In situations where a proper transfer pricing risk assessment suggests that a thorough transfer pricing audit is warranted with regard to one or more issues, it is clearly the case that the tax administration must have the ability to obtain, within a reasonable period, all of the relevant documents and information in the taxpayer’s possession. This includes information regarding the taxpayer’s operations and functions, relevant information on the operations, functions and financial results of associated enterprises with which the taxpayer has entered into controlled transactions, information regarding potential comparables, including internal comparables, and documents regarding the operations and financial results of potentially comparable uncontrolled transactions and unrelated parties. To the extent such information is included in the transfer pricing documentation, special information and document production procedures can potentially be avoided. It must be recognised, however, that it would be unduly burdensome and inefficient for transfer pricing documentation to attempt to anticipate all of the information that might possibly be required for a full audit. Accordingly, situations will inevitably arise when tax administrations wish to obtain information not included in the documentation package. Thus, a tax administration’s access to information should not be limited to, or by, the documentation package relied on in a transfer pricing risk assessment. Where a jurisdiction requires particular information to be retained for transfer pricing audit purposes, such requirements should balance the tax administration’s need for information and the compliance burdens on taxpayers ...

In the course of an Austrian tax audit related party transactions between C GmbH, Austria, and D AG (formerly A AG), Liechtenstein, could only be traced on the basis of balance sheets and tax returns of A AG, Liechtenstein. In January 2019, the Austrian Federal Ministry of Finance (BMF), Vienna, therefore submitted a request for information to the Liechtenstein Tax Administration based on Article 25a of the DTA between Liechtenstein and Austria, concluded on 5 November 1969 and in particular as amended by the Protocol concluded on 29 January 2013, LGBl. 2013 No. 433. The ***-group is active in the field of online and direct marketing. The head office of the *** Group is in Vaduz. All intangible assets are owned by D AG in Liechtenstein and include all data (more than 100 million), IP and trademark rights, the servers, essential software, domains and know-how. Sales and marketing are carried out exclusively by C GmbH, which is based in Austria. Marketing includes the brokerage of addresses and services as well as the sending of e-mail and postal addresses to customers. The billing of services from Liechtenstein to Austria mainly involves the transfer of data with advertising consent, as well as the leasing of data with advertising consent and server services. The basis for the charging is a cooperation and marketing contract between D AG and C GmbH and there is indeed a description of the content of the contract. However, it is not clear which of these services were actually provided in the individual years. There is also no description of services that could have been used to determine the market value of the services. In order to be able to apply the arm’s length principle between the two affiliated companies, it is necessary to obtain the relevant balance sheets and tax assessment notices of D AG (formerly A AG). By letter of 24 January 2019, the tax administration informed D AG about the BMF’s request for administrative assistance and that the BMF requested the transmission of the 2014 to 2016 balance sheets and tax returns. D AG submitted several comments where it opposed the transmission of balance sheets and tax returns to the BMF. By order dated 1 July 2020, the Tax Administration decided to provide administrative assistance to the BMF Vienna based on the request of 14 January 2019 regarding 1) C GmbH and 2) A AG. A AG then filed an appeal to the Administrative Court where the main argument of the complainant was that the information requested by the requesting authority, namely the 2014, 2015 and 2016 annual accounts of the complainant and the tax accounts for the tax years 2014, 2015 and 2016, were not needed by the Austrian tax authorities. They were neither necessary, suitable and relevant for the taxation of C GmbH, Dornbirn, nor for the taxation of Mr B, Vaduz (point 1 of the complaint).” The appeal was dismissed by the Administrative Court and an appeal was then filed with the Constitutional Court. Judgement of the Constitutional Court The Court dismissed the complaint of A AG. Excerpts “Furthermore, the question of whether only past data or also developments after the valuation date are to be taken into account for the company valuation can be left open. In any case, the complainant also concedes that later data “could at best be used to check the plausibility of the business plan”. However, this is sufficient as a basis to affirm the probable relevance of the requested data as a prerequisite for the granting of tax office assistance. It is therefore not necessary to go into further detail on this appeal.” “In accordance with this case law, it is not necessary to address the question of the substantive correctness of the considerations in the decision of the Administrative Tribunal challenged here. 4.3 However, it is necessary to address the complainant’s complaint that there is also a mere sham reasoning, insofar as the Administrative Court disregards the essential question of whether the tax assessments were issued as provisional assessments and only refers to the general possibility that an assessment can be made provisionally pursuant to § 200 BAO. This reproach appears justified to the Constitutional Court. However, this is only an additional justification. Primarily, the Administrative Court considers that the requesting authority explicitly states that the tax assessment was carried out “provisionally” with regard to both the transfer prices and the exit taxation and that a final legal assessment was only possible after receipt of the requested documents and information. However, this justification is undoubtedly not a sham, especially since it is also at least free of arbitrariness according to the previous considerations. However, a mere secondary justification in addition to a justification in conformity with the constitution cannot constitute a violation of fundamental rights even if it would be unconstitutional on its own (see CJEU 2018/099, recital 3.1; CJEU 2016/087, recital 4.5 [both www.gerichtsentscheide.li]; CJEU 2005/045, LES 2007, 338 [340, recital 2.6]; see also Tobias Michael Wille, Begründungspflicht, op. cit., 564, para. 24). Accordingly, there is no need to go into further detail on this ground of appeal. 4.4 The appellant’s objection to the statement of reasons therefore also proves to be unjustified. 5 For all these reasons, the complainant has not been successful with any of her fundamental rights objections, so that the present individual complaint must be dismissed in accordance with the order.” Click here for English translation Click here for other translation ...

