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CMS Guide to International Transfer Pricing Documentation

Editors: Valentin Lescroart
 
Valentin Lescroart
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Annabelle Bailleul-Mirabaud
 
Annabelle Bailleul-Mirabaud
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Xavier Daluzeau
 
Xavier Daluzeau
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Belgium
Contact
Olivier Querinjean, olivier.querinjean@cms-db.com
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
A legal obligation to have transfer pricing documentation has been introduced in Belgium by the Program Act of 1 July 2016. The obligation applies for financial years starting as of 1 January 2016.
The legal provisions implementing the obligation have been included in articles 321/1 – 321/7 of the Belgian Income Tax Code. The obligation applies to any Belgian entity that is or is required to be included within the consolidated accounts of a multinational group, including permanent establishments to the extent they are required to publish their own separate annual accounts, when such entity attains or exceeds, on the basis of its own annual accounts of the financial year preceding the most recently ended financial year, at least one of the following thresholds:
  • Total yearly operational and financial income of EUR 50m (excluding non-recurrent/exceptional income);
  • Balance sheet total of EUR 1bn;
  • Annual average of 100 full-time employees.

2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
All transactions with associated companies have to be documented and their price must be justified at all times. With regard to the “local file”, a threshold of EUR 1m is however applied. No specific information is required about cross border transactions which do not exceed the threshold.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
In accordance with the Belgian company code, “associated companies” are:
  • any company that controls another company (based on share ownership, voting power, power to appoint the majority of the members of the board),
  • any company that is controlled by another,
  • companies that are part of a consortium,
  • other companies that are controlled by the companies mentioned above on (A), (B) and (C).

c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Yes.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
The legal provisions are very similar. The three layers have been adopted as provided by Action 13 (Master file, local file and country-by-country report).
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
The Belgian tax authorities may request information only from Belgian taxpayers, including permanent establishments in Belgium of foreign entities. Such requested information could include information located in another State.
With regard to taxpayers that are not established in Belgium, the Belgian tax authorities could request assistance from the tax authorities of the foreign jurisdiction in obtaining information.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
In practice, regional benchmark studies and in particular pan-European benchmark studies are generally accepted by the Belgian tax authorities.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
The benchmark study is in principle part of the “detailed information form” to be filed together with the local file, but only to the extent at least one of the entity’s divisions/business units exceeds a threshold of EUR 1m for cross border transactions. Therefore, if the threshold of EUR 1m for intragroup transactions is not exceeded on a yearly basis, a benchmark study will generally not be required.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
The languages that are used in Belgium are French, Dutch or German depending on the location of the registered seat/establishment of the company. The Belgian tax authorities however also accept transfer pricing documentation drafted in English.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
Both the master file as the country-by-country report have to be filed within 12 months as of closing of the financial year.
The local file needs to be filed together with the yearly income tax return of the Belgian entity, which is general is at the end of the third quarter.
Moreover, a qualifying Belgian entity will be required to notify to the Belgian tax authorities, at the end of the financial year at the latest, whether it is the ultimate parent company of the multinational group or not.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
Specific administrative penalties for non-compliance ranging between EUR 1,250 and EUR 25,000 may be applied by the Belgian tax authorities; when the master file, local file or country-by-country report are not filed, are lately filed or are incomplete, or when the entity does not duly and timely notify to the tax authorities its ultimate parent company status. Moreover, if the requested information is not provided, the tax authorities could adjust the taxpayer’s taxable basis on the grounds that the transaction does not comply with the arm’s length principle. In addition, tax on the non-reported portion of income could be increased with penalties of 10% to 200%, depending on the nature of the taxpayer’s infringement.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
If the required information is not provided, the tax authorities could adjust the taxpayer’s taxable basis; the taxpayer will then have to demonstrate based on supporting evidence/documentation that the transaction complies with the “arm’s length principle” and that the tax authorities may not adjust its taxable basis. This does indeed imply a reversal of the burden of proof.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
The reassessment of the taxable basis or the application of penalties will not prevent the taxpayer from engaging a mutual agreement procedure provided for by a double tax treaty or by any international treaty, to the extent that they do not result from a tax law infringement performed with fraudulent intent.
7. Any other relevant aspect not addressed above?
Not applicable.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
Yes.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
The obligation applies for financial years starting as of 1 January 2016. The first CbCR is therefore to be filed on 31 December 2017 at the latest.
3. Which taxpayers have to file a CbCR in your jurisdiction?
Belgian ultimate parent companies of a multinational group with consolidated yearly gross income of at least EUR 750m are required to submit a CbCR (in addition to the master file and local file).
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Yes.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
When the CbCR is not filed, is lately filed or is incomplete, penalties ranging between EUR 1,250 and 25,000 may be imposed. The penalty can be imposed on permanent establishments of foreign entities falling within the scope of the TP documentation obligation.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
Not applicable.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
In addition to the local file, and only to the extent at least one of the entity’s divisions/business units exceeds a threshold of EUR 1m for cross border transactions, a “detailed information form” is to be filed. For each entity’s divisions exceeding the 1 million threshold of cross border transactions, such detailed information form is to be filed.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
A transfer pricing analysis of transactions occurred between the Belgian entity and the foreign entities of the multinational group, in particular the relevant financial information of these transactions, a benchmark study and the selection of the most appropriate transfer pricing method.
The languages that are used in Belgium are French, Dutch or German depending on the location of the registered seat/establishment of the entity. The Belgian tax authorities however also accept transfer pricing documentation drafted in English.
3. What is the deadline for meeting this documentation/filing requirement?
The local file including the detailed information form is to be filed together with the yearly income tax return (in general at the end of the third quarter).
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
The obligation applies for cross border transactions with other group entities during the most recently closed financial year exceeding EUR 1m.
5. What is the penalty for failing to meet this requirement on time?
When the local file, including the detailed information form, is not filed, is lately filed or is incomplete, penalties ranging between EUR 1,250 and EUR 25,000 may be imposed.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Brazil
Contacts
Luis Rogério Godinho Farinelli, LFarinelli@machadoassociados.com.br
Erika Yumi Tukiama, ETukiama@machadoassociados.com.br
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Taxpayers subject to the levy of Corporate Income Tax and Social Contribution on Net Profit under the Actual Profit System (mandatory in certain circumstances, such as when the company’s total revenues in the previous year have exceeded BRL 78m) that have imported goods, assets, services or rights from a related party abroad, or from a party (whether or not related) located in a tax haven or subject to a preferred tax regime are obliged to perform transfer pricing calculations and maintain supporting documentation that shall be provided to the Brazilian tax authorities upon request.
Such obligation also applies to all taxpayers that have exported goods, assets, services or rights to the parties mentioned above.
2. What is the content of the documentation that must be prepared?
Taxpayers must prepare and keep spreadsheets containing the transfer pricing calculation according to one of the methods provided by the Brazilian legislation, as well as supporting documentation.
  • To prove the price of import transactions, the relevant documents will be as follows:
    • Import Declaration;
    • Brazilian invoice;
    • International invoice;
    • Initial and final inventory of the imported products and the finished products (where the imported product is intended for a production process); and
    • Bill of materials (to verify final inventory of the imported product where it is intended for a production process).

  • To prove the price of export transactions the relevant documents will be as follows:
    • Brazilian Invoice;
    • International Invoice; and
    • Bill of lading.

  • To prove the benchmark calculation for import transactions, the documents will depend on the method adopted by the taxpayer, as follows:
    • Resale Price Less Profit Method – PRL
      • Invoices in respect of internal sales of the imported product and the finished product;
      • Bill of materials;
      • Acquisition cost of the imported goods;
      • Sales cost.
    • Comparable Independent Prices Method – PIC
      • Commercial invoices of the comparable sales (sales from the foreign related party to independent companies; purchases by the Brazilian company from independent companies and sales and purchase transactions between independent parties); and
      • Information about the data, supplier, country, quantities, value, currency, and other negotiable conditions, expressed on invoices, proving the benchmark.
    • Production Cost Plus Profit Method – CPL
      • Production cost information provided by the manufacturing company located abroad, which must be demonstrated in accordance with Brazilian accounting principles.
      • The documents used to demonstrate such production costs should be copies of those which support bookkeeping entries, such as documents showing the cost of leasing, maintaining and repairing the equipment used in the production process, the apportionment of direct and indirect labor costs, and payroll information.
    • Quotation Price on Imports – PCI
      • Information on the listed prices used, demonstration of the premium and adjustments considered.

  • As to proof of the benchmark calculation for export transactions, the documents will also depend on the method adopted by the taxpayer, as follows:
    • Purchase or Production Cost Plus Taxes and Profit Method – CAP
      • Detailed information on the purchase or production cost, which must be supported by information on the taxpayer’s database.
    • Wholesale or Retail Price in Country of Destination Less Profit – PVA and PVV
      • Invoices in respect of sales of the exported items in the wholesale market (PVA) or retail market (PVV) of the country of destination.
    • Export Sales Price – PEVEX
      • Invoices in respect of the unrelated-party export transactions used to calculate the benchmark.
    • Quotation Price on Exports – PECEX
      • Information on the listed price used, demonstration of the premium and adjustments required.

Tax authorities may request additional information.
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
All transactions subject to transfer pricing controls (detailed in question 1) must be documented.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
The concept of related parties of the Brazilian legal entity encompasses:
  • its branches;
  • its headquarters;
  • its controlled companies;
  • its controlling shareholders (individuals or legal entities);
  • companies under common corporate or common management control;
  • its managers;
  • relatives by blood or marriage, up to the third degree, spouses, or significant others, of the managers or of the controlling shareholders;
  • the Brazilian legal entity’s foreign affiliate companies;
  • foreign companies, when the same individual or legal entity holds an equity stake of at least 10% in both the foreign company and the Brazilian legal entity;
  • foreign individuals or legal entities who, together with the Brazilian legal entity, hold an equity stake in a third legal entity that qualifies them as controlling shareholders or affiliated in relation to this third legal entity;
  • companies that participate with the Brazilian legal entity in a joint enterprise, under a ‘consortium’ or ‘condominium’;
  • foreign legal entities that grant to the Brazilian legal entity (as their agent, distributor or dealer), exclusive rights to buy or sell assets/goods/services/rights; and
  • foreign agents, distributors or dealers of the Brazilian legal entity, to whom the latter has granted exclusive rights to buy or sell assets/goods/services/rights.

It is important to emphasize that the transfer pricing legislation applies to related party transactions, as described above, even when they are performed through an interposed person, and to transactions entered into with a party (whether or not related) located in a tax haven or under a preferred tax regime.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Not applicable.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
Despite its status of Key Partner of the OECD and taking part in the BEPS Project, Brazil has only implemented the Country-by-Country Reporting out of the transfer pricing documentation requirements set out in BEPS Action 13. In addition to submitting the CbC report, Brazilian taxpayers should also comply with the additional documentation requirements provided for by local legislation (described in section C.2), which comprise some of the elements of the local file. Master file related information is not required in Brazil.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Brazilian tax authorities may request the Brazilian taxpayer to provide documents capable of showing that the information used for the transfer pricing calculation is accurate, including external information that could be located in a foreign jurisdiction (e.g. invoices used in the PIC method calculation; costs used in the CPL method calculation and invoices used in the PVA or PVV method calculation). No information request is made directly to foreign companies/individuals.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
As there is no database of comparables in Brazil, the comparable analysis is very limited. In effect, the Brazilian tax authorities may choose to consider comparables of any kind. However, the Brazilian transfer pricing legislation states that comparable information may be used and is to be based on:
  • Official publications or reports from the government of the country of origin of the seller or buyer, or a declaration from the tax authorities of that country where it has a double taxation or information exchange treaty with Brazil;
  • Market research conducted by a recognized, technically qualified firm or institution or technical publication, which specifies the industry sector, period, companies researched and profit margins, and identifies, for each company, the data collected and analyzed.

Publications, research and technical reports will only be accepted as evidence if carried out in accordance with internationally accepted appraisal criteria and referable to the concurrent Corporate Income Tax calculation period of the Brazilian entity.
Additionally, the price information acceptable as evidence comprises:
  • National stock market quotations;
  • Quotations from internationally recognized stock markets, such as those in London and Chicago;
  • Research conducted by international organizations, such as the OECD and the World Trade Organization (WTO).

It is also stated that technical publications, research and reports may be rejected by the tax authorities if deemed to be inconsistent or unreliable. Given the extreme bureaucracy, and the prospect of research and reports being rejected by the tax authorities, comparable studies are difficult and unusual.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
Brazilian legislation establishes safe harbors for export transactions. Brazilian legal entities are exempted from calculating transfer pricing adjustments based on the methods described in the legislation, if they demonstrate that:
  • the average export price is lower than 90% of the average price of the same or similar goods, services, or rights sold in the Brazilian market to unrelated parties, during the same period and under similar payment conditions;
  • their net export revenues (including exports to parties domiciled in tax havens) in the calendar year do not exceed 5% of the total net revenues of the same period; or
  • their net profits from exports to related parties, before the Corporate Income Tax and Social Contribution on Net Profit provision, are equivalent to, at least, 10% of the total revenues accrued in such transactions, considering the annual average for the current tax base period and for the two preceding years. This safe harbour can only be used if the net revenue of these exports to related parties does not exceed 20% of the total net export revenue.

