Direct or indirect participation in the income tax returns starting with taxable requirements on when the transfer
management, control or capital or year ended 31 December 2013. pricing study must be prepared and
being under direct or indirect common submitted?
management, control or capital. What are the consequences RR No. 02-2013 requires the study to
of failure to prepare or submit be contemporaneous. The BIR does
What is the statute of limitations disclosures? not require the documentation to be
Administrative penalties. submitted upon filing of the tax returns.
adjustments?
However, the documentation should be
There is no existing law or specific submitted to the BIR upon request.
statute of limitations on transfer pricing Transfer pricing study
assessment. However the statute overview When a transfer pricing study is
of limitations under the Tax Code is prepared, should its content follow
generally 3 years from the date of filing Chapter V of the OECD Guidelines?
of the return or from the date the return
taxpayer be penalized for mere Yes.
should have been filed. Under certain
conditions, however, the statute of
limitations may be 10 years. No.
Philippines | 203
Does the tax authority require an If an adjustment is sustained, can Do tax authorities have
advisor/tax practitioner to have penalties be assessed? If so, what requirements or preferences
specific designation in order rates are applied and under what regarding databases for
to prepare or submit a transfer conditions? comparables?
pricing study? It is expected that penalties can be No.
No. assessed in the case of transfer pricing
adjustments. The penalties are expected What level of interaction do tax
to be the same as those imposed authorities have with customs
Transfer pricing methods under regular tax audits (25 percent/50 authorities?
Are transfer pricing methods percent surcharge; 20 percent deficiency High, but the interaction so far is not in
outlined in Chapter II of the OECD interest; 20 percent delinquency interest; relation to transfer pricing.
Guidelines acceptable? compromise penalties).
Yes. Are management fees deductible?
To what extent are transfer pricing Yes, provided the management fees are
Is there a priority among the penalties enforced? ordinary and necessary expenses and are
acceptable methods? Not yet known since the implementation properly substantiated.
None. of RR No. 02-2013 is in the early stages.
If there is no priority of methods, is What defences are available with withholding?
there a “best method” rule? respect to penalties? Yes, subject to Philippine situs rules and
Yes, RR No. 02-2013 adopts the most Not yet known since the implementation application of double tax agreements.
appropriate method. of RR No. 02-2013 is in the early stages.
What trends are being observed adjustments permitted?
Transfer pricing audit and currently? RR No. 02-2013 is silent on the matter.
penalties Before the introduction of the recent
transfer pricing regulations, the tax Other unique attributes?
a taxpayer’s transfer pricing office is known to have transfer pricing- None.
documentation, how long does related findings in conducting regular
the taxpayer have to submit its audits. Hence, the timely submission
of documentation may be useful to Other recent
documentation?
contest deficiency tax findings. The developments
RR No. 02-2013 does not specify this. documentation may also be a defense Based on recent issuances, the BIR
However, following rules under a against possible benchmarking has recognized the need to have
regular tax audit, documents supporting performed by the tax office based on accurate information/statistics on
the taxpayers’ defenses are usually industry averages. taxpayers. Recent issuances pertain
submitted within 15 to 30 days of the
to proper classification of taxpayers
request, subject to extension if allowed.
Special considerations and disclosing in the annual income tax
If an adjustment is proposed by the returns the top 20 stockholders and the
Are secret comparables used by tax applicable Philippine Standard Industrial
authorities? Classification Codes.
outside of competent authority? Not yet known since the implementation
of RR No. 02-2013 is in the early stages.
RR No. 02-2013 remains silent on transfer Tax treaty/double tax
pricing-specific dispute resolution Is there a preference, or resolution
options and procedures. However, there requirement, by the tax authorities
are remedies available to taxpayers in What is the extent of the double tax
the context of regular audits (for taxes of treaty network?
benchmarking set?
all types), such as protests, appeals and Minimal.
No. RR No. 02-2013 is silent on the
going to the courts. It is expected that
matter. If extensive, is the competent
these remedies will apply in the case of
transfer pricing audits. authority effective in obtaining
double tax relief?
The BIR has no experience in this area.
When may a taxpayer submit an Please provide some information

adjustment to competent authority? on how successful the APA program
Currently, there are no rules. is and whether there are any known
difficulties?
May a taxpayer go to competent Not applicable.
Currently, there are no rules.
Language
Advance pricing documentation be filed?
agreements English.
Under RR No. 02-2013, the BIR still
has to issue separate guidelines on the
application of APA.

Not applicable.

Not applicable.
KPMG in Philippines
Maria Carmela M. Peralta

Tel: +63 2 885-7000 (ext. 320)
Email: mperalta@kpmg.com

Poland | 205
Poland
KPMG observation
On 18 July 2013, amendments to Decrees of Ministry of Finance relating
to transfer pricing came into force. New regulations reflect changes in the
Organisation for Economic Co-operation and Development (OECD) Transfer Pricing
Guidelines for Multinational Enterprises and Tax Administrations (hereinafter: 'OECD
Guidelines') and are aimed at integrating the conclusions developed by the European
Union Joint Transfer Pricing Forum (EU JTPF) in the area of low value adding services
into the Polish tax system.
The scope of the implemented changes is complex and extensive and includes
provisions encompassing the following areas:
• business restructuring
• low value adding services (new documentation possibilities but no safe-harbor of
mark-ups has been introduced)
• shareholder costs
• choice of transfer pricing method
• procedure of conducting benchmarking studies including requirements for a comparability
analysis.
Regulations on business restructuring must be especially emphasized, as this is an area of
special interest to the tax authorities in Poland. In addition to new regulations implemented in July
2013, extensive guidelines on business restructuring were published by the Ministry of Finance in
March 2014. Although there has not been much in terms of an official response to the OECD’s Base
Erosion and Profit Shifting (BEPS) initiative, it is expected that Polish authorities will closely monitor
developments in this area. Introduction of certain restrictive provisions in the tax law (such as controlled
foreign corporation (CFC) rules or anti-abusive clause) is very likely in the near future.
Basic information parties, in force as of 17 October 2009, Effective date of transfer pricing
amended as of 18 July 2013. rules
Tax authority name
Information requirements: Article 82 Arm’s length principle – 15 February 1992.
Ministerstwo Finansów.
and 82a of the Tax Ordinance Act and Application of methods – 1 October 1997.
Citation for transfer pricing rules the Decree of the Ministry of Finance of
24 December 2002 on tax information. Information requirement – 31 December
Reassessment of income: Article
1997.
11 Corporate Income Tax (CIT) Act. Documentation requirements: Article
9a CIT. Documentation requirement – 27 July
Decree of the Ministry of Finance
2000.
of 10 September 2009 establishing Documentation requirements (sanctions):
the taxpayers’ income through the Article 19, sec. 4, CIT Act. APA – 1 January 2006.
assessment of prices, and on the method
and procedure for the elimination of Harmful tax competition: Decree of the
double taxation of the legal person in the Ministry of Finance of 9 April 2013.
case of profit adjustments for related
Advance Pricing Agreement (APA): Article
20a–20q, Tax Ordinance Act.
206 | Global Transfer Pricing Review Poland | 206
What is the relationship threshold Transfer pricing study Other than complying with a
for transfer pricing rules to apply requirement per the previous
between parties?
overview question, describe the benefits, if
Ownership of greater than 5 percent Is preparation of a transfer pricing any, of preparing and maintaining a
share capital means the entities are study required – i.e. can the taxpayer transfer pricing study?
under common control. be penalized for mere failure to Transfer pricing documentation strongly
prepare a study? decreases the eagerness of the tax
What is the statute of limitations There is a statutory requirement to authorities to investigate related party
on assessment of transfer pricing prepare certain documentation (statutory transactions and eliminates the possibility
adjustments? transfer pricing documentation) of applying the 50 percent CIT rate to
Six years from tax year-end. for transactions exceeding certain assessed income instead of the usual 19
thresholds. However, there is no percent rate.
penalty for a mere failure to possess the
Transfer pricing documentation, although there have As statutory transfer pricing
disclosure overview been attempts to penalize individuals documentation does not require the
responsible for the company’s tax inclusion of a benchmarking analysis,
Are disclosures related to transfer the tax authorities should verify the
pricing required to be prepared or compliance under the penal-fiscal
code for not submitting required arm’s length nature of the transactions
submitted to the revenue authority during the tax audit. It is therefore
on an annual basis (e.g. with the tax tax information.
highly recommended to supplement
return)? A taxpayer is required to provide the the statutory documentation with a
Yes, certain transfer pricing information tax authorities with statutory transfer benchmarking analysis demonstrating
about transactions with foreign pricing documentation, within 7 days that the pricing is compliant with the
parties must be submitted to the tax of receiving the request.) Such transfer arm’s length standard. It will force the
authorities and statutory transfer pricing pricing documentation should be authorities to prepare stronger arguments
documentation must be prepared (but prepared for transactions concluded if they intend to challenge the pricing
submitted only upon request). by a taxpayer with a related party methodology accepted by the taxpayer.
which exceed, in the given tax year, the
What types of transfer pricing following thresholds: Transfer pricing documentation and a
information must be disclosed? benchmarking study help to mitigate risk
• EUR30,000 for transactions involving of personal responsibility under the penal-
Information on whether an entity is
intangibles and services. fiscal code for decreasing a company’s tax
obliged to prepare statutory transfer
liability (it can become an issue if the tax
pricing documentation; information on • EUR50,000 or 100,000 (if a
authorities assess additional income to
agreements concluded with related transaction does not exceed 20
the company).
parties when the value exceeds percent of a company’s share capital)
300,000 Euros (EUR) (total value of for transactions involving goods and Transfer pricing documentation prevents
receivables or liabilities resulting from all tangibles. the tax authorities from shifting the
agreements concluded with one related burden of proof to the taxpayer and
Additionally, each transaction exceeding
party within a fiscal year) or EUR5,000 makes challenging the established prices
EUR20,000 should be documented if
if an agreement is concluded with a more difficult.
concluded with an entity operating in a
related party which has a permanent
country listed by the Ministry of Finance
establishment in Poland; information To satisfy the requirement and/or
as a tax haven.
on remuneration paid by foreign related obtain the benefits, are there any
parties to foreign individuals providing If the transfer pricing documentation requirements on when the transfer
services (working) for the Polish is not presented to the tax authorities pricing study must be prepared and
subsidiary. within 7 days following the request and submitted?
the price is successfully challenged, the Transfer pricing documentation must be
What are the consequences tax authorities may apply the penalty tax provided in Polish, within 7 days of the
of failure to prepare or submit rate of 50 percent instead of a standard tax authorities’ request, which is a very
disclosures? CIT rate of 19 percent to the amounts short period, especially with regard to
Persons responsible for the company’s adjusted. Obviously penalty interest for transactions concluded a few years earlier.
tax compliance may be held responsible late payment of the outstanding tax is It is strongly recommended that such
under the penal-fiscal code for not due as well. documentation is prepared in advance.
submitting required tax information. At the moment of filing the CIT return,
the taxpayer must submit information on
whether the obligation to prepare transfer
pricing documentation exists.
When a transfer pricing study is Does the tax authority require an If an adjustment is sustained, can
prepared, should its content follow advisor/tax practitioner to have penalties be assessed? If so, what
Chapter V of the OECD Guidelines? specific designation in order to rates are applied and under what
Generally yes, however there are specific prepare or submit a transfer pricing conditions?
requirements to be met. study? Yes. If a taxpayer fails to submit
No formal qualifications are required to such documentation or provides
The statutory transfer pricing
prepare transfer pricing documentation. documentation which does not meet the
documentation requires a functional
However, it is normally done by licensed legal requirements, and the tax authorities
analysis identifying:
tax advisors. In the case of benchmarking therefore assess additional income, the
• functions performed, risks borne, and analyses – access to databases (like assessed income will be taxed at the
assets employed in the given type of Amadeus or Tegiel – a Polish database penal 50 percent tax rate (instead of
transaction including information on local companies) standard rate – currently 19 percent).
is essential in order to prepare the study.
• determination of anticipated types of To what extent are transfer pricing
costs associated with the transaction penalties enforced?
Transfer pricing methods Always.
• description of the method adopted to
calculate transaction price Are transfer pricing methods
outlined in Chapter II of the OECD What defences are available with
• information regarding terms and form Guidelines acceptable? respect to penalties?
of payments for each transaction
Yes, with some exceptions (for example Documentation provides for penalty
(e.g. currency of payments, due date
the Berry ratio is not an advisable protection against the 50 percent penalty
of payments, manner of transferring
method). tax rate for adjusted incomes. Country-
money, periods in which the invoices
specific documentation, including
are issued, etc.) Is there a priority among the a benchmarking search with a local
• data on value of the transaction acceptable methods? database, confirming the arm’s length
No strict priority. The best method should standard of the transactions will mitigate
• determination of the strategy
be applied, but, classic, transaction-based the risk of the prices being challenged.
influencing the transfer price (this
methods are preferred. If their application
element becomes obligatory What trends are being observed
is not possible profit-based methods can
if it influences the value of the currently?
be applied.
transaction)
The following trends are currently being
• determination of other factors If there is no priority of methods, is observed:
influencing the transfer price (this there a “best method” rule?
element becomes obligatory • strong emphasis on business
Yes, as described above.
if it influences the value of the restructuring issues: new regulations,
transaction) additional explanations/guidelines
Transfer pricing audit published, media coverage following
• determination of the benefits general OECD/global discussion on
expected due to services purchased
and penalties
base erosion and tax 'morality'; bad
(regarding the purchase of services When the tax authority requests press for companies adopting tax
or transfer of intangibles). a taxpayer’s transfer pricing optimization measures
The statutory transfer pricing the taxpayer have to submit its • new documentation possibilities
documentation is not required to include a documentation? for taxpayers concerning low value
benchmarking study or other comparable added services but no safe-harbor of
economic analysis documenting the Seven days following the request.
mark-ups has been introduced
compliance of the transaction with the
If an adjustment is proposed by the • scrutiny of shareholders cost charged
arm’s length standard. However, inclusion
tax authority, are dispute resolution to subsidiaries
of such an analysis prepared following the
OECD Guidelines is highly recommended. • a shift to a significantly more flexible
and business-friendly approach by
No.
the Ministry of Finance APA team to
taxpayers and transactions subject to
an APA
• transfer pricing audits conducted in
cooperation with other countries’ tax
authorities (cooperation includes, for (stewardship expense); and the expense part of their income is derived from
instance, exchange of information is not listed in Article 16 of the CIT Act, payments received from the parent
between the tax administrations) which describes non-tax-deductible company.
expenses.
• transfer pricing audits focusing on • Introduction of an anti abuse clause is
more complicated transactions than Are management fees subject to under consideration. Under proposed
the ones that were examined in the withholding? regulations, the tax authorities may
past (for instance, sale of economic disregard transactions or structures
Yes. Withholding tax regulations apply,
ownership of a trademark). created solely for the purposes of the
unless a double taxation treaty is in
tax avoidance, and accordingly tax the
force. Therefore, in practice, there is no
income which would be reported if
Special considerations withholding tax on management fees for
such transactions or structures were
Are secret comparables used by tax countries with treaty protection.
not in place. The clause was introduced
authorities? a few years ago, existed shortly and
Secret comparables are not allowed. was quickly declared unconstitutional,
Nevertheless, in practice, cases of the but the authorities are trying to return
Yes. Preferably, the adjustment should to this idea.
tax authorities using secret comparables
be reflected in the correction of the
do occur.
original transaction price, the financial • New thin cap rules are expected to
Is there a preference, or statement and tax return. An adjustment come in force starting from 2015.
requirement, by the tax authorities triggers VAT and customs implications. Under the planned amendment, the
for local comparables in a No special tax declaration needs to thin cap rules will be expanded to
benchmarking set? be submitted. Year-end adjustments loans granted by all related entities
may trigger a tax audit, especially if the (currently the rules covers only loan
Yes, but it is a preference. The amount of the Corporate Income Tax from direct shareholders or sister
consequences of not having local pre-paid during the tax year is higher than companies).
comparables depend on the level of the total tax due (i.e. when the refund of
comparability between Poland and other • Provisions and guidelines on the
the pre-paid tax is requested in the final verification of arm’s length conditions
markets. The worst-case scenario is tax return).
challenging the whole search. of business restructuring activities
conducted by related entities will allow
Do tax authorities have Other unique attributes?
tax authorities far-reaching authority
requirements or preferences Multiple year data are required (on regarding the verification of the
regarding databases for average, 3 year period) for comparables. legitimacy of the restructuring activities
comparables? The testing of a single year result of the of capital group, the expected benefits
tested company against a multiple year from restructuring, assessment
Preference (but no obligation) to use the period is preferred. of realistic alternative options, the
local database, as it provides more details
No safe-harbors exist. legitimacy of assigning remuneration
on local comparables. The preferred
and the assessment of its amount. It is
databases are: Tegiel (Polish database),
Polish regulations envisage personal expected that direct implementation of
Amadeus, Monitor Polski “B” (registry
responsibility for decreasing a company’s the rules into the local legislation may
court data).
tax liability (financial penalty, records increase the tax authorities’ interest in
What level of interaction do tax in the criminal register, imprisonment). this area.
authorities have with customs Polish tax authorities do exercise this
• Implementation of the concept of low
authorities? rule and penalize company management
value adding services was expected
(financial penalties mostly).
High. to define regular, typical services.
As a consequence any audit of such
Are management fees deductible? Other recent services should be simplified –
Yes. Management fees may be developments verification should be conducted
tax deductible if all of the following at first on the basis of description
• New regulations on taxation of
conditions are met: the recipient of presented by taxpayer. However, the
Controlled Foreign Corporations (CFC
the management service can prove list of items required by the legislator
rules) may be introduced in the near
that services have been factually is quite strict and may create a risk
future. The draft provides for taxation
rendered; the expense is incurred for that such a description will become
of the foreign subsidiaries when a
the purpose of earning revenue and an additional documentation burden
25 percent ownership threshold is
does not arise from a simple shifting of for taxpayer. As compared to EU JTPF
exceeded, they do not perform a
expenses incurred on the group level recommendations, what is missing
regular business activity and major
with no factual benefit to the recipient is an indication (range) of the levels
Poland | 209
of percentage mark-ups on costs, Advance pricing

which should be accepted by the tax
authorities as arm’s length. agreements
• Implemented catalogs of exemplary
any?
low value adding services and
shareholder costs are quite extensive Unilateral, bilateral, and multilateral.
and general which may cause
interpretation problems and disputes
with tax authorities. Yes. The filing fee is 1 percent of the
value of a transaction with the following
• An attempt has been undertaken to provisions:
systematize the kind of costs that
can be considered as shareholder • for unilateral agreements with
costs and which not tax deductible domestic entities, no less than
are according to relevant Polish tax 5,000 Polish zloty (PLN) and no more
regulations. than PLN50,000
• A determination has been made • for foreign entities no less than

of which elements a comparability PLN20,000 and no more than
analysis conducted by tax authorities PLN100,000
should include and take into account
• for bilateral or multilateral, no less
indicating what kind of data should
than PLN50,000 and no more than
be collected and presented in case
PLN200,000.
of a tax audit. This may act as a guide
for taxpayers who are interested in Renewal fees are half of the amount of
reducing risk by preparing similar the original filing fee.
analyses.
• The replacement of the superior role data either in the form of an annual
of the comparable uncontrolled price report or through the disclosure of
method by a selection of the method data in public forums?
which most appropriately reflects
Statistics on the number of motions
the background and terms of the
submitted and decisions issued (positive
transaction should be assessed as
and negative) are provided on request
a positive change. This enables the
only. There is no formal annual report
choice of the best possible transfer
or similar publication. However the
pricing method for the specifics of
authorities provide relevant statistics to
particular transaction.
OECD, EU JTPF etc.
Tax treaty/double tax Please provide some information

treaty network? The Ministry of Finance is open to
Extensive. discussions about all types of transactions
and already has some experience with
If extensive, is the competent the APA program. However taxpayers are
authority effective in obtaining still reluctant to use the APA route, mostly
double tax relief? due to the costs of the proceedings. We
Sometimes/only limited experience. have noticed a clear change of attitude
KPMG in Poland
of the authorities who are becoming
When may a taxpayer submit an significantly more business-friendly and
adjustment to competent authority? Jacek Bajger
are encouraging taxpayers to benefit from
Tel: +48225281173
After acknowledgement of a double the APA possibility.
Email: jbajger@kpmg.pl
taxation.

Yes. documentation be filed?
Polish.
Portugal
KPMG observation
The Portuguese transfer pricing legislation has been in force since 1 January
2002, covering both cross border and domestic transactions. The original rules
experienced some changes over the years, typically because of increasing
scope. One of the most significant changes was the introduction in 2008 of an
Advanced Pricing Agreement (APA) provision.
Currently, taxpayers can significantly reduce transfer pricing risk in Portugal through
unilateral, bilateral or multilateral APAs. On the enforcement side, the tax authorities
have increased transfer pricing audits across virtually all industries and transaction
categories. Nowadays, given the present economic scenario, transfer pricing has
been pointed out as one of the Portuguese Government’s top priorities for the next
couple of years in line with the European Union (EU) Commission measures against
the tax fraud and evasion (e.g. Base Erosion and Profit Shifting (BEPS)).
Transfer pricing documentation is required in Portugal for certain taxpayers with net sales
and other revenues equal or above 3 million Euros (EUR). There are some tax forms that
require specific transfer pricing information, including a statement of whether or not the
taxpayer has adequate transfer pricing documentation at the time of filing the company’s
tax return.
After a discussion period during 2013, the Corporate Income Tax Reform was finally
implemented with effect from 1 January 2014. This reform aims to significantly increase the
competitiveness of Portugal for foreign investments and investors, therefore creating a number
of challenges and opportunities from a Portuguese transfer pricing perspective.
Basic information As of 2014, any of the following • entities related under a subordination
conditions would define the relationship agreement under article 486 of
Tax authority name as related party: Commercial Companies Code
Autoridade Tributária e Aduaneira (ATA).
• one entity participates directly or • special relationship between entities
Citation for transfer pricing rules indirectly in at least 20 percent of whose legal relationship allows, by
the share capital or voting rights its terms and conditions, the control
Article 63 of the IRC Code; Ministerial
of another entity (10 percent until of the management decisions of
Order (Portaria) n. 1446–C/2001 of 21
2013 – inclusively) the other, arising from facts outside
December 2001; and Ministerial Order
the commercial or professional
(Portaria) n. 620–A/2008 of 16 July 2008. • both entities are at least 20 percent
relationship itself
owned, directly or indirectly, by the
Effective date of transfer same legal entity (10 percent until • transactions between a resident
pricing rules 2013 – inclusively) entity and entities resident in a
1 January 2002 clearly more favourable tax regime
• an entity and the members
(as listed in Ministerial Order
What is the relationship threshold of its corporate bodies, or
(Portaria) n.º 150/2004).
for transfer pricing rules to apply any administration, direction,
between parties? management or supervising boards Moreover it should be noted that
transfer pricing rules apply not only to
• entities in which the majority of the
transactions established between a
board of directors are constituted by
permanent establishment located in
the same persons
Portugal | 211
the Portuguese territory and its foreign Transfer pricing study When a transfer pricing study is
headquarters or other foreign permanent prepared, should its content follow
establishments, but also to transactions overview Chapter V of the Organisation
established between resident entities Is preparation of a transfer pricing for Economic Co-operation and
in Portugal and all its permanent foreign study required – i.e. can the Development (OECD) Guidelines?
establishments. taxpayer be penalized for mere Yes.
What is the statute of limitations Yes, for certain taxpayers. Does the tax authority require an
on assessment of transfer pricing Contemporaneous transfer pricing advisor/tax practitioner to have
adjustments? documentation is required for specific designation in order to
Generally, 4 years from the last day of the Portuguese taxpayers with net sales and prepare or submit a transfer pricing
tax year-end (in cases where tax losses other revenues equal or above EUR3 study?
exist, it may vary, depending of the year million in the fiscal year previous to No.
being considered). the one under consideration. Specific
penalties up to EUR10,000 per fiscal year
may apply, in case of refusal to present Transfer pricing methods
Transfer pricing
transfer pricing documentation within the Are transfer pricing methods
disclosure overview time limit set upon request by the ATA. outlined in Chapter II of the OECD
Are disclosures related to transfer Guidelines acceptable?
pricing required to be prepared or Other than complying with a
Yes.
submitted to the revenue authority requirement per the previous
on an annual basis (e.g. with the tax question, describe the benefits, if Is there a priority among the
return)? any, of preparing and maintaining a acceptable methods?
Yes. Taxpayers must adopt the most
Besides providing penalty protection, appropriate method. Transaction-based
What types of transfer pricing a transfer pricing study simultaneously methods are preferred to profit-based
information must be disclosed? shifts the burden of proof to the ATA. It methods. Other unspecified methods
Taxpayers usually need to disclose the also mitigates the risk of unexpected are permitted in certain cases. Reasons
following information in addition to that positive transfer pricing adjustments to for selecting a method as the most
prepared for the contemporaneous the taxpayer’s taxable income. appropriate and for rejecting the
transfer pricing documentation: remaining methods should be explained
in the transfer pricing study.
• selected transfer pricing methods on obtain the benefits, are there any
cross border transactions requirements on when the transfer If there is no priority of methods, is
pricing study must be prepared and there a “best method” rule?
• amounts of related party
submitted?
transactions, per transaction The most appropriate method rule is
category, including Portugal-to- Transfer pricing documentation must applicable.
Portugal transactions be prepared by the 15th day of the
seventh month following the tax year-end
• any increase (if applicable) in taxable (deadline to send the Annual Declaration Transfer pricing audit and
income related to a transfer pricing of Simplified Corporate Information penalties
adjustment (IES/DA)). Although being part of the
• whether or not the taxpayer has company’s Annual Tax Dossier, the
contemporaneous transfer pricing transfer pricing study should only be sent
documentation when filing the upon request by the ATA.
income tax return. It is nevertheless advisable to have the documentation?
conclusions on the transfer pricing study The normal practice is 10 days after
by the deadline to deliver the annual request.
tax return (last day of the fifth month
disclosures?
following the tax year-end), as eventual If an adjustment is proposed by the
General penalties apply, namely for positive transfer pricing adjustments in tax authority, are dispute resolution
providing incorrect or incomplete respect of transactions with a foreign options available to the taxpayer
information in tax disclosures or other related party must be done by the outside of competent authority?
documents relevant for tax purposes. taxpayer in the tax return. Yes.
Penalties of up to EUR150,000 apply for
refusal to provide such information by
the taxpayers.
If an adjustment is sustained, can Is there a preference, or errors in the financial statements,

penalties be assessed? If so, what requirement, by the tax authorities as well as eventual tax liabilities and
rates are applied and under what for local comparables in a associated penalties.
conditions? benchmarking set?
There could be VAT or customs
Transfer pricing adjustments are Yes. Local comparables (Portuguese and implications, which should also be
regulated by the general tax penalty to a certain extent Spanish) are preferred, carefully evaluated on a case-by-case
regime. If an adjustment is sustained, but others may be allowed whenever basis.
general penalties may be assessed these are not available. If a pan-European
namely for providing incorrect or search is used, it is expected that ATA If not reflected in the financial
incomplete information in tax disclosures will screen the Portuguese comparables statements, positive transfer pricing
(e.g., tax return or IES/DA). In addition, in the rejected list and could possibly adjustments in respect of transactions
compensatory interest will be accrued at create a Portuguese subset of the final with a foreign related party must be
a 4 percent annual rate for late payment. comparables. done by the taxpayer in the tax return.
On the other hand, negative transfer
To what extent are transfer pricing Do tax authorities have pricing adjustments are not permitted
penalties enforced? requirements or preferences after the year end. That is why the regular
With the expected increase of transfer regarding databases for monitoring of the transfer pricing policies
pricing audits, a broader enforcement of comparables? during the year is important.
transfer pricing penalties is also expected The ATA use both the SABI (with Iberian
as foreseen in the Law. companies) and the Amadeus (with Other unique attributes?
European companies) databases. No.
What defences are available with Their preference falls on Portuguese
respect to penalties? (or Iberian) independent comparables,
regardless of the database. Other
Other recent
The preparation of transfer pricing
documentation. databases may be used (and accepted developments
by the ATA) for specific categories of By the end of 2013, The Portuguese
What trends are being observed transactions or industries. Corporate Income Tax Reform was
currently? implemented in order to boost
Given the current economic scenario What level of interaction do tax competitiveness for foreign investors
in Portugal, the tax authorities are authorities have with customs and includes, among others changes, the
concentrating efforts on transfer pricing authorities? reduction of the standard CIT rate (now
audits, as transfer pricing adjustments Low, although increasing. The taxpayer is 23 percent), extension of the tax losses
tend to result in larger tax assessments sometimes required to deliver its transfer carry forward period (currently 12 years),
and tax collection. pricing documentation under customs adoption of a broader participation
tax inspections. exemption regime, reduction of the
Recent audits have focused more on: minimum holding requirement to apply
adjusting operating losses (disregarding Are management fees deductible? for the group taxation (now 75 percent),
the effect of the global economic crisis); additional limitation of the deductibility
Yes, if the management fees reflect the
payment for intra group services (when of interest and other financing expenses,
economic benefit and the arm`s length
insufficient evidence of benefit received a patent box regime (for certain
principle. Specific transfer pricing rules
or inadequate support in terms of intellectual property), a tax amortization
apply to intra-group services.
documentation is provided); financial of certain intangible assets, an option to
transactions, especially those relating to Are management fees subject to disregard PE profits and some transfer
complex financial transactions and cash- withholding? pricing changes. The new rules will be
pooling arrangements, valuation and applicable to tax events occurring after
Yes, except when a tax treaty applies and
transfer of intangible assets, as well as 1 January 2014.
certain formal requirements are met.
business restructuring processes.
Special considerations adjustments permitted?
resolution
Are secret comparables used by tax Yes, but will probably be highly
scrutinized by the ATA. Thus, for What is the extent of the double tax
authorities?
transfer pricing purposes, a clear treaty network?
No. In principle secret comparables are end-to-end understanding of how Extensive.
not allowed; nevertheless, tax authorities controlled transactions are executed
may use them in practice to benchmark a is very important, as it helps to avoid
taxpayer’s return in relation to its peers.
Portugal | 213
If extensive, is the competent Does the tax authority publish APA

authority effective in obtaining data either in the form of an annual
double tax relief? report or through the disclosure of
Almost always. data in public forums?
Yes. The Portuguese Government
When may a taxpayer submit an released in June 2012 a report on the
adjustment to competent authority? activities carried out during 2011 to
After having been notified of an additional combat tax and customs fraud and
tax assessment. evasion in Portugal. This report also gives
the statistics on the number of APAs
May a taxpayer go to competent established with the ATA.
Permitted by providing a guarantee or a Please provide some information
similar measure. on how successful the APA
program is and whether there are
any known difficulties?
Advance pricing The most recent statistics on the number
agreements of APAs indicate that there is two APAs
What APA options are available, concluded, five under negotiation (as at
if any? 31 December 2012).
Taxpayers can apply for unilateral, The ATA tend to be very favorable to
bilateral and multilateral APAs in Portugal, APAs and consider that it is an area in
in addition to advance rulings. As of which taxpayers should put additional
2014 unilateral APAs are now possible effort in order to increase the certainty of
in Portugal (previously limited to cases taxation (especially in areas with a history
where Double Taxation Agreement of adjustments). Given this, it is expected
(DTA) between Portugal and the home that the number of successful APAs will
country of the counterpart did not exist). increase in the near future.
In terms of bilateral and multilateral
APAs, it is always necessary for a
signed DTA between Portugal and the
Language
others tax authorities to exist. Detailed In which language or languages can
requirements and conditions for documentation be filed?
submitting the request for an APA are The relevant transfer pricing information
defined in Ministerial Order (Portaria) should be prepared in Portuguese.
n. 620–A/2008, of 16 July 2008 and in
article 138 of CIT Code. Reports in English tend to be accepted.
Notwithstanding, the tax authorities have
Is there a filing fee for APAs? the right to accept or refuse it and they
The submission of the request in respect may request a translation of any relevant
of the preliminary phase is free of charge. document written in a foreign language
The submission of the proposal implies into Portuguese.
the payment of a fee that may vary
between approximately EUR3,150 and
EUR35,000, depending on the revenue
of the taxpayer. Renewals or reviews of
APAs require a filing fee, calculated in a
similar way, but with a discount of
50 percent of the initial fee.
KPMG in Portugal
Luis Magalhães
Tel: +351 210 102 087
Email: lmagalhaes@kpmg.com
Susana Miguel Pinto

Tel: +351 212 487 391
Email: susanapinto@kpmg.com

Puerto Rico
KPMG observation
After the termination of Internal Revenue Code (IRC) section 936 election, some
United States' (US) companies decided to incorporate as a non-US entity, subjected
to Puerto Rico tax rules. Therefore, companies should review their intra-group
transactions to make sure these comply with local transfer pricing requirements.
Basic information Transfer pricing Transfer pricing study

Tax authority name disclosure overview overview
Departamento de Hacienda (Treasury Are disclosures related to transfer Is preparation of a transfer pricing
Department). pricing required to be prepared or study required – i.e. can the
submitted to the revenue authority taxpayer be penalized for mere
Citation for transfer pricing rules on an annual basis (e.g. with the tax failure to prepare a study?
Articles 1047-1 to 1047-4 of the Puerto return)? No.
Rico Tax Regulation and Section 1040.09 Puerto Rican taxpayers are not obliged to
of the Puerto Rico Internal Revenue Code submit transfer pricing documentation to Other than complying with a
of 2011, as amended (PRIRC). the tax authorities. requirement per the previous
Effective date of transfer pricing What types of transfer pricing any, of preparing and maintaining a
rules information must be disclosed? transfer pricing study?
21 January 2001 (Effective date of Under the revised statutory audited It is useful to taxpayers to have a transfer
Regulations). financial statements requirements, pricing study since it is valued by the tax
taxpayers with related entities authorities and provides a framework for
operating in Puerto Rico must file the tax audit.
consolidated/combined audited financials
between parties? To satisfy the requirement and/or
and a reconciling schedule showing
Parties are related when there is direct or the results of operations of each of obtain the benefits, are there any
indirect control, either legally established the entities and eliminating entries. requirements on when the transfer
or just exercised. There is presumption An exception to the combined/audited pricing study must be prepared and
of control if the income or deductions are financials has been approved for 2011, submitted?
arbitrarily manipulated. 2012 and 2013 to the extent that the No.
related party name is mentioned in the
What is the statute of limitations notes of the audited financials. When a transfer pricing study is
on assessment of transfer pricing prepared, should its content follow
adjustments? What are the consequences Chapter V of the Organisation
Generally 4 years from the date the tax of failure to prepare or submit for Economic Co-operation and
return is filed. disclosures? Development (OECD) Guidelines?
Income tax return could be considered No.
not filed.
study?
No.
Puerto Rico | 215
Transfer pricing methods To what extent are transfer pricing Are management fees subject to
penalties enforced? withholding?
Always. No, if services are provided outside
of Puerto Rico. Yes, to the extent they
What defences are available with are paid to only that portion of services
Yes. respect to penalties? rendered in Puerto Rico and paid to a
None. Surcharge can only be removed foreign entity not engaged in a Puerto
at the discretion of the tax authority by Rico trade or business, a 29 percent
acceptable methods?
execution of a closing agreement. withholding tax is applicable.
Under the provisions of Article 1047-3 of
the Regulations, the methods must be What trends are being observed Are year-end transfer pricing
evaluated following a hierarchical order. currently? adjustments permitted?
That is, the taxpayer must evaluate the Yes. If the year-end adjustment is
Recent changes to the Internal Revenue
transaction using the following methods performed prior to the closing of the fiscal
Code show the increasing attention that
in the order prescribed: year, the year adjustments are acceptable.
transfer pricing topic is receiving from the
• comparable uncontrolled price (CUP) Government. The Secretary of Treasury Nevertheless, it is important to consider
has publicly indicated that the agency is any impact from an indirect taxes
• resale price working on a Transfer Pricing Regulation perspective, as well as customs duties.
• cost plus that should be available sometime
between 2014 and 2015. Other unique attributes?
• any other method. None.
If there is no priority of methods, is Special considerations
Are secret comparables used by tax Other recent
Not applicable. authorities? developments
No. The AMT formula has recently been
Transfer pricing audit and revised again. Now AMT includes
Is there a preference, or components like 20 percent of
penalties requirement, by the tax authorities intercompany charges and two percent of
When the tax authority requests for local comparables in a intercompany purchases. Also, for regular
a taxpayer’s transfer pricing benchmarking set? income tax purposes intercompany
documentation, how long does No. Usually US companies are accepted charges, including management fees,
the taxpayer have to submit its as comparable companies. are subject to a 51 percent disallowance.
documentation? Treasury has approved a procedure
Thirty days from the day requested. Do tax authorities have to grant exemption, upon request,
Extensions are generally granted. requirements or preferences for expenses paid to a third party and
regarding databases for allocated to the Puerto Rico business and
If an adjustment is proposed by the comparables? expenses that are essential to running the
tax authority, are dispute resolution No specific preferences. business.
outside of competent authority? What level of interaction do tax Tax treaty/double tax
No special procedure is applicable. authorities have with customs
However, besides the competent authorities? resolution
authority, the taxpayer could request Low. What is the extent of the double tax
the assistance of the US IRS in cases treaty network?
involving a US jurisdiction and creating a Are management fees deductible? Minimal. There is a competent tax
potential double taxation issue. As a general rule, yes. However, beginning authority agreement in place between the
in 2013 in the case of management fees Puerto Rican Treasury Department and the
If an adjustment is sustained, can paid to a Home Office or a related entity IRS intended to resolve disputes when a
penalties be assessed? If so, what not engaged in a trade or business in transaction is treated differently in both
rates are applied and under what Puerto Rico, only 49 percent of such fees tax jurisdictions.
conditions? are deductible. Further, amounts equal to
Yes, a deficiency will be assessed upon 20 percent of any such management fees If extensive, is the competent
which interest and surcharges will be and all other intercompany charges, are authority effective in obtaining
determined, which will be collected in the added to the regular Alternative Minimum double tax relief?
same manner as the tax. Interest consists Tax (AMT). Almost always.
of a 10 percent single annual rate and
surcharge of 10 percent (one time).

