Managing Tax Disputes Summit: Mismatches in global TP audits laid bare

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Managing Tax Disputes Summit: Mismatches in global TP audits laid bare

Taxdisputes_panel.jpg
L to R: Derya Bresser; Carolina del Campo; Brad Rolph

Speakers at ITR’s Managing Tax Disputes Summit said taxpayers can still face lengthy TP audits, despite strong documentation preparation

Taxpayers may have strong transfer pricing documentation in place but authorities’ aggressiveness could still lead to lengthy audits, according to experts at ITR’s Managing Tax Disputes Forum yesterday, September 27, in Amsterdam.

In Spain, for example, taxpayers can expect a TP audit to last for 27 months on average.

“It’s common, especially in TP, that they [tax authorities] open for three years and close for adjustment,” explained Carolina del Campo, partner in TP and tax governance at law firm Cuatrecasas based in Madrid, during the panel.

“If you don’t do it, they would normally open a new tax audit,” she added.

Spanish law demands taxpayers to prepare TP documentation including the master and local file, while larger groups must also follow country-by-country reporting requirements.

TP adjustments arising from audits are common, meaning preparing ahead of that adjustment before tax authorities make any investigation is even more crucial.

Most importantly, TP audits in Spain are not only targeted at multinationals but also at smaller firms with domestic transactions.

“They [tax authorities] are making an exchange of information for TP matters, such as asking about the TP policy and are incorporating that information in the audit,” said del Campo.

“From the beginning, you need to find a strategy. Try to look at tools available,” she added.

Going after ‘everyone’

Brad Rolph, partner and national leader of TP at consulting firm Grant Thornton in Canada, stressed the Canada Revenue Agency’s (CRA) aggressiveness towards corporations’ TP documentation.

“Canada goes after everyone,” said Rolph.

The CRA’s request for TP adjustments depends on each particular case and individual transaction, according to Rolph.

TP audits in Canada will most likely require a company’s TP documentation based on a query sheet.

“They have a standard form and would ask you a standard form of question. Some auditors like to find the information required – they will try to do a field audit as much as they possibly can,” explained Rolph.

However, the Canadian TP laws also lack specific regulations, according to Rolph. While the CRA recognises OECD guidelines, the laws do not incorporate the guidance itself.

Since OECD reports are not formally recognised by the Canadian courts, corporations are solely required to keep all records of non-arm’s-length transactions.

“It’s the law that matters and not the OECD guidelines,” said Rolph.

But tax authorities’ level of aggressiveness also depends on their resources, according to Rolph.

As opposed to the CRA, the Internal Revenue Service lacks resources to go after smaller firms when it comes to TP audits, meaning companies within this scope are less likely to be targeted by the US tax authority.

The US has strong TP laws in place, requiring taxpayers to maintain a range of information known as the principal and background documents. This can include anything from a description of the company’s organisational structure to an explanation of comparables used.

ITR’s Global Transfer Pricing Forum Europe is also taking place in Amsterdam, on September 28 and 29, and we will be bringing you more coverage from that event.

more across site & bottom lb ros

More from across our site

ITR’s most interesting stories of the year covered ‘landmark’ legal battles, pillar two, AI’s relationship with transfer pricing and more
Chinwe Odimba-Chapman was announced as Michael Bates’ successor; in other news, a report has found a high level of BEPS compliance among OECD jurisdictions
The tool, which will automatically compute amount B returns, requires “only minimal data inputs”, according to the OECD
The rules are intended to implement the substance of an earlier OECD report in its entirety
While new technology won’t replace the human touch, it could help relieve companies’ staffing issues, EY’s David Helmer and Daren Campbell tell ITR
The firm said the financial growth came from increased demand for its AI services and global tax reform advice
Chrystia Freeland had also been the figurehead of Canada’s controversial digital services tax adoption, which stoked economic tensions with the US
Panama has no official position on pillar two so far and a move to implement in Costa Rica will face rejection, experts tell ITR
The KPMG partner tells ITR about Sri Lanka’s complex and evolving tax landscape, setting legal precedents through client work, and his vision for the future of tax
Overall turnover at the firm also reached a record £8 billion; in other news, Ashurst and Dentons announced senior tax partner hires
Gift this article