These safe harbors do not apply to transactions with parties in tax havens and to commodities and do not prevent the Brazilian tax authorities from investigating the relevant prices and issuing tax assessments whenever the applicability of those exceptions is deemed inadequate.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
Documents, reports or information written in a foreign language should, in principle, be translated into Portuguese (certified translation), notarized and legalized by the competent embassy or consulate. There is no need for “consularization” where Brazil has an appropriate treaty with the country in question, as it does for example with France. Brazil has signed and approved the Convention Abolishing the Requirement of Legalization for Foreign Public Documents, according to which the consularization is replaced by the apostille as the means of legalizing foreign public documents.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
Information on transactions subject to transfer pricing control must be provided in the Tax Bookkeeping (ECF) – the current income tax return -, which must be filed up to the last business day of July following the end of the fiscal year (Brazilian fiscal year coincides with the calendar year). Generally speaking, in the event of a tax audit the taxpayer has to respond to any request from the tax authorities within a period of 20 days.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
Taxpayers may be subject to penalties related to documentation requested under tax audits in the following cases:
  • fine of 0,5% of the gross revenue, if the documentation is not submitted in accordance with formal requirements;
  • fine of 5% of the transaction value, limited to 1% of the gross revenue, if the requested information is not submitted or submitted incorrectly; and
  • fine of 0,02%, per delay day, up to 1% of the gross revenue, if the documentation is not submitted within the required deadline.

The penalties detailed in section C/question 5 apply in case of incorrect information or delay in the filing of ECF.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
As a rule, the burden of proof is on the taxpayer. Furthermore, tax authorities may disqualify the method chosen and/or the criteria adopted by the taxpayer to calculate transfer pricing adjustments. In this case, if a new calculation is not presented by the taxpayer within thirty days, the tax authorities may perform the transfer calculations (according to any of the methods) based on the documents provided.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
As the possibility of discussing matters under the Mutual Agreement Procedure was only regulated in Brazil in November 2016, there is no practical experience regarding these discussions.
It is important to note, however, that tax treaties signed by Brazil do not usually provide for the correlative adjustments set forth in paragraph 2 of article 9 of the OECD Model Convention, which could hinder transfer pricing discussions under the Mutual Agreement Procedure in Brazil.
7. Any other relevant aspect not addressed above?
Not applicable.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
Brazil introduced the obligation for Brazilian legal entities to file a CbCR in December 2016.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
The CbCR applies to fiscal years beginning on or after January 2016. As the CbCR was included in the ECF, it must be filed within the deadline of the filling of the ECF (until the last business day of July of the following year, as mentioned in section C.3).
3. Which taxpayers have to file a CbCR in your jurisdiction?
The CbCR must be filed by ultimate parent entities of multinational groups (MNE groups) residing for tax purposes in Brazil and by legal entities residing for tax purposes in Brazil that are not the ultimate parent entities of MNE groups must also file the CbC if (and only if the obligation has not been fulfilled by another entity belonging to the MNE group not residing in Brazil):
  • The ultimate parent entity of the MNE group is not required to submit the CbC in its jurisdiction of residence for tax purposes;

  • The ultimate parent entity’s jurisdiction of residence for tax purposes does not have an agreement in force requiring the automatic exchange of the CbC (Competent Authority Agreement) until the deadline to submit the CbC in Brazil, even if there is an agreement with Brazil in place regulating the exchange of tax information; or

  • A failure to exchange the information by the jurisdiction of residence of the ultimate parent entity is notified by the RFB to the Brazilian legal entity. This failure occurs when said jurisdiction has a Competent Authority Agreement with Brazil, but suspends the automatic exchange of information or fails persistently to automatically provide the CbC of MNE groups with entities in Brazil.

Brazilian legal entities belonging to MNE groups with total consolidated group revenues of less than BRL 2,26bn (if the tax jurisdiction of the ultimate parent entity is Brazil) or EUR 750m during the fiscal year preceding the filling of the CbC are not obliged to submit the CbCR.
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
The content of the CbCR is fully in line with the OECD model.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
As the CbCR was included in the ECF, the penalties that apply to the ECF shall apply to taxpayers that fail to file the ECF/CbCR on time or file it with omissions or incorrections.
Legal entities which do not submit ECF on time are subject to the following fines (per month):
  • 0,25% of the net profit before the levy of Corporate Income Tax and Social Contribution on Net Profit (limited to 10%), if they are subject to the Actual Profit System; or
  • BRL 500, for legal entities that have initiated their activities or subject to the Deemed Profit System, among other cases. Limits and reductions apply.

Legal entities that submit the CbCR with omitted, incorrect or inaccurate information are subject to a fine of 3% of the omitted, incorrect or inaccurate value.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
In 2016, Brazil approved the Convention on Mutual Administrative Assistance in Tax Matters and signed the Common Reporting Standards Multilateral Competent Authority Agreement (CRS MCAA) and the Multilateral Competent Authority Agreement on the Exchange of CbCRs (CbCR MCAA).
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
Brazilian rules require Brazilian legal entities to file the ECF, providing detailed information on cross border transactions for the purposes of compliance with transfer pricing rules, rules on the taxation of profits earned overseas, among other rules.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
Brazilian legal entities must provide in the ECF information in Portuguese on:
  • all the direct and indirect controlled companies, affiliate companies, branches, partnerships, trusts etc., the income statement (net revenue, costs, gross profit, financial revenues and expenses, income tax due and net profit) of each of these entities, their accumulated earnings, among other information, in compliance with Brazilian rules for the taxation of profits earned overseas;
  • the transactions subject to transfer pricing controls in the previous year, informing:
    • the total value of the transactions (export of goods, rights and services, financial revenue, import of goods, rights and services and total financial expenses), always distinguishing between transactions with related parties, tax havens and preferred tax regimes and other transactions;

    • the calculation of the export or interest benchmark per asset, good, service, right or financial transaction, including a description of the goods, asset, service, right or financial transaction, total value of the transaction, Mercosul Common Nomenclature (“NCM”) tax classification code (assets/goods), negotiated quantities, measurement unit, transfer pricing method chosen, price used by the taxpayer, benchmark, transfer pricing adjustment, interest amount, minimum and maximum interest rates on financial transactions, classification code for the interest ascertained on the inflow of funds in Brazil under the Consolidation of Exchange Rules (CNC) and currency used for the transaction;

    • up to 30 related parties, interposed persons, parties domiciled in tax havens or subject to preferred tax regimes with which the Brazilian company concluded export transactions (name, country, transaction value and qualification of related party, interposed person, domiciled in tax haven and subject to preferred tax regime);

    • the calculation of import or interest benchmarks per asset, goods, service, right and financial transaction, with the details mentioned under (b) above;

    • up to 30 related parties, interposed persons, parties domiciled in tax havens or subject to preferred tax regimes with which the Brazilian company concluded import transactions (same information under (c) above).

3. What is the deadline for meeting this documentation/filing requirement?
Taxpayers shall submit ECF by the last business day of July following the end of the fiscal year.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
All legal entities are obliged to submit the ECF, except for those subject to the SIMPLES regime (a simplified regime for companies with revenues of up to BRL 4.8m that comply with certain conditions) and inactive legal entities.
5. What is the penalty for failing to meet this requirement on time?
Please see section B.5 above.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

France
Contact
Valentin Lescroart valentin.lescroart@cms-bfl.com, Annabelle Bailleul-Mirabaud annabelle.bailleul-mirabaud@cms-bfl.com, Xavier Daluzeau, xavier.daluzeau@cms-bfl.com
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Under article L 13 AA of the French tax procedure code (“FTPC”), legal entities established in France, having intragroup transactions with related parties established abroad, are subject to the documentation requirement if:
  • they have an annual turnover (taxes excluded), or gross balance sheet asset value of at least EUR 400m (hereafter “the minimum threshold”); or
  • at the close of the tax year, they directly or indirectly hold more than half of the financial or voting rights in an entity which meets the minimum threshold (being a legal entity, body, trust or comparable institution established or constituted in France or outside France); or
  • at the close of the tax year, more than half of their financial or voting rights are directly or indirectly held by an entity which meets the minimum threshold; or
  • they belong to a French tax consolidation group under article 223 A or 223 A bis of the French tax code (“FTC”), and that group includes at least one legal entity meeting one of the requirements above.

French Tax Authorities’ (“FTA”) guidelines1 indicate that the expression “legal entities established in France” include foreign legal entities having a permanent establishment in France. In this situation:
  • the conditions mentioned in (A) above would be considered to be fulfilled if they were fulfilled at the level of the French permanent establishment or of the foreign legal entity;
  • the conditions mentioned in (B) above would be considered to be fulfilled if they were fulfilled at the level of the French permanent establishment;
  • the conditions mentioned in (C) above would be considered to be fulfilled if they were fulfilled at the level of the foreign legal entity.

For entities outside the scope of this legislation, there is no formal transfer pricing documentation requirement. However, under article L13 B of the FTPC, if the FTA gather information, in the course of a tax audit, which tends to indicate that the enterprise in question has made an indirect transfer of profits to a related non-French entity, they may require certain documents and information to be produced. The taxpayer then has a maximum of three months to provide the information required. In order to comply with this time frame, French companies which are not subject to the documentation requirement, but whose transactions with foreign associated companies are significant, generally document their transfer pricing policy in advance.
2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
The documentation must cover all transactions entered into with associated enterprises established or constituted outside of France.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
Associated enterprises are entities (established or constituted outside of France) with which dependency ties exist. Such dependency ties are deemed to exist between two enterprises where:
  • one enterprise directly or indirectly owns the majority of the share capital of the other, or effectively exercises decision-making powers within the other enterprise,
  • both enterprises are under the control of the same third enterprise (control being defined as above).
    Transactions between a head office and its branches are subject to the French transfer pricing documentation requirement2.

c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
The content of the French transfer pricing documentation is very close to that of the EU TPD.
Indeed, the “standard” content encompasses the two levels of documentation proposed by the Code of Conduct drawn up by the EU Joint Transfer Pricing Forum:
  • general information concerning the group of associated enterprises (the concept of a master file under the Code of Conduct); and
  • specific information concerning the associated enterprise subject to a tax audit (the concept of country-specific documentation under the Code of Conduct).

As regards general information on the group of associated enterprises, the following must be provided:
  • a general description of the activity carried out, including any changes which occurred during the period subject to the tax audit in comparison with prior tax years,
  • a general description of the legal and operational structures of the group, identifying associated enterprises which are engaged in controlled transactions,
  • a general description of the functions carried out and risks assumed by the associated enterprises, to the extent that they affect the audited enterprise,
  • a list of the main intangible assets owned (e.g. patents, trademarks, trade names, know-how), in relation to the audited enterprise; and
  • a general description of the transfer pricing policy of the group.


As regards specific information concerning the audited enterprise, the following must be provided3:
  • a description of the activity carried out, including any changes which occurred during the period subject to the tax audit in comparison with prior tax years;
  • a description of the transactions carried out with associated enterprises, including the nature of flows and the amounts thereof (including any royalties);
  • a list of any cost-sharing agreements and a copy of any advance pricing agreements or transfer pricing rulings which affect the audited enterprise’s results;
  • a description of the method(s) used to determine transfer prices in compliance with the arm’s length principle, including an analysis of functions carried out, assets used and risks assumed, and an explanation as to how the chosen methods were selected and applied; and
  • when the chosen method so requires, an analysis of the comparables (benchmarks) regarded as pertinent by the enterprise.

For tax years closed as of 1 January 2014, the transfer pricing documentation must also include a copy of the rulings obtained from foreign tax authorities by associated enterprises. Administrative guidelines4 precise that such requirement covers decisions obtained from foreign tax authorities which may have an impact on the taxable profit of the group. The French Constitutional Court indicated that this requirement cannot oblige French entities to provide the FTA with documents which are not at their disposal.

Under article L 13 AB of the FTPC, “additional” documentation must be provided where transactions are undertaken with one or more associated enterprise(s) established in a non-cooperative State or territory (within the meaning of article 238-0 A of the FTC). The “additional” documentation should include, for each associated enterprise, all documents required from companies which are subject to corporate income tax, including the balance sheet and profit and loss account drawn up in accordance with French GAAP (as provided for by the French CFC rules – article 209 B of the FTC). On 1st January 2016, the list of non-cooperative States or territories is as follows (this list is updated on a yearly basis):
  • Botswana
  • Brunei
  • Guatemala
  • Marshall Islands
  • Nauru
  • Niue
  • Panama (with effect as from 1 January 2017).

d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
French requirements5 follow the OECD three-tier approach (i.e. master file, local file and country-by-country report). However, as detailed above, the master file and local file are based on the EU TPD, not on the model proposed by the OECD. The country-by-country report follows the model proposed by the OECD.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
The FTA may only request information from French taxpayers. In practice, such requested information can include information located in another State.
To obtain information located in another State, the FTA can request the assistance of foreign tax authorities under the exchange of information provisions of the applicable treaty.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
The FTA generally accept regional benchmark studies and, in particular, pan-European benchmark studies when a French taxpayer is involved.
French administrative guidelines provide that the benchmark studies should contain the most recent information available at the invoicing time of the transactions. However, where there has been no change to the circumstances under which the activity is carried out, it is permissible for the benchmark studies to be updated every three years6.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services7 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
As detailed above, the transfer pricing documentation required by article L13 AA of the FTPC should include an explanation as to how the chosen methods were selected and applied and when the chosen method so requires, an analysis of the comparables selected by the enterprise.
In this respect, French transfer pricing regulations and administrative guidelines do not explicitly provide for any safe harbour regarding benchmark studies which aim at demonstrating the arm’s length character of the transaction under review.
In practice, for low-value adding services, as France is an EU and an OECD member, taxpayers may however refer to the EU Joint Transfer Pricing Forum guidelines on low value adding services and revisions to chapter VII of the OECD transfer pricing guidelines on intra-group services. The EU Joint Transfer Pricing Forum guidelines on low value adding services provide that “in cases where it is appropriate to use a mark-up, this will normally be modest and experience shows that typically agreed mark ups fall within a range of 3 – 10%, often around 5%”. According to the revisions to chapter VII of the OECD guidelines, a mark-up of 5% of the relevant costs would be applicable for low value adding services.
For intragroup loans (and subject also to a number of conditions which are not described here), article 212 of the FTC states that interest are fully deductible up to the limit provided by article 39-1-3° of the FTC8. If this limit is exceeded, taxpayers must demonstrate that the interest rate implemented complies with the arm’s length principle.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
The transfer pricing documentation should be in French. However, in practice, documentation that has been prepared in English is often accepted by the FTA. Note that administrative guidelines9 indicate that the FTA may require the taxpayer to provide a translation of documents drafted in a foreign language.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
The documentation must be made available to the FTA on the date the tax audit begins, i.e. on the date of the first on-site arrival of the tax inspector as mentioned in the notification of tax audit.
Where the audited enterprise does not provide the documentation, or where it provides incomplete documentation, the FTA must send a notice to provide or, as the case may be, complete the documentation, within a 30-day period (though it is not provided for by the law, administrative guidelines10 indicate that, upon written and duly motivated request from the taxpayer, an extended delay can be granted by the FTA; the total delay cannot however exceed two months). This notice must specify the documents or supplementary information required and the penalties applicable in the event of non-compliance.
Needless to say that the FTA can request additional information (e.g., agreements, invoices) to audit any intragroup transaction.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
If the audited enterprise does not provide the documentation required under articles L 13 AA and L 13 AB of the FTPC, or if it provides incomplete documentation within the period mentioned above, further to a formal request from the FTA to do so, depending on the seriousness of the default, the penalty can reach the higher of the following amounts:
  • 0.5% of the amount of transactions non duly documented or
  • 5% of the transfer pricing reassessment made by the FTA on transactions non duly documented.