When a double taxation issue has been
identified.

Yes.
Advance pricing
agreements
No APAs or advance rulings of any kind.

Not applicable.

Not applicable.

difficulties?
Not applicable.
Language
English or Spanish.
KPMG in Puerto Rico
Carlos A. Molina
Tel: +1 787 622 5311
Email: cmolina@kpmg.com

Romania | 217
Romania
KPMG observation
With respect to the Organisation for Economic Co-operation and Development
(OECD) Base Erosion and Profit Shifting (BEPS) work plan/initiative, and the
United Nations (UN) Practical Transfer Pricing Manual for Developing Countries
issued October 2012, it is unlikely that the Romanian tax authorities would accept
the subtleties of the commentaries. The Romanian tax authorities tend to keep a
simple approach when it comes to transfer pricing topics. Cases arise where the tax
authorities challenge various approaches and the only way to resolve disputes arising
in this respect is in court.
Although transfer pricing documentation requirements were introduced some time ago,
there are many cases when Romanian taxpayers prefer to wait for a specific request
issued by the Romanian tax authorities in order to start preparing their transfer pricing
documentation.
The Romanian legislation on transfer pricing documentation follows the principles of
the European Union (EU) regulations on transfer pricing (e.g. the EU Code of Conduct on
Transfer Pricing). Transfer pricing has become increasingly a hot topic for multinationals
having a business presence in Romania, as the number of transfer pricing audits have
increased significantly since 2008.
Basic information • Order of the President of National Although the obligation to document
Agency for Fiscal Administration no. domestic intra-group transactions for
Tax authority name 222/2008, regarding the content of Romanian transfer pricing purposes was
Ministry of Public Finances; National the transfer pricing documentation clearly stated in the Fiscal Code as of
Agency for Fiscal Administration (ANAF). file, as well as the postponement of May-June 2010, there is still a risk that
the control until the transfer pricing the previous text of the relevant provision
Citation for transfer pricing rules file is ready. of the Fiscal Code could be interpreted
• Article 7 of the Romanian Fiscal in a way that such documentation
Code – defining “related parties.” Effective date of transfer obligation was also applicable in the past.
pricing rules
• Article 11 (2) of the Romanian What is the relationship threshold
1 January 2004, the obligation to comply
Fiscal Code and its application for transfer pricing rules to apply
with transfer pricing principles was
Norms – providing for the arm’s between parties?
reinforced.
length principles and transfer
Direct or indirect ownership of
pricing methods. In May 2007, the procedure to be
a minimum of 25 percent of the
followed by taxpayers in order to obtain
• Article 42 and article 79 of the participation titles or voting rights or
an APA ruling from the Romanian
Romanian Fiscal Procedure Code effective control.
tax authorities was enforced. In July
approved by Government Ordinance
2007, the obligation to have transfer What is the statute of limitations
no. 92/2003, as further amended and
pricing documentation files available on assessment of transfer pricing
completed – requiring the preparation
was enforced. In February 2008, the adjustments?
of a transfer pricing file.
obligation to have specific transfer
• Government Decision no. 529/2007, Five years from filing date.
pricing documentation available was
regarding the procedure of issuing enforced, thus creating a more stable Also, a tax audit can be performed for
the advance tax rulings and Advanced regulatory environment for transfer tax liabilities arising in the last 10 years in
Pricing Agreements (APAs). pricing purposes. case of a fiscal evasion.
Transfer pricing Other than complying with a Transfer pricing methods

disclosure overview question, describe the benefits, if Are transfer pricing methods
Are disclosures related to transfer any, of preparing and maintaining a outlined in Chapter II of the OECD
pricing required to be prepared or transfer pricing study? Guidelines acceptable?
submitted to the revenue authority If the taxpayer does not submit the Yes.
on an annual basis (e.g. with the tax transfer pricing documentation file
return)? Is there a priority among the
to the authorities within the provided
acceptable methods?
No. There is no specific transfer pricing term, or if the file is incomplete, the tax
disclosure is required in the annual authorities may than establish by their According to the local legislation,
corporate tax return. A summary of own means the arm’s length prices and Comparable Uncontrolled Price (CUP)
transactions carried out with related adjust the taxable profit of the taxpayer is the first method to be considered.
parties must be disclosed when accordingly for the audited period (16 However, in practice, the trend is to
preparing the financial statements, but percent tax will apply to the additional recognize the appropriateness of the
there is no disclosure requirement on taxable profit). Interest and late profit-based methods.
the tax return. payment penalties may also apply to the
additional corporate tax due.
What types of transfer pricing there a “best method” rule?
information must be disclosed? Performing a transfer pricing study offers No.
taxpayers the possibility to observe
Not applicable.
the market level for similar comparable
What are the consequences companies and thus to correct its prices Transfer pricing audit
of failure to prepare or submit if any advantages are noted. and penalties
disclosures? When the tax authority requests
Not applicable. obtain the benefits, are there any a taxpayer’s transfer pricing
requirements on when the transfer documentation, how long does
Transfer pricing study pricing study must be prepared and
documentation?
submitted?
overview Based on the local legislation, the
The transfer pricing documentation
Is preparation of a transfer pricing file must be drafted and submitted to transfer pricing documentation file
study required – i.e. can the the tax authorities upon their written needs to be submitted to the tax
taxpayer be penalized for mere request. If the taxpayer does not have authorities upon their written request.
failure to prepare a study? the transfer pricing documentation file From the date of the official request, the
Yes, for all transactions. available at the moment when the tax taxpayer has up to 3 months to submit
authorities request it, a period of up its documentation, with the possibility
The content of the transfer pricing of an extension equal to the initial period
to 3 months can be granted by the tax
documentation file is required by granted within the tax authorities’
authorities and an extension may be
Order of the President of National official request.
requested for a period equal to the one
Agency for Fiscal Administration no.
initially established.
222/2008, regarding the content of If an adjustment is proposed by the
the transfer pricing documentation When a transfer pricing study is tax authority, are dispute resolution
file. Failure to comply with the transfer prepared, should its content follow options available to the taxpayer
pricing documentation requirements Chapter V of the OECD Guidelines? outside of competent authority?
is punished with a fine that currently Yes.
Yes.
amounts between 12,000 and 14,000
Romanian leu (RON) (approximately Does the tax authority require an If an adjustment is sustained, can
3,000 to 3,500 Euros (EUR)). advisor/tax practitioner to have penalties be assessed? If so, what
specific designation in order to rates are applied and under what
If the transfer pricing documentation file conditions?
is incomplete, the tax authorities may prepare or submit a transfer pricing
establish by their own means the arm’s study? Starting from 1 March 2014 the late
length prices and adjust the taxable profit No. payment interest decreased from
of the taxpayer accordingly. 0.04 percent per day to 0.03 percent per
Romania | 219
day, while another late payment penalty Do tax authorities have not concluded a treaty for the exchange
of 0.02 percent per day of delay may also requirements or preferences of information. Note that the Romanian
be added to such upward adjustments. regarding databases for authorities often seek to classify certain
comparables? fees as royalties and therefore exclude
To what extent are transfer pricing them from the business profits article.
No. However, the Amadeus database
penalties enforced?
is most commonly accepted by the
Always. Are year-end transfer pricing
Romanian tax authorities.
What defences are available with What level of interaction do tax Yes. There is nothing in the Romanian
respect to penalties? authorities have with customs legislation to prohibit year-end
Comprehensive and proper transfer authorities? adjustments, which may be subject to
pricing documentation. The exchange of information with the other tax consequences depending on
customs authorities on transfer pricing the nature of the underlying transaction.
What trends are being observed adjustments is increasing. Customs
currently? Other unique attributes?
base adjustments are also made in
Currently, the strategy of the Romanian accordance with the General Agreement If a transfer pricing documentation
tax authorities is to focus on loss-making for Trade and Tariffs (GATT). file does not include all the sections
companies and on companies with required by the legislation, there is a
high turnover. Are management fees deductible? risk that the file may be considered as
General corporate conditions must be incomplete, which gives the right to the
cumulatively met: the service is actually tax authorities to make adjustments.
rendered; the taxpayer can provide Transfer pricing adjustments may be
Are secret comparables used by tax supporting documents attesting that the made by the tax authorities based
authorities? service was provided (that is, written on three independent transactions
As a matter of principle, Romanian tax agreement, timesheets, reports, etc.); (qualifying as similar with the one that is
authorities use public information and and the service is rendered for the being analyzed). The simple average will
databases. Additional information may be benefit of the taxpayer’s business. be used.
found via exchange of information with
other states. In the absence of such supporting In practice, the Romanian tax authorities
documents, tax inspectors may deny do not accept loss-making companies to
Is there a preference, or the deductibility of these service be included in benchmark studies.
requirement, by the tax authorities fees. Management services are often
for local comparables in a scrutinized by tax inspectors trying to
benchmarking set? question their deductibility. Other recent
Yes. For Romanian transfer pricing Also, management fees should be priced
developments
purposes, in order to determine the at the market-price level. Although the obligation to document
arm’s length character of prices charged domestic intra-group transactions for
between a Romanian entity and its Are management fees subject to Romanian transfer pricing purposes was
related parties, a local market benchmark withholding? clearly stated in the Fiscal Code as of
study has to be carried out first. It is only Yes, if there is no protection of a double May-June 2010, there is still a risk that
in the case of insufficiently available tax treaty. According to Romanian the previous text of the relevant provision
information regarding local comparables legislation, a 16 percent withholding tax of the Fiscal Code could be interpreted in
that Romanian tax authorities will accept applies on payments made to foreign a way that the documentation obligation
a pan-European search. Nevertheless, service suppliers, and there is only was also applicable in prior periods.
the search for comparables on the local an override if the relevant treaty has a
market has to be documented and
justified as “not possible”. In practice, we
business profits article and the fees are Tax treaty/double tax
within that article. Starting 1 February
noticed that the Romanian tax authorities 2013, a 50 percent withholding tax is
resolution
are asking for Romanian comparables, applied for income derived rendering What is the extent of the double tax
and other benchmarks (on the EU market services in or outside Romania, including treaty network?
or on extended markets) are usually management services, if this income is Extensive.
rejected by the Romanian tax authorities. paid in a state with which Romania has
If extensive, is the competent taxpayers, as well as in the case of

authority effective in obtaining other categories of taxpayers of which
double tax relief? the consolidated value of transactions
Frequently. exceeds EUR4 million). The tariff for
amendments of an already-released APA
When may a taxpayer submit an is EUR6,000 up to EUR15,000 (in the
adjustment to competent authority? case of large taxpayers, as well as in the
No specific provision. case of other categories of taxpayers
of which the consolidated value of
May a taxpayer go to competent transactions exceeds EUR4 million). It is
authority before paying tax? payable in RON at the National Bank of
Romania’s foreign exchange rate, valid at
No formal rules.
the date of payment.
Advance pricing Does the tax authority publish APA

agreements report or through the disclosure of
What APA options are available, data in public forums?
if any? No.
In line with the provisions of the Fiscal
Procedure Code, taxpayers who carry Please provide some information
out transactions with related parties may on how successful the APA program
address the tax authorities in order to is and whether there are any known
obtain an APA regarding the conditions difficulties?
and methods of determining the transfer The APA program is developing slowly.
pricing within a given period of time. The So far, it seems that only four APAs have
APA can be either unilateral (concluded been concluded between the Romanian
with the Romanian tax authorities) or tax authorities and taxpayers.
bilateral (involving at least two or more
tax authorities).
Language
Is there a filing fee for APAs? In which language or languages can
The tariff which would be charged for documentation be filed?
releasing the APA is EUR10,000 up Romanian only.
to EUR20,000 (in the case of large
KPMG in Romania
Teodora Alecu
Tel: +40 (372) 377 800
Email: talecu@kpmg.com

Russia | 221
Russia
KPMG observation
On 18 July 2011 a federal law was signed which introduced significant changes
to Russian transfer pricing rules effective 1 January 2012. Amendments to the
new transfer pricing rules are expected in the near future. The new rules are more
specific and in line with international practice and the Organisation for Economic
Co-operation and Development (OECD) Guidelines.
Basic information transfer pricing rules for securities preceding party in each subsequent
and derivatives (Article 280 of the RF organization equals more than
Tax authority name Tax Code) and interest (Article 269 of 50 percent
Federal Tax Service (FTS). the RF Tax Code).
• individuals, if one individual is
Citation for transfer pricing rules Effective date of transfer pricing subordinate to another individual by
rules official position
• Chapter 14.1. (Articles 105.1-105.2
of the RF Tax Code) – Associated 1 January 2012. • an individual, his or her spouse,
counterparties parents (including adoptive parents),
What is the relationship threshold children (including adopted children),
• Chapter 14.2. (Articles 105.3-105.6 for transfer pricing rules to apply full and half brothers and sisters
of the RF Tax Code) – General between parties?
provisions on prices and taxation. • a trustee and ward by a court
More than 25 percent direct/indirect
Information used for comparability decision on related party status.
ownership of one company by another
analysis
company including parties in which What is the statute of limitations
• Chapter 14.3. (Articles 105.7-105.13 one company participates directly or on assessment of transfer pricing
of the RF Tax Code) – Transfer pricing indirectly and such participation exceeds adjustments?
methods 25 percent (sister companies).
The tax authorities can audit only the
• Chapter 14.4. (Articles 105.14-105.16 Moreover, the definition of related parties three calendar years preceding the
of the RF Tax Code) – Controlled also includes: year in which the decision to conduct a
transactions. Preparation and transfer pricing audit was taken by the
submission of documents for tax • parties that are controlled by the transfer pricing authority.
authority monitoring. Notification of same CEO or board of directors,
50 percent of which are the same The new transfer pricing rules also
controlled transactions
persons stipulate certain transitional provisions:
• Chapter 14.5. (Articles 105.17-105.18
of the RF Tax Code) – Tax authority • parties where one party has the right • a decision to conduct a tax audit of
monitoring of transactions between to appoint the CEO for the other controlled transactions in 2012 can
associated counterparties party or at least 50 percent of the be taken no later than 30 June 2014
board of directors for the other party (amendments to the transfer pricing
• Chapter 14.6. (Articles 105.19-105.25 legislation of April 2013)
of the RF Tax Code) – Advance pricing • party and an individual where the
arrangements. Articles 129.3-129.4 individual performs the duties of the • a decision to conduct a tax audit
of the RF Tax Code – Penalties party’s chief executive officer of controlled transactions in
2013 can be taken no later than
• Certain articles of Chapter 25 of • parties and/or individuals, if the
31 December 2015.
the RF Tax Code stipulate specific share of direct participation of each
Transfer pricing taxpayer will have to inform the tax The documentation should be filed only
authority additionally of: at the request of the tax authorities.
disclosure overview No penalty is provided for not filing
• the country of origin, shipping
Are disclosures related to transfer documentation where no request has
(loading) point
pricing required to be prepared or been made.
submitted to the revenue authority • delivery (discharging) point
on an annual basis (e.g. with the Other than complying with a
• as well as the terms of delivery. requirement per the previous
tax return)?
Yes, a taxpayer must submit
notification to the tax authorities about
controlled transactions that occurred
disclosures?
in each calendar year by 20 May of the The penalty for underpayment of tax
Failure to submit notification to the tax
following year. arising from non-compliance with the
authorities about controlled transactions
transfer pricing regulations is 40 percent
or the disclosure of incorrect data may
What types of transfer pricing of the underpaid tax. A taxpayer is exempt
result in fine of 5,000 Russian rubles
information must be disclosed? from payment of this penalty if the
(RUB) per taxpayer.
The form of the taxpayer’s notification relevant transfer pricing documentation
is rather complex and contains the is provided to the tax authorities. This
following main fields: Transfer pricing study penalty applies starting from 2017.
• calendar year in which a transaction

overview For 2012-2013, the penalty will not
subject to the transfer pricing Is preparation of a transfer pricing apply. For 2014-2016, the penalty will be
regulations occurred study required – i.e. can the 20 percent of the underpaid tax.
• subject matter of the transaction To satisfy the requirement and/or
• information about the parties to
Yes, a study is required for each
the transactions, (name, taxpayer’s
controlled transaction.
identification number)
With respect to Russian transfer pricing submitted?
• income received and expenses rules, the following transactions can be Transfer pricing documentation should
incurred relating to the transaction identified as controlled transactions: be filed only at the request of the tax
• grounds for classifying the authorities. The documentation can be
• cross-border transactions, including:
transactions as controlled requested by the tax authorities not
–– transactions between related earlier than 1 June of the year following
• pricing methods used by the taxpayer parties (in 2012 – RUB100 million, the year in which a controlled transaction
• information sources used by the in 2013 – RUB80 million and since occurred. For transactions controlled in
taxpayer. 2014 with no threshold limit) 2012 the deadline is 1 December 2013
(amendments to the transfer pricing
Some fields in the form are optional. –– transactions with commodities
legislation of April 2013). A taxpayer
quoted on exchanges (exceeding
When providing information on the must file the relevant transfer pricing
RUB60 million)
subject matter of the transaction, it documentation within 30 working days
will be necessary not only to give a –– transactions with counter-parties from the date of the tax authorities’
full description (e.g. goods, works, which are residents of certain request.
services, or property rights), but also ‘black-listed’ jurisdictions (exceeding
RUB60 million). The list of such When a transfer pricing study is
to submit more detailed data, including
jurisdictions is confirmed by the prepared, should its content follow
the code for the subject matter of the
Order of the Russian Finance Chapter V of the OECD Guidelines?
transaction in accordance with one of
three classifications: Ministry of 21 August 2012 No 115n. No. Transfer pricing documentation can
be presented in any form, but should
• TN VED (Foreign Economic Activity • domestic transactions, including:
contain the following:
Commodity Nomenclature) –– transactions between related
parties exceeding RUB1 billion • indication of the parties to the
• OKP (Russian Classification of transaction and their residence,
Products) (for goods) (in 2012 – RUB3 billion, in 2013 –
RUB2 billion) description of their functions,
• OKVED (Russian Classification of assets and risks attributable to the
Economic Activities) (for works, –– transactions between related transactions
services, or property rights). parties where any of the parties
either pays mineral extraction • description of the transaction:
The most detailed information is required tax or uses a special tax regime subject matter, terms and conditions,
for transactions with goods where the (exceeding RUB60 million). methodology applied, etc.
Russia | 223
• justification of the transfer pricing Also an independent appraisal report To what extent are transfer pricing
method applied: indication of sources could be used as a source of information penalties enforced?
of information used, calculation of on arm’s length pricing in a transaction if Articles 129.3-129.4 of the RF Tax Code –
the range of arm’s length prices/ none of the above mentioned methods Penalties.
profitability, amount of income or their combination could be applied
received and/or expenses incurred and such transaction is performed on a What defences are available with
relating to the transactions and non-recurrent basis. respect to penalties?
related economic benefits received If a taxpayer makes a transfer pricing
• description of adjustments to the self-adjustment and pays the additional
tax base (if any) performed by the tax liabilities and late payment interest
There is no most appropriate method prior to the tax audit, no penalties
taxpayer
rule in the transfer pricing regulations. should apply.
• other information necessary to justify Methods are prioritized. Certain
the transfer prices used. methods cannot be applied unless A taxpayer is exempt from the 40 percent
non-application of other methods has penalty if the relevant transfer pricing
Does the tax authority require an been justified. documentation has been provided to the
advisor/tax practitioner to have tax authorities.
specific designation in order
to prepare or submit a transfer Transfer pricing audit What trends are being observed
pricing study? and penalties currently?
No. When the tax authority requests Not applicable. The new rules are
a taxpayer’s transfer pricing effective as of 1 January 2012.
Transfer pricing methods documentation, how long does
the taxpayer have to submit its Special considerations
documentation?
outlined in Chapter II of the OECD Are secret comparables used by tax
Guidelines acceptable? The taxpayer must provide the transfer authorities?
pricing documentation to the tax
Yes. In the case where general transfer No.
authorities within 30 working days from
pricing methods (or a combination
the date of the tax authorities’ request.
thereof) cannot be applied for the Is there a preference, or
purposes of transfer pricing analysis of If an adjustment is proposed by the requirement, by the tax authorities
a non-recurrent transaction (i.e. sales tax authority, are dispute resolution for local comparables in a
of real estate), the arm’s length level options available to the taxpayer benchmarking set?
of price could be determined using an outside of competent authority? Yes. The use of pan-European
independent appraisal report. benchmarking studies for Russian
Any additional tax assessments can be
contested by a taxpayer to a higher-level transfer pricing purposes could be
Is there a priority among the challenged by the tax authorities as the
acceptable methods? tax authority or in court.
new transfer pricing rules stipulate:
Yes. Comparable uncontrolled price If an adjustment is sustained, can
(CUP) method, is generally the first • that accounting data of foreign
penalties be assessed? If so, what companies can be used to test the
priority method and should be applied rates are applied and under what
when information concerning at least arm’s length nature of prices applied
conditions? by Russian companies (or foreign
one comparable transaction is available.
If a transfer pricing adjustment results companies with Russian permanent
In some cases, the resale price method
in an additional tax liability, the taxpayer establishment) only if no data of
is the first priority method (for instance,
is subject to late payment interest Russian comparable companies
in the case of further resale of goods
of 1/300 of the currently effective is available
to the third parties). Cost plus method,
refinancing rate established by the
transactional net margin method • that financial data of foreign
Central Bank of the Russian Federation.
(TNMM) and profit split methods may be companies must be adjusted based
used only if the CUP/resale price method The penalty for underpayment of tax on Russian accounting principles.
is not applicable, or if the application arising from non-compliance with the Therefore, adjustments to a pan-
of these methods would not allow transfer pricing regulations is 40 percent European benchmarking study may
for a reasonable conclusion as to the of the underpaid tax. This penalty applies be required by the Russian tax
compliance/non-compliance of the actual starting from 2017. For 2012-2013, the authorities. However, this may be
prices with arm’s length prices. penalty will not apply. For 2014-2016, impossible to do in practice
the penalty will be 20 percent of the
A combination of several transfer pricing • an explicit list of search criteria to be
underpaid tax.
methods can be applied to a specific used for benchmarking purposes.
controlled transaction.
Therefore, the pan-European Are year-end transfer pricing When may a taxpayer submit an
benchmarking studies could only be adjustments permitted? adjustment to competent authority?
acceptable if performed in accordance No. True-ups/true-downs are generally No formal rules exist in this area.
with these criteria. Based on the above, not possible in Russia. ‘Missing’
pan-European benchmarking studies the target profit range could result May a taxpayer go to competent
would likely be challenged by the Russian in negative consequences for a authority before paying tax?
tax authorities. Russian company and related foreign No formal rules exist in this area.
Where the results of a benchmarking counterparties, including:
study performed on the basis of local • profits tax and VAT risks from Advance pricing
comparables differ from the results of a transfer pricing audit (if the
pan-European benchmarking studies, agreements
Russian tax authorities consider the
the local benchmarking study will likely company’s revenues as understated What APA options are available, if
prevail and the Russian tax authorities or the costs as overstated) any?
may have grounds for an additional tax An APA procedure was introduced by
assessment. • customs risks from adjustment of
the new Russian transfer pricing rules.
import prices (if the Russian customs
APAs (unilateral/bilateral) can initially be
Do tax authorities have authorities consider them overstated)
concluded for a maximum of 3 years,
requirements or preferences and even a slowdown or blocking of
and can consequently be extended for
regarding databases for the customs clearance of goods
another 2 years.
comparables?
• unrecoverable Russian VAT (resulting
The results of benchmarking studies from some of the tools used to adjust Is there a filing fee for APAs?
aimed at testing the arm’s length nature profit to fit within the target PLI range) The fee for concluding an APA is RUB1.5
of prices/margins of Russian companies million.
(or foreign companies with a Russian • tax risks for foreign counterparties
permanent establishment) are more (resulting from non-compliance with Does the tax authority publish APA
likely to be acceptable if the data for the transfer pricing rules or even an data either in the form of an annual
the search were obtained from Russian Advance Pricing Agreement (APA) report or through the disclosure of
databases (i.e. SPARK, RUSLANA, etc.). with a foreign jurisdiction) data in public forums?
• unavailability of correlative No.
To test the arm’s length nature of prices/
adjustments in case of additional tax
margins of European companies, the
assessments. Please provide some information
Amadeus database can be used.
Other unique attributes? is and whether there are any known
authorities have with customs None. difficulties?
authorities? APAs are available only for ‘large
There is some interaction, but it is Other recent taxpayer’. The general qualification
generally limited. criteria for a ‘large taxpayer’ varies
developments
depending at which level (federal or
Are management fees deductible? No.
regional) such taxpayer is subject to tax
Yes. They must be supported by administration. A taxpayer is considered
documentation evidencing the fact that Tax treaty/double tax a ’large taxpayer’ at the regional level if
any of the following criteria is met:
services were actually rendered and resolution
that a Russian taxpayer received the • total amount of annual federal taxes
economic benefit from such services. What is the extent of the double tax equals RUB1 billion
treaty network?
Are management fees subject to Extensive. • total annual revenue equals
withholding? RUB1 billion to RUB20 billion
If extensive, is the competent (amendment of Federal Tax Service
They are not subject to withholding
authority effective in obtaining dated 24 April 2012)
income tax. However, they are likely
subject to VAT, which is to be withheld double tax relief? • total assets equal RUB100 million to
by the Russian taxpayer which is the The Russian competent authority has RUB20 billion (amendment of Federal
recipient of the services. little experience in transfer pricing Tax Service dated 24 April 2012).
matters.
Russia | 225
The qualification criteria for a ‘large

taxpayer’ at the federal level are
even higher.
According to the information posted on

the official websites of the Federal Tax
Service and OAO NK Rosneft, the parties
entered into an APA on 20 November
2012, the first of its kind in Russia.
Under this agreement, OAO NK Rosneft

and the Federal Tax Service agreed on
certain pricing methods for oil sales
transactions in the domestic market
developed under the new transfer pricing
rules. As of March 2014, not less than six
confirmed APAs exist (for GazpromNeft,
Aeroflot, LUKOIL and three for Rosneft).
Language
The official language for all filings is
Russian. In practice documentation
can be prepared in English, but the tax
authorities would likely require a Russian
translation which must be available
within the 30 working day period.
KPMG in Russia
Natalia Valkovskaya
Tel: +7 495 937 4477 (ext. 13766)
Email: nvalkovskaya@kpmg.ru

Saudi Arabia
KPMG observation
While Saudi Arabia does not have complex transfer pricing rules, transactions
between related parties must be concluded on terms as if the parties were
independent. As a result we are seeing the Department of Zakat and Income
Tax (DZIT) scrutinizing cross-border transactions between related parties and
challenging such transactions where arm’s length principles are not satisfied.
Even though there is a need to maintain arm’s length pricing under Saudi tax law,
there are no detailed transfer pricing rules in Saudi Arabia to reach an acceptable
arm’s length price for a particular transaction. In the absence of such detailed rules,
the Saudi tax authority generally accept a price if they are satisfied that it represents a
fair market value (FMV) of the subject services or supplies.
The lack of specific transfer pricing rules does provide wide powers to the Saudi tax
authority to accept or reject any particular pricing mechanism. Hence, it is always better
to provide as much objective support as possible for arm’s length pricing between related
parties to be able to defend any potential challenge from the Saudi tax authority.
Basic information shall apply in case the Saudi tax authority Transfer pricing study
is making adjustments to taxable income
Tax authority name from the perspective of arm’s length overview
Department of Zakat and Income Tax price. The specific limitation is 5 years, Is preparation of a transfer pricing
(DZIT). and 10 years in cases where the tax study required – i.e. can the
return was not filed, or if filed, was found taxpayer be penalized for mere
Citation for transfer pricing rules to be incomplete or incorrect with intent failure to prepare a study?
No specific transfer pricing rules have to evade tax. No.
been issued by the Saudi tax authority;
however, the principle of arm’s length Other than complying with a
transactions has been embedded within
Transfer pricing requirement per the previous
Saudi tax law. disclosure overview question, describe the benefits, if
Are disclosures related to transfer any, of preparing and maintaining a
Effective date of transfer pricing transfer pricing study?
rules
submitted to the revenue authority While not required by law, the preparation
Not applicable. on an annual basis (e.g. with the tax and maintenance of a transfer pricing
return)? study would greatly assist in supporting
No. an expense or deduction in the event of a
tax query or audit in Saudi Arabia.
between parties?
Not applicable. Furthermore, entities which have
substantial losses or periods of sustained
What is the statute of limitations Not applicable. losses, usually come under greater
on assessment of transfer pricing scrutiny by the DZIT. Accordingly, the risk
adjustments? of the DZIT challenging or disputing the
There is no specific statute of limitations expenses and costs charged to Saudi
disclosures?
set out in Saudi tax law; however, there Arabia would be much higher than usual
Not applicable. in such instances.
is a general statute of limitations which
Saudi Arabia | 227
Therefore, a transfer pricing study If an adjustment is proposed by the related parties or parties under common
supported by contemporaneous tax authority, are dispute resolution control, to allocate income or deductions
documentation such as intercompany options available to the taxpayer between these parties as is necessary
agreements, invoices etc. would be outside of competent authority? to reflect the income that would have
useful in defending prices and expenses If an adjustment is proposed by the resulted from a transaction between
charged in such circumstances. Saudi tax authority because of a dispute independent persons.
in the arm’s length price and an addition Furthermore, the tax law provides for
is made to taxable income because the DZIT to adjust the tax base of an
of this, such adjustment will become individual taxpayer and other person to
part of a larger tax assessment by the prevent any reduction in tax payable as
Saudi tax authority. However, such a result of income splitting (assumed to
submitted?
assessment orders can be challenged apply to corporate taxpayers as well).
Not applicable. by the taxpayer like an assessment For purposes of the above, income
order addressing any other issues. splitting means:
When a transfer pricing study is A taxpayer can appeal against such
prepared, should its content follow an order in the Preliminary Appeal • the transfer of income, directly or
Chapter V of the Organisation Committee (First Appellate Authority), indirectly, from one person to an
for Economic Co-operation and and if he is not satisfied, in the Higher associate
Development (OECD) Guidelines? Appeal Committee (Second Appellate
• the transfer of property (including
Not applicable. Authority); the Board of Grievance will
money), directly or indirectly, from
be the last Appellate Authority.
Does the tax authority require an one person to an associate with the
advisor/tax practitioner to have result that the associate realizes
specific designation in order to income from that property, where
prepare or submit a transfer pricing the reason or one of the reasons
study? for the transfer is to lower the total
conditions?
tax payable upon the income of the
While there is no requirement for Penalties are applicable under general transferor or the transferee.
submission of transfer pricing study, in provisions of Saudi tax law. Penalties
cases when the Saudi tax authority is not resulting from misrepresentation is 25 In determining whether the taxpayer
completely satisfied, especially in case percent of the tax sought to be evaded; is seeking to split income, the DZIT
of imports, it may request the taxpayer additionally, there is also a delay fine on may consider the value given by the
to secure an International Market Value unpaid or underpaid tax amounting to transferee.
(IMV) Certificate from the auditors of 1 percent for each 30 days.
supplying offshore entity. Do tax authorities have
To what extent are transfer pricing requirements or preferences
penalties enforced? regarding databases for
Transfer pricing methods comparables?
Not applicable.
Are transfer pricing methods Not applicable.
outlined in Chapter II of the OECD What defences are available with
Guidelines acceptable? respect to penalties? What level of interaction do tax
Yes. Not applicable. authorities have with customs
authorities?
Is there a priority among the What trends are being observed The Saudi tax authority (DZIT) interacts
acceptable methods? currently? quite extensively with customs
Not applicable, Not applicable. authorities, and many taxpayers have
received notices in the past for the gap in
If there is no priority of methods, is their purchases/imports or sales/ exports
there a “best method” rule? Special considerations etc as reported to/recorded by the two
Not applicable. Are secret comparables used by tax respective authorities.
authorities?
In practice, the DZIT often compares the
Transfer pricing audit and Not applicable. value of the goods as per the invoice/
contracts, the auditors’ certificate, the
penalties Is there a preference, or amount declared for customs duty,
When the tax authority requests requirement, by the tax authorities the value as reflected in the financial
a taxpayer’s transfer pricing for local comparables in a statements, etc.
documentation, how long does benchmarking set?
the taxpayer have to submit its While there are no local comparables In the case where the cost of ‘Imported
documentation? in any benchmarking set used by the Goods’ reflected in the income
DZIT in Saudi Arabia, the DZIT has a statement would not match with the
Not applicable,
right to raise an arbitrary assessment value of goods declared for customs
in the case of any transaction between duty purposes, the DZIT may disallow
deduction of the difference and Arabia has a treaty that allows for Advance pricing
accordingly raise the assessment of the exemption or reduced WHT rates, Saudi
corporate tax liability and penalty for the residents payees are required to apply agreements
period of default. full rate of WHT as provided under the What Advance Pricing Agreement
tax law, and later claim refund of the (APA) options are available, if any?
It is therefore important to ensure
overpaid WHT. The circular has also None. However, non-binding rulings or
consistency between the value of the
provided some mechanics of the process interpretations may be requested to
goods as disclosed in the contract/
and required documents. obtain an understanding of the possible
invoice, auditor’s certificate, customs
clearances, financial statements, etc. approach to be adopted or treatment
Tax treaty/double tax acceptable from a Saudi tax perspective
Are management fees deductible? from the DZIT.
resolution
Yes.
What is the extent of the double tax Is there a filing fee for APAs?
Are management fees subject to treaty network? Not applicable.
withholding? Saudi Arabia has expanded its double tax
treaty network in recent past and around Does the tax authority publish APA
Yes, at 20 percent.
30 tax treaties are now in effect. data either in the form of an annual
All of the Saudi Arabian treaties (except data in public forums?
France) follow the Organisation for Not applicable.
Not applicable. Economic Co-operation and Development
(OECD)/ United Nations (UN) model Please provide some information
and include the ‘Associated Enterprises’ on how successful the APA program
Not applicable. article. However, the practical application is and whether there are any known
of this provision is yet to be challenged by difficulties?
Other recent the DZIT in Saudi Arabia. Not applicable.
developments If extensive, is the competent
While there is a trend that Saudi tax authority effective in obtaining Language
authority has started challenging pricing double tax relief?
of some of the cross-border transactions, This is yet to be ascertained in terms of documentation be filed?
KPMG in Saudi Arabia have not seen a the existing tax treaty network in Saudi
significant build-up in efforts to formulate Arabic.
Arabia.
formal transfer pricing rules.
The DZIT issued a circular (in May 2010)
regarding withholding tax (WHT) on
payments made to countries with whom Not applicable.
a Double Tax Treaty (DTT) exists. As a
result of this new DZIT clarification, WHT
on payments made to non-residents
residing in countries with whom Saudi Not applicable.
KPMG in Saudi Arabia
Hossam Fahmy
Tel: +966 1 874 8500
Email: hfahmy@kpmg.com
Gaffer Biswas
Tel: +966 3 887 7241
Email: gbiswas@kpmg.com