In 2013, the French tax authorities (DGFP) submitted several requests for administrative assistance to the Swiss Federal Tax Administration (FTA) based on Art. 28 of the Agreement of 9 September 1966 between Switzerland and France. In the applications, the legal entities concerned in France are B. GmbH and C. GmbH. The legal entities concerned in Switzerland are A. GmbH, B. GmbH, C. GmbH and D. GmbH. The French tax authorities requested the administrative assistance to monitor the financial situation of the French companies in the X. Group. In 2009, the group’s activities were reorganised, particularly in France. The change in the transfer pricing policy of the X. Group led to a change in the allocation of profits within the group. The provisions of French tax law stipulate that transactions between companies in the same group must be carried out under the same conditions as if they had been carried out between independent companies. In the case of cross-border transactions between companies in the same group, it is also necessary to have information about these companies and the distribution of profits. This information was essential for the French tax authorities to determine the amount of profits derived from activities in France and to determine the taxes due in France. The Swiss tax authorities requested A. GmbH, B. GmbH, C. GmbH and D. GmbH to submit the information and documents it had specified and subsequently informed the companies that it intended to provide the DGFP with administrative assistance and informed them of the wording of the intended responses and the enclosures. A complaint was filed by the companies with the The Federal Administrative Court which set aside the request of the tax authorities and decided that the tax returns and income statements should not to be submitted to the French tax authorities. The tax authorities then lodged an appeal with the Federal Supreme Court. Decision of the Court The Federal Supreme Court essentially decided in favour of the tax authorities and (essentially) dismissed the cross appeals of the companies. Excerpt in English “…the companies argue that the information requested is not likely to be relevant because it could not provide the French tax authorities with any information to clarify the tax affairs of the companies concerned in France. This is not a tax purpose, but rather the collection of general information about the companies themselves. Insofar as the amount of profits resulting from an activity in France is to be determined, the question arises as to whether the French tax authorities are not even using the request as an opportunity to find out, in the sense of a “fishing expedition”, whether the companies concerned have any links to taxation in France or whether the information could be useful in any other way. The French tax authorities had been provided with detailed transfer price documentation, from which it could be deduced that the transfer prices stood up to a third-party comparison. In order to determine the prices, however, the tax authorities do not require a balance sheet or other business information from the recipient, but rather information on the financial and cost structure of the company or branch providing the service as an independent economic unit and independent taxable entity. This would be available in the form of the taxpayer’s financial figures and the transfer price documentation. The total profit or the respective annual result of the companies, which is a result of their entire (in some cases worldwide) business, cannot be relevant for determining transfer prices in line with third-party prices for individual companies, even less so where no transactions have taken place. The same applies to the balance sheet and the separation of permanent establishment profits. A transfer of the information in question would therefore violate the principles of administrative assistance in tax matters as well as the principle of the protection of privacy under Art. 13 BV and Art. 8 ECHR and the principle of proportionality under Art. 5 para. 2 BV. 2.4 It must therefore be examined whether – as the FTA claims – all of the information requested by the French tax authorities proves to be relevant for tax purposes or – as the companies argue – is not likely to be significant within the meaning of the DTA CH-FR. The only disputed issues are the answers to questions d) et seq. of the administrative assistance requests (see facts under A.d). (…) 4.6 In summary, the judgements of the lower court cannot be upheld for the most part. The balance sheets, the information on the annual results, the information on the existing permanent establishments and their international profit and loss distribution (company 3), the permanent establishment profit distributions (companies 2 and 3) as well as the income statements of the companies must be submitted to the DGFP. At the same time, the tax information must also be submitted, as the probable materiality with regard to the transfer pricing review is also to be affirmed in this respect. Since there is a connection between the information to be transmitted and the tax purpose and there is also a public interest in its transmission, the principle of proportionality is also satisfied in this case. Only the question of the DGFP just discussed (E. 4.5) as to whether Company 2 has taken on staff from the French branch cannot be answered. It should be noted that, as the FTA points out, the transmission of the tax returns (concerning companies 3 and 4) – contrary to the dispositive of the judgement of the lower court – was not planned at any time and would not be carried out. 5 As explained above (E. 3.2), the question of whether the request for administrative assistance affects the taxpayer depends to a large extent on the concept of probable materiality. 5.1 As far as companies 1 and 4 are concerned, they do not dispute that the transmission of certain information, such as a list of persons who have received monetary benefits, details of account transactions, ...

In this case the Administrative Court ruled, inter alia, that the tax authority’s request for the taxpayer to submit the accounts of a foreign related person in a tax inspection pursuant to Article 40 (ZDAVP-2) was correct. “The applicant cannot succeed in its objections relating to the order for production of documents (the accounts of the related company) issued in the course of the supervision procedure. First of all, since it is not apparent from the file that the (non-)execution of the order had any effect on the contested decision. Furthermore, in the Court’s view, the decision was correctly issued on the appropriate legal basis, namely Article 40 ZDATP-2, which relates to the provision of related party documentation. It is one of the mandatory provisions which give concrete effect to the principle of the duty to provide information laid down in Article 10 ZDATP-2. It is expressly provided that the person referred to in Article 31 ZDATP-2, and therefore also the plaintiff, is obliged to provide the tax authority, upon request, with the documentation held by a related person, as defined by the Tax Act, who is not established in the Republic of Slovenia or does not reside in the Republic of Slovenia.” Click here for English translation Click here for other translation ...