However, the minimum amount for the penalty is EUR 10,000.
The penalty applies to each of the tax years covered by the tax audit.
As a consequence, a documentation-related penalty can apply even in the absence of reassessment by the FTA of the transfer pricing policy of the taxpayer.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
The absence of documentation or an incomplete documentation does not reverse the burden of proof as regards the arm’s length character of the transactions: to make a reassessment, the FTA still need to demonstrate that the transactions do not comply with the arm’s length principle.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
Administrative guidelines11 confirmed that the documentation-related penalty does not constitute a serious penalty within the meaning of article 8-1 of the European Arbitration Convention of 23 July 1990. Therefore, such a penalty does not prevent the enterprise from using the procedures provided for by that Convention, or the mutual agreement procedures provided for by bilateral income tax treaties (the French practice being generally to refuse the benefit of the latter, as well as the former, where a serious penalty is imposed).
7. Any other relevant aspect not addressed above?
Not applicable.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
The obligation to file a CbCR has been introduced into the FTC (at article 223 quinquies C) by the Finance Bill for 2016.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
The French CbCR requirement applies to fiscal years starting as from 1 January 2016. The report has to be filed within 12 months following the end of the fiscal year concerned (e.g. at the latest on 31 December 2017 for fiscal years ending 31 December 2016).
3. Which taxpayers have to file a CbCR in your jurisdiction?
Are in principle subject to the obligation to file a CbCR in France, legal entities established in France that:
  • establish consolidated accounts;
  • own or control, directly or indirectly, one or several legal entities established outside of France or that have branches outside of France;
  • realize a yearly consolidated turnover (taxes excluded) of at least EUR 750m; and
  • are not held by one or several legal entities situated in France and obliged to file the CbCR, or by one or several legal entities established outside of France and obliged to file a similar declaration under a foreign legislation.

A legal entity established in France that is owned or controlled, directly or indirectly, by a legal entity established in a State or territory that is not on the list of the “Participating States or Territories” (as defined below) and that would be obliged to file in CbCR in France if it had been established in France, must file a CbCR in France if:
  • this French legal entity has been designated by the group for that purpose and has informed accordingly the FTA; or
  • it cannot demonstrate that another group entity, situated in France or in a Participating State or Territory, has been designated for that purpose.

The Participating States or Territories are those which
  • have adopted a legislation providing for the filing of a CbCR that is similar to the French legislation,
  • have concluded with France an agreement allowing the automatic exchange of CbCR and which
  • comply with the obligations set forth by this agreement. The law indicates that the list of Participating States or Territories will be published in a ministerial order.

4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
The content of the CbCR is fully in line with the OECD model. It was published in a decree (n° 2016-1288 of 29 September 2016). The FTA published the format of such declaration (form 2258-SD). The CbCR must be filed electronically with the FTA.
French legal entities must indicate in their tax return that they are supposed to file the CbCR, that they were designated for that purpose or that another entity of the group will file the CbCR for the group (in this latter case, they must indicate the identity and localization of such entity).
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
Failure to file the CbCR on time could lead to a maximum penalty of EUR 100,000.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
No. However, on 27 January 2016, France signed the Multilateral Competent Authority Agreement on the Exchange of CbCR.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
Yes, legal entities established in France may also be required to file each year with the FTA a document summarizing their transfer pricing policy/documentation (this document is the transfer pricing declaration).
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
The document to be filed with the FTA includes the following elements:
  • General information on the group of associated enterprises:
    • a general description of the activity carried out, including the changes which occurred during the tax year;
    • a list of the main intangible assets owned, notably patents, trademarks, trade names, know-how, in relation with the enterprise filing the declaration; indication of the State or territory where the enterprise owning these intangible assets is established;
    • a general description of the transfer pricing policy of the group, including the changes which occurred during the tax year.

  • Specific information concerning the filing enterprise:
    • a description of the activity carried out, including the changes which occurred during the tax year;
    • a statement of the transactions realized with other associated enterprises, classified by nature and amount, when the yearly aggregated amount by nature is above EUR 100,000; this statement also indicates where the associated enterprises are established;
    • a presentation of the method(s) used to determine the transfer prices in compliance with the arm’s length principle, including the main method used and the changes that occurred during the tax year.

3. What is the deadline for meeting this documentation/filing requirement?
The transfer pricing declaration must be filed with the FTA within six months following the deadline for submitting the tax return. For example, for companies ending their fiscal year on 31 December, the deadline to file the declaration is 3 November of the following year.
This declaration must be filed electronically. It must be filed in French.
For companies belonging to a French tax consolidation group, the declaration must be filed by the parent company of the tax consolidated group.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Under article 223 quinquies B of the FTC, legal entities established in France must file a transfer pricing declaration if:
  • (they have an annual turnover (taxes excluded), or gross balance sheet asset value of at least EUR 50m12; or
  • at the close of the tax year, they directly or indirectly hold more than half of the financial or voting rights in an entity which meets the threshold mentioned at A. above (being a legal entity, body, trust or comparable institution established or constituted in France or outside France); or
  • at the close of the tax year, more than half of their financial or voting rights are directly or indirectly held by an entity which meets the threshold mentioned at A. above; or
  • they belong to a French tax consolidation group under article 223 A or 223 A bis of the FTC, and that group includes at least one legal entity meeting A., B. or C. above.

Administrative guidelines exclude from the scope of the filing requirement companies which have no transaction with foreign related parties or carrying out transactions with foreign related entities for an amount below EUR 100,000 per nature of transactions13.
5. What is the penalty for failing to meet this requirement on time?
The law does not provide for a specific penalty for a failure to file. Therefore, the general penalty of EUR 150 per document provided by article 1729 B of the FTC applies.
Omissions or inaccuracies are subject to a penalty of EUR 15 per omission or inaccuracy (with a minimum penalty of EUR 60 and a maximum of EUR 10,000).
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • BOFiP BOI-BIC-BASE-80-10-20-20160203, §70
  • BOFiP BOI-BIC-BASE-80-10-20-20160203, §110
  • Note that BOFiP BOI-BIC-BASE-80-10-20-20160203, §190 includes certain precisions as regards the specific information to be prepared by enterprises operating within the banking industry.
  • BOFiP BOI-BIC-BASE-80-10-20-20160203, §215
  • Article L13 AA of the FTPC for the master file and local file and article 223 quinquies C of the FTC for the country-by-country reporting
  • BOFIP BOI-BIC-BASE-80-10-20-20160203, §240
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010
  • Interest rate of around 2% in 2016
  • BOFIP BOI-BIC-BASE-80-10-20-20160203, §150
  • BOFiP BOI-BIC-BASE-80-10-20-20160203, §280
  • BOFiP BOI-CF-INF-20-10-40-20170301, §130
  • The EUR 50m-threshold applies to tax years closed on or after 31 December 2016. For prior years, the threshold was the same as for the transfer pricing documentation, i.e. EUR 400m.
  • BOFIP BOI-BIC-BASE-80-10-20- 20170301, §413

Hungary
Contact
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
In Hungary, all Hungarian resident entities subject to corporate income tax, including permanent establishments (“PEs”) of foreign entities, are generally required to maintain a transfer pricing documentation (“TPD”) with regard to transactions made with affiliated entities. This applies even where the affiliated entity is wholly domestic, and is subject to only a few exceptions.
The principal exception concerns companies or PEs which qualify as a “small enterprise” on the last calendar day of the relevant financial year. These are exempted from the obligation to maintain TPD. A taxpayer will qualify as a “small enterprise” (and thus will not have to maintain TPD) if:
  • It has less than 50 employees; and
  • It has an annual net sales revenue or balance-sheet total not exceeding EUR 10m; and
  • The Hungarian State and/or any Hungarian Local Municipality, individually or in total, do not have a direct or indirect holding exceeding 25% in its voting stock or capital.

The above conditions must be satisfied at a consolidated level.
Medium-sized enterprises are exempted from having to maintain TPD in relation to long-term contracts which are made with affiliated companies for the purposes of making joint purchases and sales in order to overcome a competitive disadvantage. This, however, is subject to the proviso that the combined voting rights of small and medium-enterprise shareholders in the related party exceed 50%. Under the relevant Hungarian regulations, the taxpayer will qualify as a medium-sized enterprise if, on a consolidated basis:
  • It has less than 250 employees; and
  • It has an annual net sales revenue not exceeding EUR 50m or a balance-sheet total not exceeding EUR 43m; and
  • The Hungarian State and/or any Hungarian Local Municipality, individually or in total, do not have a direct or indirect holding exceeding 25% in its voting stock or capital.

Furthermore, no TPD has to be maintained if the taxpayer provides a non-repayable financial support, grant or any asset (including investment projects) to the Hungarian State or any Hungarian Local Municipality without consideration based on mandatory law.
The obligation for preparing transfer pricing documentation does not apply to:
  • Contracts concluded with private individuals (other than private entrepreneurs);
  • Taxpayers in which the Hungarian state has direct or indirect majority control;
  • Charitable not-for-profit organizations;
  • Transactions effected on the stock exchange or at an officially determined price. However, cases of insider trading, fraudulent attempts to influence exchange rates and applying prices in breach of legal regulations are not exempt;
  • Transactions where the net value of the transaction (or the aggregate value of very similar transactions) does not exceed HUF 50m (approximately EUR 159,400) in aggregate in the tax year;
  • Transactions when costs are recharged without applying any mark-up; provided that the service provider is not a related party of either the taxpayer or the cost bearing entity (if the recharge is made to more than one related party, it has to be proven that the method of dividing the costs among them is at arm’s length);
  • Transactions where the tax authority established the applicable arm’s length price in a resolution during the effective period of the resolution, provided that the facts included in the resolution are unchanged;
  • Gratuitous cash transfers;
  • Transactions carried out between a Hungarian resident taxpayer’s foreign PE and its related party, if the relevant double tax treaty exempts the income of such PE for Hungarian corporate income tax purposes;
  • Transactions between a foreign enterprise and its Hungarian PE if this transaction of the Hungarian PE is not subject to a Hungarian corporate income tax payment obligation on the basis of an international treaty.

2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
All transactions with associated enterprises must be documented. However, for low value adding intra-group services taxpayers may prepare TPD that encompasses a less detailed technical analysis. This type of documentation may only be applied if the net fair market value of the transaction does not exceed HUF 150m (approximately EUR 478,200) in the given tax year, and also does not exceed 5% of the service provider’s net income or 10% of the recipient’s operational costs and expenditures (whichever is applicable to the entity preparing the TPD) in the tax year in question. In this case, the cost plus method is accepted without a separate analysis, and mark-ups between 3% and 10% are considered by the law to be at arm’s length.
In principle, TPD has to prepared separately for each transaction, however, a consolidated TPD may be prepared with respect to several transactions if the requirement of comparability is respected, and the subject of the agreements are the same or similar, or if the transactions are closely connected to each other. The fact of consolidation should be justified in detail in the TPD.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
The relevant Hungarian definition of related parties basically states that two taxpayers will generally be regarded as related parties when one of them has direct or indirect majority control over the other. This also applies when a third person has such influence on two other persons (which makes those two persons “related”). The definition also applies to a head office and its PE. The term “majority control” is defined by the Hungarian Civil Code, according to which an individual or a legal entity has majority control in another entity if:
  • It holds more than 50% of the votes in the other entity, either directly or indirectly;
  • One of its members or shareholders is entitled to appoint or dismiss the majority of executive officers and/or supervisory board members of the other entity; or
  • One of its members or shareholders controls, under an agreement with other members or shareholders, more than 50% of the votes in the other entity.