Serbia | 229
Serbia
KPMG observation
Transfer pricing rules have been present for more than a decade in Serbian
corporate income tax (CIT) legislation. However, specific and detailed regulations
on the application of these rules were published by the Ministry of Finance only
in 2013. Significant efforts have been made to align local rules and practices to
established international guidelines. As a result, 2013 marks a fresh start for transfer
pricing in Serbia, particularly since documentation needs to be submited along with
the 2013 CIT return, no later that 30 June 2014. Taxpayers are advised to devote
particular attention to transfer pricing issues since the practices and the approaches of
the tax authorities are still developing.
Basic information What is the relationship threshold In addition, any company which is
for transfer pricing rules to apply a resident of a jurisdiction with a
Tax authority name between parties? preferential tax system is deemed
Tax Administration of Serbia. An entity is deemed a related party to be a related party regardless of
if it has the possibility of control or the percentage of direct or indirect
Citation for transfer pricing rules ownership or voting rights in a Serbian
considerable influence on the business
Articles 59, 60, 61, 61a and 62 of the decisions made. company.
CIT Law, Rulebook on Transfer Prices
and Methods Applied for Determining Ownership of at least 25 percent of the A jurisdiction with a preferential tax
Prices in Related Party Transactions shares in the capital is considered as the system exists if the relevant regulations
in Accordance With the Arm’s Length possibility of control. allow for a significant reduction in
Principle (Rulebook) and Rulebook on income and dividend taxation when
Possessing at least 25 percent of the compared to Serbian regulations. A
‘Arm’s Length’ Interest Rates (Interest
voting rights is considered as having an territory also qualifies as a jurisdiction
Rates Rulebook).
influence on business decisions. with a preferential tax system if its
Effective date of transfer pricing regulations do not allow, or impede,
These tests are applied to both direct
rules access to information on ownership
and indirect ownership.
or other data relevant for resolving
Rules have been present since 1 July
Furthermore, companies are deemed taxation issues.
2001, while the latest amendments
came into force on 1 January 2013. to be related if the same persons
The Ministry of Finance published a list
The Rulebook was enacted on 20 July directly or indirectly participate in the
of jurisdictions with a preferential tax
2013, and was amended on 29 January management, ownership or control
system in 2013, which includes 51 tax
2014, while the Interest Rates Rulebook of both companies in the manner
jurisdictions, mainly tax havens.
came into force on 15 February 2014. described above.
Our comments relate to the latest Members of the immediate family What is the statute of limitations
amendments and rules in force from of shareholders who own at least 25 on assessment of transfer pricing
15 February 2014. percent of shares or hold at least 25 adjustments?
percent of voting rights are also deemed The right of the Tax Administration
as related parties. to assess a tax liability is limited to
5 years from the day when the period Transfer pricing study When a transfer pricing study is
of limitation commenced. The period prepared, should its content follow
commences as of 1 January of the year overview Chapter V of the Organisation
following the year when the tax liability Is preparation of a transfer pricing for Economic Co-operation and
became due. The absolute period of study required – i.e. can the Development (OECD) Guidelines?
limitation is 10 years. taxpayer be penalized for mere Yes. Additional guidance regarding the
failure to prepare a study? content of the transfer pricing study is
There is no special statute of limitations
on assessment of transfer pricing Yes, for all transactions. However, provided in the Rulebook.
adjustments. for certain transactions there is a
materiality threshold and simplified Does the tax authority require an
study can be submitted. Immaterial advisor/tax practitioner to have
Transfer pricing transactions could be either one-off specific designation in order to
disclosure overview transactions amounting to RSD8 million prepare or submit a transfer pricing
(70,000 Euros (EUR) approximately) or study?
Are disclosures related to transfer less, or transactions with one related No.
pricing required to be prepared or entity amounting to RSD8 million
submitted to the revenue authority (EUR70,000 approximately) or less.
on an annual basis (e.g. with the tax Financial transactions (loans and other Transfer pricing methods
return)? borrowings) are excluded from the Are transfer pricing methods
Yes, a taxpayer is obliged to prepare simplified documentation option. outlined in Chapter II of the OECD
and submit documentation presenting Guidelines acceptable?
related party transactions at both Other than complying with a
requirement per the previous Yes. Please note that interest rates
transfer and arm’s length prices along
question, describe the benefits, if can also be assessed using an interest
with their annual tax return. The deadline
any, of preparing and maintaining a rate prescribed as arm’s length by the
is set to 180 days from the observed
transfer pricing study? Ministry of Finance.
period end.
Preparing and maintaining a transfer Is there a priority among the
What types of transfer pricing acceptable methods?
pricing study shifts the burden of proof
from the taxpayer to the tax authorities No.
A transfer pricing documentation and provides shelter from adjustments
study must be submitted along with made based on incorrect comparables. If there is no priority of methods, is
the tax balance sheet. The tax balance In addition, timely preparation may there a “best method” rule?
sheet needs to disclose the amount provide added protection from short Yes, new transfer pricing regulations
of the tax base adjustment relating to supplementary deadlines for submitting prescribe the use of the most
transfer pricing if any. Furthermore, any and amending the documentation. appropriate method.
adjustments determined based on the
prescribed arm’s length interest rate To satisfy the requirement and/or
need to be disclosed separately in the obtain the benefits, are there any Transfer pricing audit and
tax balance sheet. requirements on when the transfer penalties
What are the consequences submitted? When the tax authority requests
of failure to prepare or submit a taxpayer’s transfer pricing
Documentation should be
disclosures? documentation, how long does
contemporaneous, and submitted along
Failure to separately disclose the the taxpayer have to submit its
with the CIT tax return and tax balance
value of related party transactions documentation?
sheet. However, additional information
in accordance with the arm’s length can also be submitted within 30 to 90 The documentation needs to be
principle carries penalty exposure days of request. submitted along with the CIT return.
from 100,000 Serbian dinar (RSD) to However, an additional deadline may
RSD2 million. apply for amending the documentation
as well as for providing additional
information. Such additional deadline
is defined only as ‘adequate’ or
‘appropriate’.
Serbia | 231
If an adjustment is proposed by the Special considerations The Ministry of Finance published a list
tax authority, are dispute resolution of jurisdictions with a preferential tax
options available to the taxpayer Are secret comparables used by tax system in 2013, which includes 51 tax
outside of competent authority? authorities? jurisdictions, mainly tax havens.
Adjustments assessed by the tax No.
authorities must be applied and then
Is there a preference, or adjustments permitted?
the taxpayer has an option to appeal to
requirement, by the tax authorities No. Adjustments, aimed at aligning
the second instance degree procedure
for local comparables in a transactions with the arm’s length
with the tax authorities, or finally to the
benchmarking set? value and mitigating the risk of tax base
Administrative Court.
Yes, the Rulebook states that the increase, are not permitted in Serbian
If an adjustment is sustained, can search for comparables must start regulations. However, adjustments can
penalties be assessed? If so, what with local companies and only if be executed for specific transactions
rates are applied and under what insufficient companies are found, by issuing credit/debit notes relating to
conditions? the search for comparables can be specific invoices.
Yes. Penalties may range from broadened to other jurisdictions. The
consequence of not starting the search Other unique attributes?
RSD100,000 to RSD2 million
(approximately between EUR9,000 with local comparables can be that the Local authorities publish annual arm’s
to EUR17,000) for non-disclosure of comparable sample may be viewed as length interest rates which can be used to
transfer prices at arm’s length in the inadequate allowing the Tax Authorities assess inter-company loans. The rates are
tax balance sheet. In addition, there is to assess the arm’s length nature of set depending on the term and currency
a potential penalty depending on the transactions by themselves. of the loan, and are different for financial
additional tax liability assessed by the institutions and businesses. Taxpayers can
Do tax authorities have opt to use another transfer pricing method
tax authorities. This penalty varies from
requirements or preferences to set an interest rate but this implies
1 percent to 25 percent of the assessed
regarding databases for an ‘all or nothing’ approach i.e. all inter-
additional tax liability but not less than
comparables? company loans can either be assessed by
RSD500,000 (approximately EUR4,000).
No. using the published interest rates or by
To what extent are transfer pricing using transfer pricing methods.
penalties enforced? What level of interaction do tax
Rarely, although a significant shift is
authorities? Other recent
expected in this respect during 2014.
The level of interaction between tax developments
What defences are available with and customs authorities with regards to As already stated, the Rulebook which
respect to penalties? VAT is high. However, it is not possible prescribes the content of the transfer
Preparing documentation should to estimate the level of interaction pricing documentation and gives a more
mitigate the risk of penalties. Other between these authorities regarding detailed guidance on application of
defense strategies may include transfer pricing. transfer pricing methodology has been
negotiation and reasonable cause but adopted; it aligns Serbian rules with the
Are management fees deductible? OECD Gudielines and provides for more
such strategies are less likely to have the
desired positive effects. Generally, yes. Please note that non- legal certainty for taxpayers. The most
documented costs are non-deductible recent amendments of the Rulebook
What trends are being observed as are costs that are not incurred for included documentation materiality
currently? business purposes. thresholds and extended the scope
Outcomes from audits are revealing of usable internal comparables, while
Are management fees subject to clarifying the difference in interpretation
that the tax authorities prefer the
withholding? of the term non-related party for the
comparable uncontrolled price (CUP)
method, but apply that method in a very Management fees would be subject to purpose of traditional and transactional
simplified way. withholding tax only if provided from a methods.
jurisdiction with a preferential tax system
There are also strong indications that The Interest Rate Rulebook has also
(discussed in more detail above).
the tax authorities will place firm focus been introduced, providing a simplified
on transfer pricing during tax audits option for assessing inter-company loans.
starting from 2014.

What is the extent of the double tax What Advance Pricing Agreement
treaty network? (APA) options are available, if any?
Minimal. No APAs or advance rulings of any kind.
If extensive, is the competent Is there a filing fee for APAs?

authority effective in obtaining Not applicable.
double tax relief?
No experience Does the tax authority publish APA
When may a taxpayer submit an report or through the disclosure of
adjustment to competent authority? data in public forums?
The formal procedure for obtaining a Not applicable.
corresponding adjustment is regulated
by double tax treaties mutual agreement Please provide some information
procedure (MAP). CIT Law generally on how successful the APA program
allows corresponding adjustments is and whether there are any known
only when it is available through a difficulties?
mechanism provided in a double tax Not applicable.
treaty signed by Serbia.

No formal rules. documentation be filed?
Serbian.
KPMG in Serbia
Igor Loncarevic
Tel: +381112050570
Email: iloncarevic@kpmg.com
Jelena Miljkovic
Tel: +381112050516
Email: jmiljkovic@kpmg.com
Vladimir Milic
Tel: +381112050562
Email: vmilic@kpmg.com

Singapore | 233
Singapore
KPMG observation
Coinciding with the addition of Section 34D (transactions not at arm’s length) to
the Singapore Income Tax Act in 2010, the Inland Revenue Authority of Singapore
(IRAS) has become considerably more focused in enforcing transfer pricing
compliance in Singapore.
IRAS uses computer analytics to determine transfer pricing audit candidates
and continues to send out transfer pricing questionnaires to taxpayers to assess
their transfer pricing compliance levels. These questionnaires are usually seven to
eight pages in length, with detailed questions on transfer pricing arrangements and
availability of supporting documentation. Depending on the response received, the tax
authority may escalate the case through a transfer pricing consultation process that may
include further rounds of questioning and field audits.
Increasingly, questions on the arm’s length nature of related party transactions are also
being added to queries issued in relation to corporate income tax computations.
Basic information What is the relationship threshold What types of transfer pricing
for transfer pricing rules to apply information must be disclosed?
Tax authority name between parties? Not applicable.
Inland Revenue Authority of Singapore Under direct/indirect common control or
(IRAS). significant influence. What are the consequences
Citation for transfer pricing rules What is the statute of limitations disclosures?
• IRAS Circular – Transfer Pricing on assessment of transfer pricing Not applicable.
Guidelines (2006) adjustments?
• IRAS Circular – Transfer Pricing From fiscal year 2007, 5 years from
the fiscal year in which the transaction
Consultation (2008)
occurred. overview
• IRAS Supplementary Circular –
Supplementary Administrative Is preparation of a transfer pricing
Guidance on Advance Pricing Transfer pricing study required – i.e. can the
Arrangements (2008) disclosure overview failure to prepare a study?
• IRAS Supplementary e-Tax Guide Are disclosures related to transfer Not directly. However, the taxpayer
– Transfer Pricing Guidelines for pricing required to be prepared or may be violating the record keeping
Related Party Loans and Related submitted to the revenue authority requirements under Sections 65, 65A,
Party Services (2009) on an annual basis (e.g. with the tax and 65B of the Singapore Income
• Section 34D of the Singapore return)? Tax Act.
Income Tax Act (transactions not at Not directly. However, the audited
arm’s length) (2010). financial statements of the taxpayer have
to be submitted and material related
Effective date of transfer pricing party transactions must be disclosed in
rules the notes to the financial statements.
Transfer pricing guidelines issued in
2006.
Other than complying with a Transfer pricing methods What defences are available with
requirement per the previous respect to penalties?
question, describe the benefits, if Are transfer pricing methods
Transfer pricing documentation
any, of preparing and maintaining a outlined in Chapter II of the OECD
represents the first line of defense
transfer pricing study? Guidelines acceptable?
against transfer pricing audits and is
When reasonable efforts have been Yes. crucial for mitigating transfer pricing risk.
exercised in preparing and maintaining
Is there a priority among the What trends are being observed
a transfer pricing study, the transfer
acceptable methods? currently?
prices would be considered, prima
facie, arm’s length. Adequate and timely No. IRAS continues to issue transfer pricing
documentation help demonstrate a questionnaires to companies and a
reasonable effort, and shift the burden of considerable number of these cases
proof to the tax authorities in an event of have progressed to full transfer pricing
a transfer pricing consultation/audit. In Yes. audits. Increasingly, non-transfer pricing
practice, the IRAS have expectations that specialists within the IRAS are raising
documentation be prepared, especially Transfer pricing audit queries and reassessments on related
for significant or complex transactions. party transactions in their review
IRAS warns that scant documentation and penalties of taxpayers’ annual corporate tax
for significant transactions may result in When the tax authority requests computations.
transfer pricing reviews and challenges. a taxpayer’s transfer pricing
To satisfy the requirement and/or the taxpayer have to submit its
obtain the benefits, are there any documentation? Are secret comparables used by tax
requirements on when the transfer authorities?
IRAS is empowered to invoke the
pricing study must be prepared and No. IRAS is of the view that use of
relevant sections of the Singapore
submitted? secret comparables is not conducive
Income Tax Act to request
It is recommended that the preparation documentation be submitted within to transparency and that it can hamper
of the transfer pricing study be 30 days from the date of notice. The competent authority procedures.
contemporaneous and no later than the taxpayer may ask for an extension to
submission date of the tax return. IRAS submit documentation. However, this Is there a preference, or
has indicated that documentation should may lower the taxpayer’s compliance requirement, by the tax authorities
be available upon request. From past rating and increase the risk of a full for local comparables in a
experience, the timeframe can be as transfer pricing audit. benchmarking set?
short as two weeks. The IRAS has not indicated that
If an adjustment is proposed by the geographical/markets comparability
When a transfer pricing study is tax authority, are dispute resolution should take precedent over functional/
prepared, should its content follow options available to the taxpayer risk comparability. Hence, whether
Chapter V of the Organisation outside of competent authority? a regional search is permissible will
for Economic Co-operation and depend on overall comparability. Overall,
Yes, through the objections and appeals
Development (OECD) Guidelines? the search will be more robust if there is
process.
No. It should follow the Singapore Singapore comparables included.
Transfer Pricing Guidelines, which If an adjustment is sustained, can
provide guidance on the content penalties be assessed? If so, what Do tax authorities have
expected, in order for the transfer pricing rates are applied and under what requirements or preferences
study to be considered adequate. conditions? regarding databases for
Yes. Up to 400 percent of tax evaded and comparables?
Does the tax authority require an No.
possibly, time. However, most penalties
are in the 100 percent to 200 percent
specific designation in order to What level of interaction do tax
range of tax under-declared. There are
prepare or submit a transfer pricing authorities have with customs
also penalties for failure to produce
study? authorities?
documentation in a timely manner.
No statutory requirements. However, Low interaction as very few items attract
in practice, practicing tax and transfer To what extent are transfer pricing custom duties in Singapore.
pricing professionals are accredited by penalties enforced?
the Singapore Institute of Accredited Tax Increasingly so.
Professionals.
Singapore | 235
Are management fees deductible? When may a taxpayer submit an

Yes. Management fees are generally adjustment to competent authority?
tax deductible in Singapore if they are Within the time limit specified in the
charged to the Singapore entity on an MAP Article of the relevant double tax
arm’s length basis and are incurred treaty. Taxpayers are advised to contact
wholly and exclusively in the production the IRAS early and not to settle their
of the taxpayer’s income, and not cases with the overseas tax authority
prohibited under any provisions of the before submitting an adjustment to the
Singapore Income Tax Act. competent authority.
Are management fees subject to May a taxpayer go to competent

withholding? authority before paying tax?
Yes. Management fees paid to a No. Any late payment will be subject to
person not known to be resident late penalties.
in Singapore are generally subject
to Singapore withholding tax at the
Singapore prevailing rate. There are
Advance pricing
treaty concessions, under specific agreements
circumstances. What Advance Pricing Agreement
adjustments permitted? Unilateral; bilateral; multilateral.
Yes, although there is no specific Is there a filing fee for APAs?
guidance on this. Year-end transfer pricing
There is no filing fee for bilateral or
adjustments should be supported by
multilateral APAs as the Singapore tax
relevant transfer pricing analysis.
authorities view this as part of their treaty
Other unique attributes? obligations. A filing fee is applicable for
unilateral APAs.
Domestic transactions between related
parties within Singapore should also be Does the tax authority publish APA
documented and conducted on an arm’s data either in the form of an annual
length basis. report or through the disclosure of
Other recent Yes. IRAS discloses APA data in various
developments seminars and in its annual report.
Recently, IRAS has stated that one of Please provide some information
its ‘up and coming compliance focuses’ on how successful the APA program
will be on related party transactions an is and whether there are any known
allocation of development cost. difficulties?
In 2011/2012, IRAS completed 11
Tax treaty/double tax unilateral and bilateral APAs. As at
resolution 31 March 2012 IRAS has 18 ongoing
unilateral, bilateral and multilateral
What is the extent of the double tax APAs. IRAS is particularly encouraging
treaty network? to taxpayers to submit bilateral APA
Extensive. There are about 70 applications. The success rate for bilateral
comprehensive tax treaties in place. APA applications generally depends
on the corresponding APA partner. For
If extensive, is the competent example, the success rate has been high
authority effective in obtaining for bilateral APA applications with Japan.
double tax relief?
Almost always. In 2011/2012, IRAS KPMG in Singapore
resolved three cases through Mutual
Language
Agreement Procedures (MAP) In which language or languages can Geoffrey Soh
discussions. As at 31 March 2012, IRAS documentation be filed? Tel: +65 6213 3035
has six MAPs at different stages of English. Email: geoffreysoh@kpmg.com.sg
review.
Slovakia
KPMG observation
After the introduction of mandatory transfer pricing documentation (for taxable
periods starting from 2009), transfer pricing became one of the top priorities for
the Slovak tax authorities. The tax authorities started to focus on transfer pricing
audits and inspect transfer pricing arrangements in more detail than ever before.
The tax authorities have placed a greater focus on transfer prices for transactions
with foreign related parties than the prices used for domestic transactions, since
in principle transfer pricing only applies to transactions with foreign related parties
in Slovakia. The tax authorities have built specialized transfer pricing teams and it is
expected that the number of transfer pricing audits to be carried out on corporate
taxpayers is again going to increase.
Basic information capital, or personal relation (statutory tax return of a corporate entity (all values
bodies) or business relation solely for stated in Euros (EUR)):
Tax authority name the purpose of decreasing tax base/
Dañový úrad (tax authorities). • Interest resulting from provision of
increasing tax loss.
loans or credits.
Citation for transfer pricing rules What is the statute of limitations • Granting license rights.
Article 2 Letter n through r, Article 17 on assessment of transfer pricing
(5) through (7), and Article 18 of the Act adjustments? • Provision of services.
No. 595/2003 Coll. on the Income Tax as Five years from the calendar year-end • Transfer of tangible, intangible and
amended. of the filing date. Seven years if the financial assets.
taxpayer carries forward tax losses
Guidelines of the Ministry of Finance of • Transfer of inventory.
according to income tax legislation
the Slovak Republic No. MF/8288/2009-
effective from 1 January 2010. Maximum However, disclosure of details regarding
72 on details regarding the content for
statute of limitations is 10 years. Ten individual transactions is not required in
keeping documentation for the transfer
years always applies if international tax the annual tax return.
pricing method applied by a taxpayer
treaties are involved.
according to the Article 18 (1) of the Act What are the consequences
No. 595/2003 Coll. on the Income Tax as of failure to prepare or submit
amended. Transfer pricing disclosures?
disclosure overview The tax return is not complete and the tax
rules Are disclosures related to transfer authorities may ask for the completion
pricing required to be prepared or of the respective information in the tax
General transfer pricing rules have
submitted to the revenue authority return after the tax return was filed.
been applicable since the introduction
of the first post-communist income on an annual basis (e.g. with the tax
tax legislation in the 1990s. An return)? Transfer pricing study
important amendment laying down the Corporate taxpayers are required to
disclose in their annual tax return certain
overview
obligation to maintain transfer pricing
documentation became effective on 1 information regarding transactions with Is preparation of a transfer pricing
January 2009. related parties. study required – i.e. can the
What is the relationship threshold What types of transfer pricing failure to prepare a study?
for transfer pricing rules to apply information must be disclosed? Yes, for all transactions. The Ministry
between parties? Terms of the following transactions of Finance of the Slovak Republic
More than 25 percent direct or indirect concluded with foreign-based related issued guidelines which specify
share of voting rights or registered parties have to be reported in the annual details regarding the content and the
Slovakia | 237
rules for preparing and maintaining applied in related party transactions, the Transfer pricing methods
documentation of the transfer pricing taxpayer would be required to support
method applied by the taxpayer to compliance with the arm’s length Are transfer pricing methods
transactions with its foreign-based principle. Existence of a benchmarking outlined in Chapter II of the OECD
related parties. study may help shift the burden of proof Guidelines acceptable?
to the tax authorities. Yes.
According to the guidelines, entities
which are obliged to prepare financial To satisfy the requirement and/or Is there a priority among the
statements under International Financial obtain the benefits, are there any acceptable methods?
Reporting Standards (IFRS) according to requirements on when the transfer No, with effect from 1 January 2014.
Slovak Accounting Act (IFRS reporters) pricing study must be prepared and
are required to keep full scope transfer submitted? If there is no priority of methods, is
pricing documentation for the respective there a “best method” rule?
For relevant taxpayers the deadline
tax period. It must include a master file
for submitting transfer pricing Yes, OECD ‘most appropriate method’
and a country file including a transfer
documentation is within 15 days of the rule.
pricing study, i.e. internal and external
tax authorities’ request.
comparables on transactions conducted
between independent parties, a When a transfer pricing study is Transfer pricing audit and
comparability analysis, functional prepared, should its content follow penalties
analysis, etc. Chapter V of the Organisation When the tax authority requests
Other taxpayers not meeting the set for Economic Co-operation and a taxpayer’s transfer pricing
criteria for IFRS reporting have to Development (OECD) Guidelines? documentation, how long does
prepare ‘simplified transfer pricing No. The content of the full scope transfer the taxpayer have to submit its
documentation’ that shows compliance pricing documentation prepared by IFRS documentation?
with the arm’s length principle in reporters should correspond with the
According to Article 18 (6) of the
transactions with foreign-based requirements of the European Union
Slovak Income Tax Act, transfer pricing
related parties. (EU) Code of Conduct on Transfer Pricing
documentation must be made available
Documentation, i.e. it must include a
The documentation must support the to the tax authorities within 15 days of
master file for the group of related parties
fulfilment of arm’s length principles request.
and country specific documentation for
in significant controlled transactions the taxpayer. However, requirements of
performed by the taxpayer.
EU Code of Conduct on Transfer Pricing tax authority, are dispute resolution
Entities which do not perform Documentation are similar to those options available to the taxpayer
transactions with foreign related parties outlined in OECD Guidelines. outside of competent authority?
are currently not required to maintain Simplified transfer pricing documentation Most tax treaties which Slovakia has
transfer pricing documentation. must contain the following major with other OECD countries contain
If the transfer pricing documentation elements: mutual agreement procedures (MAPs)
was not provided to the tax authorities if the adjustment assessed by the tax
• List of transactions with related authorities results, or is likely to result, in
based on their request within the set parties, and their nature.
deadline of 15 days, the taxpayer could double taxation.
be penalized up to EUR3,000, also • Description of major transactions, Furthermore, the EU Arbitration
repeatedly. their volume or percentage from the Convention lays down mechanisms on
overall volume of transactions. how disputes between the authorities
Other than complying with a of the involved countries should be
• Information on the volume of
requirement per the previous resolved.
incomplete/in-process transactions.
any, of preparing and maintaining a • Information on prices of completed The respective proceedings are
transfer pricing study? transactions between the taxpayer rather lengthy and administratively
Preparation of a transfer pricing and the related parties. cumbersome procedures with results
study, including benchmarking, is being difficult to anticipate.
recommended even for taxpayers
who are not obliged to maintain a
benchmarking study (i.e. for those
entities which do not maintain
study?
accounting records under IFRS). If the tax
authorities were to challenge the prices No.
If an adjustment is sustained, can Tax inspections could be carried out Are management fees deductible?
penalties be assessed? If so, what by specialized teams with trained and In general, yes, but subject to
rates are applied and under what skilled people, who can help the tax documentation requirements and
conditions? authorities in any region. Taxpayers are justification of how the management
If a tax difference detrimental to the advised to prepare extended transfer services serve to generate, assure or
State budget is assessed as a result of pricing documentation (not just content maintain taxable income of the Slovak
non-compliance with the arm’s length specified for simplified documentation) company.
principle, a penalty in the amount of as tax authorities may additionally require
three times the base interest rate of the supporting information/documents upon Are management fees subject to
European Central Bank will be assessed; a potential inspection. withholding?
however, not less than 10 percent from In general no, but if these also comprise
the mis-stated tax would be levied. Special considerations intellectual property transfer (know-how)
and this is not separately disclosed
To what extent are transfer pricing Are secret comparables used by tax on invoice, then they could be subject
penalties enforced? authorities? to withholding tax. A ‘security tax’ is
Always, if a misstatement of tax is Under certain circumstances the tax withheld in some circumstances, if
identified. authorities are allowed to determine the entity to which fees are paid has a
tax according to aids at their disposal or permanent establishment in Slovakia and
What defences are available with procured without cooperation with the is a tax resident outside the EU.
respect to penalties? taxpayer. This may potentially involve
No defenses if the documentation is not comparables derived from the files of Are year-end transfer pricing
provided to the tax authorities within other taxpayers which are not publicly adjustments permitted?
statutory limits. Penalties can be reduced available. However, based on other Yes, although the Slovak transfer pricing
only in extraordinary circumstances law provisions, the tax authorities are legislation does not specifically address
stipulated by the tax law. required to clearly demonstrate what a term year-end adjustment. In practice
aids have been used to assess the year-end transfer pricing adjustments
In the case of penalties arising from specific tax difference. (reflected in the same taxable period as
additional tax assessments resulting
related transactions) in both directions are
from a tax audit, ordinary and Is there a preference, or used. In general, it is expected that a year-
extraordinary legal remedies are available requirement, by the tax authorities end adjustment is described/anticipated
for the taxpayer, including appeal, for local comparables in a in relevant agreements covering intra-
review beyond appellate proceedings, benchmarking set? group transactions and specific formulae/
and renewal of proceedings. An action No. calculations are in place.
may be filed by the taxpayer with
the court against the decision on tax Do tax authorities have Other unique attributes?
assessment (confirmed by the appellate requirements or preferences Not applicable.
tax authorities) against which no ordinary regarding databases for
legal remedy is allowed. comparables?
The tax authorities in Slovakia use the Other recent
currently?
Amadeus database. developments
The Slovak central tax authorities have
The tax authorities are more frequently What level of interaction do tax built a transfer pricing department
focusing on transfer pricing audits of all authorities have with customs and therefore more focus by the tax
types of businesses, and exit taxation authorities? authorities on transfer pricing is expected
issues are starting to be discussed in Regarding corporate income tax, the in the near future.
Slovakia. interaction of the tax authorities with the
The tax authorities are more and more customs authorities is low. However, the
familiar with transfer pricing issues and responsibilities of both authorities can
the inspections are more efficient and lead to a higher level of interaction in the
sophisticated (e.g. tax authorities are area of VAT.
preparing their own benchmark studies).
Slovakia | 239
Tax treaty/double tax Is there a filing fee for APAs?

resolution No/immaterial.
What is the extent of the double tax Does the tax authority publish APA
treaty network? data either in the form of an annual
Extensive. The current double tax treaty report or through the disclosure of
network includes 64 tax treaties. New data in public forums?
tax treaties are being negotiated. No.

authority effective in obtaining on how successful the APA program
It is not common in Slovakia to ask for an
When may a taxpayer submit an APA.
No formal rules. However, at the
latest within four to 10 years after the
Language
respective taxable period. In which language or languages can
May a taxpayer go to competent Documentation should be filed with
authority before paying tax? the Slovak tax authorities in the Slovak
Yes. language, but upon request of the
taxpayer the tax authorities may allow
the submission of the documentation in
Advance pricing
another language.
agreements
Unilateral.
KPMG in Slovakia
Tomáš Ciran
Tel: +421 2 599 84 111
Email: tciran@kpmg.sk
Branislav Durajka
Tel: +421 2 599 84 303
Email: bdurajka@kpmg.sk
Zuzana Blažejová
Tel: +421 2 599 84 331
Email: zblazejova@kpmg.sk

Slovenia
KPMG observation
There are many transfer pricing audits in Slovenia, especially of transactions with
foreign related parties. Notably, in the transfer pricing audits the tax authorities pay
special attention to cross-border business restructurings (in the light of Chapter IX
of Organisation for Economic Co-operation and Development (OECD) Guidelines).
In order to minimize the tax risks arising from transfer pricing, taxpayers are advised
to have up to date transfer pricing documentation demonstrating that all transactions,
including cross-border business restructurings, were carried out at arm’s length.
Basic information assessment. The right to assess tax connection with each related party,
shall fall under the statute of limitation, tax numbers of related parties.
Tax authority name being 5 years from the day when the
• the total amount of loans exceeding
Ministrstvo za finance, Davcna uprava tax should have been announced,
EUR50,000 granted to or received
Republike Slovenije. calculated, withheld or assessed.
from each related party on a yearly
The period of limitation on the right to
Citation for transfer pricing rules basis. In addition, the enclosures shall
assess tax shall be interrupted by any
disclose names of related parties,
Corporate Income Tax (CIT) Act, Tax official act by the tax authorities for
with whom the Slovenian entity had
Procedure Act, Rules on transfer prices, the purpose of assessing tax, and in
transactions, the type of connection
Rules with the respect to recognized respect of which the taxable person
between related parties (e.g. mother
interest rate among related parties. has been informed. The tax liability
company, sister company, etc.),
absolutely ceases after 10 years from
Effective date of transfer pricing rules tax numbers of related parties and
when the period of limitation first
information relating to whether the
1 January 2007. started to run.
company has made any adjustments
What is the relationship threshold of the tax base due to transfer pricing.
for transfer pricing rules to apply Transfer pricing The adjustment of the tax base due
between parties? disclosure overview to transfer prices is needed if the
Direct or indirect ownership of greater Are disclosures related to transfer transactions between related parties
than 25 percent. However, two pricing required to be prepared or do not correspond to the arm’s length
companies can also be considered submitted to the revenue authority principle. However, the adjustment
related parties if one company is on an annual basis (e.g. with the tax between two related resident
controlled due to some agreement return)? companies is not required, unless
concluded between these companies one of the companies involved in the
Yes. Enclosures to the CIT return related
or in case transactions between two transaction has an accumulated tax loss
to transactions with related parties must
companies differ from conditions that from previous years, is exempt from CIT
be submitted to the tax authorities on an
would be agreed between unrelated or is entitled to use a lower CIT rate.
annual basis together with the CIT return.
parties in same or similar circumstances
(i.e., based on economic or some other What are the consequences
control). of failure to prepare or submit
disclosures?
What is the statute of limitations In the enclosures to the CIT returns the
Tax penalties may apply in the range
on assessment of transfer pricing following information must be disclosed:
between EUR1,200 and EUR30,000
adjustments? • cumulative yearly amounts of (depending on the size of the company)
Transfer pricing adjustments (if any) receivables and liabilities (exceeding for the company and between EUR600
are assessed in the CIT return. CIT 50,000 Euros (EUR)) realized with and EUR4,000 for the responsible person
returns are based on taxpayers’ self- each related party, the type of of the company.
Slovenia | 241
Transfer pricing study Is there a priority among the To what extent are transfer pricing
acceptable methods? penalties enforced?
overview
The arm‘s length price has to be proven Increasingly.
Is preparation of a transfer pricing by using the most appropriate transfer
study required – i.e. can the pricing method. If the arm’s length price What defences are available with
taxpayer be penalized for mere can be proven with the same reliability respect to penalties?
failure to prepare a study? using traditional transaction methods Prepared transfer pricing documentation
Yes, for all transactions. and profit based methods, transaction containing all the data required by the
methods have priority over profit based Slovenian Tax Procedure Act.
Other than complying with a methods and internal comparables
requirement per the previous have priority over external comparables. What trends are being observed
question, describe the benefits, if Comparable uncontrolled price method currently?
any, of preparing and maintaining a has priority over other methods. Tax audits are often triggered in cases
transfer pricing study? when the taxpayer makes a self
The benefits are as follows: If there is no priority of methods, is announcement.
• penalty protection The tax inspectors are mainly focused on
Yes, the ‘most appropriate method’ rule
is used. cross-border transactions in tax audits.
• mitigate risk of tax authority making
adjustments. Recently, there have been many tax
To satisfy the requirement and/or Transfer pricing audit audits in companies that were involved in
business restructurings.
obtain the benefits, are there any and penalties
submitted? Are secret comparables used by tax
The transfer pricing study has to be the taxpayer have to submit its authorities?
prepared at the latest by the time the documentation? Based on the information provided by
CIT return is submitted (within 3 months the tax authoritiy, secret comparables
The tax authority may request transfer
after the end of the tax year). The are used by the tax authorities only for
pricing documentation in the case of a
transfer pricing study must be submitted the indicative nature and not to compute
tax audit. The taxpayer has to submit it
immediately to the tax authorities upon adjustments.
immediately, but if the transfer pricing
their request. If this is not possible, it
documentation is not prepared, the tax
must be submitted within 30-90 days Is there a preference, or requirement,
authority give the taxpayer 30-90 days for
(the deadline for submission is set by the by the tax authorities for local
the preparation depending on the extent
tax authorities). comparables in a benchmarking set?
and the complexity of the data.
When a transfer pricing study is No.
tax authority, are dispute resolution Do tax authorities have
options available to the taxpayer requirements or preferences
No. According to tax law, transfer outside of competent authority? regarding databases for
pricing documentation shall comprise comparables?
In general, yes (Ministry of Finance and
of a Masterfile and Country Specific
Administrative court). The tax authority uses the Amadeus
File, containing the information which
database for searching for comparables,
generally follows Chapter V of the OECD If an adjustment is sustained, can but also other databases are accepted.
Guidelines. penalties be assessed? If so, what
rates are applied and under what What level of interaction do tax
conditions? authorities have with customs
Yes. In case the tax base is lower than authorities?
prepare or submit a transfer pricing it should have been, penalties for High.
study? understated tax liabilities range between
30-45 percent (depending if micro/ Are management fees deductible?
No.
small or medium/large company) of Yes, under the condition that appropriate
understated tax liability, but not more agreements are in place and that a
Transfer pricing methods than EUR150,000 (for micro/small taxpayer can prove that services were
companies) or EUR300,000 (for medium/ actually needed and rendered.
large companies) and from EUR700
to EUR5,000 (also depending if micro/ Are management fees subject to
small or medium/large company) for the withholding?
Yes. company’s responsible person. No.
Are year-end transfer pricing If extensive, is the competent Please provide some information
adjustments permitted? authority effective in obtaining on how successful the APA program
In general yes. Year-end adjustments double tax relief? is and whether there are any known
are permitted either in the CIT return No experience in transfer pricing field. difficulties?
(artificial increase of the tax base due Slovenia competent authority has Not applicable.
to transfer prices) or in the financial limited experience in mutual agreement
statements (credit note, debit note), procedures (MAP), and it is too early
however in case of a tax audit year-end to tell how successful they are in such
Language
adjustments are usually subject to resolutions. In which language or languages can
special attention. documentation be filed?
When may a taxpayer submit an In general, the documentation needs
Credit or debit notes have potential VAT adjustment to competent authority? to be in Slovene language. However,
and customs implications. For incorrect
Prior to the commencement of the tax it could also be prepared in a foreign
reporting/calculation of taxes due to
audit (self announcement procedure). language but translated upon the tax
transfer prices, penalties may apply
authority’s request, within the deadline
according to VAT and customs legislation. May a taxpayer go to competent set by the tax authority (no earlier than in
There should be no penalties arising from authority before paying tax? 60 days).
transfer prices if transactions between Not applicable for transfer pricing.
related parties are at arm’s length.
Other unique attributes? Advance pricing

