The idea of the master file comes from the understanding that multinational taxpayers in the EU needed harmonisation of the documentation requirements, otherwise they would have to comply with a burden of different, and possibly even conflicting rules throughout the member states. The EU Council of Ministers approved the code of conduct on documentation in June 2006.
Member states have demonstrated considerable political dedication to the notion, as a serious attempt to level the playing field across the region.
Reforms to the Slovakian Income Tax Act mean taxpayers have to follow the master file approach in preparing and keeping transfer pricing documentation supporting the method used in transactions with related parties.
The taxpayer will need to provide global information with regard to the whole group of related parties, while local documentation will provide information regarding the taxpayer.
“Although many taxpayers will no doubt view the documentation requirements as a burden, a standardised format of information should provide comfort that all important aspects of intra-group pricing have been dealt with,” said Gunter Oszwald, executive director, tax, at Ernst & Young in Slovakia.
“Another positive aspect is that the standard documentation requirements should keep the tax authorities’ enquiries at a reasonable level of detail and facilitate communication between the tax authorities and taxpayers.”
Spain too
In Spain the new rules also follow the EU documentation format, which is seen as positive.
“The fact that the Spanish requirements are presented as being inspired from the works of the EU joint transfer pricing forum on documentation is a signal that the works of the forum are regarded with great interest and seriousness by tax administrations,” said Arnaud Le Boulanger, of CMS Bureau Francis Lefebvre.
Taxpayers will need to beware of a complicated penalty system in the new Spanish rules.
“The penalty regime included in the Spanish rules, may be fairly complex to analyse, even in light of the final Real Decreto approved on October 31 2008 and now published, that provides additional guidance on the application of the Spanish regulations,” warns Le Boulanger.
For some taxpayers, the preparation of the transfer pricing documentation will be an opportunity to review their existing transfer pricing policies and make corrections if necessary.
The new transfer pricing documentation rules will also strengthen taxpayers’ positions and reduce uncertainty when transfer pricing practices are reviewed by the tax authorities.
Increased audits possible
Oszwald explained how the likelihood that a Slovakian company with significant related-party transactions gets a transfer pricing audit has increased following the reform.
“The authorities have been historically relatively inactive in this area, with only a few complex audits performed. But they have recently intensified their activities in this area and are focussing heavily on auditing companies that form part of a multinational group,” Oszwald added.
The new rules in Slovakia will come into effect from January 1 2009 while in Spain the effective date is February 18 2009.
No go in France
Other countries have put a halt to bringing in similar changes. France was due to approve similar new rules by the end of 2008 but this has now been delayed. There is speculation among senior tax professionals that this is because of the downturn in the world economy and the recognition of the increased burden this would place on French companies.
The rules are still in draft form and it is expected that a revised version will be circulated to the business community for further comments early in 2009. It is too early to confirm what implementation date this future revised version of the draft would provide, but a one year delay to a 2010 start seems probable.