In addition to the above, two taxpayers are also related if a dominating influence is exercised on the business and financial policies of the two, due to the fact that they share the same management.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
As of 1 January 2010 a new Ministry of Finance decree on transfer pricing documentation requirements (“the Decree”) has come into force and was further amended as of 1 January 2012, aiming to bring the Hungarian legislation more into line with the EUTPD. However, this goal has only been partially achieved.
The Decree allows taxpayers to choose to adopt the EU masterfile/country file approach (as set out in the EUTPD) instead of unitary documentation.
However, it does not avoid the need to analyse each agreement/transaction separately. This means that in many (if not most) cases, it will be very difficult to save costs by using a masterfile for all EU companies in a group as the most costly analyses will still need to be prepared and presented on a transactional basis.
The masterfile should contain standardised information relevant for all EU group members. According to the relevant provisions these include the following:
  • A general description of the business and business strategy (including changes in business strategy from the previous tax year);
  • A general description of the group’s organisational, legal and operational structure;
  • General identification of the associated enterprises which are engaged in controlled transactions involving enterprises in the EU;
  • A general description of intercompany transactions (by listing the major transactions);
  • A general description of functions performed and risks assumed;
  • A description of the ownership of intangible assets, including amounts of royalties paid and/or received;
  • The group’s intercompany transfer pricing policy, or a description of the group’s transfer pricing system;
  • A list of cost contribution agreements, advance pricing agreements (“APAs”) and court decisions covering transfer pricing aspects;
  • A summary of any pending court or administrative proceedings relating to the determination of arm’s length consideration;
  • The date of preparation and amendment of the masterfile.

According to the current Hungarian legislation the “country file” (which is to be prepared on a transaction by transaction basis, not simply on a country basis) should contain at least the following items:
  • The name, seat and tax number of the related entity (if the latter is unavailable, the company registration number and the name of the court or authority with which it is registered);
  • A general description of the taxpayer’s business and business strategy (including changes in its business strategy from the previous tax year);
  • The subject of the agreement, the date it was made or amended, and its term;
  • A comparability analysis (main attributes of the goods or services provided, functional analysis, terms of the agreement, economic conditions, specific business strategy);
  • A description of the comparables used;
  • A description of how the group transfer pricing policy was applied (with particular reference to the method used to establish fair market value);
  • The date of preparation and amendment of the country file.

Please note that, if the group so decides, any of the above mentioned items can be included in the masterfile. However they should be as detailed as is required in the case of the country file.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
Yes, the content prescribed by the Decree is fundamentally similar to the content of Annexes I and II to Chapter V of the publication entitled “OECD/G20 Base Erosion and Profit Shifting Project, Transfer Pricing Documentation and Country-by-Country Reporting, Action 13: 2015 Final Report”, even though the latter document contains more detailed requirements than the domestic Hungarian Decree.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Generally, there is no obligation for a foreign taxpayer to provide information directly to the Hungarian tax authority.
At the same time, if a CbCR has to be prepared in Hungary by a Hungarian group member other than the ultimate parent company (see in greater detail in point 3 of section B below), this group member will request the necessary data from the ultimate parent company. If this request is unsuccessful, the Hungarian group member has to inform the Hungarian tax authority of this fact. In this case, the Hungarian tax authority will inform the competent tax authority of the ultimate parent company of the incomplete data and will also determine whether penalties should be imposed (see point 5 of section B on CbCR below).
Other than the above, the Hungarian Tax Authority (“HTA”) can ask the foreign tax authority of another EU country or of another treaty country to collect information available in the other state.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
In general, regional benchmark studies are accepted by the HTA.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
The Hungarian legislation provides simplifications regarding low value adding intra-group services as follows. Under the circumstances described in response to question 2 a) above (i.e. the net fair market value of the transaction may not exceed HUF 150m, and may also not exceed either 5% of the net income of the service provider or 10% of the operational costs and expenditures of the recipient), no separate analysis has to be carried out. Instead, a cost plus method is accepted and a mark-up in the range of 3% to 10% is automatically recognised.
The Decree provides an exhaustive list of low value adding intra-group services, such as:
  • Information-technology services;
  • Real estate transactions;
  • Professional, scientific, research and technical activities;
  • Educational services;
  • Administrative services;
  • Transportation, cargo handling, warehousing and storage services;
  • Other services (e.g. accommodation, guarding services etc.).

h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
As of 1 January 2012 the HTA accepts TPD and the related supporting documents not only in Hungarian, but also in English, German and French.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
The deadline for preparing TPD is the statutory deadline for filing the taxpayer’s Hungarian corporate income tax return in respect of the foregoing tax year. Assuming that the business year of the taxpayer corresponds to the calendar year, the TPD is required to be in place by 31 May of the calendar year following that in which the intercompany transaction was concluded (provided further that any performance was effected on the basis of the agreement in such year).
It is not necessary to submit the documentation to the HTA, but it should be kept on file and ready to be shown to the HTA if requested during an audit. The statute of limitations in Hungary (for tax purposes) is generally six years (seven in extreme cases).
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
If the taxpayer was liable to keep internal records but failed to do so, or the TPD was incomplete, and the HTA establishes this during a tax audit, it may impose a fine on the taxpayer of up to HUF 2m (approximately EUR 6,400) for each missing or incomplete TPD set and up to HUF 4m (approximately EUR 12,800) in the event of repeated non-compliance. Furthermore, in the event of a repeated offense concerning the same transaction, the penalty may be four times that previously levied. Consequently, the HTA may levy the maximum default penalty even where the TPD was available, but had not been prepared in accordance with the relevant provisions of Hungarian legislation.
In practice, the penalty is often levied in cases where the HTA can prove (e.g. on the basis of the data used for the benchmarking study) that the TPD was not available at the statutory deadline despite being available at the time of the audit.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
If the taxpayer has prepared appropriate TPD in relation to its related party transactions, the HTA bears the burden of proof, i.e. the HTA has to prove that the arm’s length price presented in the TPD is not adequate. However, if the HTA has established during a tax audit that the taxpayer has no documentation, or that its documentation is inadequate, it may determine the appropriate pricing level itself. Few restrictions apply in this regard. Formally, the HTA would still need to justify its findings, but as it would not be constrained by any existing TPD the taxpayer would have to prove that the HTA’s analysis was wrong. Thus, the burden of proof would effectively be shifted to the taxpayer.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
No special provision exists in Hungary in this regard, thus only the Arbitration Convention is relevant and this only applies to EU countries. According to Hungary’s declaration in relation to article 8 of the Convention, it reserves the right to deny the mutual agreement procedure only in cases of criminal penalties, or penalties which relate to unpaid taxes exceeding HUF 50m (approximately EUR 160,000). This means that the procedure under the EU Arbitration Convention may not be denied solely on the basis of the HUF 2m procedural penalty for not having drawn up a TPD. However, in the case of a re-assessment, the procedure may theoretically be denied, if the re-assessment results in unpaid taxes exceeding HUF 50m. This would however correspond to a tax base re-assessment of approximately EUR 1.77m.
7. Any other relevant aspect not addressed above?
No.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
Yes, the CbCR reporting obligation has been implemented into Hungarian law as of 31 May 2017.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
The obligation of the ultimate parent company applies, for the first time, to the tax financial year starting on 1 January 2016 or afterwards. The obligation of another group member (as detailed in point 3 below) arises for the financial year starting on 1 January 2017 for the first time. The deadline is 12 months after the end of the financial year.
3. Which taxpayers have to file a CbCR in your jurisdiction?
Primarily, the ultimate parent company would be obliged to file a CbCR, if such entity is a Hungarian resident entity. Other Hungarian resident group member is obliged to file a CbCR only if either of the following applies and there is no other group member who files CbCR for all EU-based group members:
  • the ultimate parent does not have to file a CbCR in the country of its residence;
  • Hungary does not have an agreement with the country of residence of the ultimate parent, which would cover the forwarding of the CbCR of the ultimate parent company to Hungary;
  • the automatic information exchange has been suspended between the country of the residence of the ultimate parent company and Hungary.

Notwithstanding the above, no CbCR has to be filed if the multinational corporate group’s consolidated revenues are less than EUR 750m in the preceding financial year.
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Essentially yes.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
The penalty for non-filing or the filing of incomplete, wrong or false data, as well as for late filing, and the failure to report statutory data (e.g. on the fact that the Hungarian entity is obliged to prepare CbCR, etc.) could be up to HUF 20m (approx. EUR 63,800), unless the entity obliged to file a CbCR justifies that it acted with due care as could be expected in the given situation.
The local subsidiary of a foreign group could be penalised only if it was directly liable for the filing of a CbCR in Hungary. Otherwise, the local subsidiary cannot be held liable for the non-compliance committed by another group member.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
The general exchange of information clauses in the double tax treaties are available for this purpose. In addition, the automatic exchange of information rules provided under Council Directive (EU) 2016/881 of 25 May 2016 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation have also been incorporated into the Hungarian legislation as from 31 May 2017. Furthermore, Hungary signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports on 1 December 2016, i.e. it is obliged to automatically provide CbCR data to the relevant signatories to this Agreement.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
The name, seat and tax number of each related entity with whom a contractual relationship is made have to be reported to the Hungarian Tax Authority. Similarly, the termination of being related with such party also has to be reported.
Cash payments in excess of HUF 1m (approximately EUR 3,200) have to be reported to the Hungarian Tax Authority within 15 days.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
The necessary data (including the name, the seat and the tax number of the related party) has to be reported to the Hungarian Tax Authority in writing, by completing an official form in Hungarian.
3. What is the deadline for meeting this documentation/filing requirement?
The form has to be submitted within 15 days of entering into a contract with the related party for the first time. The termination of a related party relationship also has to be reported within 15 days.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
The obligation affects all taxpayers concerned.
5. What is the penalty for failing to meet this requirement on time?
A default penalty of up to HUF 500,000 (approximately EUR 1,600) can be levied for non-compliance with the above reporting obligation.
6. Any other relevant aspect not addressed above?
No.

References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Italy
Contact
Giovanni Battista Calì, giovanni.cali@cms-aacs.com
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
There is no specific provision of law which obliges Italian taxpayers to maintain proper transfer pricing documentation. However, it is advisable for them to maintain such documentation in readiness for a possible assessment by the tax authorities. Moreover, there is a penalty protection regime that excludes the possibility to apply penalties in case of transfer pricing assessment if the taxpayer (i) has prepared proper transfer pricing documentation and (ii) has informed the Italian Revenue Agency about the existence of such documentation (to that end a specific box has to be marked in the relevant tax return). It is basically a matter of disclosure, i.e. if pricing policies are disclosed (through proper transfer pricing documentation) the assessment is however possible but penalties on assessed amounts may not be imposed.
2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
All transactions with associated enterprises, except those that may be considered “residual” (i.e. transactions that, even if not taken into account, are not able to affect the reliability of the entire analysis).
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
Under the Italian income tax code (Presidential Decree 22 December 1986, N. 917), transfer pricing rules apply in cases of “control”. This means that one company is considered to be associated to another if the former (i) is controlled by the latter, (ii) controls the latter or (iii) is controlled by the same entity that controls the latter. Both legal control (i.e., direct or indirect participation in the majority of the capital of the company) and de facto control should be taken into account.
Transactions between a permanent establishment and its head office are included in the scope of the documentation requirement.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Both taxpayers and tax authorities usually refer to EU TPD. However, in order to apply the above mentioned penalty protection regime there is a specific format required by the Italian Revenue Agency.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
Yes, but in order to apply the above mentioned penalty protection regime there is a specific format required by the Italian Revenue Agency.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Taxpayers who are not established in Italy do not need to provide any particular information upon request. However, the Italian tax authorities might start an exchange of information procedure with the country where the taxpayer is established. Moreover, taxpayers who are established in Italy should be ready to provide certain information on other entities of the group that are not established in Italy, in order to support the transfer prices that have been adopted.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
Yes, but only if there are no Italian comparables and it is demonstrated that the market to be taken into account is the European one and not the Italian one.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
Taxpayers are never exempted from preparing benchmark studies if they want to invoke the above mentioned penalty protection regime. However:
  • benchmark studies may be avoided for intragroup transactions that have a marginal value;
  • benchmark studies may be updated every three years if the taxpayer has a turnover not exceeding EUR 50m (assuming the business model and economic conditions remain unchanged);
  • safe harbours were set for royalties in the ‘80s by a circular letter of the Tax administration; the latter sometimes still makes reference to these safe harbours.

