Page 11 - Quarterly Q1-Q2 2018

WAYS TO MITIGATE EXPOSURE TO TRANSFER PRICING DISPUTES
When planning intra-group arrangements, analyse the transfer pricing risk areas and pay attention to transfer pricing aspects of any changes in the operations;
Make sure that the intra-group agreements and other documentation will be in line with the actual behavior and conduct of the parties;
Prepare transfer pricing documentation and/or “defense file” diligently, particularly when covering changes in business model, intra-group restructurings, or any other major changes in the group’s operations;
Consider the need for advance tax rulings or discussions with the tax authorities in one or several jurisdictions;
In a tax audit, make sure that the answers to tax auditors’ questions are detailed enough, consistent, and that potential misunderstandings of facts are corrected early on; and
Anticipate potential claims to be made by the tax auditors and consider providing counter-arguments and additional explanation of the facts early in the process.
When Facing Litigation the Taxpayer Needs to Prepare for a Complex and Lengthy Process
Litigation phase in a transfer pricing dispute is often complex and the processes tend to last for several years. There are often several areas subject to dispute; understanding of the facts, legal basis for the transfer pricing adjustment, pricing and valuation, and often also tax procedural questions. The challenge is to present the multidimensional case, usually following extensive correspondence with the Tax Administration in the tax audit, in an understandable way to the Board of Adjustment and the courts. In many of the major transfer pricing disputes the case has ultimately been decided fully or partly in favor of the taxpayer in
the appeal process. Prudent planning and good argumentation are essential to overturn the Tax Administration’s position.
In transfer pricing cases there is also possibility to refer the case to a Mutual Agreement Procedure between the countries involved. This can take place instead of or after the domestic appeal process. In the Mutual Agreement Procedure the authorities from both countries negotiate how the double taxation can be eliminated. The process is most effective between EU Member States whereas
with other countries there is no guarantee that the authorities reach a conclusion at all.
Kai Holkeri
Partner, Head of Tax & Structuring
Ritva Aalto
Senior Attorney
TAGS
Transfer pricing
Tax audit Disputes Arm’s length principle Re-characterisation Transactions