In a transfer pricing case between the Peruvian tax authorities (SUNAT) and Repsol Comercializadora de Gas S.A. where the tax court had previously decided in favor of Repsol, the Supreme Court set aside the decision of the tax court and established the following rules as binding precedent of mandatory compliance: “3.47.1. In order to determine whether, within an administrative procedure of partial or definitive audit referring to transfer pricing, the guarantee of reasonable time has been violated, the following must be analyzed and evaluated: (i) that the partial or definitive audit carried out by the tax administration is referred to the application of transfer pricing rules; (ii) that it involves companies linked to or through countries or territories of low or no taxation; (iii) the complexity to obtain the information and if the same is located in other territorial areas; (iv) the conduct of the taxpayer in the delivery of information and/or the requested extensions; (v) the conduct of the administration; and (vi) the evaluation as a whole of the above-mentioned factors. 3.47.2. In the partial and/or definitive audit in which the transfer pricing rules are applied, the suspension of the audit period regulated by numeral 6 of article 62-A of the Sole Ordered Text of the Tax Code is applicable, respecting the reasonable term.” Click here for English Translation Click here for other translation ...

Mylan Pharmaceuticals is engaged in the business of trading pharmaceutical products in both domestic and export markets. It also provides business support services and research and development activities to other group companies. Following an audit, the tax authorities issued a notice of assessment which partially disallowed deductions for advertising and promotional expenses for the launch of new products. Mylan appealed to the Principal Commissioner of Income Tax where the assessment was subsequently overturned. The tax authorities then appealed to the Income Tax Appellate Tribunal. Judgement of the ITAT The Income Tax Appellate Tribunal allowed the appeal and set aside the decision of the Commissioner of Income Tax. Excerpts “It has been held in various decisions that for invoking jurisdiction u/s 263 of the I.T. Act, the twin conditions namely, (a) the order is erroneous and (b) the order is prejudicial to the interest of the Revenue must be satisfied. However, in the instant case, the order may be prejudicial to the interest of the Revenue, but it cannot be said to be erroneous since the Assessing Officer, after conducting necessary inquiries by calling for information and having gone through the details furnished by the assessee has taken a possible view. Merely because the learned PCIT does not agree with the view taken by the ITA 122/Hyd/2022 Assessing Officer, the order cannot be said to be erroneous or not a possible one. Under these circumstances, since one of the twin conditions i.e. the order is not erroneous is not satisfied, therefore, we hold that the learned PCIT is not justified in invoking jurisdiction u/s 263 of the I.T. Act. Accordingly, the order of the PCIT passed u/s 263 of the I.T. Act is set aside and the grounds raised by the assessee are allowed.” ...

In the course of an audit a formal request to produce certain documents was issued to the multinational meat production group JBS by the Australian tax authorities. On behalf of its client, PwC claimed that the documents requested were subject to legal professional privilege (LPP), and therefore did not need to be produced. Thus, PwC declined to provide approximately 44,000 documents. The tax authorities disputed the LPP claims over approximately 15,500 documents. However, for the purposes of the trial, only 116 sample documents were selected by the partis and considered by the court. Judgement of the Federal Court The court found that legal professional privilege claims needed to be considered on a document-by-document basis. From the sample of documents selected by the parties, the court concluded that 49 were privileged; 6 were partly privileged; and 61 were not privileged. Excerpt “It is therefore necessary to consider, on a document-by-document basis, whether each Sample Document is subject to legal professional privilege. This requires consideration of whether the Sample Documents are, or record, communications made for the dominant purpose of giving or receiving legal advice. This question is to be determined by reference to the content of the document, its context, and the relevant evidence relating to the document. A critical part of the context in the present case is that the services were provided by a multi-disciplinary partnership and that the team carrying out the work comprised both lawyers and non-lawyers. Another contextual matter is the involvement of overseas PricewaterhouseCoopers (PwC) firms in many of the same projects (under separate engagements). At least in the case of PwC Brazil and PwC USA, the overseas firms were not able to provide legal advice and made clear that they were not doing so. For the reasons that follow, I have concluded that many of the Sample Documents are privileged, but that many are not.” ...