h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
It has to be in Italian.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
Upon specific request from the tax authorities
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
Documentation-related penalties do not apply in Italy, since the preparation of proper transfer pricing supporting documentation is not an obligation but rather an option to get penalty protection.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
In theory, the absence or incompleteness of documentation does not reverse the burden of proof. However, in practice, in order to face tax authorities challenges to the adopted transfer prices, the taxpayer should not only oppose their calculations point by point, but also provide its own reconstruction of the said prices.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
Not applicable (documentation-related penalties are not provided for by Italian law).
7. Any other relevant aspect not addressed above?
Not applicable.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
The 2016 Finance Bill has introduced a new provision relevant to CbCR. This provision entered into force on 1 January 2016. However, its practical application requires the adoption of a decree by the Ministry of Finance that is still missing (even if it should have been issued within March 2016).
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
These aspects should be regulated by the above mentioned decree. However, also considering the existing proposal to amend EU rules on exchange of information, the first CbCR should be relevant to the 2016 tax year.
3. Which taxpayers have to file a CbCR in your jurisdiction?
The obligation should apply to resident controlling companies obliged to file consolidated accounts that have a consolidated turnover of at least 750m euro and that are not controlled by persons other than individuals.
The obligation should also apply to resident controlled companies in case the relevant controlling company that is obliged to file consolidated accounts is resident in a Country that has not introduced CbCR or has not concluded with Italy an exchange of information agreement that allows to exchange CbCR information or is in breach of such agreement.
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
The consistency of the Italian CbCR with the OECD model may not yet be verified since the above mentioned decree is still missing. However, based in the information available so far, the Italian approach should be consistent with the OECD standard.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
A specific penalty, ranging between EUR 10,000 and EUR 50,000, has been introduced. It should be applicable in case of violations of Italian filing obligations (not also in case of violations of foreign filing obligations).
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
No.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
No. However, intragroup transactions have to be detailed in the annual financial statements. Moreover, limited information on intragroup items of income have also to be reported in the annual income tax return. Furthermore, there are particular rules applicable in particular cases (see disclosure requirements applicable to banks based on Art. 89 of the UE Directive No. 36 of 26 June 2013)
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
Information to be provided in the annual financial statements include – but may be not limited to – a table showing the amount of intragroup commercial and financial receivables and payables at yearend, as well as the amount of intragroup commercial and financial revenues and costs of the year.
Information to be provided in the annual income tax return are limited to the existence of a control relationship involving a foreign entity (as direct or indirect parent or subsidiary), the total amount of intragroup revenues and the total amount of intragroup costs.
The use of Italian language is requested.
3. What is the deadline for meeting this documentation/filing requirement?
The annual financial statements, showing the above mentioned information, usually have to be approved within four months from yearend and filed with the Chamber of Commerce for publication within the following month.
The annual income tax return, showing the above mentioned information, usually has to be filed with the Revenue Agency within nine months from yearend.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
With regard to the information to be included in the annual financial statements, in general the obligation does not apply to small size companies. To that end, small size companies are those not exceeding for two subsequent years at least two of the following thresholds: EUR 4.4m of total assets, EUR 8.8m of revenues and 50 employees on average during the year.
With regard to the information to be included in the annual income tax return, the obligation applies to all taxpayers.
5. What is the penalty for failing to meet this requirement on time?
There is no specific penalty (ordinary fixed penalties for incompleteness of documentation are however applicable).
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Japan
Contact
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Yes. Japan has substantially amended the transfer pricing documentation requirements by the 2016 annual tax reform, to incorporate obligations to maintain and submit the master file and the country-by-country report (CbCR), closely in accordance with the BEPS Action Plan. In addition, the documentation that was required to be prepared before the BEPS Action Plan has now been designated as the local file in accordance with the BEPS Action Plan, and the requirement has now become contemporaneous as to certain significant intra-group transactions.
Generally, the master file and the CbCR must be submitted by the ultimate parent Japanese taxpayer whose consolidated turnover is JPY 100bn or more in its consolidated financial (accounting) statements for the immediately preceding fiscal year. An ultimate parent Japanese taxpayer that does not meet the above threshold is exempted from submitting the master file and the CbCR.
As to the local file, all Japanese taxpayers that are engaged in intra-group transactions must prepare it regardless of the volume of turnover or assets. There is no exemption to this requirement. In addition, the requirement to prepare the local file has now become a contemporaneous documentation requirement, meaning that the Japanese taxpayer must prepare the local file by the due date of filing a corporation tax return for the relevant fiscal year (generally 2 or 3 months after the close of that fiscal year), and if requested in the transfer pricing audit, must submit it to the transfer pricing audit examiner within 45 or 60 days as designated by the examiner in the audit. However, a Japanese taxpayer, whose total transaction volume with one given foreign affiliate is less than JPY 5bn and the transaction volume regarding intangibles transactions with that foreign affiliate is less than JPY 300m, shall be exempted from the contemporaneous documentation requirement only with respect to the intra-group transaction with that foreign affiliate (but not for all other intra-group transactions), i.e., the Japanese taxpayer may only submit the local file to the transfer pricing audit examiner within 60 days as designated by the examiner in the audit.
2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
All intra-group transactions with foreign affiliates must be documented as a local file.
As mentioned above, some documentation shall be contemporaneous, but some are not.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
The threshold to determine whether a Japanese corporation and a foreign corporation are affiliated, or, whether the foreign corporation falls under the concept of a“foreign affiliated person”of the Japanese corporation as defined under Article 66-4 of the Special Taxation Act, is determined principally by whether there is a shareholding relationship of 50% or more (not, more than 50%) of all the issued and outstanding shares. The shareholding relationship includes direct and indirect shareholding, and includes not only vertical shareholding relationship (e.g., subsidiary and parent) but also horizontal shareholding relationship (i.e., sister companies directly or indirectly controlled by common parent company).
For example, if a Japanese corporation forms a joint venture corporation in a foreign jurisdiction where the Japanese corporation and the foreign joint venture partner each hold 50% of all the issued and outstanding shares of the joint venture, the joint venture corporation is a“foreign affiliated person”of the Japanese corporation because there is a shareholding relationship of 50%, and the transactions between them will be subject to Japanese transfer pricing rules. In other words, even if the foreign joint venture partner holds another 50% of the foreign joint venture and the Japanese company may not have full control of the foreign joint venture, this will not exempt application of the Japanese transfer pricing rules. This has been made clear by the amendment to the Directive in June 2010; the Directive provides that such a fact pattern should be taken into consideration only for the purpose of examining whether the transaction was made at the arm’s length price, based on an assumption that the transfer pricing rules do apply.
Even if the shareholding relationship does not amount to 50%, a foreign corporation could be considered a“foreign affiliated person”of the Japanese corporation by virtue of certain substantive determination rules. That is, if one party (i.e., a Japanese corporation or a foreign corporation, as the case may be) can substantially determine the whole or part of the business policies of the other party (i.e., the foreign corporation or the Japanese corporation, as the case may be), due to the fact that (i) a majority of the officers or officers having representative authority of such other party are comprised of present or past officers or employees of the former party, (ii) the substantial part of the business activities of such other party depends upon transactions with the former party, (iii) such other party procures substantial part of the working capital required for its business by way of loan from the former party or guarantee by the former party, or (iv) any other facts similar to the foregoing, then the foreign corporation will be considered a“foreign affiliated person”of the Japanese corporation, even if there is no 50% or more shareholding relationship between them. There are other detailed determination rules in the Cabinet Order to ensure that there will be no loopholes in applying the Japanese transfer pricing rules (i.e., so that taxpayers cannot deliberately avoid application of the Japanese transfer pricing rules by structuring the shareholding relationship or other aspects of controlled transaction) where Japanese transfer pricing rules ought to apply as a matter of economics.
Japan has recently adopted the so-called AOA (“authorised OECD approach to the attribution of profit”) rules, and, as such, transactions between a Japanese permanent establishment and the headquarter of the foreign corporation is subject to the transfer pricing rules and to the documentation requirement, substantially in the same manner as regular intra-group transactions between a Japanese taxpayer and its foreign affiliate.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Not applicable.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
Yes. As a general observation, Japan closely follows the OECD Guidelines and the BEPS Action Plan. The regulations provide that the required transfer pricing documentation as the local file will include the following items:
  • Terms and substance of controlled transactions with foreign affiliates, including:
    • details of assets and services pertaining to the controlled transaction;
    • functions performed and risks assumed by the taxpayer and the foreign affiliate in the controlled transaction (including changes due to business reorganizations);
    • details of intangibles used by the taxpayer and the foreign affiliate in the controlled transaction;
    • contractual documents pertaining to the controlled transaction;
    • details of the mechanism to determine the amounts paid by the taxpayer to, or received by the taxpayer from, the foreign affiliate under the controlled transaction, as well as the details of the negotiation over such determination;
    • details of respective profits and losses of the taxpayer and the foreign affiliate pertaining to the controlled transaction (i.e., segmented P&Ls) as well as the process of their computation;
    • market analysis and other market information pertaining to the controlled transaction as well as the analysis of the effect upon the arm’s length price;
    • business policies, organization charts and busines outline of the taxpayer and the foreign affiliate; and
    • details of other transactions closely related to the controlled transaction, if any, as well as the reasons why they are closely related.
  • Justification of the arm’s length price of the controlled transaction, including:
    • the transfer pricing methodology adopted by the taxpayer for the controlled transaction, as well as the reasons for the adoption and the critical assumptions for that methodology;
    • the process of selection of comparables for the controlled transaction and the details of the selected comparables including financial data of these comparables;
    • if the taxpayer adopted the profit split method as the transfer pricing methodology, computation of respective profits of the taxpayer and the foreign affiliate, such as the factors used for the profit split;
    • if the taxpayer computed the arm’s length price by treating several controlled transactions as one integrated transaction, the reasons for such computation and details of each of such controlled transactions; and,
    • if the taxpayer made an adjustment of differences with respect to the comparables, the reasons for and the method of such adjustment.

e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
The Japanese tax authorities cannot exercise their audit and examination authority directly over a foreign affiliate of the Japanese taxpayer. However, under the Japanese transfer pricing rules, the Japanese tax authorities are entitled to request the Japanese taxpayer to produce books and records maintained by its foreign affiliate.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
If the tested party is a Japanese corporation, the general tendency of the practice of the Japanese tax authorities is that the universe of the comparables search shall be Japanese corporations doing business in Japan. In other words, the regional universe (Asian or far-east Asian) may not be accepted.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
In general, to the extent that the applicable transfer pricing methodology is determined to be the transactional net margin method or the residual profit split method, there is no exemption for the comparables study requirement. All transactions with all foreign affiliates must be supported by the comparables analysis, which is part of the documentation (local file) requirement as mentioned above. However, if the subject controlled transaction is provision of intra-group services that are ancillary to the core/main business of the taxpayer or are of an administrative nature (e.g., preparation and management of budget, management and maintenance of IT system, etc.), there is sort of a safe harbour that the taxpayer may treat the total costs (direct and indirect, without a mark-up) for the provision of these services as an arm’s length price.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
As for the local file, Japanese must be used. If not, the transfer pricing audit examiner may request a Japanese translation.
The master file can be either in English or in Japanese. The CbCR must be prepared in English.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
As to the local file, the Japanese taxpayer must prepare it by the due date of filing a corporation tax return for the relevant fiscal year (generally two or three months after the close of that fiscal year), and if requested in the transfer pricing audit, must submit it to the transfer pricing audit examiner within 45 or 60 days as designated by the examiner in the audit. However, a Japanese taxpayer, whose total transaction volume with one given foreign affiliate is less than JPY 5bn and the transaction volume regarding intangibles transactions with that foreign affiliate is less than JPY 300m, shall be exempted from the contemporaneous documentation requirement only with respect to the intra-group transactions with that foreign affiliate, i.e., the Japanese taxpayer may only submit the local file to the transfer pricing audit examiner within 60 days as designated by the examiner in the audit.
As to the master file and the CbCR, these must be submitted within one year from the day immediately following the close of the relevant fiscal year of the ultimate parent taxpayer.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
Failure to comply with the request for submission of the local file to the transfer pricing audit examiner could result in a transfer pricing assessment on the basis of presumption by the Japanese tax authorities, as well as associated deficiency penalty tax (as normally imposed; generally 10% of deficiency of tax assessed). That is, the Japanese tax authorities are entitled to issue a transfer pricing assessment by using a presumed arm’s length price using certain prescribed methodologies. This means that, if the taxpayer wishes to avoid a transfer pricing assessment on the basis of presumption by the Japanese tax authorities (which should be the case for all transfer pricing audits), the taxpayer must have prepared the required local file in good order and be ready to submit them to the Japanese tax authorities by the designated date upon request in a transfer pricing audit. However, there is no special penalty directly linked to noncompliance with the documentation requirement per se. Note that, even if the taxpayer complies with the documentation requirement of the local file, while it is able to avoid the presumption, it will not follow that the taxpayer’s transfer pricing methodology and the price computed thereunder will bind the Japanese tax authority and will be respected as the arm’s length price. In other words, the taxpayer could still be subject to normal transfer pricing assessment and deficiency penalty tax as a result of the audit.
As is obvious from the items that are required to be provided in the documentation as set out above, it could be very onerous to comply with the requirement. These are not mere facts or numbers or mere retention of books and records, but require quantitative and qualitative analysis and evaluation of transfer pricing especially from an economic viewpoint. This would entail not only an administrative burden, but also require the taxpayer to maintain consistency in its overall transfer pricing policy applicable throughout all controlled transactions. Taxpayers should be reminded of the necessity to establish a consistent global transfer pricing policy that could survive scrutiny in a transfer pricing audit.
On the other hand, failure to submit the master file or the CbCR by the due date without any justifiable reason shall be subject to a criminal fine of up to JPY 300,000. No such criminal fine applies to the local file.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
No. The general principle is that the Japanese tax authorities who issue a transfer pricing assessment bear the burden of proof that the transfer pricing computation by that assessment is correct. It would be wrong to interpret that the introduction of the new documentation requirement effectively shifts the burden of proof from the Japanese tax authorities to the taxpayer in a transfer pricing dispute; in other words, the amendment should have no adverse effect upon the burden of proof issues in a transfer pricing dispute. However, if a transfer pricing assessment on the basis of presumption is invoked due to the failure to submit the local file in a timely manner (see question 4 above), the taxpayer would owe the burden of proof to reverse that presumption, i.e., to establish its own arm’s length price.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
No. There is no such rule.
7. Any other relevant aspect not addressed above?
Not applicable.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
Yes, as mentioned above.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
The obligation applies from the fiscal year beginning on or after 1 April 2016. The first CbCR shall be due by the end of March 2018 for Japanese taxpayers having a fiscal year ending in March, i.e., within one year from the day immediately following the close of the relevant fiscal year.
3. Which taxpayers have to file a CbCR in your jurisdiction?
The CbCR must be submitted by the ultimate parent Japanese taxpayer whose consolidated turnover is JPY 100bn or more in its consolidated financial (accounting) statements for the immediately preceding fiscal year. An ultimate parent Japanese taxpayer that does not meet the above threshold is exempted from submitting the CbCR.
A Japanese subsidiary of a foreign corporation that is the ultimate parent company of a multinational group does not, in principle, have to submit the CbCR (rather, that ultimate parent company shall submit the same unless exempted under the above threshold). However, as an exception, the Japanese subsidiary is required to submit the CbCR only if (i) the laws of the jurisdiction of the ultimate parent company do not implement a regime to mandate submission of the CbCR, (ii) the jurisdiction of the ultimate parent company has not signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA), or (iii) the jurisdiction of the ultimate parent company falls under any of the specific countries or regions that are designated by a notice issued by the Japanese tax authority as being unable to provide information to the Japanese government (which notice, however, is not yet published as of April 2017).
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Generally yes.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
Failure to submit the CbCR by the due date without any justifiable reason shall be subject to a criminal fine of up to JPY 300,000. This penalty applies to the legal entity that is obligated to submit the CbCR (see question 3 above). As such, local Japanese subsidiaries of a foreign group are not subject to that penalty even if their ultimate parent company does not submit the CbCR, so long as it is the ultimate parent company that is obligated to submit the CbCR. However, under exceptional circumstances where the local Japanese subsidiary shall submit the CbCR (see question 3 above), if it fails to comply with the obligation, it is subject to the penalty.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
Yes, as Japan has signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (CbC MCAA). Also, the tax treaties that Japan has recently concluded incorporate provisions regarding effective information exchange.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
In addition to the documentation requirement discussed above, all corporate taxpayers who engage in any intra-group transactions with foreign affiliates must attach to their corporate tax returns a statement concerning foreign affiliated persons, referred to as Schedule 17(4).
The information to be disclosed on Schedule 17(4) is mere facts or numbers, and may not be very onerous to fill in. However, taxpayers should bear in mind that the information disclosed in Schedule 17(4) will be the basis for the Japanese tax authorities to conduct a transfer pricing audit. If there is any inconsistency between the information provided in Schedule 17(4) and the taxpayer’s position on transfer pricing in a tax audit (especially, the transfer pricing methodology), it would be a problem. As such, taxpayers must be cautious in preparing Schedule 17(4) bearing in mind a possible future transfer pricing audit.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
The statement requires disclosure of certain facts relating to the foreign affiliated persons and the controlled transactions, including the following:
  • Corporate details, including (i) corporate name, (ii) headquarters, (iii) principal business, (iv) number of employees, (v) amount of stated capital, (vi) classification/type of affiliated relationship, and (vii) shareholding ratio;
  • Profit/loss status of the foreign affiliated persons for the latest fiscal year, including (i) gross sales or turnover, (ii) operating expenses (costs of goods sold, and sales, general and administrative expenses), (iii) operating profits, (iv) earnings before taxes, and (v) retained earnings;
  • Status of controlled transactions with foreign affiliated persons, including (i) type of controlled transactions (sale and purchase of inventory, provision of services, royalties for use of tangible property, royalties for use of intangible property, interest on loans, or other transactions), (ii) total amount received from or paid to the foreign affiliated persons, with respect to each type of the controlled transactions, and (iii) transfer pricing methodology adopted by the taxpayer, with respect to each type of the controlled transactions
  • Whether or not the taxpayer obtained an advance pricing arrangement (also referred to as “APA”) with respect to the foreign affiliated persons

