Panellists were: Eamonn O'Dea, Ireland; Troels Kjolby Nielsen, Denmark; Maite Gabet, France; Jasper Arendse, Netherlands; and Carolina Del Campo, Spain. Philippe Lion of Baker & McKenzie Belgium acted as moderator and the panel also included Raul Salas, from the firm's Madrid office.
Questions from delegates were submitted to the panel, which focused on exploring documentation rules, APA programmes, joint audits, settlement versus litigation and alternative dispute resolution on a country-by-country basis, assessing similarities and differences and sharing positive experiences.
Del Campo kicked off the session by taking the audience through the Spanish documentation rules. She said that, as of 2007, the burden of proof lies with the taxpayer. Before 2007, taxpayers were not obliged to prove the arm's length. She also went through the exemptions, explaining that operations between entities of the same tax group and operations between joint ventures are not required to submit documentation. Finally, she noted that the issue of penalties is now being reviewed by the Supreme Court.
In France, documentation is only required at the start of a tax audit and the penalty for non-compliance with this is a 5% transfer pricing adjustment.
“Our penalty regime is not very scary compared to the Spanish one,” said Gabet. “We have quite an open regime for penalties.”
The Irish Finance Act 2010 provided updated transfer pricing regulations for the country. There is no requirement to file documentation but there is a requirement that documentation is available to the Revenue on request.
“This is generally at the start of a tax audit, and the penalty for failing to produce records is €4,000 ($5,400),” said O'Dea. “The guidance cites EU transfer pricing documentation and Chapter 5 of the OECD transfer pricing guidelines.”
Denmark has had transfer pricing rules in place since 1998 and those rules were tightened in 2006, which has led to some improvement, but not enough, according to Nielsen.
“The quality of documentation is now better, but it is still not good enough,” said Nielsen.
The documentation must be contemporaneous but only needs submitting at audit or on request. The burden of proof lies in principle with the tax authorities, but can be shifted to the taxpayer.
The Netherlands also has no specific penalties, but the burden of proof lies with the taxpayer and documentation must be presented at the start of the auditing process.
Salas then interjected to comment on the definition of the term related-party being clouded and too far-reaching. He said there was a desperate need for a common definition of what constitutes a related-party.
Comparables
Lion then moved things on to a discussion of comparables, and asked whether regional comparables are acceptable. There was agreement that local comparables are always preferred, when available. Nielsen and Arendse said that their jurisdictions accept pan-European comparables.
During the Ireland-focus part of the session, O'Dea explained that the Finance Act 2010 was aimed at codification and clarification of existing provisions.
“The provisions apply to domestic, as well as cross-border transactions,” said O'Dea. “We have quite significant investment in other jurisdictions, for instance Irish companies investing in the US employ 80,000 there.”
APAs
Arendse said the Netherlands concludes unilateral, bilateral and multilateral advance pricing agreements (APAs)
“In the Netherlands companies can obtain a unilateral, a bilateral or a multilateral APA,” he said. “Prefiling meetings are used to look at the feasibility of an APA. In a case-management-plan the steps to conclude an APA are registered.”
Arendse added that the expected duration for process completion is a few years for complex cases and a few months for more simple matters, whereas according to Gabet the average completion time for France is 12 to 13 months, with an average of 25 agreements signed each year.
She also emphasised the fact that the French APA programme is free, as well as highlighting the distinct management of APAs and audits.
“We strictly separate the APA programme and tax audits,” said Gabet.
Gabet went on to reference the Airbus multilateral APA – the first and only APA that France has entered into involving four countries. The Airbus APA was signed by France, Germany, Spain and the UK.
Spain modified its APA programme in 2007 to make it more flexible, and Del Campo said the Spanish preference is to use bilateral agreements, because unilateral APAs do not safeguard against the risk of double taxation.
“Bilateral is the only way to ensure you avoid double taxation,” said Del Campo. “Bilateral is much better than unilateral.”
Ireland, too, favours bilateral APAs and has been using them for the last 10 years. It has not concluded any unilateral agreements. O'Dea said the average completion time in Ireland is two years and that this is rising due to the increasing number of requests being submitted.
Joint and simultaneous audits
The panel distinguished between the concept of a joint tax audit and a simultaneous tax audit.
A joint audit enables that, rather than separate, independent examinations in several different countries, a business is audited by one single audit team with tax officials from two or more countries. Whereas a simultaneous tax audit is when two or more tax authorities examine simultaneously, each in their own territory, the situation of a taxpayer in which they have a common or related interest, with a view to exchanging information they obtain.
The respondents all acknowledged that experience of joint audits is limited at present and the process is still in its infancy.
“Irish experience is confined to indirect tax simultaneous audits so far,” said O’Dea.
“We don’t have much experience with joint audits, but we are interested in joint audits with neighbour countries to prevent time-consuming mutual agreement procedures,” said Arendse.
The usefulness of simultaneous investigation was noted by the French representative.
“Simultaneous audits are a good tool for cooperation in the fight against tax evasion,” said Gabet, adding that “France has a large experience in multilateral simultaneous tax examinations in the European area.”
Gabet also said that joint audits provide an opportunity to open EU experience to other countries, though Del Campo said that further work could be done in both of these areas at EU level, adding that Spain has no experience of joint auditing, but that experiences in simultaneous audits – which are becoming more common – are going well.
Nielsen said Denmark has “quite some experience from Nordic simultaneous audits,” and added that these processes work well for single issue audits and are efficient ways of ensuring the same information is available to all tax authorities.
Settlement versus litigation
The norm in France for resolution of transfer pricing disputes is that they are solved via use of the mutual agreement procedure (MAP), with the advantage here being that payment is postponed until the closing of the MAP. Due to a 2010 review aimed at stopping aggressive tax planning schemes, payment is not postponed if the adjustment is related to transactions with a company benefitting from a privileged tax regime.
MAP is the preferred resolution channel in Spain and Denmark, too. In Spain, cases do end up at court but MAP is now preferred, while in Denmark typical procedure is that the case is taken to the Landsskatteret national tax tribunal and MAP simultaneously, with the tribunal placed on hold until the MAP result is known.
If a Danish case is resolved in the courts then the taxpayer’s identity is made public, whereas a solution made in the tribunal would allow the taxpayer to remain anonymous.