Where the most appropriate transfer pricing method in the circumstances of the case, determined following the guidance at paragraphs 2.1-2.12, is a one-sided method, financial information on the tested party is needed in addition to the information referred to in paragraph 3.20 – irrespective of whether the tested party is a domestic or foreign entity. So if the most appropriate method is a cost plus, resale price or transactional net margin method and the tested party is the foreign entity, sufficient information is needed to be able to reliably apply the selected method to the foreign tested party and to enable a review by the tax administration of the country of the non-tested party of the application of the method to the foreign tested party. On the other hand, once a particular one-sided method is chosen as the most appropriate method and the tested party is the domestic taxpayer, the tax administration generally has no reason to further ask for financial data of the foreign associated enterprise outside of that requested as part of the country-by-country or master file reporting requirements (see Chapter V) ...

In december 2020 the Federal Ministry of Finance in German issued a new administrative ordinance related to various transfer pricing issues. Among the issues are enhanced requirement to cooperate and submit additional documentation related to controlled transactions, but most notable may be the conditions under which estimated tax assessments can be issued. Below is an unofficial translation of the document. Click here for the original document  ...

Bayer Inc, is a Canadian subsidiary of Bayer AG Germany. Bayer is a multinational group of companies in the pharmaceutical and life sciences industry . Since 2016, the Canada Revenue Agency has been auditing Bayer Inc. 2013-2015 taxation years. Between December 2017 and August 2018, the CRA made a series of requests to Bayer Canada for copies of agreements that had been negotiated at arm’s length with respect to the activities that are being examined in the audit. On August 21, 2018, the CRA issued Query No 17 to Bayer Canada, in which it revised its previous requests as follows: Pursuant to our discussion on July 18, 2018, we would like to audit agreements made between any member of the Bayer Group with third party(s) in force during the 2013 and 2014 taxation years that perform some or all of the following activities in regards to pharmaceutical products: ‐  Are located in an Organization for Economic Cooperation and Development (“OECD”) member nation; ‐  Perform research and development (clinical trial level stage II, III and/or IV, inclusive); ‐  Perform regulatory compliance activities (notice of compliance, product labelling verification, etc.); ‐  Perform client and corporate product support; ‐  Perform quality control and assurance activities; ‐  Regional marketing and sales activities (e.g. detailing, medical affairs); ‐  Chain supply management activities (e.g. purchasing. distribution); ‐  Price negotiations with local regulatory bodies; ‐  Price negotiations with the public (e.g. provincial formularies) and private (e.g. insurance companies) funding bodies. Please provide a matrix of no less than 50 contracts that meet some or all of the criterion [sic] listed above, and make sure activities contemplated in the agreements are highlighted, so that CRA can select contracts for further review. On November 14, 2018, the Minister of National Revenue issued a Requirement to provide foreign-based information or documents pursuant to 231.6(2) of the ITA. The Requirement was significantly broader in scope than the previous requests. Bayer Inc took the position that the requested documents were irrelevant to the audit and applied for a judicial review of the requirement pursuant to s 231.6(4) of the ITA. Judgement of the Court The application for judicial review was allowed. The court concluded that Bayer was required to provide the documentation identified in Query No 17 dated August 21, 2018. But, the scope of the Requirement was limited to the agreements with the 21 named pharmaceutical and life sciences companies that operate at arm’s length from the Bayer Group. The court clarified that the sole constraint placed on the Minister of National Revenue was that a rational connection must exist between the information sought and the administration and enforcement of the ITA (Saipem at para 26) “Parliament intended to give the Minister far‑reaching powers under section 231.6 to obtain information available outside of Canada. The Minister need only show that it is relevant to the administration or enforcement of the Act. The taxpayer is protected from abusive use of the provision through the power of a judge to review the requirement. The respondent’s requirement was not an abuse of the process nor was the request unreasonable.” ...

