Marc Levey, chairman of the global transfer pricing steering committee at Baker & McKenzie in the US, moderated a panel that discussed how tax authorities from different jurisdictions approach the audit process.

“In India, there are mandatory transfer pricing audits. The authorities are very aggressive,” said Mukesh Butani, a partner at BMR Advisors - Taxand in India.

“The time limit for completing audits has been increased from 36 months to 45 months and 25% of audits end in an upward adjustment,” he added.

The Canadian Revenue Agency (CRA) has allocated significant funds to deal with audits. There has also been a substantial training program at the CRA to improve auditors’ skills.

“The degree of experience varies greatly throughout different parts of the country,” said Dale Hill, a partner at Gowlings - Taxand in Canada.

“About 80% of transfer pricing adjustments in Canada are with the US and in excess of 80% are initiated by the Canadian auditors,” he added.

In Canada there is a mandatory request for contemporaneous documentation at the start of the audit.

“Requirement letters are brought up very early in the process to resolve audits quickly. The initial stages of audits are the most important in deciding the objective,” said Hill.

In Japan, the number of assessments has been increasing year on year.

“Due to the economic crisis, the interest has shifted to Asian countries, and transactions between Japan and Hong Kong have been specifically targeted,” said Ken Okawara, the head of transfer pricing and economic analysis at Baker & McKenzie in Japan.

The Japanese tax authorities’ use of secret comparables which are unknown to the public is unpopular and they have been limiting their use.

There are two types of audits in Italy, one is conducted by the tax police and the other conducted by the tax administration.

“The tax police are very strict and seize documents,” said Carmine Rotondaro, the worldwide tax, insurance and real estate director for Gucci group in Italy.

“It is nothing to do with the profile of the taxpayer which audit you get, it depends on the activity in the region. The tax administration have exactly the same powers as the tax police but are much more civilised.” he added.

There are no formal document requirements in place in Italy and no clear guidelines for profit methods. The use of databases is not widespread so companies must show the tax authorities how comparables were selected.

In the US, taxpayers can opt for a fast track audit although they are not granted access to the appeals process if they choose this route.

In Germany, there are confusing documentation requirements for audits.

“There is a high level of uncertainty regarding documentation. For instance what level and scope of documentation is required and what is the minimum level of documentation to prevent penalties,” said Stephan Schnorberger, a partner at Baker & McKenzie in Germany.

“There are lots of unrealistic expectations as auditors believe they can demand everything and the auditors are starting to play transfer pricing as a big money game,” he added.

In France, the number of transfer pricing audits has also increased.

“Tax audits are becoming more time consuming as the tax authorities are asking for more details which can really be a nightmare,” said Cyrille Doro, a senior tax director at LVMH.