3. What is the deadline for meeting this documentation/filing requirement?
By the due date of filing a corporation tax return, i.e., within 2 or 3 months from the close of the relevant fiscal year.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
This applies to all taxpayers engaged in any intra-group transactions with foreign affiiates.
5. What is the penalty for failing to meet this requirement on time?
There is no penalty.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Republic of Korea
Contact
Shin-Jong Kang, sjkang@yoonyang.com
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
According to the legislative actions to implement BEPS, the Law for the Coordination of International Tax Affairs (“LCITA”), which is the Korean transfer pricing regulations, was revised to require certain Korean taxpayers engaged in international transactions to prepare and submit transfer pricing documentation (hereinafter referred to as “Combined Report of International Transactions Information” or “CRITI”), which is comprised of the Master File, Local File and Country-by-Country Report (“CbCR”) of the BEPS Action 13 final report, within 12 months from the parent company’s fiscal year-end.
This new transfer pricing documentation rules is effective since 1 January 2017. Thus, the taxpayers in the scope of this documentation requirement having the fiscal year-end at 31 December 2016 should submit the first CRITI by 31 December 2017.
If the total international related party transaction is KRW 50bn (including service, tangible and intangible transactions) or more and the total revenue of a taxpayer in Republic of Korea is KRW 100bn or more for a fiscal year, the taxpayer should mandatorily prepare and submit the Master file and the Local file to the tax authorities.
Other taxpayers below the above threshold are still required to maintain reasonable transfer pricing documentation (hereinafter referred to as “Contemporaneous Transfer Pricing Documentation”) by the due date of filing the corporate tax returns and submit them within 30 days upon the Korean tax authorities’ request. In this case, if the taxpayers submitted to the tax authorities a Contemporaneous Transfer Pricing Documentation prepared in good-faith and reasonably, an underreporting penalty tax (i.e., 10% penalty on additionally levied corporate income tax) may be waived.
2. What is the content of the documentation that must be prepared?
The content of the CRITI closely follows BEPS Action 13’s Master File, Local File and CbCR. The content of the Contemporaneous Transfer Pricing Documentation is similar to that described in the existing Chapter V of the OECD Transfer Pricing Guidelines.
Furthermore, the Korean tax authorities may ask the below information along with the Contemporaneous Transfer Pricing Documentation as specified in the LCITA.
  • Various relevant contract documents concerning the transfer or purchase of assets;
  • Price list of products;
  • Statement of manufacturing costs;
  • Specification of trades by item, distinguishing between the related parties and the unrelated parties;
  • Documents corresponding to subparagraphs 1 through 4, in the cases of the offer of services or other trades;
  • Organizational chart of a corporation and a table of division of office duties;
  • Data for determination of international trade prices;
  • Internal guidelines for pricing among the related parties;
  • Accounting standards and methods relating to the relevant trades;
  • Details of business activities of the parties involved in the relevant trades;
  • Current status of mutual investments with the specially-related parties;
  • Forms or items omitted at the time of returns on the corporate income tax;
  • Materials related to service transaction;
  • Materials related to cost sharing arrangement
  • Other data necessary for computing proper prices

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
All transactions with associated enterprises should be documented.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
The special relationship for “associated enterprises” exists if one party owns directly or indirectly 50 percent or more of the total shares of another party or has substantial control and common interests exist between both parties. Also, transactions between a permanent establishment and its head office are required for transfer pricing documentation.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Not applicable.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
The content of the CRITI closely follows BEPS Action 13’s Master File, Local File and CbCR. The content of the Contemporaneous Transfer Pricing Documentation is similar to that described in the 2010 Chapter V of the OECD Transfer Pricing Guidelines.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Yes. According to the Korean corporate income tax law, for both domestic corporations which have their headquarters, main office or actual business management place in Republic of Korea and foreign corporations located in foreign countries with income from Republic of Korea, if they have the obligations for payment of the corporate income tax in Republic of Korea, they have the responsibility for preparing or submitting any specific information requested by the Korean tax authorities.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
The LCITA does not clearly stipulate whether the local Korean comparable transactions or Korean companies should be used as a basis for constructing arm’s length ranges. Regional benchmark studies may be accepted by the Korean tax authorities when local comparable transactions or Korean companies are not sufficiently available. However, in a practical sense, the Korean tax authorities strongly prefer the use of the local benchmarking study containing Korean comparable companies included in the KIS Line, which is a local electronic database, especially during the tax audit.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
The Korean tax authorities have not explicitly adopted safe harbours in deriving arm’s length price, and thus, benchmarking studies are generally requested. For instance, the Korean transfer pricing regulation has not yet adopted the OECD BEPS’ approach for low value-adding services (i.e., application of a 5% mark-up without benchmarking analysis).
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
The “Local File” and the Contemporaneous Transfer Pricing Documentation should be prepared and submitted in Korean. Exceptionally, the “Master File” can be firstly prepared and submitted in English, but if a translation of the Master File into Korean is required, it should be submitted within 1 month from the original submission date.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
In general, transfer pricing documentation must be submitted within 60 days upon the Korean tax authorities’ request. A one-time extension of 60 days may be allowed when justifiable reasons exist. However, a taxpayer should submit the Contemporaneous Transfer Pricing Documentation within 30 days upon the Korean tax authorities’ request in order to receive the potential benefit of the 10% penalty waiver.
According to the newly enacted transfer pricing documentation rule in Republic of Korea, the deadline for filing the Master file, Local file and CbCR is within 12 months from the parent company’s fiscal year-end.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
The penalty of KRW 10m will be imposed for failure to comply with the complete submission of each of the Master file, Local file and CbCR by the due date, or for submission of the Master file, Local file and CbCR containing false information. Therefore, the total documentation-related penalties could be KRW 30m.
Although there is no specific penalty for failure to prepare the Contemporaneous Transfer Pricing Documentation, the failure for submission of transfer pricing documentation within due date upon the tax authorities’ request would eliminate the underreporting penalty tax waiver. In addition, a penalty up to KRW 100m may be imposed for failure to provide transfer pricing information within due date (generally 60 days from the request) upon the Korean tax authorities’ request.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
Yes, the absence or incompleteness of documentation will reverse the burden of proof as regards the arm’s length character of the transactions. In such cases, generally, the Korean tax authorities will prepare the arm’s length analysis and apply it to the related transactions with a view to determine the transfer pricing adjustment.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
The documentation-related penalty with a transfer pricing reassessment does not prevent the taxpayer from initiating any mutual agreement procedure. The mutual agreement procedure (“MAP”), however, may not be permissible in case that (i) there is a judgement conclusion from the court, (ii) the purpose for MAP is to avoid tax, or (iii) a taxpayer applies for the MAP after 3 years from the date of tax assessment.
7. Any other relevant aspect not addressed above?
Not applicable.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
Yes. Under the revised LCITA, the CbCR is required to be filed effective from 2017.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
Under the revised LCITA, a taxpayer who meets the conditions for filing a CbCR should comply with the filing requirements effective from 2017. The deadline for filing a CbCR is within 12 months from a ultimate parent company’s fiscal year-end (i.e., for fiscal year ending 31 December 2016, the first deadline will be 31 December 2017).
3. Which taxpayers have to file a CbCR in your jurisdiction?
Under the revised LCITA, the CbCR should be filed by a domestic multinational company with its total revenue of over KRW 1trn on the consolidated financial statements for the previous fiscal year of filing a CbCR. Exceptionally, a local subsidiary or a permanent establishment of a multinational company is also required to file a CbCR to the Korean tax authorities if its ultimate parent company is not required to file a CbCR in their jurisdiction or is located in a country where exchange of a CbCR is not agreed with the Korean tax authorities. Both domestic and foreign invested multinational companies in Republic of Korea with the group’s total revenue of over KRW 1trn on the consolidated financial statements for the previous fiscal year are required to submit the reporting entity notification form of the CbCR by 30 June 2017 to the Korean tax authorities.
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Yes. The content of the CbCR is fully in line with the OECD model.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
In general, the penalty for failing to file a CbCR on time is KRW 10m. However, as the Korean government has not announced the detailed regulations about the penalty application for failing to file the CbCR in the case where a foreign group has not filed the CbCR, it is not clear at the moment whether local subsidiaries of such foreign group will suffer the local penalty.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
Republic of Korea has concluded the Multilateral Competent Authority Agreement on the Exchange of the CbCR from 2018 on 30 June 2016.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
Yes, there is transfer pricing related disclosure requirement for the corporate tax return filing purpose other than the CRITI and Contemporaneous Transfer Pricing Documentation.

Taxpayers engaged in international transactions with a foreign related party shall submit (1) Statement on International Transactions, (2) Statement on Selection of Most Appropriate Transfer Pricing Method, and (3) Summary of Income Statement of Foreign Related Party.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
The form “Statement on International Transactions” requires basic information about the foreign related party (e.g., company name, business registration number, establishment date, address, business type, relationship) and transaction status (e.g., transaction type, transaction volume).
The form “Statement on Selection of Most Appropriate Transfer Pricing Method” requires basic information about the foreign related party (e.g., company name, business registration number, establishment date, address, business type, relationship) and a description of the transfer pricing method selected as the most appropriate method (e.g., transaction type, selected transfer pricing method, reason for selection).
The form “Summary of Income Statement of Foreign Related Party” requires basic information about the foreign related party (e.g., company name, business registration number, establishment date, address, business type, relationship) and a summary of the profit & loss statement (e.g., sales, cost of goods sold, operating expense, operating profit, net income before tax).
All tax return forms are required to be prepared in Korean.
3. What is the deadline for meeting this documentation/filing requirement?
The deadline for filing the above transfer pricing related forms is the same as the corporate tax return filing due date (e.g., 31st March for the calendar year taxpayer).
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
The submission of the Statement on Selection of Most Appropriate Transfer Pricing Method and Summary of Income Statement of Foreign Related party is not necessary where the amount of international transactions during the pertinent business year falls under any of the following conditions: (a) where the total amount of tangible goods transactions is less than KRW 5bn and the total amount of transactions of services is less than KRW 500m; or (b) where the total amount of tangible goods transactions for each foreign related party is less than KRW 1bn and the total amount of services transactions for each foreign related party is less than KRW 200m.
Please note that there is no threshold for filing the Statement on International Transactions and thus, all taxpayers having the international transactions with overseas related parties should submit it by the due date with the corporate income tax returns.
5. What is the penalty for failing to meet this requirement on time?
The maximum penalty for failure to comply with above requirement is KRW 100m.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Morocco
Contact
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Section 7 of Finance Act 40-08 for the budgetary year 2009 introduced an obligation for businesses which are taxable in Morocco to supply the tax authority with documents and information relating to transactions undertaken with related entities established outside Morocco. This obligation is now contained in article 214 (III) of the Moroccan General Tax Code (“GTC”).
Nonetheless, such documents and information should only be provided to the tax authority on its express request. There is no specific obligation to keep documentation at the disposal of the Moroccan tax authority. However, considering the short period allowed to the taxpayer for sending such documentation and the importance of the required documents, Moroccan companies party to intragroup transactions with associated companies located abroad are advised to prepare such documentation in advance.
Article 214 (III) of the GTC applies to all Moroccan companies, with no mention of any threshold based on turnover or balance sheet asset value.
2. What is the content of the documentation that must be prepared?
Article 214 (III) of the Moroccan GTC provides that the authority may request all documents and information relating to the following matters:
  • The nature of the relationship connecting the company which is taxable in Morocco with the one located abroad;
  • The nature of the services provided or of the products sold;
  • The method by which the price of transactions between the companies has been determined, and the documents supporting it;
  • The regimes and tax rates applicable to the businesses situated outside of Morocco.