None. agreements
Other recent (APA) options are available, if any?
No APAs or binding rulings of any kind.
developments Based on the information provided by the
In 2012, changes were made relating tax authoritiy APAs should be available in
to the priority amongst transfer pricing the near future.
methods, and amendments made
regarding tangible assets and other Is there a filing fee for APAs?
minor issues.
Not applicable.
Tax treaty/double tax Does the tax authority publish APA

resolution report or through the disclosure of
What is the extent of the double tax data in public forums?
treaty network? Not applicable.
Extensive.
KPMG in Slovenia
Nada Drobnič
Tel: +386 1 4201 149
Email: nada.drobnic@kpmg.si

South Africa | 243
South Africa
KPMG observation
Transfer pricing in South Africa, and Africa as a whole, has taken on immense
importance and is currently under the spotlight. The South African Revenue
Authority is up-skilling its transfer pricing department to be able to cast its net wider
in so far as audits are concerned.
The Action Plan on Base Erosion and Profit Shifting (BEPS) underscores the significance
of transfer pricing developments that are under consideration by the Organisation for
Economic Co-operation and Development (OECD). Both large and smaller international
businesses are advised to keep an eye on this topic and be proactive.
KPMG anticipates that the South African Revenue Service will strongly support the BEPS
Action Plan. South Africa was present and participated in the meeting of the Committee on
Fiscal Affairs where the Action Plan was adopted.
Basic information Transfer pricing disclosure What are the consequences of failure
Tax authority name overview
The annual income tax return requires
South African Revenue Service (SARS). Are disclosures related to transfer disclosure relating to transactions with
pricing required to be prepared or related parties. Failure to provide accurate
Citation for transfer pricing rules submitted to the revenue authority responses would lead to the prescription
Section 31 of the Income Tax Act and on an annual basis (e.g. with the tax period not applying to the return, which
Practice Note 7. return)? would mean SARS could challenge the
Yes. Transfer pricing documentation, transfer pricing at any time and would not
together with justification for the pricing be limited to the prescription period of 3
1995. of transactions, should be prepared and years after assessment.
available to SARS on request.
for transfer pricing rules to apply What types of transfer pricing Transfer pricing study
between parties? information must be disclosed? overview
Ownership of greater than 20 percent The following information must be Is preparation of a transfer pricing
of the share capital or under common disclosed: study required – i.e. can the taxpayer
management or control.
• disclosure of related party be penalized for mere failure to
transactions prepare a study?
on assessment of transfer pricing No.
• disclosure as to whether the
adjustments?
company has transfer pricing
Three years from the date of documentation
assessments unless there has been
fraud, misrepresentation and/or a material • disclosure of financial assistance to/
nondisclosure by the taxpayer. from an offshore-related party
• disclosure of any Advanced Pricing
Agreements (APAs) in a foreign
jurisdiction.
Other than complying with a Transfer pricing audit and Special considerations
penalties Are secret comparables used by tax
any, of preparing and maintaining a When the tax authority requests authorities?
transfer pricing study? a taxpayer’s transfer pricing Not to our knowledge.
The benefits are as follows: Is there a preference, or
• shifting burden of proof documentation? requirement, by the tax authorities
• penalty protection No fixed time period. These may vary
benchmarking set?
and applications for extended periods
• if SARS requests documentation No.
may be submitted to SARS.
they expect the taxpayer to have
documentation prepared for If an adjustment is proposed by the Do tax authorities have
submission. tax authority, are dispute resolution requirements or preferences
options available to the taxpayer regarding databases for
To satisfy the requirement and/or comparables?
obtain the benefits, are there any outside of competent authority?
requirements on when the transfer The taxpayer may approach SARS and No, but it is common practice that the
pricing study must be prepared and follow alternative dispute resolution Bureau van Dijk Orbis database is used.
submitted? (ADR) procedures. This procedure is
Must be submitted on request and must between the taxpayer and SARS.
be contemporaneous. SARS may grant a authorities?
30-day period for submission. High.
When a transfer pricing study is rates are applied and under what
conditions? Are management fees deductible?
Yes. Up to 200 percent of the adjusted Yes.
Yes. tax amount.
To what extent are transfer pricing withholding?
penalties enforced? No.
specific designation in order to Depends largely on the intention of the
prepare or submit a transfer pricing taxpayer.
study?
What defences are available with Yes, but these need to be supported
No. by the transfer pricing policy and
The maintenance of contemporaneous methodology applied and may lead to
Transfer pricing methods documentation evidencing the queries from SARS.
Are transfer pricing methods taxpayer’s intention and that
outlined in Chapter II of the OECD consideration has been given to the
transfer prices can be used as a defense SARS works closely with the South
against penalties. African Reserve Bank to monitor the
Yes. inflow and outflow of money from and to
What trends are being observed South Africa.
currently?
acceptable methods?
Yes, the Comparable Uncontrolled Price
Extensive audits by SARS across Other recent
all industries. SARS is focusing on
(CUP) method is preferred.
distribution entities, particularly where
developments
these have been classified as low-risk New legislation (which came into force
If there is no priority of methods, is from financial years commencing on or
there a “best method” rule? distributors. Companies that have
effected true-up payments at year-end after April 2012) has been promulgated to
Not applicable. provide a uniform set of transfer pricing
are also being looked at.
rules to deal with artificial pricing or the
South Africa | 245
misallocation of prices within the various Please provide some information on

components of a single transaction. The how successful the APA program is
new legislation puts the onus to make and whether there are any known
any transfer pricing adjustment on the difficulties?
taxpayer. SARS is yet to issue a practice Not applicable.
note clarifying these amendments.
Language
resolution documentation be filed?
What is the extent of the double tax Documentation can be submitted in any
treaty network? of South Africa’s 11 official languages.
Extensive. However, on a practical level, English is
preferable.
double tax relief?
No experience

No formal rules.

No formal rules.
Advance pricing
agreements
What APAs options are available, if
any?
No. APAs or advance rulings in respect
of transfer pricing of any kind.

Not applicable.

Not applicable.
KPMG in South Africa
Natasha Vaidanis
Tel: +27 11 647 5712
Email: Natasha.vaidanis@kpmg.
co.za

South Korea
KPMG observation
The Korean Transfer Pricing Regulations, namely the Law for the Co-ordination
of International Tax Affairs (LCITA) and the Presidential Enforcement Decree
(PED) of the LCITA (PED of LCITA) were extensively amended in late 2010. The
2010 amendments were made to enable the LCITA and PED of LCITA to be more
in line with the Organisation for Economic Co-operation and Development (OECD)
Guidelines and also to result in more transparency for interpreting and applying
the LCITA. The revised LCITA is expected to require more accountability from a
taxpayer with respect to managing its own transfer pricing, and in the event of the
tax authorities’ request of transfer pricing documentation.
Recently, in an effort to prevent offshore tax evasion by multinationals operating in
Korea, the LCITA was amended to expand the scope of exchange of financial information
under current tax treaties and be more aligned with the Base Erosion and Profit
Shifting (BEPS) action plan. Persuant to the amendment, the parties subject to financial
information exchange include both resident and non-resident persons and corporations as
well as any group of two or more individuals.
Basic information of the fiscal year). However, in the case • summarized income statements of
where a company utilizes its net operating the overseas related companies
Tax authority name losses (NOL) incurred after 1 January
• the transfer pricing method selected
National Tax Service (NTS). 2009 to offset taxable income, a different
and description of the reasons for the
statute of limitations may apply. If the
Citation for transfer pricing rules selection, if (i) the total accumulated
NOL is used within 5 years, the statute
volume of annual cross-border
The Law for the Coordination of of limitations is still 5 years. If the NOL is
tangible intra-group transactions of
International Tax Affairs (LCITA) and used for a period of up to 10 years, then
the taxpayer is greater than 5 billion
Presidential Enforcement Decree of the the statute of limitations is 1 year greater
South Korean won (KRW) or the
LCITA (PED of LCITA). than the number of years of taxable
total volume of annual cross-border
income offset by the NOL.
Effective date of transfer pricing rules intra-group service transactions of
the taxpayer is greater than KRW500
1 January 1996.
Transfer pricing million or (ii) the volume of annual
What is the relationship threshold disclosure overview cross-border tangible intra-group
for transfer pricing rules to apply transactions to each related party
Are disclosures related to transfer is greater than KRW1 billion or the
between parties? pricing required to be prepared or volume of annual intra-group service
Ownership of greater than 50 percent, submitted to the revenue authority transactions to each related party is
based on voting power, is under common on an annual basis (e.g. with the tax greater than KRW100 million.
control, and under de facto control in return)?
substance. In addition, the taxpayer is required
Yes.
to have and maintain transfer pricing
What is the statute of limitations What types of transfer pricing documentation that fully supports the
on assessment of transfer pricing information must be disclosed? arm’s length nature of its overseas intra-
adjustments? group transaction at the time of its annual
A taxpayer is required to submit with the
The general statute of limitations for corporate tax return.
annual tax return:
transfer pricing adjustments is 5 years
from the date the annual tax return filing • a detailed statement of the overseas
due date (within 3 months of the last day intra-group transactions
South Korea | 247
What are the consequences the income tax assessed, 10.95 percent If there is no priority of methods, is
of failure to prepare or submit per annum). In addition, in the case of a there a “best method” rule?
disclosures? secondary adjustment in the form of a Yes. A taxpayer may select a transfer
If the taxpayer fails to prepare the constructive dividend, withholding tax pricing method that is considered as
required information with the annual tax will also be due. the most appropriate to support that the
return, the under-reporting penalty relief The contemporaneous transfer pricing taxpayer’s transfer prices are at arm’s
will not be granted to the taxpayer. documentation rule provides an length.
exemption from the under-reporting
Transfer pricing study penalties. However, it does not provide Transfer pricing audit and
an exemption from the under-payment
overview penalty or withholding tax on the
penalties
constructive dividend. When the tax authority requests
To satisfy the requirement and/or documentation, how long does
obtain the benefits, are there any the taxpayer have to submit its
requirements on when the transfer documentation?
No. However under the pricing study must be prepared and In general, the NTS expects the
contemporaneous transfer pricing submitted? taxpayer to submit transfer pricing
rules, the relief from the under-reporting
For the under-reporting penalty relief, a documentation immediately in the case
penalty can only be granted if the
transfer pricing study, which satisfies the of a tax audit. Otherwise, the taxpayer
taxpayer has prepared and maintained
reasonable test in accordance with the may lose the opportunity to avoid a non-
transfer pricing documentation by
PED of LCITA, should be prepared at the compliance penalty.
the annual tax return due date. A
time of annual income tax return filing
contemporaneous transfer pricing report
and the taxpayer is required to submit it If an adjustment is proposed by the
must be submitted within 30 days from
within 30 days upon the NTS’ request. tax authority, are dispute resolution
the date of the NTS request.
Taxpayers’ relevant transfer pricing When a transfer pricing study outside of competent authority?
documents must be submitted within is prepared, should its content A taxpayer can appeal to National Tax
60 days upon the NTS request (a follow Chapter V of the OECD Service, the National Tax Tribunal or the
one-time extension of 60 days may be Guidelines? Board of Audit and Inspection for its
available at the discretion of the NTS). Yes. ruling on the proposed adjustment.
A non-compliance penalty of up to
KRW100 million may be imposed by Does the tax authority require an If an adjustment is sustained, can
the NTS for failure to provide requested advisor/tax practitioner to have penalties be assessed? If so, what
documents by the deadline. specific designation in order to rates are applied and under what
prepare or submit a transfer pricing conditions?
Other than complying with a study? Yes. Generally speaking, a 10 percent
requirement per the previous No. There are no specific requirements under-reporting penalty and 10.95 percent
question, describe the benefits, if to involve an advisor/tax practitioner. interest on the income tax assessment
any, of preparing and maintaining a However, it is a common practice and will be levied as penalties for the transfer
transfer pricing study? generally expected by the NTS that pricing income adjustment. If the tax
Complying with the contemporaneous professional transfer pricing specialists authorities conclude that a taxpayer
transfer pricing regulation in Korea can are engaged for the preparation of a manipulated the transfer pricing at its own
be seen as a way to protect bona-fide transfer pricing study. will, more severe penalties could apply.
taxpayers who determined their transfer
prices in a good faith (from a reasonable To what extent are transfer pricing
perspective) by allowing under-reporting
Transfer pricing methods penalties enforced?
penalties relief in case of a transfer Are transfer pricing methods If a transfer pricing income adjustment is
pricing income adjustment. If the NTS outlined in Chapter II of the OECD sustained, transfer pricing penalties are
determines the transfer prices used Guidelines acceptable? likely to be enforced.
in transactions with overseas related Yes.
parties were different from the arm’s What defences are available with
length price and the taxpayer receives Is there a priority among the respect to penalties?
an income tax adjustment from the acceptable methods? LCITA provides a relief from under-
tax authorities, the taxpayer must No. The hierarchy of transfer pricing reporting penalties where a taxpayer
pay additional income tax, an under- methods was removed with the 2010 has exercised due care as demonstrated
reporting penalty of 10 percent of the amendments to the LCITA and PED either by contemporaneous
additionally-paid income tax and an of LCITA. documentation or through mutual
under-payment penalty (i.e. interest on agreement procedure (MAP).
In addition, where new information assets over KRW10 billion and thus are NTS can increase or decrease taxable
(e.g. comparables’ most recent financial subject to an independent annual audit. income regardless of corresponding
information) is obtained subsequent adjustments of the foreign jurisdiction of
to the filing of the tax return, resulting What level of interaction do tax the overseas related party.”
in an upward adjustment to taxable authorities have with customs
income, a relief from under-reporting authorities? Other unique attributes?
penalties is granted where the taxpayer, Ministry of Strategy and Finance If the company does not receive
within 60 days of the findings, files an amended the LCITA and the Korea remuneration from related parties for the
amended tax return. Customs Act to harmonise the transfer transfer pricing income adjustment levied
pricing and customs regulations. The by the tax authorities, the tax authorities
What trends are being observed newly enacted legislation, which became take an administrative measure of
currently? effective on 1 July 2012, states that secondary adjustment in the form of
Recently, intercompany royalty charges transfer pricing or customs valuation dividend income, and withholding tax
for the use of brand names/trademarks adjustments made by one tax authority liability will accrue.
have become a focus of the Korean tax should be respected by the other.
authorities. In the past, the focus has Accordingly, the taxpayers are now able
been on whether the brand owner has to protect themselves from overpaying
Other recent
been compensated for the use of its taxes/duties resulting from adjustments developments
brand and there have been many cases made by one tax authority by requesting In Korea, taxpayers who import from
where a significant tax assessment was corresponding adjustments from the foreign affiliates often face difficulties
made in this regard. However, because other tax authority. in obtaining customs refunds resulting
of the complexity involved in determining from transfer pricing adjustments and
the value of the brands and the resulting Are management fees deductible? vice versa. In an attempt to reconcile
royalty rates, the valuation method Yes. Management services fees the differences in transfer pricing and
chosen by the taxpayer to determine its remitted by a local subsidiary to a foreign customs valuation methods used by
royalty rate has not been subject to many parent company will be recognized as the two tax agencies, the Ministry of
challenges. Due to the increasing interest deductible expenses if the taxpayer is Strategy and Finance amended the
by the tax authorities with the royalty able to prove that the services were LCITA and the Korea Customs Act to
charges, there has been increasing actually provided to the local subsidiary harmonize the transfer pricing and
scrutiny on the reasonableness of the by the foreign parent company, and customs regulations.
chosen method and taxpayers are the services fees are at arm’s length.
advised to be proactive in developing Consequently, the taxpayers are
Documentary evidence is crucial for the
a reasonable valuation method and now able to protect themselves from
deductibility of the management fees.
economic rationale to deal with potential overpaying taxes/duties resulting
challenges by the tax authorities. Are management fees subject to from adjustments made by one tax
withholding? authority by requesting corresponding
adjustments from the other tax authority.
Special considerations Normally, management fees are not
This harmonisation regulation will provide
subject to withholding tax if they are
Are secret comparables used by tax an opportunity for the taxpayers to avoid
classified as business income and the
authorities? potential double taxation arising from
services are not performed through a
transfer pricing and customs valuation
Secret comparables are prohibited by the permanent establishment in Korea.
adjustments.
transfer pricing regulations.
Are year-end transfer pricing According to the current interpretation
Is there a preference, or adjustments permitted? of the legislation, there is a condition
requirement, by the tax authorities Yes. A year-end adjustment is permitted that must be satisfied for the refund
for local comparables in a to adjust the pricing of the transactions to application. The taxpayer must, within
benchmarking set? reflect arm’s length prices resulting in an two months from the date the taxpayer
Yes. Only local comparables should be increase or a decrease of transfer price became aware of the transfer pricing
used in a benchmarking study, as other for tax purposes. or customs valuation adjustments,
comparables are likely to be rejected by apply for a refund from the other tax
For the adjustments of prior taxable
the NTS. authority. Thus, taxpayers are being
years after the relevant tax filing, claims
advised to understand and apply this
Do tax authorities have to reduce taxable income due to transfer
new harmonization regulation to obtain
requirements or preferences pricing adjustments are not made since
a refund on overpaid corporate taxes or
regarding databases for the NTS in practice requests competent
customs duties resulting from the tax/
comparables? authorities’ agreement for the downward
customs audits.
adjustment, even though the ruling (by
The tax authorities use the local database
Ministry of Strategy and Finance-223, 26 Additionally, in an effort to prevent
called Korea Information Service Line
September 2008) interpreted that “in the offshore tax evasion by multinationals
(KIS-Line). The KIS-Line database
case where overseas related transaction operating in Korea, the LCITA was
contains financial data on various
is above or below the arm’s length range, amended to expand the scope of
companies, many of which maintain
South Korea | 249
exchange of financial information competent authority also allows the

under current tax treaties. Before the suspension of the tax payment in case
amendment, only non-residents and of MAP (in this case, if the competent
nonresident corporations were subject authorities, negotiations finally result in
to the periodic information exchange. a transfer pricing income adjustment,
According to the amendment, the the taxpayer should pay interest on the
scope of parties subject to the financial adjusted amount for the duration of the
information exchange was expanded period of negotiation).
to include domestic residents and
companies as well as any group of
two or more individuals. In addition,
Advance pricing
financial institutions may be fined with agreements
a penalty up to KRW30 million for a lack What advance pricing agreement
of cooperation with the government’s (APA) options are available, if any?
request. The effective date for the
Unilateral, bilateral, and multilateral
amended LCITA is 1 January 2014.
involving more than two tax authorities.
In relation to the BEPS action plan,
the Korean government is assessing Is there a filing fee for APAs?
the opinions of various stakeholders. No.
However, there has been no clear action
plan regarding this matter. Does the tax authority publish APA
resolution Yes, available on the NTS’ website.
treaty network? Please provide some information
Extensive. is and whether there are any known
difficulties?
authority effective in obtaining The APA program has become a
double tax relief? preferred tool for many multinational
enterprises (MNEs) to manage their
Frequently.
transfer pricing risks, given that it
When may a taxpayer submit an provides a certainty to the MNEs’
adjustment to competent authority? tax position and protection from the
double taxation risk during the course of
The taxpayer can file a request for
overseas related party transactions.
competent authority procedure within
3 years from the date when a notice Due to the increasing number of APA
of income tax assessment is issued or requests, the CA negotiations are taking
before the final court decision is being longer, with more resources being
made in Korea or other jurisdiction. required.

authority before paying tax? Language
Yes. In the case of a transfer pricing In which language or languages can
income adjustment, the taxpayer may documentation be filed? KPMG in South Korea
elect to pay the taxes first before the The document should be filed in Korean.
conclusion of the competent authorities English is acceptable only with the tax Gil Won Kang
negotiations, or may request to suspend authorities’ approval. Tel: +82 2 2112 0907
the tax payment until the conclusion of
Email: gilwonkang@kr.kpmg.com
the negotiations only when the other

Spain
KPMG observation
The Spanish Tax Administration has participated in every Base Erosion and Profit
Shifting (BEPS) Focus Group and followed the discussions. It is in favor of the
general result of the BEPS project although; no specific legislative changes are in
force as yet. There are some areas, such as the permanent establishment definition,
where Spain has quite an aggressive position not only due to recent Court Decisions
but also to some general rulings and administrative practices in the last 3 or 4 years.
There is tax reform legislation coming forward in which some BEPS issues might be
included, such us the treatment of hybrid instruments or hybrid income. However, the
exact content of this new legislation has not yet been announced.
Spanish tax authorities have expressed concerns with respect to transfer pricing issues
and have been paying increasing attention to them during tax audits. Article 16 of the
Spanish Corporate Income Tax Law (CITL), as modified by Law 36/2006, shifted the burden
of proof to the taxpayer and introduced the obligation of transfer pricing documentation
applicable for fiscal years commenced on or after 1 December 2006.
Although Article 16 of the CITL established that related party transactions should be priced
under the arm’s length principle, the formal documentation requirements were not published
until 18 November 2008 in Royal Decree 1793/2008, which specifies the compulsory elements
that Spanish transfer pricing documentation should contain.
Additionally, recent regulations require that taxpayers disclose specific information with respect to
their intra-group transactions when filing their corporate income tax return, such as the typology of
the transaction, the relationship of the parties involved, the transfer pricing methodology applied and
the amount of each type of transaction disclosed.
Basic information Regulations developing Law 36/2006: • Order EHA/1338/2010, approving the
new models for corporate income
Tax authority name • Royal Decree 1793/2008, on
tax law filing and specifying the
Spanish Tax Agency (Agencia Estatal de documentation requirements, 18
information to be included on intra-
Administración Tributaria – AEAT). November 2008.
group transactions, 13 May 2010.
• Royal Decree 1794/2008, on MAPS,
Citation for transfer pricing rules 18 November 2008. Effective date of transfer pricing rules
Legislation: Article 16 of CITL (Law New transfer pricing legislation is
4/2004 of 5 March) modified by Law on Recent regulations: applicable to fiscal years that commenced
Measures for Preventing Tax Fraud (Law • Royal Decree 897/2010, establishing before 1 December 2006. Subsequently,
36/2006 of 29 November). the limits in volume of intra-group Article 16 is applicable as modified by Law
transactions with respect to 36/2006 and further regulations.
Recent legislation:
the obligation of transfer pricing In accordance with Additional Disposition
• Law 6/2010, establishing certain documentation, 9 July 2010. 7.2 of Law 36/2006, the documentation
transfer pricing documentation requirements as set forth in Royal Decree
exemptions.
Spain | 251
1793/2008 are applicable 3 months after submitted to the revenue authority determined to be applicable given the
the date of its publication. Since the on an annual basis (e.g. with the tax facts and circumstances of the taxpayer,
official approval on 18 November 2008, return)? the tax authority may impose formal
these requirements are fully applicable Yes. penalties in the event that the taxpayer
as from 19 February 2009. However, the fails to prepare documentation in
documentation adopting the new content What types of transfer pricing accordance with the formal requirements
requirements can only be requested by information must be disclosed? set forth in the CITL and accompanying
the Spanish tax authorities from the date Taxpayers are required to disclose, in regulations.
of the filing of the corporate income tax their corporate income tax returns,
return, which is 25 July 2010 for fiscal Other than complying with a
the following information with respect
year-end filers. requirement per the previous
to their intra-group transactions (with
certain limitations and exemptions); the
What is the relationship threshold any, of preparing and maintaining a
identification of the related parties, the
for transfer pricing rules to apply transfer pricing study?
type of relationship between them, the
between parties? Penalty elimination and shifting the
type of intra-group transaction carried out,
The relationship threshold is as follows: the volume of the same, and the transfer burden of proof from the taxpayer to the
pricing methodology applied to test the tax authority.
• Companies that belong to the same
group. intra-group price applied.
• At least 25 percent indirect What are the consequences of failure obtain the benefits, are there any
participation in another related entity. to prepare or submit disclosures? requirements on when the transfer
• Companies with direct participation of A delay carries a penalty of 10 percent
submitted?
at least 5 percent in another related of the debt paid late, or a fixed penalty if
there is no debt. A lack of presentation The transfer pricing study or
entity, except when the participant
also carries a fixed fine and/or general documentation is contemporaneous with
company’s stock is traded on an
sanctions for lack of income. the filing of the corresponding corporate
organized securities exchange, in
income tax return, which is generally due
which case the direct participation
6 months and 25 days from the fiscal year-
threshold is 1 percent. Transfer pricing study end. However, it should only be submitted
Also considered related parties in Spain: overview upon request.
• Partners, shareholders, board Is preparation of a transfer pricing When a transfer pricing study is
members, directors, and their study required – i.e. can the taxpayer prepared, should its content follow
immediate, collateral, third-degree be penalized for mere failure to Chapter V of the Organisation
consanguinity, or affinity spouses or prepare a study? for Economic Co-operation and
relatives, and the company and their Yes, for all related party transactions, with Development (OECD) Guidelines?
cross relations with other companies the following exceptions: Yes. Similar to requirements of the OECD
of the group.
• Entities that belong to the same Guidelines and European Union Joint
• A company and its permanent Spanish Tax Consolidated group. Transfer Pricing Forum (EUJTPF) – master
establishments. file and country-specific concepts.
• Entities with intra-group transactions
• Two companies that are taxed under carried out within groups of economic Does the tax authority require an
the cooperative regimen. interest and temporary business advisor/tax practitioner to have
alliances. specific designation in order to
on assessment of transfer pricing • Operations carried out in takeover bids
study?
adjustments? or public offerings processes for sale.
No.
Four years from the due date of the tax • Intra-group transactions realized with
return. a related party with a total volume
of less than 250,000 Euros (EUR)
Transfer pricing disclosure (transaction volume to be understood
as market value).
overview
Assuming the transfer pricing
documentation requirements are
Transfer pricing methods the additional tax due, although they have Special considerations
very seldom been applied.
Are transfer pricing methods Are secret comparables used by tax
outlined in Chapter II of the OECD Based on the penalty regime introduced authorities?
Guidelines acceptable? by Law 36/2006, and applicable from Secret comparables are not used
Yes. 19 February 2009 onwards, penalties because the tax authority’s position in
linked to the formal requirements of the front of a court would be very weak and
Is there a priority among the documentation are also enforceable not sustainable.
acceptable methods? and may apply to both (i) the lack of
Yes. Spanish tax authorities have documentation supporting the related Is there a preference, or requirement,
expressed their preference for the party transactions carried out by the by the tax authorities for local
transaction-based methods. Profit-based taxpayer and (ii) adjustments imposed by comparables in a benchmarking set?
methods should only be applied if the the tax authorities, thus establishing the Although the tax authority had in the
use of transaction-based methods is not following two types of penalties: past expressed a preference for local
possible due to the complexity or the • When there is no transfer pricing comparables, in recent audits it has
facts of the transactions. adjustment, a fixed fine of 1,500 advocated for different approaches –
Euros (EUR) per data and EUR15,000 i.e. the use of either local Spanish
If there is no priority of methods, is per group of omitted, inaccurate or comparables or pan-European
there a “best method” rule? misleading data might be imposed comparables – depending on the facts
Not applicable. on the taxpayer due to faults in the and circumstances of the case.
documentation provided.
Transfer pricing audit and • When a transfer pricing adjustment or preferences regarding databases
penalties is proposed by the tax authorities, for comparables?
a penalty of 15 percent of the The tax authority uses Bureau van Dijk’s
When the tax authority requests additional tax base is applicable
a taxpayer’s transfer pricing pan-European Amadeus database to
in addition to the tax due and the perform its own analyses using external
documentation, how long does corresponding interest associated
the taxpayer have to submit its comparables.
with the delayed payment of the
documentation? additional tax. In the case of an What level of interaction do tax
Upon tax audit, the tax inspector will adjustment, the minimum penalty authorities have with customs
determine the submission deadline on is twice the amount of the formal authorities?
a case-by-case basis with a minimum penalties set forth above.
There is little communication between
period of 10 business days counting
To what extent are transfer pricing the income tax and the customs
from the business day subsequent to the
penalties enforced? authorities, but such communication
request.
is increasing and there is a plan to
Transfer pricing penalty enforcement is
If an adjustment is proposed by the undertake joint audits.
expected to increase significantly in the
tax authority, are dispute resolution near future. Are management fees deductible?
outside of competent authority? What defences are available with Normally yes.
The taxpayer may appeal against the respect to penalties? When the management fees apply
proposed adjustment in the Spanish Where the taxpayer conforms to the between a Spanish company and a
tax courts. applicable documentation requirements, foreign entity, and a tax treaty exists
penalties might be reduced or eliminated between the countries of residence of
If an adjustment is sustained, can by the tax agency. the same, the management fees should
penalties be assessed? If so, what be treated in line with Article 7 of the tax
rates are applied and under what What trends are being observed convention. Should royalty charges be
conditions? currently? included in the management fee, Article
For transfer pricing adjustments based An increasing number of audits focusing 12 should also be applied.
on the legislation that came into force on sectors like electronics, chemicals,
on 19 February 2009, penalties could When a double tax treaty does not exist
pharmaceuticals and new technologies.
amount to 50 percent to 150 percent of between the countries where the related
Spain | 253
parties are based, the Non-Resident For transactions carried out on or after The timing for competent authority
Income Tax Law (NRITL, Law 35/2006) 19 February 2009, taxpayers are also assistance requests varies depending on
shall be applied. The deduction of these required to report the information the applicable tax treaty between Spain
expenses is subject to certain legal regarding their intra-group transactions and the other country in question.
requirements established by the Spanish in a specific section of their corporate
CITL. In addition, services rendered must income tax returns. May a taxpayer go to competent
produce or be expected to produce an authority before paying tax?
In recent months, there appears to have
advantage or be useful to the taxpayer. Yes, but if the taxpayer applies for a
been a significant increase in the number
suspension of collection of taxes it should
Are management fees subject to of tax audits undertaken by the Spanish
provide a guarantee in the same terms as
withholding? tax authority, in particular with respect to
if it were appealing to internal courts.
certain industries. This trend is expected
No. In principle, no withholding tax
to continue as the tax authority devotes
should be applied on payments made
for management services received,
more time and resources to enforcing Advance pricing
transfer pricing compliance. agreements
unless some components of this fee
fall within the concept of royalty (such What Advance Pricing Agreement
as information technology, software, Tax treaty/double tax (APA) options are available, if any?
and so on). resolution Unilateral, bilateral, and multilateral.
Are year-end transfer pricing What is the extent of the double tax
adjustments permitted? treaty network?
No.
Yes, but there are formal requirements Extensive.
that must be met in order to ensure that Does the tax authority publish APA
the adjustments will be respected by the If extensive, is the competent
tax authority. In general, transfer pricing authority effective in obtaining
adjustments (i) should be made prior to double tax relief?
the end of the fiscal year, and (ii) should Frequently.
No.
be carried out via rectifying invoices,
which must include the reason for the When may a taxpayer submit an
change in price and must specifically adjustment to competent authority?
reference the previously issued invoice(s) On 18 November 2008, the Spanish and whether there are any known
to be modified. Ministry of Economy and Finance difficulties?
officially published the Royal Decree
Other unique attributes? Although the Spanish APA program
1794/2008 of 3 November, which
does not publish an annual report with
None. regulates mutual agreement and
statistics regarding the program’s
arbitration procedures.
success rate, the process has a generally
Other recent When a transfer pricing adjustment high rate of success, for both unilateral
developments affects transactions between a and bilateral agreements. Unilateral
Spanish entity and a non-resident, the APAs are routinely concluded between
Applicable to transactions realized on
mechanisms established in the relevant nine months and one year, while bilateral
or after 19 February 2009, taxpayers
double taxation treaty should be applied. agreements generally require closer to
should follow the formal documentation
When the non-resident is within the 18 months.
requirements specified in Royal Decree
EU, the provisions of the Arbitration
1793/2008 and the applicable penalty The success rate and duration of an APA
Convention regarding the elimination of
regime that is established by the same. are closely linked with the nature and
double taxation can be applied. The Royal
complexity of the underlying transactions.
Also from this date on, the inclusion of Decree establishes different regimes,
In particular, transactions involving the
the different intra-group transactions in depending on whether the procedures
sale or licensing of intangible property
the transfer pricing documentation files for double taxation are initiated by
tend to present more of a challenge and
is subject to the limits of overall volume the Spanish or the foreign competent
are often heavily scrutinized by the tax
thresholds established in Royal Decree authorities and depending on which tax
authority.
897/2010 (EUR100,000 and EUR250,000 administration has made the evaluations.
limits, as previously mentioned).
Language
Documentation must be filed in
Spanish. In an ordinary tax audit, the tax
auditor may accept the transfer pricing
documentation in other languages (e.g.
English), but a translation into Spanish
may still be requested. In litigation,
any document used must be written in
Spanish, or in the official language of the
autonomous region of the taxpayer, that
is, Catalan, Basque, Galician, or Valencian.
KPMG in Spain
Vicente Durán Rodriguez