For the purpose of determining whether a Swiss Corporation had effektivly been managed from the Netherlands or had a permanent establishment in the Netherlands, the Dutch tax authorities send a request for information. The Swiss Corp was not willing to answere the request and argued that the request was disproportionate and that the concepts of “documents concerning decision-making with regard to important decisions” and “e-mail files” was and did not fit into the powers that an inspector has under Article 47 of the AWR. The court ruled in favor of the tax authorities. The court did not find the tax authorities’ request for information disproportionate. Article 47 of the Awr requires the provision of factual information and information that may be relevant to taxation with respect to the taxpayer (cf. Supreme Court October 20, 2017, ECLI: NL: HR: 2017: 2654). In the opinion of the court, the defendant remained within those limits with his request to claimant to provide access to the entire, original administration in the broadest sense (see 1.6). In addition, a broad range of starting points with regard to the subjective tax liability of the plaintiff also justifies a broad question in this case. The court passed the claim that requesting access to “documents concerning decision-making on important decisions” and “e-mail files” was open to multiple interpretations. However, in the view of the court, the mere circumstance that a request for information left some room for interpretation did not mean that it was not in accordance with the powers that the inspector has pursuant to Article 47 of the AWR. Click here for other translation ...

The report on Transfer Pricing Examination Process (TPEP) provides a framework and guide for transfer pricing examinations. The guide will be updated regularly by the IRS based on feedback from examiners, taxpayers, practitioners and others ...

During an audit for the FY 2010 “Doc Request SA” was requested to submit information and supporting documentation on expense accounts, acquisitions of goods and services, ISC commission accounts paid etc. after the ordinary one-year audit period established by Article 62º-A of the Tax Code had already expired. The taxpayer filed a complaint arguing that the exception to this one-year period provided for in paragraph 3 of Article 62º-A, referring to the audits carried out in regards of transfer pricing rules, was not applicable, given that the requested information and documentation did not related to transfer pricing. Decision of the Court The Court decided in favour of “Doc Request SA”. Excerpt “…the complainant was requested to submit information and supporting documentation on expense accounts, acquisitions of goods and services recorded in the Book, charges to the ISC commission accounts paid and unreported airline tickets flown, additions and deductions via affidavit, credits to expense accounts, charges to income accounts and bad debts…, in order to support their use in the company’s own operations and demonstrate that such expenses are proper and/or necessary to maintain the source generating taxable income (principle of causality), in accordance with article 37 of the Income Tax Law; among others; that is, the complainant has been asked for information and documentation that would not involve the application of the transfer pricing rules, taking into account that the Administration has not specified in that request whether the information and documentation requested is related to the application of the aforementioned rules. In this regard, in accordance with the aforementioned criterion, the exception regulated by numeral 3) of article 62º-A of the Tax Code is only applicable to the requirements requesting information and/or documentation related to the application of the transfer pricing rules, and not those referring to aspects that do not involve the application of said rules; Consequently, the Administration had a period of one year to request from the complainant information and/or documentation referring to aspects other than the application of the transfer pricing rules, and in this case, the notification of the requirement No. 0122170000434 was not made within the period established by law18. Consequently, considering that the information and/or documentation requested in Demand No. 0122170000434 is not related to the application of the transfer pricing rules, but to other aspects of the tax and period audited, and that said demand was notified to the complainant when the one-year term established by numeral 1 of article 62º-A of the Tax Code had already elapsed, the complaint filed should be declared well-founded, and the Administration should annul the aforementioned demand.” Click here for English Translation Click here for other translation ...

Where the most appropriate transfer pricing method in the circumstances of the case, determined following the guidance at paragraphs 2.1-2.12, is a one-sided method, financial information on the tested party is needed in addition to the information referred to in paragraph 3.20 – irrespective of whether the tested party is a domestic or foreign entity. So if the most appropriate method is a cost plus, resale price or transactional net margin method and the tested party is the foreign entity, sufficient information is needed to be able to reliably apply the selected method to the foreign tested party and to enable a review by the tax administration of the country of the non-tested party of the application of the method to the foreign tested party. On the other hand, once a particular one-sided method is chosen as the most appropriate method and the tested party is the domestic taxpayer, the tax administration generally has no reason to further ask for financial data of the foreign associated enterprise outside of that requested as part of the country-by-country or master file reporting requirements (see Chapter V) ...