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
In the absence of detailed supplementary provisions, the effect of the GTC is that all transactions carried out with related companies located outside Morocco must be documented. There is no threshold in terms of transaction value, either under the Moroccan GTC or the tax authority’s commentary on the Finance Act for the 2009 budgetary year.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
Article 213 (II) of the Moroccan GTC refers to companies which have relationships of direct or indirect dependency with businesses situated outside Morocco.
This definition has been refined by the Moroccan tax authority in its Circular Note published on 24 May 2011. In fact, the concept of dependency is conceived by the Moroccan tax authority in terms of relationships between:
  • Parent companies and their subsidiaries;
  • Non-resident companies and their establishments in Morocco;
  • Companies and their branches.

According to the Moroccan tax authority, a subsidiary is dependent on its parent both in legal terms (by virtue of the number of shares held by the parent company, or when, either directly or through a third party intermediary, the parent exercises decision-making power over the subsidiary) and also in economic terms (by virtue of the close links governing the business activity carried out, constituting dependency in terms of the supply of raw materials or spare parts, or the use of a brand or patents held by the economic partner).
Furthermore, the Moroccan tax authority refers to the indirect links of dependency that exists, in its view, between subsidiaries within the same group (especially financial dependency arising by virtue of reciprocal shareholdings).
Finally, reference is made to de facto situations resulting from a monopoly or quasi-monopoly position or a common interest (especially where the management personnel of one company has an influence on the management of other companies).
The definition of dependent businesses in Moroccan law is thus very wide in scope, and the Moroccan tax authority considers that transfer pricing control applies both to transactions between parent companies and subsidiaries (i.e. where there is a direct connection) and to transactions between sister companies (i.e. where there is an indirect connection).
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Not applicable.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
The requirement of article 214 (III) of the Moroccan GTC are quite similar to the requirements of a local file. Nevertheless, those requirements are not as precise as the requirements described in Action 13 of the BEPS project.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
The Moroccan GTC does not contain any right on the part of the tax authority to require foreign entities to provide specific information relating to the transfer prices applied between the Moroccan company and the foreign company.
Nevertheless, by virtue of article 214 (III) of the Moroccan GTC, the Moroccan tax authority may require a company established in Morocco to supply information relating to the regimes and tax rates applicable to companies situated outside Morocco with which they have effected transactions.
Furthermore, article 214 (II) recalls a right on the part of the Moroccan tax authority to request information from the tax authorities of States with which Morocco has entered into a double taxation convention. Nevertheless, the Circular Note referred above states in this regard that such requests for information may only be made in the circumstances set out in the conventions signed between Morocco and the State in question.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
Section 214 (III) of the GTC only provides that companies that are taxable in Morocco can be requested to justify the method of determination of the prices.
However, the Moroccan tax authority’s commentary remains relatively brief as regards the appropriate method for determining transfer prices between two companies in the same group. It does not go beyond stating the principle that the price should be at arm’s length.
Nevertheless, the Moroccan tax administration expressly refers to article 9 of OECD convention model and its commentaries in its doctrine. In this respect, they should not object to a comparable study performed in compliance with the provisions of OECD Transfer Pricing guidelines.
However, as long as Morocco is no more than a special observer on OECD bodies, the implementation of OECD recommendations is not an absolute. In the event of a conflict the Moroccan tax administration will not consider itself bound by the stated position of OECD members.
The approach consisting in performing a benchmark may nevertheless strongly reinforce the position of the taxpayer in the framework of a negotiation with the Moroccan tax authorities.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
There is no text similar to that of the EU Joint Transfer Pricing Forum guidelines on low value adding services. However, the Moroccan tax law determines fixed rates of return to compute the taxable basis of some activities (example: Coordination Center – which delivers management & corporate services – are taxable at the common corporate income tax rate but on a cost +10% basis). On a case-by-case basis, it may be appropriate for the Moroccan taxpayer to base on such provisions to organise its defense/supporting its good faith.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
In practice, documents presented to the tax authority must be written in one of the two admitted languages by the Kingdom, namely French or Classical Arabic. The majority of documents relating to Moroccan taxation are written in French.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
Under article 214 (III) of the Moroccan GTC, documents relating to transfer prices must be sent at the request of the authority (in the form of a letter giving notice) within 30 days of receipt of that request.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
In the event of a breach of the provisions relating to the authority’s right to the documentation, a fine of MAD 2,000 (approximately EUR 180) is provided for, as well as a late payment penalty of MAD 100 (approximately EUR 9) per day, up to a maximum of MAD 1,000 (approximately EUR 90).
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
Article 214 (III) of the Moroccan GTC provides that in the absence of a response or in the event that the documentation is incomplete, the relationship of dependency is presumed to be established.
Thus, documentation which is incomplete or which is not submitted will not, in the true sense, reverse the burden of proof in relation to the arm’s length nature of the transaction, but will definitively establish that the companies in question are dependent.

When the relationship of dependency is established in this way, the tax authority will then be able to invoke article 213 (II) of GTC, and thus adjust taxable profit by bringing in the profits it considers to have been indirectly transferred by means of increases or reductions in purchase prices or sales prices.
In such a case, the remuneration and costs paid by the Moroccan entity will be subject to general corporation tax at one of the proportional rates up to 31%.
The following penalties and late payment interest may be added to that tax:
  • An increase of 15% for failure to file or late filing of returns ;
  • A penalty of 10% and an increase of 5% for the first month of delay, followed by 0,5% for every further month or part thereof.

6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
On this point, we should note that the Kingdom of Morocco has made its reservations known on the subject of introducing a mutual agreement procedure. Morocco has reserved the right not to include article 9 paragraph 2 of the OECD model tax convention in its conventions.
Consequently, whether or not penalties for absent or insufficient documentation are imposed, it is unlikely that the Moroccan tax authority will adjust the reconstituted profit for the amount of transferred profits already taxed abroad.
Only a few of the existing double tax conventions expressly provide for this possibility. The conventions entered into with following States can be given by way of example: Austria, Bulgaria, Denmark, United Arab Emirates, Poland, Portugal, Romania and Senegal.
7. Any other relevant aspect not addressed above?
Article 6 of Finance Act n°100-14 for the budgetary year 2015 introduced two new articles (articles 234 bis and 234 ter of the Moroccan GTC) which provide the possibility to conclude an advance pricing agreement (APA) with the tax authorities for a period not exceeding four financial years. The agreement concerns the pricing method of the transactions referred to in Article 214 (III) of the Moroccan GTC. The arrangements for concluding the said agreement shall be laid down by decree. In 2016, the Moroccan authorities published a draft decree for public comments. However, the final version remains to be published. This situation makes the APA procedure inapplicable for the time being.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
There is no such obligation to file a CbCR in Morocco and there is no contemplation to implement such legislation in the near future.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
Not applicable.
3. Which taxpayers have to file a CbCR in your jurisdiction?
Not applicable.
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Not applicable.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
Not applicable.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
Not applicable.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
Not applicable.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
Not applicable.
3. What is the deadline for meeting this documentation/filing requirement?
Not applicable.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Not applicable.
5. What is the penalty for failing to meet this requirement on time?
Not applicable.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Portugal
Contact
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Pursuant to Article 63 (6) of the Portuguese Corporate Income Tax (hereinafter “CIT”) Code, Portuguese taxpayers are required to maintain transfer documentation regarding their transfer pricing policy, including guidance and instructions for its implementation, contracts and other relevant legal documents executed between the taxpayer and associated enterprises, documentation and information regarding such enterprises, and documentation and information regarding the entities, services and goods used as comparables (including a detailed analysis of business functions performed, assets used and risks assumed, as well as selection and application of the most appropriate transfer pricing methodology).
Taxpayers who have disclosed an annual net sales volume under EUR 3m in the previous year are not required to comply with the transfer pricing documentation requirements.
2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
Portuguese taxpayers who are subject to the transfer pricing documentation rules must document all transactions with associated enterprises, including both resident and non-resident entities.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
Under article 63 (4) of the CIT Code, for the purposes of transfer pricing rules two entities are deemed as associated enterprises whenever one has a significant direct or indirect influence over the management of the other. This is deemed to occur in the case of:
  • An entity and its shareholders (or their spouses, ascendants or descendants) who have a direct or indirect participation representing at least 20% of the share capital or voting rights;
  • Two entities in which the same shareholders (or their spouses, ascendants or descendants) hold, directly or indirectly, a participation of at least 20% of the capital or voting rights;
  • An entity and the members of its governing bodies, agencies or any management, direction, management or supervision body, and their spouses, ascendants and descendants;
  • Entities in which the majority of board members, or members of any board of directors, management, management or supervision, are the same people or, if different people, are linked by marriage, registered partnership or affinity in a direct line;
  • Entities linked in application of a subordination agreement, group parity agreement or any other agreement of a similar nature;
  • Entities in a control relationship, as defined by the relevant legislation;
  • Entities under a legal relationship which allows one entity to condition the management decisions of the other entity in light of facts and circumstances not related with their business or professional relation;
  • A resident entity or a non-resident entity with a permanent establishment situated in Portuguese territory and an entity subject to a clearly more favourable tax regime located in a country, territory or region included on the list approved by Ministerial Order 150/2004 of 13 February 2004.

c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Portuguese transfer pricing documentation regulations are in line with the EU TPD.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
Portuguese taxpayers must follow domestic legislation on the content of the transfer pricing documentation, which is generally in line with the OECD transfer pricing guidelines.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
No. As a general rule, Portuguese tax authorities are only entitled to request information from Portuguese resident entities, including permanent establishments of non-resident entities located in Portuguese territory.

As to information related to non-resident entities or other tax jurisdictions, the Portuguese tax authorities may only request such information through the mechanisms set out in the tax treaties entered into by Portugal, namely the exchange of information provisions.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
There is no legal or administrative restriction on the use of regional benchmark studies. However, Portuguese tax authorities tend to accept regional comparables only in situations in which local comparables are limited or not available.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
With the sole exception of taxpayers with an annual net sales volume under EUR 3m in the previous year, all taxpayers are obliged to prepare and maintain transfer pricing documentation. Domestic legislation does not contain any specific provision exempting taxpayers to maintain benchmark studies or other information. However, as per Ministerial Order no. 1446-C/2001, of 21 December 2001, the list of information which is expected to be included in the transfer pricing file, such as benchmark studies, is merely illustrative and not exhaustive. The OECD and EU guidelines on low-value-adding intra-group services are applicable.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
Transfer pricing documentation must be organized and submitted in Portuguese. Documentation in a foreign language must be translated into Portuguese when requested by the tax authorities. Exceptionally, translation may not be required for documentation prepared in English.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
Transfer pricing documentation is included in the list of documents that form part of the company’s annual tax file, which must be maintained in good order by the taxpayer for a period of 10 years. Therefore, it must be prepared by the 15th of the 7th month following the end of the tax period, which is the deadline for filing the Annual Return of Simplified Corporate Information (“IES”).
The documentation is only provided upon specific request by the Portuguese tax authorities.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
Failing to provide the transfer pricing documentation requested by the Portuguese tax authorities within a specific timeframe (as a general rule, 10 days) is subject to a penalty from EUR 1,000 up to EUR 20,000. Refusing to submit transfer pricing documentation is subject to a penalty up to EUR 150,000, whereas submitting inaccurate information is subject to penalties from EUR 750 up to EUR 45,000. These penalties are not applied cumulatively.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
Complying with the transfer pricing documentation obligations shifts the burden of proof to the tax authority.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
When an adjustment affects transactions between a Portuguese entity and a nonresident entity, domestic legislation refers to international conventions, which means that the elimination of double taxation depends on the procedures laid down in the Double Tax Treaties entered into between Portugal and other States – which follow the OECD model – and the EU Arbitration Convention.
Notwithstanding the domestic rules under which the Portuguese tax authorities are not obliged to start a unilateral procedure to avoid double taxation deriving from transfer pricing adjustments, the taxpayer can trigger this procedure by submitting a request to the Director-General of the Portuguese tax authority.
In that framework, documentation related penalties do not deprive from the right to initiate a procedure to eliminate double taxation.
7. Any other relevant aspect not addressed above?
No.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
Law no. 7-A/2016, of 30 March, which entered into force as from 31 March 2016 (State Budget Law for 2016), amended the CIT Code by adding Article 121-A and implementing an obligation for multinational enterprises to submit a specific return with financial and tax related information – country-by-country reporting or CbCR.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
The obligation to file a CbCR applies for tax periods starting from 1 January 2016 onward.
CbCR must be submitted via electronic data transmission to the Portuguese tax authority within 12th months after the term of the tax period to which the data refers.
3. Which taxpayers have to file a CbCR in your jurisdiction?
As per Article 121-A of the CIT Code, Portuguese tax residents are required to submit a CbCR for each tax period starting from 1 January 2016 if all the following criteria are met (Portuguese parent companies of multinational groups):
  • They are required to prepare consolidated financial reporting statements as defined in the accounting standards and laws;
  • They participate in or control, directly or indirectly, one or more entities with tax residence or permanent establishments located in other countries or tax jurisdictions, as well as entities with permanent establishments in other countries or tax jurisdictions;
  • They have a consolidated turnover equal to or exceeding EUR 750m in the tax period prior to the one the CbCR refers to;
  • They are not held by one or more Portuguese entities required to submit a CbCR, or by a non-resident entity that submits, directly or through a designated entity, a CbCR in a country or tax jurisdiction with which Portugal has an automatic exchange of information agreement in force.