Tel: +34 91 456 82 55
Email: vduran@kpmg.es

Sri Lanka | 255
Sri Lanka
KPMG observation
Transfer pricing provisions were introduced in to Sri Lanka Income Tax legislation
in April 2006 and enforced the arm’s length principle in transactions between
‘associated undertakings’. Recently a new transfer pricing regulation was issued via
gazette to address the ambiguities in the previous regulation and gives an indication
on the administrative enforcement of the transfer pricing rules.
Transfer pricing is very new in Sri Lanka with enforcement being considered from
2013. Hence, Revenue Authorities have not indicated a position to the Organisation
for Economic Co-operation and Development's (OECD) Base Erosion and Profit Shifting
(BEPS) Action Plan.
Basic information • any person directly or indirectly holds What is the statute of limitations
not less than 50 percent of the voting on assessment of transfer pricing
Tax authority name power in both undertakings adjustments?
Department of Inland Revenue. The statute of limitations applicable to
• loans and advances granted exceed
51 percent of the book value of total income tax applies. Accordingly:
assets of the recipient • if return of income has been filed on
Section 104 of the Inland Revenue
Act No.10 of 2006 and the Gazette • guarantees not less than 25 percent time: 1.5 years
Notification No 1823/5 of 12th of the borrowings of the other • if return of income has not been filed
August 2013. undertaking on time: 4 years
Effective date of transfer pricing • more than half of the directors, or • where return has not been filed or in
rules one or more executive directors or the case of fraud, evasion, or wilful
members of the governing board of default: no time limitation.
Practical enforcement (as per recent IRA
one undertaking are appointed by the
circular) – 1 April 2013.
other undertaking
Transfer pricing
What is the relationship threshold • more than half of the directors are
for transfer pricing rules to apply appointed by the same person or disclosure overview
between parties? persons Are disclosures related to transfer
Transfer pricing rules apply to pricing required to be prepared or
• the manufacture, process, or
transactions between the taxpayer and submitted to the revenue authority
business is wholly dependent on
an ‘associated undertaking’, that is where on an annual basis (e.g. with the tax
the input provided by the other
there is a degree of direct or indirect return)?
undertaking
control between the parties. Transfer There are no mandated disclosures in
pricing provisions apply to all transactions • 90 percent or more of the raw tax returns or document to be submitted
regardless of value. materials required for manufacture with the tax return.
or process is provided directly or by
A person is considered to be an associate persons specified It is required that specified
of the other in the following instances: documentation be maintained for
• a mutual relationship which can be possible audit for five years to prove
• direct or indirect shareholding with prescribed. arm’s length pricing in the event of a
not less than 50 percent voting power
revenue assertion.
The revised regulations mandate that When a transfer pricing study is • a description of the methods
the directors certify that transactions prepared, should its content follow considered for determining the
concluded with the related parties are Chapter V of the OECD Guidelines? arm’s length price in relation to each
at arm’s length, and such certification Generally yes. Regulations are still to be transaction or class of transaction;
should be included in the annual enforced, but prescribed documentation the method selected as the most
accounts. includes: appropriate method along with
explanations as to why such method
What types of transfer pricing • a description of the ownership was selected, and how such method
information must be disclosed? structure of the assessee was applied in each case
Not applicable. undertaking
• a record of the actual work carried
• a profile of the multinational or group out in determining the arm’s
of which the assessee undertaking length price, including details of
is a part the comparable data and financial
disclosures?
• a broad description of the business information used in applying the
None prescribed. most appropriate method, and
of the assessee and the industry in
which the assessee operates, and adjustments, if any, which were
Transfer pricing study of the business of the associated made to account for differences
between the transaction and
overview undertakings with whom the
the comparable uncontrolled
assessee has transacted
Is preparation of a transfer pricing transactions, or between the
study required – i.e. can the • the nature and terms (including undertakings entering into such
taxpayer be penalized for mere prices) of international or group transactions
failure to prepare a study? transactions entered into with each
associated undertaking • the assumptions, policies and price
Transfer pricing provisions require a negotiations, if any, which have
person to maintain documentation. • a description of the functions critically affected the determination
However, the documentation rules do performed, risks assumed and assets of the arm’s length price
not apply where the aggregate value employed or to be employed by the
of international transactions with an assessee and by the associated • details of the adjustments, if any,
associated undertaking is less than Rs. undertaking made to transfer prices to align them
100 millon or where the aggregate value with arm’s length prices determined
of other transactions with an associated • a record of the economic and market under these rules and consequent
undertaking is less than Rs. 50 millon analysis, forecasts, budgets or any adjustments made to the total
other financial estimates prepared income for tax purposes.
Other than complying with a by the assessee for the business
as a whole and for each division or Availability of supporting documentation
product separately, which may have in the public domain as prescribed
a bearing on the transactions entered includes:
transfer pricing study? into by the assessee • official publications, reports, studies
Mitigates risk of tax authority making • a record of uncontrolled transactions and databases from the government
adjustments using secret comparables. taken into account for analyzing their of the country of residence of the
comparability with the transactions associated undertaking, or of any
To satisfy the requirement and/or entered into, including a record of the other country
obtain the benefits, are there any nature, terms and conditions relating • reports of market research studies
requirements on when the transfer to any uncontrolled transaction carried out and technical publications
pricing study must be prepared and with third parties which may be brought out by institutions of national
submitted? of relevance to the pricing of the or international repute
No. The law does not provide for a time transactions
frame. • price publications including stock
• a record of the analysis performed exchange and commodity market
to evaluate comparability of quotations
uncontrolled transactions with the
relevant transaction • published accounts and financial
statements relating to the business
affairs of the associated undertaking
Sri Lanka | 257
• agreements and contracts entered • degree of comparability between What defences are available with
into with associated undertaking the transactions and between the respect to penalties?
or with unrelated enterprises in undertakings None.
respect of transactions similar to that
• the extent to which reliable and
transaction What trends are being observed
accurate adjustments can be made
• letters and other correspondence
currently?
• the type of associated undertaking Not applicable.
documenting any terms negotiated
entering into the transaction and
between the assessee and the
functions performed by them.
associated undertaking Special considerations
• documents normally issued in
connection with various transactions
Transfer pricing audit Are secret comparables used by tax
authorities?
under the accounting practices and penalties
It is theoretically possible. However, to
followed. When the tax authority requests date, we have not seen this in practice.
documentation, how long does Is there a preference, or
the taxpayer have to submit its requirement, by the tax authorities
documentation? for local comparables in a
study? The law does not prescribe a time frame benchmarking set?
but requires it to be maintained for five None to date.
No.
years.
Transfer pricing methods If an adjustment is proposed by the requirements or preferences
tax authority, are dispute resolution regarding databases for
Are transfer pricing methods options available to the taxpayer comparables?
outlined in Chapter II of the OECD outside of competent authority?
Guidelines acceptable? No.
The normal appeal procedure available
Yes. in the Inland Revenue Act would be What level of interaction do tax
applicable. authorities have with customs
authorities?
acceptable methods? If an adjustment is sustained, can High.
No. The most appropriate of the penalties be assessed? If so, what
prescribed methods should be selected rates are applied and under what Are management fees deductible?
taking into account the ‘best method conditions?
Yes, subject to certain restrictions.
factors’ (the factors have not been Yes. The penalty applicable for income
prescribed by law, but are based upon tax default would be applicable (i.e. Are management fees subject to
generally accepted transfer pricing 10 percent for the first month and withholding?
practice). thereafter two percent for each of the Yes.
subsequent months).
there a “best method” rule? Are year-end transfer pricing
To what extent are transfer pricing adjustments permitted?
The most appropriate method should penalties enforced?
suit the facts and circumstances of each No. The current regulations do not
To date, revenue investigations into provide for this.
transaction and be based on the: transfer pricing have been limited and
• nature and class of transaction carried out under general anti-avoidance Other unique attributes?
provisions in the domestic statute and No unique attributes in relation to transfer
• the reliability, availability, and the Associated Enterprises Article under
coverage of the data necessary for pricing regulations.
treaties.
application of the method
• nature, extent, and reliability of
assumptions
Other recent Is there a filing fee for APAs?

developments No.
A separate transfer pricing unit has been Does the tax authority publish APA
established to administratively enforce data either in the form of an annual
transfer pricing and the transfer pricing report or through the disclosure of
officers have already commenced data in public forums?
collecting information from multinational
To date no APAs have been concluded.
companies on their related party
transactions.
Tax treaty/double tax is and whether there are any known
difficulties?
resolution
Not applicable.
treaty network?
Extensive. Language
If extensive, is the competent documentation be filed?
No formal rules. The generally accepted
double tax relief?
rule is that documentation can be filed in
Sometimes. one of the national languages – Sinhala or
Tamil – or in English.

Yes, under an Advance Pricing
Agreement (APA).
Advance pricing
agreements
any?
Unilateral and bilateral.
KPMG in Sri Lanka
Shamila Jayasekara
Tel: +94 11 5426503
Email: sjayasekara@kpmg.com

Sweden | 259
Sweden
KPMG observation
Both the Ministry of Finance and the Confederation of Swedish Enterprise are
active in the Organisation for Economic Co-operation and Development's (OECD's)
Base Erosion and Profit Shifting (BEPS) project. Both parties have voiced their
concerns that the Swedish tax base may be eroded significantly depending on the
outcome of several of the BEPS action points. The Swedish Tax Agency follows the
development closely.
The Swedish Tax Agency recently stated that transfer pricing continues to be one of its
main focuses in 2014.
Skatteverket (Swedish Tax Agency or Six years from tax year-end. Failure to provide disclosures/
STA). documentation upon request will likely
shift the burden of proof from the STA
Citation for transfer pricing rules Transfer pricing to the taxpayer and will make it more
The arm’s length principle is found in disclosure overview difficult to avoid penalties in the case of
14:19 Inkomstskattelagen, Chapter 14, adjustments being made.
Section 19 of the Income Tax Act.
Documentation requirements are found submitted to the revenue authority Transfer pricing study
in 39:15 -16 Skatteförfarandelagen, on an annual basis (e.g. with the tax
Chapter 39, sections 15 -16 of the Tax return)? overview
Procedures Act. Arm’s length principle There is no requirement to disclose Is preparation of a transfer pricing
introduced 1928; amended last time any transfer pricing information with study required – i.e. can the taxpayer
in 2001 with no material changes save the tax return, but there is a statutory be penalized for mere failure to
for a change in the burden of proof. requirement that transfer pricing prepare a study?
Documentation requirements were documentation be prepared annually. Yes. There is an absolute requirement for
introduced in STA regulations (SKVFS Submitting transfer pricing documentation all companies to prepare transfer pricing
2007:1) published 20 February 2007. with the tax return when it is filed makes it documentation annually, but there are no
The regulations are binding. STA more difficult for the STA to levy penalties specific documentation-related penalties.
Guidelines (SKV M 2007:25) published should an adjustment be made. Different General tax penalties apply.
15 November 2007. filing dates (depending on financial year-
Simplified transfer pricing documentation
end) apply from 2013.
Effective date of transfer pricing may be used for certain transactions
rules What types of transfer pricing with low values. The threshold for being
1928. information must be disclosed? considered a low value transaction is
linked to a base amount, subject to
No disclosure has to be made in the tax
What is the relationship threshold annual change. For 2014 the threshold
return save for information on Advance
for transfer pricing rules to apply for goods is 27,972,000 Swedish krona
Pricing Agreements (APAs) that have
between parties? (SEK) per company within the group and
been concluded. Taxpayers with APAs
Direct or indirect management, SEK5,550,000 per company within the
must disclose information whether the
supervision, ownership or control is group for other transactions. Transfer of
APA has been applied and whether the
required. intangible property is never considered as
assumptions etc. on which the APA rests
a low-value transaction.
are still valid.
Other than complying with a Is there a priority among the in Stockholm, Gothenburg and Malmö.
requirement per the previous acceptable methods? They work solely on transfer pricing and
question, describe the benefits, if No. act as in-house advisors to the auditors in
any, of preparing and maintaining a transfer pricing audits and other transfer
transfer pricing study? If there is no priority of methods, is pricing related issues. With the STA
There is a legal requirement to prepare there a “best method” rule? appointing dedicated transfer pricing
transfer pricing documentation annually. No. auditors and litigators, the result has been
Having high quality transfer pricing an increased focus on transfer pricing.
documentation in place, supporting
that the pricing is at arm’s length, would Transfer pricing audit and The STA’s current focus areas are
restructurings and profit/loss allocation
normally reduce the risk of the STA penalties to permanent establishments. Industry
making adjustments. It also makes it more When the tax authority requests focuses are pharmaceutical companies
difficult for the STA to shift the burden of a taxpayer’s transfer pricing and private equity firms.
proof to the taxpayer. documentation, how long does
documentation?
Normal STA practice is to request that the Are secret comparables used by tax
documentation be submitted within 30 authorities?
submitted? days. This has happened in a few instances. It
will likely not be the case in the future.
The STA can request that transfer pricing If an adjustment is proposed by the
documentation be filed when deciding tax authority, are dispute resolution Is there a preference, or
to audit the taxpayer but never before options available to the taxpayer requirement, by the tax authorities
the tax return is due. Transfer pricing outside of competent authority? for local comparables in a
documentation normally needs to be benchmarking set?
Application of the Arbitration Convention
submitted within 30 days of request.
may be requested for transactions within Yes. The STA prefers Swedish
When a transfer pricing study is the European Union (EU). The majority of comparables when auditing a
prepared, should its content follow Swedish tax treaties contain provisions for Swedish company, but pan-European
Chapter V of the OECD Guidelines? corresponding adjustments. comparables are readily accepted.
Comparability is more important
Yes, but in addition the following If an adjustment is sustained, can than location. Local comparables are
information is also required: penalties be assessed? If so, what preferred when a foreign entity is the
• Intra-group agreements (if numerous rates are applied and under what tested party, but also in these cases
a list of the agreements will suffice) conditions? pan-European, pan-Asian comparables
Yes. General tax penalties only: 40 percent etc. are readily accepted depending on
• APAs tested party’s location.
of the additional tax due on the transfer
• Mutual agreement procedures (MAPs) pricing adjustment.
• Rulings To what extent are transfer pricing requirements or preferences
No economic analysis is required for penalties enforced? regarding databases for
documentation of transactions with low Almost always. comparables?
value. However, in the case of an audit, The STA uses Amadeus, but there
the STA has the right to request that an What defences are available with is no requirement for companies
economic analysis be prepared by the respect to penalties? to use Amadeus. The quality of the
taxpayer. Penalties might be avoided if complete comparables is more important than the
documentation is filed with the tax database.
Does the tax authority require an return as an integral part of the tax return.
advisor/tax practitioner to have Disclosing more limited information on What level of interaction do tax
specific designation in order to intra-group cross-border transactions as authorities have with customs
prepare or submit a transfer pricing an appendix to the tax return might also authorities?
study? help avoiding penalties. Low, but increasing.
No.
What trends are being observed Are management fees deductible?
currently? Yes, provided an economic or
Transfer pricing methods commercial benefit has been conferred.
The number of transfer pricing audits
Are transfer pricing methods continues to increase dramatically. Most
outlined in Chapter II of the OECD of the audits result in adjustments at the Are management fees subject to
Guidelines acceptable? STA level. withholding?
Yes. No.
The STA has a national focus group of
experienced tax advisors/auditors based
Sweden | 261
Are year-end transfer pricing of being made aware of the decision Please provide some information
adjustments permitted? that resulted in the taxation violating on how successful the APA
Yes. True-ups and true-downs are the applicable tax treaty. There is no programme is and whether there
normally expected and accepted. Year- such timeframe in domestic Swedish are any known difficulties?
end adjustments should preferably be law. A tax treaty may contain another According to a source at the competent
reflected in the financial statements statute of limitation in this respect. It is authority a couple of APAs have been
(tax follows the accounting treatment advisable that submission is made to the concluded since the introduction of the
in Sweden with few exceptions). It competent authority as soon as possible APA program in 2010. Some APAs are
is, however, also possible to make when the taxpayer has been made aware close to being concluded.
the adjustments in the tax return. of the double taxation.
Adjustments may have both customs
and VAT implications. The method
May a taxpayer go to the competent Language
for year-end adjustments should be
clearly described in the transfer pricing Yes. It is possible to obtain an extension documentation be filed?
documentation. for the tax payment when the case is Swedish, Danish, Norwegian, and
referred to the competent authority in a English.
Other unique attributes? mutual agreement procedure and when
Documentation in EU transfer pricing the arbitration convention is applied. It is
format is explicitly referred to as normally also possible to be granted an
acceptable. Multi-year data is preferred extension for the tax payment when a
over single-year data. There are no safe case is appealed to the court.
harbors.
Advance pricing
Other recent agreements
developments What APA options are available, if
Several APAs have been filed with any?
the competent authority since the APA legislation was introduced with effect
introduction of the APA legislation in 2010. from 1 January 2010. The rules apply for
There is not yet any official feedback on treaty countries only.
outcomes from the competent authority.
Only bilateral and multilateral APAs are
An increasing number of companies refer accepted. It is not possible to obtain
cases of double taxation to arbitration unilateral APAs.
convention as opposed to court, due to
the time it may take to process a case Is there a filing fee for APAs?
through the court system. The current filing fee is SEK150,000
per country involved for a new APA,
Tax treaty/double tax SEK125,000 for a renewal with
amendments and SEK100,000 for a
resolution renewal.
treaty network? Does the tax authority publish APA
Extensive. data either in the form of an annual
If extensive, is the competent data in public forums?
authority effective in obtaining The competent authority has not
double tax relief? yet published any statistics, but
Almost always. has committed to do so eventually. KPMG in Sweden
Information will be provided to the OECD
When may a taxpayer submit an and likely also published on the STA’s Nils von Koch
adjustment to competent authority? website. Tel: +46 8 723 96 16
The taxpayer should submit an application Email: nils.vonkoch@kpmg.se
to the competent authority within 3 years
Annika Lindström
Tel: +46 8 723 61 71
Email: annika.lindstrom@kpmg.se

Switzerland
KPMG observation
Switzerland is a member of the Organisation for Economic Co-operation
and Development (OECD) and has accepted the OECD Guidelines without
reservation. On 4 March 1997, the Federal Tax Administration issued a circular
letter instructing the cantonal tax administrations to adhere to the OECD
Guidelines when assessing multinational companies.
Recent experience with tax audits seems to indicate that the tax authorities are
increasingly considering transfer pricing issues, as some have requested OECD
compliant transfer pricing documentation. However, the level of awareness is
different from canton to canton.
The OECD’s Base Erosion and Profit Shifting (BEPS) workplan and the corresponding
Comprehensive Action Plan provoked measurable reaction in Switzerland. In particular,
actions to increase transparency and disclosure such as the proposed country-by-country
reporting (and other actions concern Swiss based and headquatered international
businesses as well as Swiss authorities.
Significant increased transparency is seen as the starting point to eventually detect base
erosions and profit shifting and as such generally welcomed. However, the question is in
practical terms how to obtain all the information, in what form and how to reconcile the
pattern it shows with the actual business models and its commercial and economical rational.
The fact that Switzerland is widely seen as a destination for profit shifting further increases the
threat of Switzerland being the immediate focus of many assessing authorities round the world.
Tax authority name adjustments? Not applicable.
Eidgenössische Steuerverwaltung Ten years from tax year-end. Changes
(ESTV) [Federal Tax Administration] to facts and figures as filed with the What are the consequences
as well as the relevant cantonal tax tax return are possible until the final of failure to prepare or submit
authorities are the assessing authorities assessment of the tax return by the disclosures?
for direct corporate income taxes at all assessing taxing authorities. Any Failure to prepare or submit requested
levels (federal, cantonal and communal). changes after final assessment require information in an enquiry of the
a court decision or closing letter of a assessing tax authority (i.e. information
mutual agreement procedure (MAP). requested in addition to the normal tax
Not applicable. return during the assessment) could lead
to a formal tax audit and subsequently
Effective date of transfer pricing Transfer pricing to a shift of the burden of proof on an
rules disclosure overview assessment of the taxable income of the
Not applicable. taxpayer.
What is the relationship threshold pricing required to be prepared or
for transfer pricing rules to apply submitted to the revenue authority
between parties? on an annual basis (e.g. with the tax
return)?
Not applicable.
No.
Switzerland | 263
Transfer pricing study methods, and in particular, profit split fraudulent. In such cases, taxpayers are
and/or comparable profits method, on a recommended to provide full disclosure
overview large scale, an advance tax ruling with the of all available information to counter the
Is preparation of a transfer pricing tax authorities concerned (cantonal tax assessment and avoid penalization.
study required – i.e. can the authority) is recommended.
taxpayer be penalized for mere What trends are being observed
failure to prepare a study? If there is no priority of methods, is currently?
No specific documentation
there a “best method” rule? Increased scrutiny is observed with any
requirements. General tax As Switzerland follows the OECD structures and corresponding intra-
documentation rules apply. Guidelines, there is no priority of group transactions involving offshore
methods; however, traditional methods locations and entities. In particular, with
Other than complying with a are likely preferred. The application of respect to the Financial Services industry
requirement per the previous other methods is always possible given and intra-group financing transactions,
question, describe the benefits, if evidence for commercial justification there are increasing challenges to
any, of preparing and maintaining a and the arm’s length nature of the the ’correct’ allocation of the profits.
transfer pricing study? arrangement. Lack of substance or requalification of
Shifting of the burden of proof from the actual place of management of a
foreign counterparty to the transactions
taxpayer to tax authority. In case of Transfer pricing audit and concerned are often reported.
uncertainty Switzerland often applies
tax rulings. Such tax rulings also cover penalties
transfer pricing aspects and increasingly When the tax authority requests Special considerations
require comprehensive transfer pricing a taxpayer’s transfer pricing
documentation/studies. documentation, how long does Are secret comparables used by tax
the taxpayer have to submit its authorities?
To satisfy the requirement and/or documentation? No.
Tax authorities expect to be provided
requirements on when the transfer Is there a preference, or
with transfer pricing documentation
pricing study must be prepared and requirement, by the tax authorities
within a reasonable time frame.
submitted? for local comparables in a
Transfer pricing study must be submitted If an adjustment is proposed by the benchmarking set?
upon request. tax authority, are dispute resolution No.
When a transfer pricing study is outside of competent authority? Do tax authorities have
prepared, should its content follow requirements or preferences
Legal proceedings.
Chapter V of the OECD Guidelines? regarding databases for
Yes. Generally, OECD-compliant transfer If an adjustment is sustained, can comparables?
pricing documentation is recommended. penalties be assessed? If so, what No, the Amadeus database is largely
rates are applied and under what accepted and applied.
Does the tax authority require an conditions?
advisor/tax practitioner to have What level of interaction do tax
General tax penalties could be assessed.
specific designation in order to authorities have with customs
Furthermore, adjustments can be treated
prepare or submit a transfer pricing authorities?
as a hidden profit distribution subject
study? Low.
to 35 percent Swiss withholding tax
No. (non-treaty) or the applicable treaty rate
(portfolio rate, i.e. 15 percent) according
to the relevant tax treaty. Yes.
Are transfer pricing methods To what extent are transfer pricing Are management fees subject to
outlined in Chapter II of the OECD penalties enforced? withholding?
Guidelines acceptable? Not applicable. No.
Yes.
What defences are available with Are year-end transfer pricing
Is there a priority among the respect to penalties? adjustments permitted?
acceptable methods? Although Switzerland does not have Yes, any adjustments need to be
The Swiss tax authorities are supposed specific transfer pricing penalties, general reflected in the financial statements
to follow the OECD Guidelines, and tax penalties can be assessed in severe (following the principle that tax
hence the application of methods cases of non-arm’s length arrangements, accounting should be based on
proposed therein. However, in practice if ultimately assessed as abusive or even commercial accounting).
a company is going to apply profit-based
Other unique attributes? If extensive, is the competent Please provide some information
None. authority effective in obtaining on how successful the APA program
Other recent The Swiss competent authority is
developments When may a taxpayer submit an frequently involved in bilateral APA
A new tax regime has been introduced adjustment to competent authority? negotiations and applies the APA
for the taxation of income from After an adjustment notice is provided to program often and very successfully.
intellectual property (IP) at the cantonal the taxpayer. Since 2008 there have been about
level by a first canton, i.e. the canton 150 APAs involving Switzerland. More
of Nidwalden. This ’IP Box’ taxation is May a taxpayer go to competent than half of them have been settled
applied to all kinds of IP and income authority before paying tax? successfully, none failed or were rejected
derived from it, regardless of whether Yes. by the taxpayer.
foreign or domestically sourced.
A new practice has been announced Advance pricing Language

by the Federal Tax Administration agreements In which language or languages can
concerning corresponding adjustments documentation be filed?
for Swiss principal arrangements. What advance pricing agreement
(APA) options are available, if any? One of the official languages (depending
Depending on the facts and
on the canton): German, French, Italian,
circumstances, the full corresponding Unilateral, bilateral, multilateral, and
Rhaeto-Romanic.
adjustment can be denied. advance rulings.
English is frequently accepted.
Substantial changes to the Swiss Is there a filing fee for APAs?
corporate tax landscape are expected
No.
due to the Swiss corporate income tax
reform III currently being discussed. Does the tax authority publish APA
Tax treaty/double tax report or through the disclosure of
resolution
No.
treaty network?
Extensive.
KPMG in Switzerland
Markus Wyss
Tel: +41 58 249 41 29
Email: mwyss@kpmg.com

Taiwan | 265
Taiwan
KPMG observation
Beginning with the 2005 tax year, companies have been required to prepare
transfer pricing reports or substitute reports to document their compliance with
arm’s length principles.
In the past 2 to 3 years, several measures have been taken by Taiwan tax
authorities to enhance the effectiveness and efficiency of transfer pricing audits.
Generally, there are two types of tax audits that involve transfer pricing:
1. General tax audit:
When tax officers conduct income tax return assessments, they sometimes request
transfer pricing reports for compliance checks and/or review of potential transfer pricing
issues. If the tax officers disagree with the transfer pricing results and propose transfer
pricing adjustments, the final assessment amount will be negotiated together with other
tax adjustment items. However, the assessment will not be labelled a transfer pricing
assessment to avoid having to submit assessment reports to the Ministry of Finance
(MOF) for review and approval.
2. Special transfer pricing audit:
For companies selected for a special transfer pricing audit, Taiwan tax offices will form a team
of three or four senior tax officers to conduct the audit, and set a very high tax assessment
goal. The audit procedures are more intensive and the timeframe is much longer than a general
tax audit, spanning 1 to 2 years. The tax officers tend to form very strong viewpoints, and it can
be difficult to persuade them to accept the company’s explanations and transfer pricing positions.
The tax offices must submit their assessment reports to the MOF for review and approval.
Recently, the taxation bureaus in Taipei and northern Taiwan have set up specialized transfer pricing
teams. While it is unclear how this specialized transfer pricing team will operate, based on our
preliminary understanding, their mission will at least cover the following:
• negotiation of Advance Pricing Arrangements (APAs);
• selection of transfer pricing focused audit targets; and
• conduct of transfer pricing focused audits.
Centralizing the above-mentioned tasks at these specialized transfer pricing focus teams will be helpful for
expediting the accumulation of transfer pricing audit experience and enhancement of technical knowledge and
skills within the tax authorities. It is foreseeable transfer pricing audit activity in Taipei and the northern Taiwan
region will be intensified significantly, and that the APA negotiation process could be expedited going forward.
Basic information • whether the taxpayer has signed During a transfer pricing audit, if the
APAs with tax authorities in Taiwan or taxpayer does not provide information
Tax authority name foreign jurisdictions and the relevant as requested by the tax authorities (e.g.
Ministry of Finance (MOF) and the information transfer pricing report or substitute
district offices of the National Tax report), the tax authorities could make
• whether a transfer pricing study has
Administration (NTA). an assessment based on information
been prepared.
gathered themselves. If the tax
Citation for transfer pricing rules authorities cannot gather relevant
Article 43-1 of the Income Tax Act and of failure to prepare or submit information, they can determine an
Regulations Governing Assessment of disclosures? assessment by applying the ‘Standard
Profit-Seeking Enterprise Income Tax on Profit Margin of the Same Industry’.
There is no penalty involved, but if
Non-Arm’s Length Transfer Pricing (Taiwan
uncovered by the tax offices, it will Furthermore, if the assessment results in
Transfer Pricing Assessment Rules).
undermine the credibility of taxpayers. a transfer pricing adjustment, where the
Effective date of transfer pricing taxpayer fails to provide a transfer pricing
report or other documentation, a penalty
rules Transfer pricing study
up to 200 percent of the underpaid tax
28 December 2004. overview amount will be imposed under Article 34 of
What is the relationship threshold Is preparation of a transfer pricing Transfer Pricing Assessment Rules.
for transfer pricing rules to apply study required – i.e. can the
Thus, by not preparing a transfer pricing
between parties? taxpayer be penalized for mere
report or substitute report, a taxpayer
In addition to a 20 percent ownership, failure to prepare a study?
could increase the chance of being
the MOF has adopted the ‘substantive Yes, for certain transactions which selected for audit. It could also increase
management and control’ and ‘material exceed the safe harbor threshold. the difficulty of defending its transfer
influence’ concepts in defining a related pricing position. If there is a transfer pricing
In general, taxpayers must, at the time of
party relationship. adjustment, the taxpayer would face
filing annual income tax returns, maintain
an extensive list of documentation and additional penalties.
on assessment of transfer pricing a transfer pricing study to support the
adjustments? controlled transactions. However, the
MOF prescribed a safe harbor rule (the
Five years from the tax return filing date requirements on when the transfer
total annual turnover of a taxpayer does
if the return is filed in a timely fashion. In pricing study must be prepared and
not exceed 300 million New Taiwan
situations where a taxpayer fails to file submitted?
dollars (NTD) or its annual aggregate
the annual tax return within the statutory amount of controlled transactions The transfer pricing study must be
deadline or is involved in tax fraud or tax does not exceed NTD200 million), prepared contemporaneously with the
avoidance, the statute of limitations will to alleviate taxpayers’ burden and tax return and must be submitted within
be extended to 7 years. compliance cost. If the taxpayer meets one month of receipt of a notice of
the safe harbor threshold, it may provide investigation sent by the tax authorities. In
special circumstances, taxpayers are also
Transfer pricing ‘other supporting documentation’ as
given the option of a one-time extension of
a substitute report that sufficiently
disclosure overview establish the arm’s length nature of the an additional month.
Are disclosures related to transfer controlled transactions.
pricing required to be prepared or When a transfer pricing study is
submitted to the revenue authority Other than complying with a prepared, should its content follow
on an annual basis (e.g. with the tax requirement per the previous Chapter V of the Organisation
return)? question, describe the benefits, if for Economic Co-operation and
any, of preparing and maintaining a Development (OECD) Guidelines?
Yes. The taxpayer must disclose
information about controlled transactions transfer pricing study? No. Taiwan Transfer Pricing Assessment
on forms filed with income tax returns. By reviewing the transfer pricing Rules have listed out the following
disclosure forms, tax officers would minimum required items to be included in
What types of transfer pricing easily know whether transfer pricing the transfer pricing study:
information must be disclosed? reports are prepared. If a taxpayer fails • industry and economic condition
The types of information to be disclosed to provide a transfer pricing report analysis
include, but are not limited to: upon the tax authority’s request, the
applicable penalty would be NTD3,000 • function and risk analysis of each entity
• legal structure to NTD30,000 according to Article engaged in the controlled transactions
• detailed information on related 33 of Transfer Pricing Assessment • application of arm’s length principles
parties Rules. The amount of the penalty may set forth in Article Seven of the
seem immaterial, but there are other Regulations Governing Assessment of
• controlled transaction types and consequences of not preparing a report. Profit-Seeking Enterprise Income Tax on
respective amounts
Non-Arm’s Length Transfer Pricing
Taiwan | 267
• identity of and information on Transfer pricing audit and To what extent are transfer pricing
comparable companies selected penalties enforced?
penalties
• comparability analysis for application In practice, penalties are rarely enforced
When the tax authority requests because most audits are settled via
of best method rule
a taxpayer’s transfer pricing negotiation.
• a best method analysis, including documentation, how long does
a description of the transfer pricing the taxpayer have to submit its What defences are available with
methods selected, the reasons documentation? respect to penalties?
for selection, and description of Upon request, taxpayers are required There is no defense to any of the
other methods considered and the to submit the documentation within penalties, other than to defend against
reason(s) they were not selected 1 month from the date of receipt of the underlying adjustment.
• the transfer pricing methods adopted notification. In special circumstances,
by other entities engaged in the taxpayers are also given the option of What trends are being observed
controlled transactions and relevant a one-time extension of an additional currently?
information month. The tax authorities are currently stepping
up the pace of transfer pricing audits
• the arm’s length results of applying If an adjustment is proposed by the as a way to actively seek additional tax
the best method, including relevant tax authority, are dispute resolution revenue. As a result, special transfer
data of comparables, adjustments options available to the taxpayer pricing audit teams have been formed
made to eliminate differences outside of competent authority? by the tax authorities to conduct more
with comparables, assumptions Yes, the taxpayer has the option comprehensive and in-depth transfer
made, arm’s length range derived, to resolve disputes through the pricing audits than in the past. The
conclusion on arm’s length nature, administration remedy procedure. number of cases selected has increased
adjustments made according to the
along with the intensity of the tax
arm’s length range. If an adjustment is sustained, can authorities’ review.
Does the tax authority require an rates are applied and under what We have observed that under audit,
advisor/tax practitioner to have conditions? the tax authorities tend to question
specific designation in order to the aggregate testing approach and
prepare or submit a transfer pricing Yes. If the transfer pricing audit results in
income adjustments and assessments, request separate testing for different
study? controlled transactions. Moreover, the
a penalty of up to 200 percent of the
No. tax authorities have focused more on
underpaid tax amount (where the
taxpayer has filed their tax returns on intangible property and intra-group
funding arrangements, especially
Transfer pricing methods time) will be imposed under any one of
cash-pooling and intra-group guarantee
the following situations:
Are transfer pricing methods arrangements.
outlined in Chapter II of the OECD • where the reported controlled
Guidelines acceptable? transaction prices are 200 percent
or more, or 50 percent or less of the
Yes, with some exceptions. Instead of
the transactional net margin method arm’s length prices as assessed by Are secret comparables used by tax
(TNMM), Taiwan Transfer Pricing the tax authority authorities?
Assessment Rules adopt the comparable • where the income adjustment Based on our observation of the current
profits method, which is very similar assessed by the tax authority reaches practice, secret comparables are not
to the TNMM outlined in the OECD 10 percent of the taxpayer’s assessed used by tax authorities.
Guidelines. Advance approval must be annual income and three percent of
obtained from the MOF for applying Is there a preference, or
the assessed annual net sales
unspecified methods. requirement, by the tax authorities
• where the taxpayer fails to provide for local comparables in a
Is there a priority among the a transfer pricing study and cannot benchmarking set?
acceptable methods? provide other documentation to Yes. If the tested party is a company in
No hierarchical priority among the prove that its transfer price is at Taiwan, the tax authorities prefer to apply
acceptable methods. arm’s length local comparables. However, foreign
• other situations where the tax comparables are acceptable if the local
If there is no priority of methods, is comparables are insufficient.
authority finds evidence of
underreporting income and the
Yes. amount underreported is considered
significant.
Do tax authorities have downward transfer pricing adjustments Is there a filing fee for APAs?
requirements or preferences should apply for a specific pre-approval No.
regarding databases for ruling with the MOF based on their own
comparables? facts and circumstances. The application Does the tax authority publish APA
There are no specific requirements process is expected to be lengthy and data either in the form of an annual
regarding which database should be extensive supporting information will be report or through the disclosure of
applied. required. data in public forums?
No.
What level of interaction do tax Other unique attributes?
authorities have with customs None. Please provide some information
authorities? on how successful the APA program
Currently, low. Other recent difficulties?
Are management fees deductible? developments Taiwan does have an APA program but
Generally speaking, expenses will The MOF has proposed to enact a not many are concluded due to lack of tax
be deductible for Taiwan income tax controlled foreign corporation (CFC) authority resources.
purposes only if they are necessary rule effective from 2015.
and relevant to a business’ operation. In
practice, taxpayers bear a heavy burden
Moreover, intensive discussions Language
have been undertaken between the
of proof to justify to the tax authorities governments of Taiwan and China to In which language or languages can
that management fees are necessary develop possible solutions for mitigating documentation be filed?
and relevant to a business’s operation. cross-strait double taxation with In general, all the required
significant progress likely to be achieved documentation is to be provided in
in the near future. Chinese. However, to alleviate the
withholding?
taxpayers’ compliance cost, English
From the offshore entity’s perspective, language documentation may be
the management fee it receives will Tax treaty/double tax acceptable if approved by the tax
most likely be deemed as Taiwan- resolution authorities.
sourced income. Thus, it will generally What is the extent of the double tax
be subject to 20 percent withholding tax treaty network?
at source unless mitigating measures
Minimal.
under domestic law or tax treaty are
available.
Are year-end transfer pricing authority effective in obtaining
adjustments permitted? double tax relief?
No experience.
Yes, but in general only adjustments
increasing taxable income. According to
the Taiwan Transfer Pricing Assessment
Rules, if the results of a controlled
transaction fall outside the arm’s length Based on each treaty’s specific rules.
range, the current year result shall be
adjusted based on the median of the
range. Nonetheless, no transfer pricing
adjustment is allowed if it results in a Yes.
decrease in Taiwan tax liability.
The MOF once issued a private ruling to a Advance pricing

company allowing it to make a one-time agreements
downward transfer pricing adjustment
What APA options are available, if KPMG in Taiwan
before closing the financial accounts,
any?
provided certain conditions were met. Sherry Chang
Other companies who wish to make Unilateral, bilateral, and multilateral.
Tel: +886 2 8101 6666 ext: 04590
Email: schang1@kpmg.com.tw
Willis Yeh
Tel: +886 2 8101 6666 ext: 02281
Email: wyeh@kpmg.com.tw

