In jurisdictions where the burden of proof is on the taxpayer, tax administrations are generally not at liberty to raise assessments against taxpayers which are not soundly based in law. A tax administration in an OECD member country that applies the arm’s length principle, for example, could not raise an assessment based on a taxable income calculated as a fixed percentage of turnover and simply ignore the arm’s length principle. In the context of litigation in countries where the burden of proof is on the taxpayer, the burden of proof is often seen as a shifting burden. Where the taxpayer presents to a court a reasonable argument and evidence to suggest that its transfer pricing was arm’s length, the burden of proof may legally or de facto shift to the tax administration to counter the taxpayer’s position and to present argument and evidence as to why the taxpayer’s transfer pricing was not arm’s length and why the assessment is correct. On the other hand, where a taxpayer makes little effort to show that its transfer pricing was arm’s length, the burden imposed on the taxpayer would not be satisfied where a tax administration raised an assessment which was soundly based in law.
TPG2017 Chapter IV paragraph 4.13
Category: B. Transfer pricing compliance practices, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter IV: Administrative Dispute Resolution | Tag: Burden of proof (Onus), Shifting burden of proof
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- TPG2022 Chapter IV paragraph 4.14When transfer pricing issues are present, the divergent rules on burden of proof among OECD member countries will present serious problems if the strict legal rights implied by those rules are used as a guide for appropriate behaviour. For example, consider the case...
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- EU: Public Country-by-Country Reporting?Proposal directive of public country-by-country reporting in the EU Ministers held an exchange of views (public session) on how to take the proposed directive forward. Tax transparency is a fundamental principle in any democratic society. It enables policy makers to take informed decisions...
- September 2017: Handbook on Effective Tax Risk Assessment using CbC ReportsThe Handbook on Effective Tax Risk Assessment explores how information contained in CbC reports can be used for risk assessment and which types of tax risk indicators that may be identified using the information contained in CbC Reports. In chapter 4 some of...
Related Case Law
- Italy vs INTERVET PRODUCTIONS SRL, January 2021, Corte di Cassazione, Case No 22539/2021Intervet Productions SRL, a company resident in Italy, manufactures veterinary medicines and supplements. The Italian tax authorities issued a notice of assessment, relating to the 2004 tax year. In that notice, the tax authorities ascertained the inconsistency of the transfer prices concerning the...
- Czech Republic vs. Českolipská, a. s. January 2011, Supreme Administrative Court 7 Afs 74-2010-81A lessor rented real estate for a low price to related parties. The tax authorities claimed that the price was too low and required additional income to be taxed with the lessor. The lessor explained that the low rental fees were due to...
- France vs. LAINIERE DE PICARDIE, March 1989, Supreme Administrative Court, Case No 77581Article 9 of the Franco-Brazilian Tax Convention of 10 September 1971 contains provisions according to which, in the case of companies that are not at arm’s length from each other, profits that have been transferred directly or indirectly by a company of one...
- Czech Republic vs. M.V., April 2018, Supreme Administrative Court , Case No 3 Afs 105/2017 – 22The reason for the adjustment of the tax base was, among other things, the finding that M.V.sold on 4 January 2010 all the stock of goods of the range of garden supplies to AGROTECHNIKA VanÄ›k s.r.o. (“Agrotechnika”) at an 80% discount on the...