Tanzania | 269
Tanzania
KPMG observation
Most companies operating in Tanzania are subsidiaries of multinational
enterprises that have engaged in foreign direct investment in Tanzania. The
tax authority is generally of the view that these multinationals are focused on
repatriating as much profit out of Tanzania as possible, while suffering the least
possible tax costs. For this reason, the tax authority is aggressively challenging
transactions between Tanzanian operations and their non-resident related parties.
However, tax law relating to transfer pricing and related party transactions remains
considerably under-developed. There are no specific rules and regulations for transfer
pricing in Tanzania and the expectations of the tax authorities with regard to related
party transactions are different from one case to the other. This creates quite a degree of
unpredictability with regard to potential tax costs relating to an investment in Tanzania.
Basic information relative of the individual, unless the What types of transfer pricing
Commissioner is satisfied that it is information must be disclosed?
Tax authority name not reasonable to expect that either Description and amounts of related
Tanzania Revenue Authority (TRA). individual will act in accordance with party transactions need to be submitted
the intentions of the other. with tax returns. A transfer pricing study
Citation for transfer pricing section
should be prepared but is not required to
of the Act What is the statute of limitations
be submitted to the tax authorities unless
Section 33 of the Income Tax Act (ITA) on assessment of transfer pricing
requested.
requires that any arrangement between adjustments?
related parties must be conducted at Three years from the date of filing the What are the consequences
arm’s length. tax return. However, in cases where the of failure to prepare or submit
tax authorities suspect fraud or intent disclosures?
Effective date of transfer pricing to evade payment of tax, the 3 year The taxpayer could be deemed either to
provision limitation can be ignored. have failed to maintain proper documents
2004. for a year of income, or to have misled
What is the relationship threshold Transfer pricing the tax authorities in a material manner
by omitting to disclose certain matters.
for transfer pricing section of the disclosure overview The first offence is punishable by a
ITA to apply between parties? Are disclosures related to transfer monthly penalty of 2.5 percent of any
The relationship threshold is as follows: pricing required to be prepared or outstanding income tax at the time of
submitted to the revenue authority filing the return (a penalty that runs until
• a company which controls or may
on an annual basis (e.g. with the tax the proper documents are prepared),
benefit from 50 percent or more of
return)? or 100,000 Tanzanian shillings (TZS),
the rights to income or capital or
voting power of other entity whether Disclosures are required to be prepared whichever is higher. The second offence
directly or indirectly and a summary thereof is required to is punishable by a penalty of either
be submitted/noted in the tax return. 50 percent or 100 percent of tax that
• partners in the same partnership, The detailed information and supporting the authorities believe would have
unless the Commissioner is documents are only presented to the been underpaid if the omission went
satisfied that it is not reasonable to revenue authority when the authority undetected, depending on whether the
expect that either person will act requests such information, for example omission was made with reasonable
in accordance with the intentions under a tax audit. excuse (50 percent) or made knowingly
of the other an individual and a or recklessly (100 percent).
Transfer pricing study Transfer pricing methods To what extent are transfer pricing
penalties enforced?
overview Are transfer pricing methods
Without fail, penalties (in this case
Is preparation of a transfer pricing outlined in Chapter II of the OECD
interest for late payment) are computed
study required – i.e. can the Guidelines acceptable?
and assessed where a taxpayer is
taxpayer be penalized for mere Yes. No guidance has been given by the deemed to have failed to pay tax by the
failure to prepare a study? TRA. In the absence of such guidance, date on which it was due.
No. it has become the norm to apply arm’s
length principles as set out by the OECD What defences are available with
Other than complying with a Guidelines. respect to penalties?
requirement per the previous Documentation and reasonable cause.
question, describe the benefits, if Is there a priority among the
The tax authority has legislative power
any, of preparing and maintaining a acceptable methods?
to reduce or remove penalties where
transfer pricing study? Not applicable. the taxpayer submits justifiable reasons
Mitigate the risk of the tax authority by for the reduction or removal to be
making adjustments using comparables considered. One such reason could be
that might not be appropriate/relevant the lack of clear legislative guidance on
to the situation at hand. Other benefits Not applicable. how to prepare documentation with
obtained would be penalty protection and respect to related party transactions.
shifting of the burden of proof to the tax Transfer pricing audit and
authorities. The authorities also generally What trends are being observed
expect companies engaging in related penalties currently?
party transactions to have prepared When the tax authority requests Generally, all transactions between local
transfer pricing studies. a taxpayer’s transfer pricing companies and their related parties
documentation, how long does who are Tanzanian non-resident are
To satisfy the requirement and/or the taxpayer have to submit its coming under immense scrutiny. The
obtain the benefits, are there any documentation? tax authority is asking for evidence
requirements on when the transfer See transfer pricing disclosure overview that services were rendered (where
pricing study must be prepared and section. the transactions relate to payment by
submitted? the Tanzanian company for services
None. It is, however, expected that If an adjustment is proposed by the provided by related persons); together
the study is in place before the related tax authority, are dispute resolution with documentation proving that the
party transactions are conducted or options available to the taxpayer prices were at arm’s length. Where
entered into. outside of competent authority? the authorities remain dissatisfied, the
Yes, the tax authority first attempts to consequence is for the service fees/
When a transfer pricing study is resolve the dispute, and if this fails, related party payments to be disallowed
prepared, should its content follow dispute resolution is progressed to as expenses for the Tanzanian company,
Chapter V of the Organisation the Tax Revenue Appeals Board. If the thus increasing taxable profits.
for Economic Co-operation and taxpayer remains aggrieved by the
Yes.
decision of the Appeals Board, an appeal Special considerations
can be lodged with the Tax Revenue
Appeals Tribunal, and eventually with the Are secret comparables used by tax
Does the tax authority require an Court of Appeal. authorities?
advisor/tax practitioner to have The tax authority may use comparables
specific designation in order to If an adjustment is sustained, can that will not be disclosed to the taxpayer
prepare or submit a transfer pricing penalties be assessed? If so, what due to the confidentiality of the
study? rates are applied and under what information collected by the authority
No. In Tanzanian law there is no conditions? from other taxpayers.
requirement for a transfer pricing Yes. Interest can be assessed where the
study to be prepared by a tax advisor/ sustained adjustment creates a situation Is there a preference, or
practitioner. However, the tax law where tax is deemed to have been paid requirement, by the tax authorities
requires that tax advisors/practitioners later than its due date. Interest rates are for local comparables in a
who assist taxpayers in preparing tax amended annually, based on the Bank of benchmarking set?
returns are certified public accountants Tanzania discount rate at the beginning No. Reasonability of comparables is what
in public practice (CPA-PP), registered of the year. In 2014, the applicable rate is is important, irrespective of whether
with the National Board of Accountants 21 percent per annum, compounded on a these are local or foreign.
and Auditors, and also approved tax monthly basis.
consultants (registered with the Tanzania
Revenue Authority).
Tanzania | 271
Do tax authorities have If extensive, is the competent Please provide some information
requirements or preferences authority effective in obtaining on how successful the APA program
regarding databases for double tax relief? is and whether there are any known
comparables? Not applicable. difficulties?
No. The APA program is provided for in the
When may a taxpayer submit an income tax regulations, but the tax
What level of interaction do tax adjustment to competent authority? authority has been hesitant to conclude
authorities have with customs Where the taxpayer essentially feels any APAs with taxpayers, and we
authorities? that the adjustment is creating double suppose that the reason for this would
Significant. The customs authorities are taxation (taxation of the same income be the lack of skilled expertise in the tax
actually a facet/department of the larger in Tanzania and in another jurisdiction), authority in so far as transfer pricing is
tax authority. and the two countries share a double tax concerned.
relief treaty that provides for competent
Are management fees deductible? authority intervention. Language
To the extent that management fees are
justifiable (relating to services actually May a taxpayer go to competent In which language or languages can
rendered and priced at arm’s length), the authority before paying tax? documentation be filed?
management fees are deductible. Yes, provided that negotiations with English.
the tax authority have failed and the tax
Are management fees subject to authority has either made a final decision
withholding? to proceed with the adjustment or has
A withholding tax rate of 15 percent raised an assessment for tax that the
and 5 percent applies on payments to taxpayer disagrees with.
non-residents and residents respectively
where the services for which the fees are
paid were rendered in Tanzania.
Advance pricing
agreements
Are year-end transfer pricing What Advance Pricing Agreement
adjustments permitted? (APA) options are available, if any?
Yes, with an approval from the No APAs. However, a company may
Commissioner. As per section 33 of the apply in writing to the Commissioner for
Income Tax Act, 2004, the Commissioner a private ruling. The company is required
is empowered to make corrective to make a full and true disclosure of all
adjustments should he think that the aspects of the arrangement relevant to
transactions between related parties are the ruling application. Subject to this,
not at an arm’s length. the Commissioner may, by notice in
writing served on the company, issue
a private ruling setting out his position
None. regarding the application of the Act to the
company with regard to the arrangement
Other recent proposed.
developments Is there a filing fee for APAs?
None. Not applicable.
Tax treaty/double tax Does the tax authority publish APA

resolution report or through the disclosure of
What is the extent of the double tax data in public forums?
treaty network? No.
Minimal.
KPMG in Tanzania
David Gachewa
Tel: +255 22 2122003
Email: dgachewa@kpmg.com

Thailand
KPMG observation
The reduction of the corporate income tax rate from 30 percent to 20 percent in
2013 has increased the Thai Revenue Department’s (TRD) focus on tax compliance
and tax collection transfer pricing is one of the major audit areas by the TRD as
the tax assessment can be significant. Based on the current practice, the transfer
pricing issues are not limited to the taxpayers who are under the supervision of the
Large Taxation Organization (LTO) at the TRD headquarters but also those under the
supervision of the local tax offices could be questioned by the local tax authorities.
KPMG in Thailand has observed more and more cases where the local tax authorities
rather than the headquarters of TRD have questioned transfer pricing issues during their
routine tax audits which may lead to detailed transfer pricing audits. There is an increase
in investigations of inter-company service transactions.
As Thailand is going to enter into the ASEAN Economic Community (AEC) in December
2014, the TRD has expressed its intention to introduce transfer pricing tax reform. In recent
years, other ASEAN countries have made transfer pricing documentation mandatory; while
it is still not mandatory in Thailand. It is possible that transfer pricing documentation will be
required by law in the future. In addition, in the past year the TRD cooperated with the other
country’s revenue departments to exchange knowledge in the area of the tax administration
and collection. Cross-border transactions are one of the key issues around which this knowledge
sharing takes place. Increasingly, transfer pricing is one of the most pressing issues in Thailand.
Basic information Effective date of transfer pricing return audits, which is 5 years from due
rules date of tax return, or from filing date if
Tax authority name failure to file by due date.
Specific rules issued in May 2002 as
Krom Sumpakorn (Thai Revenue guidelines for TRD officers. No legal
Department (TRD)). effect. Transfer pricing
Citation for transfer pricing rules What is the relationship threshold disclosure overview
General laws: for transfer pricing rules to apply Are disclosures related to transfer
between parties? pricing required to be prepared or
• sections 65 bis (4), (7)
Direct or indirect relationship with regard submitted to the revenue authority
• section 65 ter (13), (14), and (15). to management, control or capital. on an annual basis (e.g. with the tax
Specific rules: return)?
What is the statute of limitations No specific requirement for transfer
Departmental Instruction Paw 113/2545. on assessment of transfer pricing pricing disclosure. However, there are
The Guidance on the Advance Pricing adjustments? questions in the annual corporate income
Agreement (APA) Process (APA Five years from due date or filing date. tax return (yes or no answers) which the
Guidance) was issued in April 2010. Transfer pricing assessments follow taxpayer is required to answer in relation
the statute of limitations on income tax transactions departing from market price.
Thailand | 273
What types of transfer pricing request of the tax authorities. If the of assessment is issued, the dispute
information must be disclosed? documentation is not available, the tax may be settled by filing a tax appeal
The questions in the tax return that authorities, in practice, will probably grant within 30 days after receiving the notice
require the taxpayer’s confirmation are: an extension of time for submission. of assessment. If the taxpayer fails to
obtain a successful resolution at this
• has the business sold products, When a transfer pricing study is level, the taxpayer may appeal to the
services or property, lent money, or prepared, should its content follow tax court.
leased out property, without value Chapter V of the Organisation
received or with received value for Economic Co-operation and If an adjustment is sustained, can
below market price in amounts Development (OECD) Guidelines? penalties be assessed? If so, what
considered substantial? Thailand is not an OECD member. rates are applied and under what
However, Thailand’s transfer pricing conditions?
• has the business bought assets, or
incurred expenses in acquiring such guidelines follow similar concepts to Yes. General income tax penalties – i.e.
assets, at a value above normal price the OECD. a surcharge of 1.5 percent per month of
in an amount considered substantial? additional tax payable up to the amount
Does the tax authority require an of tax will be imposed. Penalties of up to
What are the consequences advisor/tax practitioner to have 100 percent of additional tax payable will
of failure to prepare or submit specific designation in order to be added if the adjustment is made as a
disclosures? prepare or submit a transfer pricing result of a tax audit summons.
study?
Not applicable (the questions in the
No. To what extent are transfer pricing
annual corporate income tax return, as
penalties enforced?
mentioned, have to be answered as part
of the tax return). Transfer pricing methods Always (if the adjustment results in
additional tax).
Transfer pricing study outlined in Chapter II of the OECD What defences are available with
overview Guidelines acceptable? respect to penalties?
Yes. None, if there is tax payable. It is
study required – i.e. can the necessary to negotiate with the tax
Is there a priority among the authorities at the documentation review
taxpayer be penalized for mere acceptable methods?
failure to prepare a study? to reduce the assessed tax amount
No. so that the penalties can be reduced
No. accordingly.
Other than complying with a there a “best method” rule? What trends are being observed
requirement per the previous currently?
question, describe the benefits, if No.
any, of preparing and maintaining a Tangible property transactions are still
Transfer pricing audit and the main target but the tax authorities
The taxpayer’s documentation is penalties are more and more focused on intra-
group services transactions as well. If
generally requested in the event of a there are intra-group fees for services
transfer pricing audit. The documentation or for intangible property, there may
should shift the burden of proof to the tax be a question about tax deductions.
authority and mitigate the risk of the use The taxpayers are often required to
of secret comparables. demonstrate that the services have been
documentation?
A normal timeline in the tax authorities’ received and are relevant to the Thai
requested letter is between seven and operations, and that the consideration is
15 days, but, in practice, a request for an not excessive.
pricing study must be prepared and extension is possible.
submitted?
The transfer pricing guidelines suggest Are secret comparables used by tax
that the documentation should be authorities?
prepared at the time the transactions are This is possible.
entered into, but there is no statutory
filing requirement. Generally, the If a conclusion cannot be reached at
documentation will be submitted upon the documentation review and a notice
Is there a preference, or Other recent Is there a filing fee for APAs?

requirement, by the tax authorities No.
developments
benchmarking set? In the past, the TRD sent only an Does the tax authority publish APA
Yes. If the taxpayers do not provide a set invitation letter requesting transfer data either in the form of an annual
of local comparable companies during pricing documentation as well as report or through the disclosure of
the transfer pricing audits, the transfer inviting the taxpayers to meet them data in public forums?
pricing audit team will conduct their own at the tax office. However, since 2011, No.
search for local comparables and use the the tax authorities have sent transfer
local benchmarking results as a starting pricing questionnaires together with the Please provide some information
point to challenge the taxpayers. invitation letter to taxpayers to request on how successful the APA program
information relating to related party is and whether there are any known
Do tax authorities have transactions. In addition, the transfer difficulties?
requirements or preferences pricing audit may be initiated by the Since the APA guidance has been issued
regarding databases for general tax audit team (separate from in April 2010, there have been more
comparables? the transfer pricing tax team), who will requests for APAs. With more experience
No requirements but the tax authorities then refer the case to the transfer pricing and the requirement to submit the APA
use Business Online which is a well- tax team. application in both Thai and English,
known local database. the Thai tax authorities should begin to
Tax treaty/double tax review and process the APAs faster.
What level of interaction do tax resolution The APA working team has been
authorities have with customs requesting factory tours, in the case of
authorities? What is the extent of the double tax manufacturing subsidiaries in Thailand,
None. treaty network? in order to obtain more understanding
Extensive. of functional and risk profiles as well as
Are management fees deductible? manufacturing process for comparable
Yes. Generally, management fees If extensive, is the competent selection.
are deductible if the taxpayer can authority effective in obtaining
substantiate the expenses incurred for double tax relief? Language
business and the fees are not excessive. No experience.
Are management fees subject to When may a taxpayer submit an documentation be filed?
withholding? adjustment to competent authority? Documentation: Thai. English is
Yes, although they may be exempt under No formal rules. acceptable but a translation into Thai may
tax treaty. be requested.
Are year-end transfer pricing APA application: Thai and English.
adjustments permitted? Where a client requires double taxation
Yes. It is strongly recommended that relief, the same can be obtained from the
the year-end transfer pricing adjustment tax authorities prior to paying the tax.
should be performed before closing
the financial statements for the period. Advance pricing
Care must be taken if the transfer
agreements
pricing adjustment results in reduced
profitability in Thailand. What APA options are available, if
any?
Bilateral.
None.
KPMG in Thailand
Kullakattimas Benjamas
Tel: +66 2 677 2426
Email: Benjamas@kpmg.co.th
Pinmaneekul Abhisit
Tel: +66 2 677 2470
Email: abhisit@kpmg.co.th

Turkey | 275
Turkey
KPMG observation
Turkey follows global trends, and the Turkish government is implementing new
compliance rules and tax audits in accordance with the transfer pricing provisions.
Since the beginning of 2007, transfer pricing has emerged as one of the main
focus of inquiries by tax authorities. The corporate taxpayers registered to the Large
Corporations tax office were asked to submit their annual transfer pricing reports
from 2007 to fiscal year 2010, during 2011. The transfer pricing reports collected from
these companies have been reviewed by the tax authorities. The main reason for these
reviews may be to gain an understanding regarding the application of transfer pricing
by taxpayers, since the focus on transfer pricing is relatively new. During and after this
review, some companies were provided with feedback regarding the reports presented
by them.
If the taxpayers have internal comparables, the tax authorities are generally trying to use
these prices as a comparable in tax audits even if the factors are not totally comparable.
Therefore, taxpayers are advised to use internal comparables wherever possible, and in any
event to include discussion of the selection or rejection of internal comparables along with the
factors of comparability considered.
Regarding Base Erosion and Profit Shifting (BEPS) and the UN Practical Transfer Pricing
Manual for Developing Countries issued October 2012, the Turkish administration has not
taken any action so far. Since Turkey already has a ‘substance over form’ principle under its Tax
Procedural Law, the application of BEPS may require only minor changes in transfer pricing rules in
upcoming periods.
Basic information A rule that was added to Article What is the relationship threshold
13 states that the “disguised profit for transfer pricing rules to apply
Tax authority name distribution through transfer pricing” between parties?
Revenue Administration, Ministry of provision would be applicable if there Based on shareholding (an individual or a
Finance. is a “treasury loss” with respect to the legal entity related to a shareholder) that
domestic intra-group transactions of a provides a direct or indirect control over
Citation for transfer pricing rules corporate taxpayer. The term “treasury related parties including a transaction
• Article 13 of Corporate Tax Law No. loss” is defined as an under-declaration effected with a resident of a low-tax
5520. or late declaration of all types of taxes jurisdiction i.e. a resident located in a tax
resulting from transfer prices that haven country.
• Transfer Pricing Communiqué No.
do not comply with the arm’s length
1–18 November 2007.
principle. This rule was effective as What is the statute of limitations
• Transfer Pricing Communiqué No. 2 – from 6 June 2008 and applied to 2008 on assessment of transfer pricing
22 April 2008. and later tax returns. adjustments?
• General Communiqué No. 3 – Five years starting from the close of
November 2008. related fiscal period (i.e. 31 December
rules
2014 is the expiry period for the fiscal
• Decree 2007/12888 – 6 December 1 January 2007. year 2009). Following the completion
2007. of fiscal period, no tax related
• Decree 2008/13490 – 13 April 2008. adjustment/tax return preparation/use
of standard tax attributes is allowed for
• Circular TF-1/2008–1 – 24 April 2008.
taxpayers and it is binding for the tax with statutory requirements. The Large When a transfer pricing study is
administration as well, since it is not Corporations tax office taxpayers are prepared, should its content follow
authorized to carry out tax audits on required to prepare an annual transfer Chapter V of the Organisation
the accounts of taxpayers or make tax pricing report for domestic and cross- for Economic Co-operation and
adjustments. border related party transactions. Development (OECD) Guidelines?
Other corporate taxpayers have to There is no official binding requirement
prepare an annual transfer pricing report
Transfer pricing for their international related party
to follow OECD Guidelines. OECD
Guidelines should only be used for
disclosure overview transactions only. reference purposes.
Are disclosures related to transfer There is no threshold for having to
pricing required to be prepared or Does the tax authority require an
prepare transfer pricing studies. Related
submitted to the revenue authority advisor/tax practitioner to have
party transactions between two
on an annual basis (e.g. with the tax specific designation in order to
resident taxpayers that do not lead to
return)? prepare or submit a transfer pricing
treasury loss are not evaluated under
Yes, all corporate taxpayers are required
study?
transfer pricing rules.
to complete and attach a transfer pricing No.
form to their annual corporate income From 1 January 2008, all corporate
tax returns to be submitted with the taxpayers have to include transactions
with their related parties based in free- Transfer pricing methods
corporate tax return.
trade zones (including branches) in their Are transfer pricing methods
What types of transfer pricing transfer pricing report. Furthermore, all outlined in Chapter II of the OECD
information must be disclosed? corporate taxpayers located in free-trade Guidelines acceptable?
The information should include: zones have to prepare a yearly transfer Yes.
pricing report for domestic related party
1. The list of related parties that transactions from 1 January 2008. Is there a priority among the
the taxpayer entered into the acceptable methods?
transaction with. The procedural irregularity penalties
(immaterial amounts) will be applied Yes. Comparable Uncontrolled Price
2. The amounts of related party to those who do not submit the (CUP) is the preferred method.
transaction by transaction type (i.e. information and documents they are Traditional transaction methods have
financing, services, goods etc.) obliged to submit to the tax authority priority over profit-based methods and
pursuant to the communiqué. However, unspecified methods.
3. A summary of the transfer pricing
methods used for the transactions. in the absence of documentation,
the tax authorities may challenge the If there is no priority of methods, is
Companies which have completed transfer prices and assess a much there a “best method” rule?
Advance Pricing Agreement (APA) greater amount of tax. Not applicable.
negotiations have to prepare annual
APA reports and submit them to the tax Other than complying with a
authorities upon request. requirement per the previous
question, describe the benefits, if penalties
What are the consequences any, of preparing and maintaining a When the tax authority requests
of failure to prepare or submit transfer pricing study? a taxpayer’s transfer pricing
disclosures? Penalty mitigation and the burden of documentation, how long does
The tax penalty for failure to prepare or proof passes to the tax authority. the taxpayer have to submit its
submit the disclosures is a procedural documentation?
irregularity penalty, which is immaterial. To satisfy the requirement and/or
The normal period for the Commissioner
However, this failure may cause further obtain the benefits, are there any
General to require a company to submit
tax audit and tax assessment by the tax requirements on when the transfer
information is 30 days, and this can
authorities. pricing study must be prepared and
be extended at the Commissioner
submitted?
General’s discretion.
Transfer pricing study The transfer pricing study must be
completed by the date on which the If an adjustment is proposed by the
overview corporate tax return is submitted (25 tax authority, are dispute resolution
Is preparation of a transfer pricing April for companies which have calendar options available to the taxpayer
study required – i.e. can the year accounting periods), and must be outside of competent authority?
taxpayer be penalized for mere provided to the tax authorities upon The taxpayer may choose to apply to
failure to prepare a study? request and within 15 days in the statute courts in its jurisdiction.
Yes, preparation of an annual transfer of limitation period.
pricing report is required to comply
Turkey | 277
If an adjustment is sustained, can Is there a preference, or residents may be subject to withholding

penalties be assessed? If so, what requirement, by the tax authorities tax depending on the nature and place
rates are applied and under what for local comparables in a of the service given. Double tax treaty
conditions? benchmarking set? provisions may eliminate withholding
Yes. The tax penalty equals 100 percent There is no requirement for using tax under certain conditions.
of the additional taxes accrued. local databases. However, if a broader
set is used, performing necessary
To what extent are transfer pricing adjustments permitted?
adjustments including country specific
penalties enforced? adjustments is recommended. There are Yes, year-end transfer pricing
Where there is a penalty assessment a limited number of local comparables adjustments are allowed under Turkish
after a tax audit for transfer pricing in the Amadeus database; therefore transfer pricing rules. If the adjustment
issues, these penalties are almost both local comparables and broader sets is made on domestic intra-group
always enforced. can be used. transactions, it is easier to manage
as both parties are resident in Turkey.
What defences are available with Do tax authorities have However, if it is between a resident
respect to penalties? requirements or preferences and non-resident entity, there may be
Taxpayers can apply for settlement after regarding databases for some VAT and customs implications
a tax penalty is imposed. Generally comparables? which may lead to double taxation for
80 – 100 percent of the penalties are No. the resident taxpayer for indirect tax
cancelled by virtue of settlement. purposes.
What trends are being observed authorities have with customs Other unique attributes?
currently? authorities? None.
The structural change in the tax audit The two authorities are generally
organization of the Ministry of Finance working separately. Other recent
has contributed to the increased
number of transfer pricing audits. In July Are management fees deductible? developments
2011, tax auditors were re-organized Yes. Management fee charges should The main purpose of Turkey’s APA
and merged under a single Board, the satisfy the following criteria in order program is to address potential tax-
Turkish Tax Inspection Board. Four sub- to achieve a full deductibility from the related disputes and controversies in
groups were formed under this Board, corporate tax base: relation to Turkey’s transfer pricing rules,
one of which was organized to perform as applied by taxpayers with respect
• The fees should be paid for the to transactions with related parties. By
transfer pricing investigations as a
services actually performed. concluding an APA with the Revenue
special department.
Administration, taxpayers can address
• The fees are supported with proper
This formation shows that transfer certain tax risks associated with related
documentation.
pricing is regarded as a special field in party transactions.
tax audits and is organized accordingly. • The taxpayer does need the services.
Recurring losses and intra-group service • The transfer pricing rules are satisfied Tax treaty/double tax
charges are the specific focus areas of and the fee amount is in line with the
arm’s length principle.
resolution
transfer pricing audits. Tax auditors tend
to treat management fee charges as What is the extent of the double tax
Lately, there are more tax audits treaty network?
royalty and apply withholding taxes.
focused on management fees and
Extensive (Turkey has signed 74 income
the tax administration’s tendency is to
tax treaties to date, and these generally
Special considerations reject management fees fully or partially
include mutual agreement procedures
claiming no services were actually
Are secret comparables used by tax (MAPs) in Article 25 of the subject
performed, or to accept deductibility but
authorities? treaties).
apply withholding tax claiming there is a
There is no official written explanation transfer of know-how.
and no example of implementation If extensive, is the competent
regarding secret comparables. But in Are management fees subject to authority effective in obtaining
practice, when the previous regulations withholding? double tax relief?
were in effect, tax auditors were using No experience.
Management fees paid to foreign
secret comparables during tax audits. related parties and unrelated non-
When may a taxpayer submit an Does the tax authority publish APA
adjustment to competent authority? data either in the form of an annual
A taxpayer must make a MAP report or through the disclosure of
application within the time period listed data in public forums?
in the double tax treaty. However, if the The tax authority publishes the
double tax treaty does not provide a completion of APA negotiations;
time period for filing a MAP application, however the information related to the
then the period for making a MAP APA process is not publicly disclosed
application will be determined by the tax due to confidentiality of taxpayers.
laws of the country, which is one year
for Turkey. Please provide some information
May a taxpayer go to competent is and whether there are any known
authority before paying tax? difficulties?
The taxes assessed on behalf of the Turkey’s APA system is still in its early
corporation should become definite and stages. The first unilateral APA was
should be paid in order to be able to go concluded in July 2011 and the other
to the competent authority. two agreements were signed as of
December 2012. However, corporations
in Turkey are becoming more aware of
Advance pricing its advantages as APA is regarded as
agreements a major means of resolving transfer
What APA options are available, pricing disputes globally. Details on the
if any? application of APA process are provided
in Transfer Pricing Communiqué No.
Unilateral, bilateral, and multilateral
1 on disguised profit distribution via
APAs are available.
transfer pricing.
Effective 1 January 2014, the application Language
fee for an APA is 45,593 Turkish lira In which language or languages can
(TRY) (approximately 21,400 United documentation be filed?
States dollars (USD) or 15,500 Euros
The transfer pricing report must be in
(EUR) as of 10 April 2014). The fee
Turkish. The related documents must
for an APA application renewal is
be translated into Turkish when they
TRY36,475 (approximately USD17,333
are requested, if they are in a foreign
or EUR12,550 as of 10 April 2014).
language.
The application and renewal fees are
typically re-assessed at the beginning of
each calendar year.
KPMG in Turkey
Abdulkadir Kahraman
Tel: +902166819000
Email: akahraman@kpmg.com

Uganda | 279
Uganda
KPMG observation
The transfer pricing regulations in Uganda only came into effect on 1 July 2011.
From that time, the Income Tax Act and the Transfer Pricing Regulations contained
therein became binding legislation. The Organisation for Economic Co-operation
and Development (OECD) Guidelines are to be referred to unless they differ from
the Act, in which case, the Act takes precedence. A practice note was released in
May 2012 to aid taxpayers in compliance. The 2012/2013 financial year is the first time
taxpayers will be expected to have transfer pricing documentation in place. As a result,
information on trends and existing practices is still scanty.
Tax authority name adjustments? Not applicable.
Uganda Revenue Authority (URA). This has not yet been specified. The
Act gives the URA commissioner the What are the consequences
Citation for transfer pricing rules of failure to prepare or submit
authority to make adjustments but
S.90 and S.91 of the Income Tax Act, does not indicate a time limit for such disclosures?
Cap. 340 read together with the Transfer adjustments. Not applicable.
Pricing Regulations 2011, OECD and the
Transfer Pricing Practice Note, 2012. The Income Tax Act also allows the
taxpayer to amend their return in case Transfer pricing study
Effective date of transfer pricing there are some adjustments to be made overview
rules but does not give a limitation on the time
within which this can be done. Is preparation of a transfer pricing
Although the transfer pricing regulations
came into effect 1 July 2011, S.90 and 91
of the Income Tax Act had been in place Transfer pricing failure to prepare a study?
requiring taxpayers with related party
transactions to deal at arm’s length. disclosure overview Yes. A person who fails to comply with
Are disclosures related to transfer the regulation is liable on conviction to
What is the relationship threshold pricing required to be prepared or imprisonment for a term not exceeding
for transfer pricing rules to apply submitted to the revenue authority 6 months or a fine not exceeding
between parties? on an annual basis (e.g. with the tax UGX500,000 or both.
The rules apply to controlled transactions return)? Other than complying with a
for multinational enterprises (MNEs) No. The taxpayer is not required to requirement per the previous
or controlled transactions in aggregate submit disclosures to the URA on an question, describe the benefits, if
equal to or exceeding 25,000 currency annual basis but is expected to keep any, of preparing and maintaining a
points in a year of income (500 million all information up to date related to the transfer pricing study?
Uganda shillings (UGX)). This relates to transfer pricing policies, to be provided to
transactions between related parties the URA on request. Withholding tax exemption - a
within Uganda. There is no threshold for taxpayer can only be exempted if they
transactions across borders. have complied with all income tax
requirements including transfer pricing
documentation.
To satisfy the requirement and/or Transfer pricing methods policy in the first place, i.e. a financial
obtain the benefits, are there any penalty of UGX500,000, and/or 6 months
requirements on when the transfer Are transfer pricing methods imprisonment for the directors if
pricing study must be prepared and outlined in Chapter II of the OECD convicted. There would also be penalties
submitted? Guidelines acceptable? in respect of the tax not paid that should
The study must be prepared before Yes. have been paid, based on the different
the company files their final annual Acts – for income tax the penalty is
Is there a priority among the 2 percent per month, and for VAT is
tax returns for the given financial year.
acceptable methods? 2 percent per month.
However, the study/policy does not have
to be submitted to the URA unless the No.
URA specifically asks for it.
If there is no priority of methods, is penalties enforced?
When a transfer pricing study is there a “best method” rule? The extent of enforcement will only be
prepared, should its content follow To date, no “best method” rule has been known after some companies have been
Chapter V of the OECD Guidelines? explicitly laid out. As the URA begins to found not to be compliant on carrying
Yes. In addition, the Practice Note conduct transfer pricing audits, KPMG in out reviews of their transfer pricing
also gives guidelines of the required Uganda expects to gain more insight on documentation.
documentation to be maintained by the whether or not there is an implicit “best
method”. What defences are available with
tax payer:
• Company details including brief Default defence is documentation but
history and the relationships Transfer audit and other defences are to be established
with their related parties, brief penalties once the authorities have taken on some
history of the company, worldwide When the tax authority requests non-compliant taxpayers.
organizational structure and a taxpayer’s transfer pricing
participants in the transactions. documentation, how long does What trends are being observed
the taxpayer have to submit its currently?
• Transaction details including
description of the transactions, documentation? No trends have been established yet.
names of the participants and the This has not been specified. The
functions of each of the parties in the Regulations state that the policy should Special considerations
transaction. be submitted upon request. Although,
the taxpayer is expected to have the
• Determination of arm’s length authorities?
entailing selection of the method policy in place before filing the annual tax
return for the year of income. Unknown. The authorities are just
and the reason for selection of the
starting to roll out audits of transfer
method, searches and databases
If an adjustment is proposed by the pricing documentation prepared by
used and the criteria used in the
tax authority, are dispute resolution taxpayers.
selection of comparables.
• Conclusion as to whether outside of competent authority? Is there a preference, or
transactions with the related parties Not yet specified, but it is expected that
are at arm’s length basing on the the tax tribunal would have jurisdiction for
comparables derived from the such cases.
benchmarking set?
database used. No.
Does the tax authority require an penalties be assessed? If so, what Do tax authorities have
advisor/tax practitioner to have rates are applied and under what requirements or preferences
specific designation in order to conditions? regarding databases for
prepare or submit a transfer pricing comparables?
This has not been specified, but it is
study? None have been specified.
expected that penalties would be the
No. same as if one had not submitted a
Uganda | 281
What level of interaction do tax When may a taxpayer submit an

authorities have with customs adjustment to competent authority?
authorities? Not applicable.
The customs body is a subset of the
tax authority so there is a high level May a taxpayer go to competent
of interaction and all information from authority before paying tax?
customs is accessible to the authorities. This has not been specified.

Yes.
Advance pricing
agreements
withholding?
Yes.
APA options are available. No options
Are year-end transfer pricing have been specified but a request and
adjustments permitted? draft agreement must be availed to the
tax authority, which may then accept it,
The URA has not yet clarified on this but
modify it or reject it.
it is highly likely that such adjustments
will be acceptable. Is there a filing fee for APAs?
Not yet specified.
There are no specifications on the use of Does the tax authority publish APA
single versus multiple year data or same data either in the form of an annual
year data. report or through the disclosure of
Other recent Not applicable.
developments Please provide some information
Not applicable. on how successful the APA program
difficulties?
No known case has been handled.
resolution
treaty network? Language
Minimal (there are double taxation In which language or languages can
agreements with only seven countries). documentation be filed?
English.
double tax relief?
Not applicable.
KPMG in Uganda
Benson Ndung‘u
Tel: +256 414 340315/6
Email: bndungu@kpmg.com

Ukraine
KPMG observation
On 1 September 2013, a Law of Ukraine “On the Amendments to the Tax Code
of Ukraine Regarding Transfer Pricing” became effective, introducing enhanced
transfer pricing rules, which are generally in line with the Organisation for Economic
Co-operation and Development (OECD) framework, but with some local specifics. In
particular, the following transactions are deemed controlled, if the annual transaction
volume between the parties exceeds 50 million Ukraine Hryvnia (UAH):
• Transactions with non-resident related parties.
• Transactions with all parties (related and non-related) which are registered or
effectively pay corporate income tax in jurisdictions where the tax rate is lower than in
Ukraine by 5 percentage points and more (listed by the Cabinet of Ministers of Ukraine).
• Transactions with domestic related parties which are using a preferential or special tax
regime or have declared tax losses in the previous tax year.
Five transfer pricing methods recognized by OECD, as well as combinations of methods, are
allowed to be used. A list of official information sources is defined.
The Advance Pricing Agreements (APAs) mechanism is introduced to be used by large
taxpayers. However, there is no certainty as to when APAs can become practically available.
Basic information (depreciation of fixed assets in What is the relationship threshold

concession), 146.7–146.10 (depreciable for transfer pricing rules to apply
Tax authority name value of fixed assets), 153.2. (related between parties?
Previously – Ministry of Revenues and parties transactions), 153.9. (REPO Ownership of at least 20 percent of
Duties of Ukraine (is currently under and derivative transactions), 153.10 shares, based on voting power, share
reorganization). (barter transactions), 157.15. (income of capital, and are under common control.
nonprofit organizations).
Citation for transfer pricing rules What is the statute of limitations
Tax Code of Ukraine (TC) (general TC (PIT section): 164.2.17. (fringe
section): paragraph 14.1.159 (definition of benefits), 164.5. (recognition of in-kind
adjustments?
related parties), article 39 (arm’s length income).
The general statute of limitations for tax
principle, transfer pricing methods, TC (VAT section): 184.7., 189.11. (deemed issues (including transfer pricing issues)
official sources of information, advance sale), 188.1., 190.2. (taxable base), 198.3. is 3 years following the deadline for
pricing agreements), Corporate Profits (VAT credit), 210.2. (marginal profits on submission of the tax return or the actual
Tax (CPT) (section): paragraph 92 the sale of arts and antiques). date of submission of the tax return (if
(disposal of assets under a tax pledge), the tax return was not submitted in time).
paragraph 135.5.4. (recognition of taxable Effective date of transfer pricing However, no limitation period applies
income from free-of-charge acquisition rules in cases of a proven fraud (criminal
of goods, works and services), 140.1.6. 1 September 2013. proceedings against a taxpayer’s
(insurance costs), 144.1.(subpara.8) management) or a taxpayer’s failure to
file a tax return.
Ukraine | 283
Transfer pricing Other than complying with a Is there a priority among the
requirement per the previous acceptable methods?
disclosure overview question, describe the benefits, if Generally, the first priority is given by
Are disclosures related to transfer any, of preparing and maintaining a the tax authorities to the comparable
pricing required to be prepared or transfer pricing study? uncontrolled price.
submitted to the revenue authority By law, the burden of proof is on the tax
on an annual basis (e.g. with the tax The customs authorities apply the
authorities but a taxpayer must be able
return)? transfer pricing methods listed above
to substantiate the fair market level of
Taxpayers who have performed in the consecutive order shown but
contract prices upon request of the tax
controlled transactions during a reporting give preference to contract price for
authorities.
period are obliged to file a Report identical/similar goods, or the reserve
on Controlled Transactions with the To satisfy the requirement and/or methods, as they typically result in a
Ukrainian tax authorities no later than 1 obtain the benefits, are there any higher customs value and, accordingly,
May of the next calendar year. The first requirements on when the transfer higher import taxes.
reporting period is from 1 September to pricing study must be prepared and
submitted? If there is no priority of methods, is
31 December 2013. After this, a calendar
year is treated as a reporting period Transfer pricing documentation on a
for transfer pricing. The first reporting Not applicable.
transaction-by-transaction basis must
date is 1 May 2014. Transfer pricing be submitted upon request from the
documentation must be submitted upon tax authorities within 30 days of such Transfer pricing audit and
request of the tax authorities only. request for regular taxpayers, and within
60 days for large taxpayers.
penalties
What types of transfer pricing When the tax authority requests
information must be disclosed? When a transfer pricing study is a taxpayer’s transfer pricing
The Report on Controlled Transactions prepared, should its content follow documentation, how long does
must contain detailed information on Chapter V of the OECD Guidelines? the taxpayer have to submit its
the subjects of controlled transactions, Yes. documentation?
including (physical) characteristics, Regular taxpayers will have 30 days
industry-specific codes, prices applied, Does the tax authority require an within the request to prepare a transfer
transfer pricing method used, arm’s advisor/tax practitioner to have pricing documentation. Large taxpayers
length price etc. specific designation in order to will have 60 days.
What are the consequences study? If an adjustment is proposed by the
of failure to prepare or submit No. tax authority, are dispute resolution
disclosures? options available to the taxpayer
Penalties for non-compliance are set as outside of competent authority?
follows: Transfer pricing methods Following the administrative procedure,
Are transfer pricing methods a taxpayer can apply to the tax authority
• Five percent of the total controlled
outlined in Chapter II of the OECD of a higher ranking. If still dissatisfied,
transactions’ amount – for failure
Guidelines acceptable? the taxpayer can file a claim to District
to file the Report on Controlled
Yes. For customs purposes, the transfer Administrative Court, Administrative
Transactions in a timely fashion.
pricing methods which can be used Court of Appeal, High Administrative
• One hundred minimal wages – for to determine the customs value of Court and Supreme Court of Ukraine (for
failure to submit transfer pricing imported goods are as follows (and are limited instances only), in that order.
documentation at request (applicable to be applied in a consecutive order (on a
to large taxpayers only). tiebreaker basis)): If an adjustment is sustained, can
• contract price of imported goods rates are applied and under what
Transfer pricing study conditions?
• contract price for identical goods
overview If a transfer pricing adjustment results in
• contract price for similar goods additional tax liabilities, the taxpayer can
study required – i.e. can the • resale minus method be subject to penalties of 25 percent and
taxpayer be penalized for mere up to 75 percent of the tax underpayment
• cost plus method if there is a recurring violation.
Yes. • reserve method.
A taxpayer can reassess own tax Is there a preference, or Are management fees deductible?
liabilities in connection with transfer requirement, by the tax authorities Management fees payable to a non-
pricing adjustments and reflect them in for local comparables in a resident service provider should
the tax return. In this case, no penalties benchmarking set? generally be tax deductible in full, unless
apply. Such reassessment can also Yes. Ideally, the comparables should be they qualify as consulting, marketing,
be made and filed separately after the local or derived from the geographically advertising or engineering services.
tax return is submitted. In such case, closest market.
penalties will apply to the amount of Tax deduction of consulting, marketing
underpaid tax for each day of delay. Do tax authorities have and advertising service fees payable
requirements or preferences to a non-resident service provider
To what extent are transfer pricing regarding databases for (cumulatively) is limited to 4 percent
penalties enforced? comparables? of sales revenue (excluding VAT and
Even before the first official reporting excise tax) accrued in the preceding
The tax authorities give preference
date, a court practice is already present year. The tax deduction of such service
to state statistical information and
with regard to transfer pricing issues. fees if paid to a non-resident located
databases.
After the first reporting date (1 May in blacklisted offshore jurisdictions is
2014), transfer pricing rules are expected The following official sources of not allowed. If management services
to be strictly enforced. information will be acceptable for are qualified as engineering services,
establishing the arm’s length price: the relevant fees can be deducted up
What defences are available with to an amount not exceeding 5 percent
respect to penalties? • Information sources officially of the customs value of the imported
approved by the Cabinet of Ministers equipment, as long as a service provider
A taxpayer must have documents of Ukraine.
supporting its transfer pricing policy. is not a resident of a blacklisted offshore
Such documents must be in Ukrainian • Statistical data of the state jurisdiction and is a beneficial recipient
and preferably include the market or authorities and agencies. (owner) of such income.
statistical information coming from the • Commodity exchange prices and The price evaluation statement is
officially approved information sources. stock exchange quotation. required to remit management fees to
To reduce the potential penalties, prior to a non-resident service provider if they
• Benchmark prices of specialized
the tax audit, a taxpayer can voluntarily exceed, in total, EUR100,000. Such
commercial publications, including
make a transfer pricing adjustment and price evaluation statements incidentally,
electronic and other databases.
self-assess a 3 or 5 percent penalty (only can confirm for tax purposes that the
in case the adjustment is not made soon • Reports and data provided by management fees are in line with fair
enough to be included in the annual tax economic departments of Ukrainian market prices.
return). diplomatic missions abroad.
• Results of public auctions. withholding?
currently? • Taxpayer’s internal comparable No. Generally, management fees are
The Ukrainian tax authorities demonstrate prices. not subject to withholding tax. However,
strong preferences for the application of when management services (partly)
If the official sources do not contain
comparable uncontrolled price method qualify as engineering services, they are
sufficient information for the analysis
and the use of the officially approved subject to 15 percent withholding tax,
of prices in controlled transactions,
information sources when substantiating unless protected under a relevant double
other information sources, including
the arm’s length nature of prices in tax treaty.
commercial databases (RUSLANA,
controlled transactions. Amadeus, Thomson Reuters, and Management services received from
Bloomberg etc.) can be used. a non-resident service provider are
Special considerations What level of interaction do tax
subject to 20 percent VAT which must
be self-assessed by a local taxpayer,
Are secret comparables used by tax authorities have with customs and can be credited based on a reverse
authorities? authorities? charge mechanism (provided the
No. The use of secret comparables is High. relevant services are further used
forbidden. in the taxpayer’s VAT able business
transactions).
Ukraine | 285
Are year-end transfer pricing which documents will be required to Language

adjustments permitted? confirm the beneficial owner status.
However, the tax authorities have already In which language or languages can
Generally, year-end adjustments are
started challenging certain structures documentation be filed?
permitted. Reciprocal adjustments are
allowed subject to an officially defined (e.g. trademark sublicensing contracts) Official filings and supporting documents
procedure. which they believe have been introduced must be in Ukrainian (or translated into
to benefit from the double tax treaty Ukrainian).
Other unique attributes? protection.
Information available at the moment
when controlled transaction is performed
and/or information available from
previous years can be used. Common Not applicable.
practice is to use multiple-year data
May a taxpayer go to the competent
(usually, data is used from 3 years
preceding the year when controlled
transaction took place). Provided a valid tax residence certificate
of a non-resident counterparty is
available, a taxpayer should not deduct
Other recent withholding tax from the payment to
developments be made. Otherwise, withholding tax
A draft law was recently submitted to should be deducted and can be claimed
the Ukrainian Parliament, with taxpayer- back once the tax residence certificate is
favorable provisions with regard to available. The tax authorities are typically
transfer pricing. However, the fate of the unwilling to refund overpaid withholding
draft law is unclear. tax in cash and prefer offsetting such
overpaid tax against current tax liabilities.

resolution Advance pricing
agreements
treaty network? What APA options are available,
if any?
Extensive (nearly 70 effective double tax
treaties). APAs as they are understood in the
international tax practice are introduced
If extensive, is the competent as from 2014 for large taxpayers.
double tax relief? Is there a filing fee for APAs?
Frequently. Historically, double tax relief No.
has been available to a taxpayer if there
was a valid tax residence certificate of its Does the tax authority publish APA
counterparty confirming that the latter is data either in the form of an annual
tax resident in a jurisdiction which has an report or through the disclosure of
effective double tax treaty with Ukraine. data in public forums?
No.
Since 2011, the TC introduced a
beneficial ownership concept as an Please provide some information
additional mandatory prerequisite for on how successful the APA program
the application of a double tax treaty is and whether there are any known
relief. It is still unclear how this concept difficulties? KPMG in Ukraine
will be implemented in practice and Not applicable.
Konstantin Karpushin
Tel: +38 044 490 55 07
Email: kkarpushin@kpmg.ua
Yaroslav Kotlyar
Tel: +38 044 490 55 07
Email: ykotlyar@kpmg.ua

United Kingdom
KPMG observation
HMRC supports the Organisation for Economic Co-operation and Development's
(OECD) Base Erosion and Profit Shifting (BEPS) initiative and the UK is expected
to be an early adopter of the recommendations arising from the BEPS Action Plan.
The UK transfer pricing legislation already incorporates the 2010 OECD Transfer
Pricing Guidelines and we are starting to see the principles contained in the new
draft of Intangibles Chapter VI being raised during HMRC enquiries.
Following on from BEPS we expect to see an increase in Advance Pricing Agreement
(APA) applications and Mutual Agreement Procedures (MAP) claims. Her Majesty’s
Revenue and Customs (HMRC) recognizes the importance of these tools in making the
UK a good place to do business and helping taxpayers manage their double taxation risk.
Its willingness to assist taxpayers and enter into negotiations with other tax authorities
will continue after BEPS.
Basic information shareholders to provide funding, the Transfer pricing study

shareholders’ stake can be attributed
Tax authority name to the lender, meaning a financing overview
Her Majesty’s Revenue and Customs transaction may be caught by the Is preparation of a transfer pricing
(HMRC). legislation where there is no, or a very study required – i.e. can the taxpayer
small, direct relationship between the be penalized for mere failure to
Citation for transfer pricing rules lender and borrower. prepare a study?
For years ending before 1 April 2010, No.
Schedule 28AA ICTA 1988. What is the statute of limitations
For years ending on or after 1 April on assessment of transfer pricing Other than complying with a
2010, the relevant legislation has been adjustments? requirement per the previous
rewritten as Part 4 of the Taxation Four years from tax year-end (except in question, describe the benefits, if
(International and Other Provisions) cases involving fraud or carelessness). any, of preparing and maintaining a
Act 2010. The changes in location transfer pricing study?
and wording of the legislation are
not intended to change taxpayers’ Transfer pricing disclosure A transfer pricing study will meet the
statutory requirements to prepare and
responsibilities in any way. The changes overview retain documentation to support the
are merely an attempt to present Are disclosures related to transfer entries on a taxpayer’s tax return. It will
the legislation in a more logical and pricing required to be prepared or also eliminate or substantially reduce
accessible format. submitted to the revenue authority exposure to penalties if adjustments are
on an annual basis (e.g. with the tax made on audit, and shift the burden of
return)? proof to the tax authority.
rules
No.
1 July 1999. To satisfy the requirement and/or
What types of transfer pricing obtain the benefits, are there any
What is the relationship threshold information must be disclosed? requirements on when the transfer
for transfer pricing rules to apply pricing study must be prepared and
between parties? Not applicable. submitted?
Ownership between 40 percent and 50 What are the consequences of failure To maximize the benefits, documentation
percent; based on voting power, share to prepare or submit disclosures? should be contemporaneous with
capital, or management control. With submission of the return.
respect to financing transactions, where Not applicable.
the lender has acted together with
United Kingdom | 287
When a transfer pricing study is If an adjustment is sustained, can Special considerations

prepared, should its content follow penalties be assessed? If so, what
Chapter V of the OECD Guidelines? rates are applied and under what Are secret comparables used by tax
conditions? authorities?
Yes.
Under the general penalty regime for No. Secret comparables may be used
Does the tax authority require an incorrect returns, a transfer pricing by HMRC to select companies for audit,
advisor/tax practitioner to have adjustment may lead to a penalty based but they are not used for setting an arm’s
specific designation in order to on a percentage of actual tax loss. length rate.
prepare or submit a transfer pricing Penalties are up to 30 percent for a
study? Is there a preference, or requirement,
failure to take reasonable care; up to 70
No. percent for a deliberate understatement
or over claim; and up to 100 percent for
Transfer pricing methods a deliberate understatement aggravated Yes. HMRC would prefer to see UK
by concealment. comparables for UK-based activity. In
Are transfer pricing methods practice European comparables are
outlined in Chapter II of the OECD HMRC may apply a lower percentage accepted when limited UK companies
Guidelines acceptable? penalty where there is disclosure, are available.
the extent of mitigation depending
Yes.
on whether disclosure is prompted or Do tax authorities have requirements
Is there a priority among the unprompted. A 10 percent penalty is or preferences regarding databases
acceptable methods? applied to overstated losses. for comparables?
No. No. Typically when European activities
To what extent are transfer pricing are being benchmarked Fame would be
penalties enforced? used for UK searches and Amadeus for
there a “best method” rule? KPMG in the UK is seeing HMRC more European searches. HMRC has access to
strictly enforce penalties in recent years. the Fame and OneSource databases.
The UK follows the OECD Guidelines
and the guidance contained within What defences are available with What level of interaction do tax
on the determination of the most respect to penalties? authorities have with customs
appropriate method. The July 2010
In its guidance, HMRC indicates that the authorities?
OECD Guidelines are incorporated into
existence of appropriate transfer pricing HMRC was formed in 2005 by the merger
UK legislation for accounting periods
documentation may help to mitigate any of the Inland Revenue and HM Customs
beginning on or after 1 April 2011.
tax-geared penalty due as a result of a and Excise. KPMG in the UK has observed
transfer pricing adjustment. Penalties may that customs officials sometimes request
Transfer pricing audit and also be mitigated through cooperation transfer pricing documentation as part of
penalties with HMRC. their review.
When the tax authority requests What trends are being observed Are management fees deductible?
a taxpayer’s transfer pricing currently? Yes.
documentation, how long does There has been an increased focus on
the taxpayer have to submit its transfer pricing in the media, which Are management fees subject to
documentation? has led to large multinationals being withholding?
There are no specific deadlines. HMRC questioned on their transfer pricing No.
will decide on a case-by-case basis but practices by the Government's Public
will typically allow 45–90 days. Accounts Committee. This scrutiny has led Are year-end transfer pricing
to increased funding for HMRC transfer adjustments permitted?
If an adjustment is proposed by the pricing specialists. Yes. Both upward and downward
HMRC has indicated that it will continue transfer pricing adjustments may be
to be willing to work with taxpayers on made to the financial statements. If
transfer pricing issues in real-time and transfer pricing adjustments are invoiced
The taxpayer has the right to appeal and made in the financial statements,
against a transfer pricing adjustment. provide general opinion on the transfer
pricing methodology, but not the price. indirect tax implications must also be
Such an appeal will be heard by the considered.
Tribunals Service. There is now an The only way that a taxpayer can get
additional option of trying to resolve the legal certainty about the transfer pricing Only upward transfer pricing
dispute using mediation to avoid the treatment of transactions is under the adjustments may be made in the
appeal going to tribunal. formal APA process. tax computation. Tax computation
transfer pricing adjustments may
lead to increased analysis of transfer
pricing arrangements and increase
the likelihood of double taxation. A If extensive, is the competent

transfer pricing adjustment in the tax authority effective in obtaining
computation in itself is not an event double tax relief?
which creates a customs duty or VAT Almost always.
requirement. However, this might be
seen by HMRC as an indication that When may a taxpayer submit an
the original transaction was not in adjustment to competent authority?
accordance with VAT and customs duty Typically, after an adjustment is proposed
valuation principles and may result in an to the taxpayer. However an application
indirect tax enquiry and adjustments. can be made and HMRC is prepared to
enter into discussions with the treaty
partner before an adjustment is finalized.
None.
Other recent
Yes.
developments
HMRC continues to focus on effective
compliance. The Senior Accounting Advance pricing
Officer regime means that companies agreements
need to be comfortable that they have
effective processes in place to manage
any?
their transfer pricing risk. HMRC has put
in place a process to discuss transfer Unilateral and bilateral.
pricing issues before a tax return
is submitted and continues to offer Is there a filing fee for APAs?
certainty by way of APAs. No.
HMRC applies a risk-based approach to Does the tax authority publish APA
transfer pricing enquiries, targeting high- data either in the form of an annual
risk transactions and structures, and aims report or through the disclosure of
to complete enquiries within 18 months data in public forums?
or (in the case of more complex enquiries) Yes. From time-to-time HMRC publishes
36 months. Recent scrutiny of the transfer data on APAs, MAP claims, and transfer
pricing of some large multinationals pricing enquiries.
by the Government’s Public Accounts
Committee and increased funding Please provide some information on
by the Treasury for HMRC’s transfer how successful the APA program is
pricing specialists is expected to lead to and whether there are any known
increased examination of transfer pricing difficulties?
arrangements in the UK in 2013.
The APA program is well-established and
HMRC’s litigation and settlement strategy very successful in the UK. HMRC has
has formally adopted mediation as a extended the number of countries with
means of resolving disputes. Finally, which it has concluded APAs, including
HMRC has a strong MAP practice to countries starting up their APA programs.
resolve double taxation when it arises.
Language
Tax treaty/double tax In which language or languages can
resolution documentation be filed?
What is the extent of the double tax There is no language requirement set
out in statute, but in practice if the KPMG in United Kingdom
treaty network?
documentation is not prepared in English,
Extensive. Komal Dhall
HMRC will ask for a translation.
Tel: +44 20 7694 4498
Email: komall.dhall@kpmg.co.uk

United States | 289
United States
KPMG observation
The United States (US) has one of the oldest and most mature transfer pricing
regimes.
Over the past couple of years, the Internal Revenue Service (IRS) has reorganized
its international division to focus resources on transfer pricing. In 2011, a new
leadership transfer pricing position was created within the IRS. This position, Transfer
Pricing Director, is responsible for setting transfer pricing policy in IRS audits and
for working with the IRS Office of Chief Counsel to develop transfer pricing litigation
strategy. A new Chief Economist position was also created to assist the Transfer
Pricing Director in setting IRS-wide transfer pricing policy. Additionally, under the Transfer
Pricing Director are three new teams of IRS transfer pricing specialists who are led by
experienced managers and organized by region.
According to the IRS, the intent behind the creation of these new positions is to better
coordinate transfer pricing matters within the IRS. Specifically, the goal is to deploy IRS
resources more efficiently by identifying appropriate issues and taxpayers, and to allow
taxpayers to achieve the same principled results regardless of venue.
The IRS’ combination of the Advance Pricing Agreement (APA) program and the competent
authority program into a newly created group, the Advance Pricing & Mutual Agreement
program (APMA), has further allowed for more expedited processing and resolution of transfer
pricing disputes. The combined office is allowing the IRS to better align resources to complete
APAs and to expedite the resolution of transfer pricing disputes.
In late 2013, the IRS released new draft guidance with respect to APAs and competent authority
matters. This proposed guidance represents substantial changes compared to the current
procedures, and is consistent with the objectives of APMA to enhance integration between
competent authority matters and APAs, to improve allocation of resources, and to increase
transparency and efficiency in these processes. It is anticipated that there will be substantial changes
made to the content of this proposed guidance before it is finalized.
The US Treasury Department is actively engaged in the Organisation for Economic Co-operation and
Development's (OECD) Base Erosion and Profit Shifting (BEPS) project. Base shifiting by US multinationals
have received extensive press coverage as a result of a series of congressional hearings focusing on
international tax structures.
Basic information What types of transfer pricing Other than complying with a
information must be disclosed? requirement per the previous
Tax authority name question, describe the benefits, if
Internal Revenue Service (IRS). IRS Forms 5471, (generally, US
companies with foreign subsidiaries),
Citation for transfer pricing rules 5472 (generally, US companies with
foreign parents), and Schedule UTP The timely preparation of a transfer pricing
• Substantive rules: Internal Revenue study is the sole way to avoid penalties
Code (IRC) Section 482 (Uncertain Tax Position), which is part
of Form 1120, must be attached to the should a transfer pricing adjustment
• Treas. Reg. Section 1.482–1 through US tax return. In addition, participants exceed certain penalty thresholds.
Section 1.482–9 in an intangible development cost
• Penalty rules: IRC Section 6662(e) sharing arrangement (CSA) must file a
and Treas. Reg. Section 1.6662–6. CSA statement upon formation of the
arrangement and annually with their
Effective date of transfer pricing tax returns if they wish to ensure the
submitted?
rules arrangement will be governed by Treas.
Reg. Section 1.482–7. Forms 5471 and Yes, the study must be prepared
• Effective 6 October 1994 for Treas. contemporaneously with the filing of
Reg. Section 1.482–1 through Section 5472, in general, require disclosure
of related party transactions including the tax return for the year and must be
1.482–6, and Section 1.482–8 submitted to the IRS within 30 days of an
loans, tangible goods, services, and
• 9 February 1996 for Section 1.6662–6 intangibles. Schedule UTP requires IRS request for review.
• 1 August 2009 for Section 1.482–9 certain taxpayers to report federal

income tax positions (including positions
• 19 December 2011 for Section prepared, should its content follow
relating to transfer pricing) for which an
1.482–7. Chapter V of the OECD Guidelines?
audited financial statement reserve is
recorded or is not recorded due to an Yes, its contents should largely follow
What is the relationship threshold Chapter V of the OECD Guidelines.
expectation to litigate.
between parties? What are the consequences There are 10 principal documents:
The parties must be under common of failure to prepare or submit 1. overview of the business
control. Control is based on a facts and disclosures?
circumstances test, and not on specific 2. organization structure chart
A penalty of 10,000 US dollars (USD) is
ownership thresholds. 3. documentation required by
imposed for each Form 5471 or Form
5472 that is filed after the due date of the regulation, e.g. cost share participant
What is the statute of limitations names, market share strategy
income tax return (including extensions)
or does not include the complete and 4. description of transfer pricing
adjustments?
accurate information described in Section methodology and reason for
Generally, the IRS has 3 years from the 6038(a). Currently, there are no penalties
tax return filing date to make adjustments. selection (best method analysis)
directly associated with Schedule
However, if gross income in excess of 25 UTP; the IRS is studying the issue. If a 5. discussion of alternative methods not
percent of the gross income stated in the CSA statement is not filed (and other selected
return is omitted, the statute is extended requirements not met), a taxpayer cannot
to 6 years. The statute is unlimited if a 6. description of controlled transactions
rely on Treas. Reg. Section 1.482–7 to
false or fraudulent return is filed, if a wilful allow sharing of intangible development 7. description and analysis of
attempt to evade taxes is made, or if no expenses at cost rather than value, comparables
return is filed. the netting of royalty and cost sharing 8. economic analysis
payments, or any other of its provisions.
9. description of any relevant post year-
Transfer pricing end data, if applicable, and
disclosure overview Transfer pricing study
10. an index of the principal and
Are disclosures related to transfer overview background documents relied on.
pricing required to be prepared or Is preparation of a transfer pricing
submitted to the revenue authority study required – i.e. can the Does the tax authority require an
on an annual basis (e.g. with the tax taxpayer be penalized for mere advisor/tax practitioner to have
return)? failure to prepare a study? specific designation in order to
Yes. prepare or submit a transfer pricing
No.
study?
No.
United States | 291
Transfer pricing methods Transfer pricing audit applies (e.g. a reasonable basis). In
practice, the IRS rarely, if ever, has
Are transfer pricing methods and penalties asserted the Transactional Penalty.
outlined in Chapter II of the OECD When the tax authority requests
Guidelines acceptable? a taxpayer’s transfer pricing What defences are available with
Yes, although there are some minor documentation, how long does respect to penalties?
differences. the taxpayer have to submit its Submitting a reasonable transfer pricing
documentation? study to the tax authority is the sole way
The US allows for:
By regulation, the taxpayer has 30 days to to avoid the Net Adjustment Penalty. The
• tangible property transactions: submit documentation to avoid penalties. Transactional Penalty can be avoided by
comparable uncontrolled price (CUP) demonstrating reasonable cause and
method resale price, cost plus, profit If an adjustment is proposed by the good faith, which can be established
splits (comparable and residual), tax authority, are dispute resolution through a transfer pricing study or in other
comparable profits method (CPM, options available to the taxpayer ways.
equivalent to OECD transactional outside of competent authority?
net margin method), and other Yes, there are several administrative
unspecified methods appeal routes including: regular appeals
currently?
process, fast track appeals, early referral The IRS has designated transfer
• intangible property transactions:
to appeals, Advance Pricing Agreements pricing a key item in its international
CUT, profit splits, CPM, other
(APAs) with a ‘rollback’ to include the tax enforcement/compliance agenda,
unspecified methods, and, in certain
years under audit, and the simultaneous and, accordingly, as noted above, has
circumstances, methods for platform
appeals and competent authority appointed a new Transfer Pricing Director
contribution transactions (PCTs)
process. to coordinate this effort. In the past
under a cost sharing arrangement
several years, also as part of this effort,
(CSA)
If an adjustment is sustained, can the IRS has hired many experienced
• services transactions: services penalties be assessed? If so, what transfer pricing professionals: (i) to serve
cost (safe harbor), comparable rates are applied and under what as a bridge between the IRS National
uncontrolled services price (CUSP), conditions? Office and the field in transfer pricing
gross services margin, cost of There are two types of penalties that audits and (ii) to improve the efficiencies
services plus, profit splits, CPM, and can be assessed as an additional in the APA and competent authority
other unspecified methods 20 percent or 40 percent of the tax processes within APMA. The IRS goal is
underpayment. The Transactional to create an integrated and coordinated
• loans or advances: arm’s length,
Penalty applies at a 20 percent rate transfer pricing practice.
status of the borrower, and method
based on applicable federal rate (safe where the misstated transfer price for The role of the transfer pricing specialists
harbor) any property or service is 200 percent who work with the field agents will involve
or more, or 50 percent or less, of the helping to develop cases for audit. These
• cost sharing transactions (balancing correct price. The Transactional Penalty
payments): reasonably anticipated cases will be selected on the basis of
applies at a 40 percent rate if the several criteria, including size, but also
benefit share misstated transfer price is 400 percent whether the case is part of a pattern,
• PCTs (cost sharing buy-ins): CUT, or more, or 25 percent or less, of the represents an emerging issue, or is
CUSP, income method, acquisition correct price. The Net Adjustment otherwise strategic for the IRS.
price, market capitalization, residual Penalty applies at a 20 percent rate if
profit split, and other unspecified the total net transfer pricing adjustment On 14 February 2014, the IRS released
methods. for the year is more than USD5 million its long-awaited Transfer Pricing Audit
or 10 percent of gross receipts. The Net Roadmap. The stated purpose of the
Is there a priority among the Adjustment Penalty applies at a Roadmap is to provide the IRS transfer
acceptable methods? 40 percent rate if the adjustment is pricing practitioner with audit techniques
No. more than USD20 million or 20 percent and tools to assist with the planning,
of gross receipts. execution and resolution of transfer
If there is no priority of methods, is pricing examinations.
there a “best method” rule? To what extent are transfer pricing
penalties enforced?
Yes.
The Net Adjustment Penalty is nearly
always enforced unless a valid defense
Special considerations Are management fees deductible? Extensive. There are approximately 60
Yes. income tax treaties that the US currently
Are secret comparables used by tax has in force with other nations.
authorities?
No. withholding? If extensive, is the competent
No.
Is there a preference, or double tax relief?
requirement, by the tax authorities Almost always. The IRS publishes annual
for local comparables in a statistics indicating that, overall, double
benchmarking set? tax relief is almost always provided.
When year-end financial results are not
Yes, although it depends on the tested However, these statistics are not
within an arm’s length range, the US rules
party. published on a country by country basis.
allow taxpayers to make post-year-end
Because the US Securities and adjustments – to be reported on Schedule
Exchange Commission has detailed M of a timely filed original tax return --
reporting requirements for public to bring the taxpayer within the arm’s
length range. Such adjustments may For a US-initiated adjustment, a written
corporations that are used by providers
have US customs reporting implications. request for competent authority
to create company databases and by
Additionally, there are rules prescribed assistance may be submitted as soon as
practitioners to prepare transfer pricing
(Revenue Procedure 99-32) for moving is practical after the proposed adjustment
reports, the IRS would expect US (and
the cash accounts consistent with the is communicated to the taxpayer in
sometimes Canadian) comparables
post year-end adjustment. writing (generally, when the IRS Notice
to be used to benchmark a US tested
of Proposed Adjustment is issued). For a
party, in the absence of a compelling
Other unique attributes? foreign-initiated adjustment, competent
reason to use a different set. For foreign
The US regulations permit comparison of authority assistance may be requested
tested parties, the IRS historically has
controlled and uncontrolled transactions as soon as the taxpayer believes such
been receptive to using any set (e.g.
based upon results over an appropriate filing is warranted, based on the actions
US comparables, global comparables,
multiple-year period. of the country proposing the adjustment.
regional comparables or specific country
The income tax treaties of the US have
comparables) that can be supported
based upon the specific facts and Other recent varying provisions as to when notice must
be provided of the action giving rise to the
circumstances and the reliability of developments need for competent authority assistance.
available data.
Some of the most significant recent
developments are discussed previously. May a taxpayer go to the competent
Other developments from the last authority before paying tax?
regarding databases for couple of years include the introduction Yes.
comparables? of Schedule UTP to report uncertain
Although there are no requirements to tax positions, effective 15 December Advance pricing
use a specific database, APMA and the 2009; the creation of the new Director agreements
IRS field generally use Standard and of Transfer Pricing Operations position in
Poor’s Compustat database to identify the IRS during 2011; the merger of the What APA options are available, if
comparable companies worldwide. In IRS APA and MAP programs to create any?
some circumstances, particularly involving the new APMA program beginning in Unilateral, bilateral and multilateral.
the competent authority, other databases March 2012; the release of the proposed Both named and anonymous pre-filing
(e.g. Disclosure Mergent, Orbis guidance for competent authority and conferences are also available.
GlobalVantage, Worldscope OneSource, APA matters; and the publication of the
Osirus) may be used, including non-US IRS’ Transfer Pricing Audit Roadmap. Is there a filing fee for APAs?
databases that are used by its income tax Yes. Currently, the filing fee is
treaty partners. Tax treaty/double tax USD50,000 for large taxpayers
(USD35,000 for renewals), and
What level of interaction do tax resolution USD22,500 for smaller taxpayers
authorities have with customs What is the extent of the double tax in certain circumstances (i.e. gross
authorities? treaty network? worldwide income less than USD200
High. million or small transactions not greater
than USD50 million annually and
intangible transactions not greater than
USD10 million).
United States | 293

Yes. Visit the IRS' website for the latest
information: www.irs.gov.

on how successful the APA
program is and whether there are
any known difficulties?
In recent years, the APA program
had developed a sizable backlog
of APAs and the expected time
between receipt of a submission
and the commencement of work by
the APA program was approximately
1 year. The creation of the APMA
program (which increases internal
efficiencies in the processing of
APAs by eliminating the historic
hand-off from APA staff to competent
authority personnel) and hiring of a
significant number of experienced
transfer pricing professionals should
result in substantial decreases in the
amount of time required to begin and
to complete APAs. In 2012, 140 APAs
were executed and in 2013, 145 APAs
were executed, as compared with 42
for the 2011 year. The goal of the APMA
program is to be able to finalize as
many as 150 to 200 APAs a year.
Language
English.
KPMG in the United States
Brian Trauman
Tel: +1 212 954 5871
Email: btrauman@kpmg.com

Uruguay
KPMG observation
After transfer pricing rules were introduced in Uruguay in 2007 in the context of a
global tax reform, and the enactment of other rules during 2009, the tax authorities
have expressed their concerns with respect to transfer pricing issues and hence have
been paying increasing attention to transfer pricing during tax audits. They have also
been working on the implementation of an Advance Pricing Agreement (APA) regime.
Transactions under the scope of transfer pricing regulations include those with
certain low tax jurisdictions listed by the Decree as well as with free trade zones (even
those located in Uruguay). Additionally, the regulations include a specific methodology
to measure the taxable income derived from import or export transactions involving
“commodities”.
No types of transactions have yet been identified as subject to special scrutiny by the
Dirección General Impositiva (DGI). In 2011, transfer pricing audits commenced and special
attention seems to be placed on companies with low margins and transactions structured
through international traders, especially if these transactions involve commodities with
internationally known market prices.
The current tendency is of increased scrutiny being applied in Uruguay on transfer pricing
issues. Within the same context, strong emphasis is being placed on fiscal transparency, in
particular through the exchange of information provisions contained in an increasing network of
international Tax Treaties.
Basic information Resolution establishes 10 percent of Transfer pricing

capital). Furthermore, and beyond the
Tax authority name company capital interest, under the disclosure overview
Dirección General Impositiva (DGI). Local Income Tax Law, there are several Are disclosures related to transfer
other relationships for which transfer pricing required to be prepared or
Citation for transfer pricing rules pricing rules apply, such as functional submitted to the revenue authority
Income Taxes Act Articles 38–46 and or other kinds, whether contractual or on an annual basis (e.g. with the tax
supplementary regulations. otherwise, that influence the decision return)?
power to direct or define the activities Yes. Taxpayers must submit an annual
Effective date of transfer pricing rules of the operations. Also transactions declaration (Transfer Pricing Return) and
1 July 2007. with unrelated companies located in a transfer pricing documentation report
low tax jurisdictions are subject to when any of the following conditions
What is the relationship threshold increased transfer pricing scrutiny. are met:
between parties? What is the statute of limitations • the value of the transactions is
Based on voting power, share on assessment of transfer pricing higher than 50 million unidades
capital and other. The law does not adjustments? indexadas (UI) (approximately 6
discriminate between different Five years from 1 January of the year million US dollars (USD) in the
thresholds; rather they apply equally after the filing date (can be extended to corresponding fiscal period
to all levels of ownership (a DGI 10 years in certain cases, including fraud). • if notified by the DGI.
Uruguay | 295
Although not all taxpayers are required according to the severity of the violation prior to the filing of the corporate income
to file the Transfer Pricing Return and and other circumstances and a fine tax return, which is due 4 months after the
the transfer pricing documentation levied of 5,640 Uruguayan pesos (UYU) fiscal year-end.
report, the ones with no obligation to a maximum of UYU5,640,000
to submit information must prepare (approximately 250.000 US dollars (USD). When a transfer pricing study is
and maintain the documentation prepared, should its content follow
that supports the correct pricing Chapter V of the Organisation
determination.
Transfer pricing study for Economic Co-operation and
overview Development (OECD) Guidelines?
Is preparation of a transfer pricing Yes. Even though Uruguayan regulations
study required – i.e. can the taxpayer do not make direct reference to the
The following information must be be penalized for mere failure to Guidelines, the transfer pricing study to
disclosed: prepare a study? be prepared for local purposes mostly
takes into account the general content of
• business description/overview Yes. As indicated above there is a
Chapter V.
statutory requirement for certain
• functional analysis taxpayers to file a transfer pricing study
• risk analysis and the failure to do so will result in the
application of a penalty.
• description of controlled specific designation in order to
transactions prepare or submit a transfer pricing
study?
• method selection No.
• rejection of alternate methods any, of preparing and maintaining a
transfer pricing study? Transfer pricing methods
• identification of comparables
The benefits of preparing and maintaining
• economic analysis Are transfer pricing methods outlined
a transfer pricing study are:
in Chapter II of the OECD Guidelines
• identification of the foreign • penalty elimination acceptable?
counterparty with whom the
• penalty reduction Yes.
transactions had been conducted.
Determination of the median and the • shifts the burden of proof. Is there a priority among the
interquartile range. Transcription of the acceptable methods?
All taxpayers covered by the transfer
statement of income of the comparable pricing regime, even those that do not No.
companies corresponding to the fiscal have to file transfer pricing studies, must
years necessary for the comparability If there is no priority of methods, is
be able to justify in the course of an
analysis, with an indication of there a “best method” rule?
eventual tax audit, that the transfer prices
the sources of such information. which they apply are in line with applicable Yes.
Description of the corporate activity legal provisions on the subject.
and the characteristics of the business
carried out by the comparable To satisfy the requirement and/or
companies. Rejection matrix with obtain the benefits, are there any penalties
criteria followed to discard companies requirements on when the transfer When the tax authority requests
as comparables. Conclusions obtained, pricing study must be prepared and a taxpayer’s transfer pricing
and the Transfer Pricing Return submitted? documentation, how long does
indicating the different related party
A DGI Resolution establishes that the the taxpayer have to submit its
transactions, the transaction amount,
Transfer Pricing Documentation Study and documentation?
and other general information.
the Transfer Pricing Return – obligatory Responses to tax authority requests are
What are the consequences for certain taxpayers – must be filed in normally expected to be submitted within
of failure to prepare or submit the ninth month following the close of 10 days of the request.
disclosures? the tax year, based on the due-date table
established for each group of taxpayers.
Taxpayers that fail any of the formal
duties established under the transfer However, all taxpayers have to consider
pricing regime provisions is graded the possible transfer pricing adjustment
If an adjustment is proposed by the Special considerations services from abroad are also considered
tax authority, are dispute resolution to be Uruguayan-sourced.
options available to the taxpayer Are secret comparables used by tax
outside of competent authority? authorities? Are year-end transfer pricing
The possibility of using transfer pricing adjustments permitted?
In order to appeal the adjustment
proposed by the tax authorities, the information from one taxpayer in another Yes. It is not explicitly stated in the
taxpayer must first appeal administratively taxpayer’s audit is available for the Tax regulations but under an evaluation of the
against the Tax Office itself and the Office, but it is not clear whether this transfer pricing policy, the taxpayer could
Ministry of Economy. After that stage facility is actually being used. consider an adjustment. However, the
the taxpayer will be able to appeal impact of the adjustment in the financial
Is there a preference, or statements, other taxes, custom issues,
to a specialized court (Tribunal de lo
requirement, by the tax authorities etc should be considered.
Contencioso Administrativo).
If an adjustment is sustained, can benchmarking set? Other unique attributes?
penalties be assessed? If so, what In principle, no, but the regime is recent An additional method included in the
rates are applied and under what in Uruguay and administrative practices Uruguayan Income Tax Law establishes
conditions? may change. that in the case of imports and exports
The transfer pricing tax adjustment is of commodities to related parties and
Do tax authorities have in general, any assets having a known
subject to the general penalties regime
requirements or preferences quotation in transparent markets,
(fines and surcharges/interest). In the
regarding databases for involving an international broker who
case of fraud, the penalties will range
comparables? will not be the effective receiver of the
from one to 15 times the unpaid tax
amount. The statute of limitations period Although the Tax Office uses an goods, the best method for the purpose
is 5 years, which can be extended to 10 international database, as far as we know of determining the export’s and import’s
years in certain cases, including tax fraud. in relation to taxpayers it does not have Uruguayan-sourced income will be the
special requirements or preferences on goods’ quotation in the transparent
To what extent are transfer pricing the subject. market on the date of a registered
penalties enforced? contract or the bill of lading date for
What level of interaction do tax non-registered contracts. This
Although the application of the transfer
authorities have with customs methodology could be left out providing
pricing regime is fairly recent, if irregular
authorities? that the international broker complies
situations are detected, penalties will be
applied. Medium. with certain requirements.
What defences are available with Are management fees deductible?

respect to penalties? Yes. For fees to be considered
Other recent
In principle, documentation. deductible, the Uruguayan entity must developments
show that the management fees were There is a tendency by the DGI towards
What trends are being observed paid in order to obtain, maintain and increasing audit proceedings and the first
currently? preserve profits assessed by Uruguayan APAs have been executed.
The tax authorities have expressed tax. In addition, there should be sufficient
proof that such expenses relate to
their concerns with respect to transfer
the Uruguayan entity’s operations.
pricing issues and hence have been
paying increasing attention to transfer Additionally, the deductible amount will resolution
pricing during tax audits. Since the depend on the percentage of income tax What is the extent of the double tax
2011 audits special attention is being applicable to non-residents in Uruguay treaty network?
placed on companies with low margins and the income tax paid abroad by the
At the moment Uruguay has sixteen
and transactions structured through non-residents.
tax treaties in force, with approximately
international traders, especially if these six additional ones in the process of
transactions involve commodities with approval.
withholding?
internationally known market prices.
Withholding tax applies on payments If extensive, is the competent
The tax authorities have also been to non-residents for Uruguayan-source authority effective in obtaining
working on the implementation of an income. Services provided in Uruguay double tax relief?
APA regime. would be considered Uruguayan-
No experience currently.
sourced. However, the fees and other
remuneration arising from technical
Uruguay | 297

No formal rules have currently been
established.

No formal rules have currently been
established.
Advance pricing
agreements
any?
Regulations allow the Tax Office to
sign APAs with taxpayers, without
distinguishing between unilateral or
bilateral.

No.

No.

difficulties?
The first APAs have been executed and
others are in progress.
Language
Spanish.
KPMG in Uruguay
Alejandro Horjales
Tel: + 598 29024546
Email: ahorjales@kpmg.com

Venezuela
KPMG observation
The Venezuelan Tax Administration has introduced several new procedures and
rules. Specifically, thin capitalization rules now limit the deduction of interest
payments to related parties where the debt/equity ratio is equal to or less than
one-to-one, and new procedures are in force to calculate the interquartile range and
transfer pricing adjustments to be included in the tax return.
Basic information What is the statute of limitations • transaction amount

Tax authority name • country code of the related party
adjustments?
(code indicated in the form)
Servicio Nacional Integrado de The Venezuelan Tax Code establishes a
Administración Aduanera y Tributaria four year statute of limitations. If no tax • name of the related party
(SENIAT). return is filed the statute of limitations • transfer pricing method used
becomes 6 years. The term for lapsing
Citation for transfer pricing rules • gain or losses obtained in the
will be calculated from 1 January of the
Venezuelan Income Tax Law. calendar year following that in which the transaction performed
taxable event occurred. • profit and loss statements segmented
rules by related and non-related parties.
1 January 2000. Transfer pricing What are the consequences
disclosure overview of failure to prepare or submit
What is the relationship threshold disclosures?
for transfer pricing rules to apply Are disclosures related to transfer
pricing required to be prepared or Taxpayers are subject to penalties where
between parties?
submitted to the revenue authority they have failed to prepare the transfer
A related party shall be any company pricing analysis or submit the transfer
participating directly or indirectly in the pricing return. In addition, this situation
return)?
direction, control or capital of another could trigger a tax audit.
company, or when the same companies Yes, an informative transfer pricing return
participate directly or indirectly in the (FORM PT99, discussed below) must be
direction, control or capital of both submitted 6 months after year-end. Transfer pricing study
companies.
What types of transfer pricing overview
The rules apply to the operations information must be disclosed? Is preparation of a transfer pricing
performed through intermediaries that General information to be included in study required – i.e. can the
do not qualify as related persons, residing the transfer pricing return (FORM PT99) taxpayer be penalized for mere
in the Bolivarian Republic of Venezuela, includes: failure to prepare a study?
whereby the latter operates with another Yes. The Venezuelan Tax Law requires
party abroad qualifying as a related party. • transaction definition (code indicated
the preparation of a transfer pricing
in the form)
study for all transactions performed with
• transaction date related parties on an annual basis. In
case of failure, the taxpayer would be
• currency of the transaction
penalized. The penalty applicable would
• exchange rate be approximately 8,500 United States
dollars (USD). Interest and other kinds of
penalties could also apply.
Venezuela | 299
Other than complying with a Transfer pricing audit and Special considerations
penalties Are secret comparables used by tax
any, of preparing and maintaining a When the tax authority requests authorities?
transfer pricing study? a taxpayer’s transfer pricing No.
In addition to penalty protection, documentation, how long does
the taxpayer have to submit its Is there a preference, or
preparing and maintaining a transfer
documentation? requirement, by the tax authorities
pricing study mitigates the risk of a tax
authority audit and unilateral adjustment Normally when the SENIAT requests
benchmarking set?
made by the Tax Administration. transfer pricing documentation,
taxpayers must submit the information No.
To satisfy the requirement and/or requested within three working days.
obtain the benefits, are there any Do tax authorities have
requirements on when the transfer If an adjustment is proposed by the requirements or preferences
pricing study must be prepared and tax authority, are dispute resolution regarding databases for
submitted? options available to the taxpayer comparables?
The Tax Law does not establish a outside of competent authority? The Tax Administration uses a
specific date for the completion of The taxpayer has two options available commercial database for comparables,
the transfer pricing study. However to solve a dispute: a tax administrative although its use is not a requirement.
the requirement in practice is to have appeal (Tax Administration) or tax Taxpayers can use the database of their
the entire documentation prepared litigation appeal (Court). preference.
contemporaneously with the filing of the
If an adjustment is sustained, can What level of interaction do tax
transfer pricing return (6 months after
penalties be assessed? If so, what authorities have with customs
year-end).
rates are applied and under what authorities?
When a transfer pricing study is conditions? High.
prepared, should its content follow If an adjustment is sustained the
Chapter V of the Organisation Are management fees deductible?
taxpayer is subject to fine from 25 to 200
for Economic Co-operation and percent of the unpaid tax plus interest. Yes.
Yes. To what extent are transfer pricing Are management fees subject to
penalties enforced? withholding?
Does the tax authority require an Frequently. Yes.
specific designation in order to What defences are available with Are year-end transfer pricing
prepare or submit a transfer pricing respect to penalties? adjustments permitted?
study? During an audit review there is the Yes. An adjustment should be included
No. possibility to negotiate with the Tax when the transactions performed
Administration. In this situation the between related parties are not arm´s
quality of the documentation and length. The transfer pricing adjustment,
Transfer pricing methods analysis supporting the transactions and if required, must be included as a non-
Are transfer pricing methods comparables rejected is important. deductible item in the income tax return.
outlined in Chapter II of the OECD Likewise, the transfer pricing adjustment
Guidelines acceptable? Another defence is the tax administrative is for tax purposes only, therefore, it is
appeal or tax litigation appeal, where not recorded in the financial statements.
Yes.
other factors would be taken into
Is there a priority among the consideration. Other unique attributes?
acceptable methods? The Tax Law has introduced a thin
The taxpayer must consider the capitalization rule. This rule limits the
currently?
comparable uncontrolled price (CUP) deduction of interest payments to related
The Tax Administration has placed parties. The maximum debt/equity ratio
method as the first option.
special emphasis on transactions will be one-to-one.
If there is no priority of methods, is such as royalties, technical assistance,
there a “best method” rule? management fees and interest rates
applicable to loans.
The Tax Administration shall evaluate
whether the method applied by the
taxpayer is the most appropriate in
accordance with the characteristics and
economic activity of the transaction.
Other recent Does the tax authority publish APA

The Tax Administration issued a decree data in public forums?
introducing procedures to calculate the
No.
interquartile range. It also established
that any transfer pricing adjustment Please provide some information
must be calculated to the median or on how successful the APA program
50th percentile. is and whether there are any known
difficulties?
Tax treaty/double tax The APA program has not been
resolution successful in Venezuela mainly because
the APA option established in the Law
What is the extent of the double tax is a unilateral one and the procedures to
treaty network? access this program are unclear.
Minimal.
If extensive, is the competent Language

authority effective in obtaining In which language or languages can
No experience yet. Spanish. The documentation and
information relating to the calculation of
When may a taxpayer submit an transfer pricing must also be kept by the
adjustment to competent authority? taxpayer during the term established by
No formal rules exist in this area. the Law, duly translated into Spanish.

Advance pricing
agreements
Unilateral.

Yes, however the Tax Law does not
establish a specific amount.
KPMG in Venezuela
Carlos Adrianza
Tel: +582122777959
Email: cadrianza@kpmg.com

Vietnam | 301
Vietnam
KPMG observation
In line with the Action Plan on transfer pricing management for the 2012-2015
period (Action Plan) announced by the Ministry of Finance (MOF) in 2012, transfer
pricing audits have been initiated by provincial tax departments under the General
Department of Taxation (GDT)’s instruction across a number of provinces in late
2013. The audits were carried out in the context of reduced tax revenue collection
due to weaker economic growth. With the introduction of official regulations on
application of Mutual Agreement Procedures (MAP) and Advance Pricing Agreements
(APAs) in late 2013, the Vietnamese transfer pricing regime has now become
comprehensive.
Vietnamese tax authorities have taken several serious steps to build capacity (with
support from the Organisation for Economic Co-operation and Development (OECD)
experts) and conducted the first real transfer pricing audits. Still, some important initiatives
are needed towards a mature system of transfer pricing management. Given the OECD
discussion draft on transfer pricing and country-by-country reporting and a number of actions
to counter base erosion and profit shifting (BEPS), it is likely that the Vietnamese policy
makers will watch out for international developments before amending the local regulations.
Basic information • Circular 205/2013/TT-BTC dated Transfer pricing

24 December 2013 of the MOF
Tax authority name providing guidance on application of disclosure overview
Ministry of Finance (MOF), General double tax treaties, effective from 6 Are disclosures related to transfer
Department of Taxation (GDT). February 2014. pricing required to be prepared or
Citation for transfer pricing rules Effective date of transfer pricing on an annual basis (e.g. with the tax
• Tax Administration Law No 78/2006/ rules return)?
QH11. 27 January 2006 (Circular 117). Yes, Form GCN-01/QLT (applicable from
• Amended Tax Administration Law No 2010 to 2013) and Form 03-7/TNDN
21/ 2012/QH13 (effective from 1 July (applicable from tax year commencing
2013). 1 January 2014 onwards) is to be
between parties?
completed and filed with the annual
• Decree 83/2013/NĐ-CP dated 22 July Ownership of 20 percent or more: control corporate income tax return.
2013 of the Government (effective 15 and management, family relationship,
September 2013). and others. What types of transfer pricing
• Circular 66/2010/TT-BTC dated 22
April 2010 (which replaces Circular Under Form GCN-01/QLT, related party
117/2005/TT-BTC dated 19 December transactions (detailed by transacting
adjustments?
2005). related parties), value of related party
Ten years. However, the tax recovery can transactions, transfer pricing method
• Circular 201/2013/TT-BTC dated be indefinite if the entity failed to register for each of the categories of related
20 December 2013 of the MOF itself as a taxpayer. party transactions disclosed, transacting
providing detailed guidance on APA related parties, and criterion defining the
(effective 5 February 2014). related party relationship.
Under Form 03-7/TNDN, in addition to When a transfer pricing study is If an adjustment is sustained, can
the above, transfer pricing adjustments prepared, should its content follow penalties be assessed? If so, what
as self-assessed by taxpayers are Chapter V of the OECD Guidelines? rates are applied and under what
also required. Yes, technically required for all conditions?
transactions. Underpayment penalties being 20 percent
of the shortfall amount, associated
of failure to prepare or submit Does the tax authority require an with late payment interest charges of
disclosures? advisor/tax practitioner to have 0.05 percent per day on overdue tax of
Failure to disclose in Form GCN-01/QLT specific designation in order to up to 90 days and 0.07 percent per day
or Form 03-7/TNDN implies an exposure prepare or submit a transfer pricing on overdue tax of over 90 days or evasion
to the reassessment of transfer prices study? penalties (from one to three times the tax
or profits for tax purposes, which can be No. liability amount) apply, depending on the
accompanied by penalties and interest nature of the offences and circumstances.
charges. Administrative penalties Late payment of tax will be subject to
for failure to submit a tax return may Transfer pricing methods late payment interest charge only, if
also be applied. Are transfer pricing methods voluntarily corrected by the taxpayers prior
outlined in Chapter II of the OECD to the tax audit/ inspection notice by local
Transfer pricing study Guidelines acceptable? tax authorities.
Yes, with comparable profit method
overview (CPM) being used in place of
Is preparation of a transfer pricing transactional net margin method
penalties enforced?
study required – i.e. can the (TNMM). Administrative penalties apply in case of
taxpayer be penalized for mere transfer pricing adjustments.
failure to prepare a study? Is there a priority among the
Yes, for all transactions. acceptable methods? What defences are available with
None. However, the local regulations
Other than complying with a acknowledge the preference of using Documentation.
requirement per the previous internal comparable transactions.
question, describe the benefits, if What trends are being observed
any, of preparing and maintaining a If there is no priority of methods, is currently?
transfer pricing study? there a “best method” rule? Transfer pricing audits will be stepped
Penalty protection, shifting of burden of Yes. up in accordance with the Action Plan.
proof to local tax authority, and mitigation Controversies will be mainly around
of the risk of the tax authority making comparables and use of secret company
adjustments using secret comparables.
Transfer pricing audit and data, and accordingly range of profit
penalties levels, share of profits and tax. MAP
To satisfy the requirement and/or and APAs may be used to resolve
obtain the benefits, are there any such controversies.
submitted?
the taxpayer have to submit its Special considerations
documentation?
Contemporaneous transfer pricing Are secret comparables used by tax
The taxpayer has 30 working days from authorities?
documentation is required. However,
the date of receipt of the tax authority’s
there is no prescribed period when the Yes. Under certain circumstances, the
written request (with a one-time
transfer pricing study must be prepared tax authority is empowered to make a
extension allowed for up to 30 days
but it is advisable to have in place such presumptive assessment of tax based on
where good reasons can be provided).
a study, prior to submitting tax returns its internal data.
which have related party transactions. If an adjustment is proposed by the
Transfer pricing documentation must be tax authority, are dispute resolution
submitted within 30 working days upon options available to the taxpayer
the date of receipt of the tax authority’s outside of competent authority?
Yes, local companies are preferred as
written request. Extension of another In country, appeals to the tax authority
comparables. However, the transfer
30 days will be provided in the event of and the administrative tribunal are
pricing regulations also provide that
good reasons. possible.
information and data extracted from
certified and verifiable sources may
be used.
Vietnam | 303
Do tax authorities have Further, Circular 205/2013/TT-BTC Advance pricing

requirements or preferences effective from 6 February 2014 providing
regarding databases for guidance on application of double tax agreements
comparables? treaties was released by the MOF in What APA options are available, if
No. late 2013. For the first time, Circular any?
205 provides for two (2) separate Unilateral, bilateral or multilateral. During
What level of interaction do tax MAP scenarios for taxpayers being tax APA negotiation process, depending
authorities have with customs residents of the treaty counter party on specific facts and circumstances,
authorities? country, and tax residents of Vietnam taxpayers and tax authority may change a
Low but improving. in the event taxpayers believe that their unilateral APA into bilateral or multilateral,
tax liabilities were not assessed by the or vice versa.
Are management fees deductible? Vietnamese tax authority (with respect
to the former) or foreign tax authority Is there a filing fee for APAs?
Yes.
(with respect to the latter) in accordance No.
Are management fees subject to with the provisions of the relevant double
withholding? tax treaty. Does the tax authority publish APA
Yes. data either in the form of an annual
Tax treaty/double tax report or through the disclosure of
Are year-end transfer pricing data in public forums?
resolution No.
Yes, although not explicitly provided for What is the extent of the double tax
under the current tax and transfer pricing treaty network? Please provide some information
regulations. Due to the lack of guidance, Extensive. on how successful the APA program
year-end adjustments may entail a is and whether there are any known
number of complex tax and customs If extensive, is the competent difficulties?
consequences. authority effective in obtaining No APAs has been concluded yet. APA
double tax relief? regulations (just introduced) are yet to be
Other unique attributes? No experience. tested.
Royalties are subject to specific rules,
besides the transfer pricing rules. When may a taxpayer submit an
Language
Apply for MAP within three years from In which language or languages can
Other recent the date of first notification by the tax documentation be filed?
developments authority in relation to the tax treatment Vietnamese.
The MOF issued Circular 201/2013/TT- which the taxpayers consider not to be in
BTC dated 20 December 2013, effective accordance with a DTA.
from 5 February 2014 providing detailed
guidance on the APA regime, including May a taxpayer go to competent
principles, duration, procedures, rights authority before paying tax?
and obligations of tax authorities and No. To be eligible for applying MAP,
taxpayers and other guidance for taxpayers are required to fulfil all
implementation. A number of pilot obligations which have been stated in an
APAs have been discussed with the official decision on tax collection before
GDT (no formal APA applications have and during the appeal process, except for
been submitted yet) whilst the tax the circumstance where a government
administrators are active in preparing competent authority decides to suspend
resources including capacity building and the implementation of such a decision on
acquisition of databases (including the tax amounts or tax impositions.
possibility of using external databases).
KPMG in Vietnam
Hoang Thuy Duong

Tel: +84 (4) 3946 1600 – ext. 6406
Email: dthoang@kpmg.com.vn

Zambia
KPMG observation
The Zambian transfer pricing provisions are enshrined in the Income Tax Act
(ITA), Chapter 323 of the laws of Zambia. Currently, there are no detailed rules on
transfer pricing in Zambia. However, the ITA has been amended with effect from
1 January 2014, 2014 to allow the Minister of Finance (MOF), by way of a statutory
instrument, to prescribe documentation rules. The documentation rules shall specify
the information and documents required to be kept by a taxpayer and to prescribe the
penalties for non compliance with the regulations. The Minister of Finance has not yet
issued these rules at the time of this publication.
Transfer pricing provisions were introduced into the Act in 1999 in the form of Secs. 97A,
97B, 97C and 97D. These together permit the Commissioner General to compute income
from transactions between associates to reflect arm’s length conditions and to assess the
taxpayer involved to pay tax accordingly.
The transfer pricing rules were tightened in 2001 with the introduction of special provisions
governing the issue of a security by a company to an associated company not belonging to
the same Zambian grouping, where the determination of the arm’s length considerations is to
be made with reference to certain criteria, including:
• The appropriate level or extent of the issuing company’s overall indebtedness.
• Whether the issuing company and a particular person would have become parties to a
transaction involving the issue of the security or the making of a loan, or a loan of a particular
amount, to the associate company.
• The rate of interest and other terms that may apply to such a transaction.
Further amendments have been made and take effect on 1 January 2014 to bring the transfer pricing
legislation in line with international best practice.
Basic information Effective date of transfer pricing out documentation requirements and
rules the definition of control. Specifically,
Tax authority name the MOF may prescribe the direct
The transfer pricing legislation was
The Zambia Revenue Authority (ZRA) initially enacted in 1999 and came into and indirect participation in the
is mandated to enforce the provisions force on 1 April 1999. management, control or capital of a
of the ITA, Value Added Tax Chapter person, and different provision that may
331, Customs and Excise Act Chapter What is the relationship threshold be made in relation to different cases or
322 and the Property Transfer Tax Act for transfer pricing rules to apply different classes of each case.
Chapter 340 of the laws of Zambia. between parties?
Two persons are associated if one of
Citation for transfer pricing rules on assessment of transfer pricing
them participates, directly or indirectly,
There are no detailed rules on transfer adjustments?
in the management, control or capital
pricing. However, the ITA sections 97A, of the other, or if another person The ZRA is not limited by law as to how
97B, 97C and 97D make provisions participates, directly or indirectly, in many revised assessments it can issue.
relating to transfer pricing. the management, control or capital of The only limitation is that the revised
both of them. Further, the MOF may assessments, in non-fraud cases, must
issue a statutory instrument spelling be issued within 6 years after the tax
return due date.
Zambia | 305
Transfer pricing Other than complying with a The reference price is defined as:
disclosure overview question, describe the benefits, if
• The monthly average London Metal
Exchange (LME) cash price.
Are disclosures related to transfer any, of preparing and maintaining a
pricing required to be prepared or transfer pricing study? • The monthly average Metal Bulletin
submitted to the revenue authority The tax authorities increasingly require (MB) cash price to the extent that the
on an annual basis (e.g. with the tax a basis for determining the transfer base metals or precious metal prices
return)? price between related parties and are not quoted on the LME.
Parts five, six and seven of the tax as such, a transfer pricing study is • The monthly average cash price of
return require disclosure to be made strongly recommended to securing any other metal exchange market
of shareholding and shareholder deductibility of expenses. It would also as approved by the Commissioner
emoluments, advances to shareholders avoid protracted disputes with the tax General to the extent that the base
and associated companies, and authorities on the transfer price. metal price or precious metal price is
interests in other businesses. Apart not quoted on the LME or MB.
from the disclosures as per tax return, To satisfy the requirement and/or
there is no additional requirement to obtain the benefits, are there any • The average monthly LME cash
make any transfer pricing disclosures requirements on when the transfer price, average monthly MB cash
together with the tax return except for pricing study must be prepared and price or any other monthly average
what is provided for under International submitted? metal market exchange cash price
Accounting Standards (IAS) and There is no prescribed period when the approved by the Commissioner.
International Financial Reporting transfer pricing study must be prepared General, less any discounts on account
Standards (IFRS). The tax authorities but it is advisable to have in place such of poor or low quality or grade.
require tax returns to be accompanied a study, prior to submitting tax returns
by financial statements. which have related party transactions. Is there a priority among the
Please note that with effect from
acceptable methods?
1 January 2014, the MOF is now Not applicable.
empowered to specify, by way of Chapter V of the Organisation
statutory instrument, information and If there is no priority of methods, is
for Economic Co-operation and there a “best method” rule?
documents to be kept by a taxpayer. Development (OECD) Guidelines?
Not applicable.
What types of transfer pricing There are no requirements for a
information must be disclosed? transfer pricing study under the current
ITA legislation. However, the MOF Transfer pricing audit and
Except for what is provided under the
IAS and IFRS, there is no requirement to
may prescribe the information and penalties
documents to be kept by persons.
disclose any transfer pricing information. When the tax authority requests
Does the tax authority require an a taxpayer’s transfer pricing
advisor/tax practitioner to have documentation, how long does
specific designation in order to the taxpayer have to submit its
disclosures?
prepare or submit a transfer pricing documentation?
ZRA officials periodically carry out study? The normal period for the Commissioner
audits and review whether transactions No. General to require a company to submit
between related parties are at arm’s information is 30 days, and this can
length. If transactions are not at arm’s be extended at the Commissioner
length, adjustments are made and Transfer pricing methods General’s discretion. We anticipate new
penalties and interest levied accordingly. Are transfer pricing methods information and documents requirement
Further, the MOF may prescribe outlined in Chapter II of the OECD when the MOF prescribes additional
penalties for non compliance, by Guidelines acceptable? guidelines.
statutory instrument.
Generally, OECD Guidelines methods
are applied on all transfer pricing
Transfer pricing study transactions, except those related to
overview minerals which have specific provisions
under the Act. The arms length price
Is preparation of a transfer pricing for minerals is determined using the The taxpayer can appeal to the
study required – i.e. can the reference price as described below. Commissioner General and if still
taxpayer be penalized for mere dissatisfied, appeal to the Revenue
failure to prepare a study? The sale price (i.e. arm’s length price) Appeal Tribunal. Further recourse can be
No. There is no requirement to in any transaction involving the sale of sought at the High Court of Zambia and
undertake a transfer pricing study, but minerals by a company carrying out finally, the Supreme Court of Zambia, in
the tax authorities would place reliance mining operations, directly or indirectly, that order.
on such a study where it is available. to related or associated parties is the
reference price.
If an adjustment is sustained, can Special considerations Other unique attributes?

penalties be assessed? If so, what Thin capitalization is dealt with under
rates are applied and under what Are secret comparables used by tax
general transfer pricing rules.
conditions? authorities?
None. For mining companies, the maximum
The penalties prescribed under the
accepted debt-to-equity ratio is 3:1.
ITA depend on whether the omission
Is there a preference, or Interest outside the thin capitalisation
is negligent, wilful, or as a result of a
requirement, by the tax authorities ratio is not allowed as a deduction.
fraud. The penalties are determined as
follows: Prior to 2013, mining companies’ thin
benchmarking set?
capitalization was dealt with outside the
• In case of negligence, 17.5 percent of No.
transfer pricing rules. With effect from
the amount.
Do tax authorities have 1 January 2013, interest payments on
• In the case of wilful default, 35 debt made by mining companies shall be
percent of the amount. subjected to transfer pricing rules too.
• In the case of fraud, 52.5 percent of comparables?
the amount of any income omitted There are no such requirements. Other recent
or understated, or any expenses
overstated, in consequence of such What level of interaction do tax
developments
failure, incorrect return, information authorities have with customs The ZRA has created a Transfer Pricing
or submission. authorities? Practice, and they cooperate with
other tax jurisdictions. Recently,
The Zambian tax authorities have an the ZRA signed a Memorandum of
integrated tax administration system Understanding with the Norwegian Tax
penalties enforced?
which captures information from the Administration aimed at strengthening
Penalties are enforced in full by the customs system called Asycuda++ and
Commissioner General and where a the specialized large taxpayer revenue
uses this information as intelligence administration.
court process is preferred; the sanctions data in income tax and VAT audits.
imposed by the court would subsist.
Are management fees deductible? Tax treaty/double tax
Yes. resolution
The Commissioner General has the Are management fees subject to What is the extent of the double tax
discretion to waive the penalties withholding? treaty network?
or partially reduce the penalties Management and consultancy fees paid Minimal. A number of tax treaties
depending on the mitigating to non-resident companies are subject are being renegotiated among them
circumstances. Where documentation to final withholding tax at 20 percent. Ireland, United Kingdom, India and the
is supplied to the satisfaction of the Only interest and dividends are subject Netherlands.
Commissioner General, the penalties to 15 percent withholding tax. All other
can be waived in full. If extensive, is the competent
payments to non resident companies
(royalties, non resident contractors etc)
What trends are being observed double tax relief?
attract 20 percent withholding tax.
currently? No experience.
There has been an increased desire Are year-end transfer pricing
by the tax authorities to clamp down adjustments permitted? When may a taxpayer submit an
on transfer pricing. Experts from adjustment to competent authority?
Yes. Generally, year-end adjustments
Norway have been assisting the tax are permitted. For transfer pricing, Not applicable.
authorities on audits of mining entities. too, adjustments can be made in
Furthermore, in recent years, the order to make the results clear or fairly May a taxpayer go to competent
Government has a strong drive on presented. Such adjustments may authority before paying tax?
getting more taxes from corporate give rise to VAT and withholding tax Where a client requires double taxation
institutions and less from employed depending on whether they relate to relief, the same can be obtained from
individuals. services or not. the tax authorities prior to paying
the tax.
Zambia | 307
Advance pricing
agreements
No APAs or advance ruling system.
However, a company may consult the
tax authority on the interpretation or
practical application of any provision
of the Act. It is also good practice to
inform the tax authorities of signed
management agreements stipulating
the basis on which costs will be charged
between related parties.

Not applicable.

No.

difficulties?
Not applicable.
Language
English.
KPMG in Zambia
Michael Phiri
Tel: +260211372900
Email: mphiri@kpmg.com

Glossary
of Terms
Glossary of Terms | 309
APA – Advance Pricing Arrangement IFRS – International Financial Reporting Standards
APMA – Advance Pricing and Mutual Agreement IP – Intellectual property
ATR – Advance Tax Ruling IRC – Internal Revenue Code
BvD – Bureau van Dijk IRS – Internal Revenue Service
CFCs – Controlled foreign companies MAP – Mutual Agreement Procedure
CPM – Comparable Profits Method MB – Metal Bulletin
CSA – Cost Sharing Arrangement OECD – Organization for Economic

Co-operation and Development
CUP – Comparable Uncontrolled Price
ECD
CUSP – Comparable Uncontrolled Services Price Guidelines – OECD Transfer Pricing Guidelines
for Multinational Enterprises and
CUT – Comparable Uncontrolled Transaction
TaxAdministrations (22 July 2010)
DTA – Double tax agreement
PCT – Platform Contribution Transactions
EEA – European Economic Area
SEC – Securities and Exchange Commission
EU – European Union
SME – Small and Medium Enterprises
EU JTPF – EU Joint Transfer Pricing Forum
TNMM – Transactional net margin method
EUR – Euro
UK – United Kingdom
GBP – Great Britain Pound
US – United States
HMRC – Her Majesty’s Revenue and Customs
USD – US dollars
IAS – International Accounting Standards
VAT – Value Added Tax
Find out more

For more information on KPMG’s Global Transfer
Pricing Services (GTPS) practice and access to thought
leadership, please visit: www.kpmg.com/gtps
For a listing of KPMG GTPS contacts from around the
world, please visit: www.kpmg.com/gtpscontacts
For the latest transfer pricing news from KPMG member
firms around the world, please visit:
www.kpmg.com/taxnewsflash
kpmg.com/socialmedia kpmg.com/app
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although
we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that
it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination
of the particular situation.
© 2014 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated
with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any
other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Designed by Evalueserve.
Publication name: Global Transfer Pricing Review
Publication number: 131196
Publication date: November 2014

Tax Review

Uploaded by

Copyright:

Available Formats

You might also like

Tax Review

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Tax Review

Uploaded by

Copyright:

Available Formats

GLOBAL TRANSFER PRICING SERVICES

Glossary of Terms 308

Find out more 310

Material imported from Maximum cost to be allowed as a Percentage of related revenue

Engineering costs from Maximum design cost to be Maximum consultancy cost to

Provision of information to the Commissioner General

• the sale or purchase of goods

Taxpayer may choose among the following:

• the CUP method

To satisfy the requirement and/or If an adjustment is sustained, can Is there a preference, or

Tax treaty/double tax Please provide some information

May a taxpayer go to competent

Is there a filing fee for APAs?

Does the tax authority publish APA

As email addresses and phone numbers change

• company description • efficient tool in order to document If there is no priority of methods, is

Susana Miguel Pinto

As email addresses and phone numbers

If there is no priority of methods, is Special considerations considered to be of Argentine origin.

the position taken by the taxpayer in May a taxpayer go to competent

As email addresses and phone numbers change

Tax treaty/double tax products and the ATO’s policies

The ATO has recently undertaken some

Does the tax authority publish APA

Please provide some information

As email addresses and phone numbers

Basic information What is the statute of limitations Transfer pricing study

Please provide some information

As email addresses and phone numbers

Is there a filing fee for APAs?

Does the tax authority publish APA

Please provide some information

Dirk Van Stappen

As email addresses and phone numbers change

Bosnia and Herzegovina

Other recent Advance pricing

KPMG in Bosnia and Herzegovina

As email addresses and phone numbers change

Basic information Transfer pricing pricing information within the tax

If there is no priority of methods, is Special considerations Other recent

based on price quotation as Tax treaty/double tax

As email addresses and phone numbers

As email addresses and phone numbers

May a taxpayer go to competent Please provide some information

As email addresses and phone numbers change

Other unique attributes? Tax treaty/double tax

Does the tax authority publish APA

Please provide some information

Juan Pablo Guerrero

As email addresses and phone numbers change

Basic information No. 2, Implementation Measures of What is the relationship threshold

Another continuing development Is there a filing fee for APAs?

May a taxpayer go to competent

As email addresses and phone numbers change

When may a taxpayer submit an

Vicente Javier Torres

As email addresses and phone numbers change

Basic information terms ‘traditional transactional What types of transfer pricing