Additionally, Portuguese tax residents are also required to submit a CbCR as long as all the following criteria are met (Portuguese subsidiaries of multinational groups):
  • Entities are held or controlled, directly or indirectly, by non-resident entities which are not obliged to submit a CbCR or equivalent return, or by non-resident entities in relation to there is no automatic exchange of information agreement regarding CbCR in force.
  • When entities that hold or control the Portuguese subsidiaries would be subject to the submission of a CbCR if they were deemed as Portuguese tax residents;
  • Entities do not demonstrate that any other entity of the group that is a Portuguese tax resident, or a resident of a country tax jurisdiction with which Portugal has an automatic exchange of information agreement in force, is designated to submit a CbCR in Portugal.

Any entity, either a Portuguese tax resident or a non-resident operating through a permanent establishment in Portugal, that is part of a group in which at least one of the entities is subject to the submission of a CbCR, is required to submit to the Portuguese tax authorities, via electronic data transmission, the identification of the reporting entity and correspondent tax residence within 31 December of the fiscal year to which it refers (for 2016, the deadline was extended until 31 May 2017).
For purposes of the CbCR, the following entities are deemed as being part of a multinational group:
  • Any entity included in the consolidated financial reporting statements or that would have been included in it if the shares of such entity were traded on a regulated market; or,
  • Any entity excluded from the consolidated financial reporting statements for reasons of size or materiality; or,
  • Any permanent establishment of an entity compliant with subparagraphs a) and b) above, if the permanent establishment prepares separate reporting for accounting, tax and management purposes.

4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Article 121-A of the CIT Code lists the data (presented on an aggregate basis by country or tax jurisdiction) that shall be included in the CbCR, which is globally in line with the OECD’s final report on Action 13 of the BEPS project:
  • Gross income (revenue), differentiating that obtained with associated enterprises and that obtained with independent parties;
  • Earnings before CIT or other income tax due of a similar or analogue nature;
  • CIT amount due or other income tax due of a similar or analogue nature, including withholding tax;
  • Amount of CIT paid or amount of other income tax paid of a similar or analogue nature, including withholding tax;
  • Share capital and other equity items as of the end of the tax period;
  • Number of full-time employees (or equivalent) as of the end of the tax period;
  • Net value of tangible assets (except cash and equivalents);
  • List of resident entities, including permanent establishments, and the core activity carried out by each entity separated by country or tax jurisdiction;
  • Other information considered relevant and an explanation of the data included (if required).

5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
According to the provisions of Article 117 (6) of the General Regime of Tax Infractions, failing to comply with the CbCR requirements results in a penalty from EUR 1,000 up to EUR 20,000.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
No.
7. Any other relevant aspect not addressed above?
No.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
Not applicable to Portugal.
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
Not applicable.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
Not applicable.
3. What is the deadline for meeting this documentation/filing requirement?
Not applicable.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Not applicable.
5. What is the penalty for failing to meet this requirement on time?
Not applicable.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Romania
Contact
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Romania has transfer pricing documentation requirements since 2008. Transactions with both non-resident related parties and domestic related parties should be documented.
Starting 1 January 2016 the transfer pricing requirements have been amended. The most important changes cover the transfer pricing (“TP”) documentation and procedure for adjustment and estimation of transfer prices.
Under the new rules a distinction regarding the TP documentation requirements based on categories of taxpayers (large, medium-sized or small), on materiality thresholds (annual value of inter-company transactions) and also on types of transactions (financial transactions, supply of services, purchases) has been introduced.
Thus, the new rules provide a first set of materiality thresholds for large taxpayers having a total annual value of inter-company transactions of:
  • EUR 200.000 for interest received/paid for financial services;
  • EUR 250.000 for supply/receipt of services;
  • EUR 350.000 for purchases/sales of tangible or intangible assets.

A second set of materiality thresholds for large taxpayers who do not meet the abovementioned criteria and for small and medium-sized taxpayers having a total annual value of inter-company transactions of:
  • EUR 50.000 for interest received/paid for financial services;
  • EUR 50.000 for supply/receipt of services;
  • EUR 100.000 for purchases/sales of tangible or intangible assets.

Large taxpayers that exceed the first set of materiality thresholds described above will have to prepare a TP file each year. Large taxpayers who do not meet the first set of materiality thresholds and small and medium-sized taxpayers that exceed the second set of materiality thresholds will have to prepare the TP file only if the Romanian tax authorities so request, during a tax audit.
Taxpayers that do not meet the second set of thresholds will have to document that they have respected the arm’s length principle during a tax audit, according to general tax and accounting principles.
A TP file should not be prepared by taxpayers that have an advance pricing agreement (“APA”) issued by the Romanian tax authorities, for the transactions and periods covered by such APA.
2. What is the content of the documentation that must be prepared?
The content of the TP file is detailed in the Romanian legislation and is broadly in line with the Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the European Union (“EU TPD”).
The TP file covers two main areas:
(i) Information on the Group such as:
  • the organisational, legal and operational structure of the Group;
  • description of the transfer pricing methodology applied at Group level;
  • general presentations of transactions between related parties within the EU (including amounts of transactions flows);
  • the description of the main functions performed, risks assumed and assets used at group level, which contribute significantly and in a definite manner to creating added value, presented individually for each of the participating group entities;
  • ownership of intangibles;
  • general description of the transfer pricing policy regarding financing arrangements.

(ii) Information on the Romanian taxpayer. This section is focused on providing more detailed information regarding the Romanian taxpayer and the related party transactions (including domestic transactions) and should include:
  • company’s analysis which provides the characteristics of the Romanian taxpayer that are relevant to the transfer pricing analysis;
  • functional analysis which should provide information on the characteristics of property or services, functions performed, risks assumed, fixed assets used, contractual terms, information on comparable domestic or foreign transactions, special economic circumstances of the transaction(s), presentation of the critical assumptions on which the TP policy was established, presentation of the reasons for applying a multiannual analysis or an annual analysis of the comparable data.
  • economic analysis which contains the selection of the transfer pricing method and benchmarking study/studies.

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
Should the thresholds under point 1 above be met/exceeded for a category of transactions (interests, services, goods), the taxpayer should document all transactions with related parties falling within the specific category.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
According to Romanian tax legislation, two legal entities are related parties if:
  • One entity holds, directly or indirectly (through the shareholding of related entities) a minimum of 25 percent of the number/value of shares or voting rights in the other entity, or it effectively controls the other entity; or
  • One entity/individual holds, directly or indirectly (through the shareholding of related entities) a minimum of 25 percent of the number/value of shares or voting rights in the two entities.

An individual is a related party to a legal entity if he/she holds, directly or indirectly, including the shareholding of related entities, a minimum of 25 percent of the number/value of shares or voting rights in the legal entity, or she/he effectively controls the legal entity. Two individuals are related parties if they are spouses or relatives up to the third degree.
The dealings between a Romanian permanent establishment (“PE”) and its foreign head office should not be included in the TP file. However, the taxable base for corporate income tax purposes at the level of the PE should be determined by treating the PE as a separate, distinct entity and by using TP rules to establish the market value for any transfer between the PE and the head office.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
As mentioned the content of the TP file is broadly in line with the EU TPD. Taxpayers should present the TP file in accordance with local rules and content requirements.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
The TP file is not in line with the final report on Action 13 of the BEPS project (i.e., no Country-by-Country Report details included in the local legislation).
As mentioned, taxpayers should present the TP file solely in accordance with local rules and content requirements.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
An entity that is not established/tax resident in Romania, nor subject to limited taxation in Romania, but is only a party to a transaction with an “associated enterprise” that is subject to TP file requirements in Romania does not have any requirement to present documents/specific information to the Romanian tax authorities.
On the other hand, an entity that is not established/tax resident in Romania, but is subject to limited taxation in Romania due to having a PE therein, and is required to prepare a TP file under the criteria set out under point 1 above, has to provide information to the Romanian tax authorities, upon request, for the purpose of carrying out a TP analysis in the course of a tax audit.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
The comparability analysis should consider the territorial criteria in the following order: national, EU, pan-European, international.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
The local TP rules are complemented by the OECD TP Guidelines and the tax authorities recognise the applicability of the EU Joint TP Forum guidelines on low value adding services. However, the local TP rules do not contain specific exemptions from preparing benchmarking studies.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
The transfer pricing file should be submitted in Romanian language only.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
Large taxpayers that exceed the first set of materiality thresholds described under point 1 above will have to prepare a TP file each year. The yearly transfer pricing documentation must be prepared by the deadline of the yearly corporate income tax return (currently 25th March of the following year for taxpayers having a fiscal year ending on 31 December). Companies fulfilling the above mentioned criteria must be prepared to submit the transfer pricing documentation at the request of the tax authorities within ten calendar days from the date of the request, but not earlier than ten days after the deadline of the yearly corporate income tax return.
For large taxpayers who do not meet the first set of materiality thresholds and small and medium-sized taxpayers, the deadline is between 30 and 60 calendar days from the date of the request, with a possibility to extend the initial period once, for maximum 30 calendar days.
In any event, taxpayers conducting transactions with related parties in amounts less than any of the thresholds must be able to provide evidence supporting compliance with the arm’s length principle during a tax audit.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
If the TP documentation file is not prepared or presented to the Romanian tax authorities, the following fines apply:
  • From RON 12,000 to RON 14,000 (approx. EUR 2,700 to EUR 3,100) for medium and large taxpayers; and
  • From RON 2,000 to RON 3,500 (approx. EUR 440 to EUR 770) for small tax payers and individuals.

In addition to the fine, if the transfer pricing file is not prepared/presented to the Romanian tax authorities/is incomplete, the tax authorities are entitled to estimate the transfer prices applied by the taxpayer in transactions carried out with related parties.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
The absence or incompleteness of TP file results in the tax authorities being entitled to estimate the transfer prices applied by the taxpayer in transactions carried out with related parties.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
In principle the taxpayer may be allowed to initiate the mutual agreement procedure.
7. Any other relevant aspect not addressed above?
Note that, although the new TP rules are in force starting 1 January 2016, clarifications are expected to be issued by the Ministry of Finance.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
On 13 June 2017 Government Emergency Ordinance no. 42/2017 (“GEO 42/2017”) was published. Provisions of Article 1 of the Council Directive (EU) 2016/881 and sections I and II of Annex III of EU Directive 2016/881 were transposed in the Romanian legislation.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
It will apply for the fiscal year which starting on 1 January 2016 or after that date, as appropriate. The CbC reports should be submitted within 12 months from the last day of the reporting fiscal year of the group.
3. Which taxpayers have to file a CbCR in your jurisdiction?
Entities part of multinational groups that qualify as parent companies with tax residence in Romania have the obligation to submit an annual report for each country.
Other Romanian tax residents that are group members will be obliged to file a CbCR on behalf of the members if at least one of the following applies:
  • The parent company of the group does not have the obligation to file a CbCR in its residence jurisdiction;
  • There is no exchange of information instrument in place with Romania: the parent company’s residence jurisdiction has a current international agreement with Romania (i.e., a multilateral or bilateral tax convention or a tax information exchange agreement providing for the automatic exchange of tax information), but there is no Qualifying Competent Authority Agreement in place between the two jurisdictions (i.e. the two jurisdictions have not included themselves mutually in the list of jurisdictions to which they intend to exchange CbC reports) by the end of 12 months following the end of the fiscal reporting year of the group;
  • There has been a systemic failure to exchange CbC reports by the residence jurisdiction of the parent company, which has been notified to the constituent entity by the Romanian tax authority.

The threshold for excluded multinational groups is total consolidated group revenue of less than EUR 750m for the preceding fiscal year.
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Yes.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
Submission with delay of the CbC report or submission of incomplete or incorrect information would trigger fines between RON 30,000 – RON 50,000 (approx. EUR 6,700 – EUR 11,000). Not submitting the report would trigger fines between RON 70,000 – RON 100,000 (approx. EUR 15,000 – EUR 22,000).
Only the entity that should have submitted the CbCR would be liable for the above fines in case of non-compliance.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
No.
The automatic exchange of information rules provided under Council Directive (EU) 2016/881 was implemented in the Romanian legislation by GEO 42/2017.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
Besides the TP file (i.e., including the specific documentation requested for entities not meeting the 2nd set of thresholds under point 1) there is no other tax documentation/filling requirement.
Separately, Romanian entities have to include in the notes to the financial statements information regarding related party transactions.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
Not applicable.
3. What is the deadline for meeting this documentation/filing requirement?
Not applicable.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Not applicable.
5. What is the penalty for failing to meet this requirement on time?
Not applicable.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Russia
Contact
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
All taxpayers engaged in transactions qualifying as “controlled” ones should prepare a transfer pricing documentation to be filed with the tax authorities upon request. Qualification of the transaction as a controlled one depends on the nature and volume of such transaction (please refer to our comments on Point 2 below).
Apart from preparation of transfer pricing documentation, Russian taxpayers engaged in controlled transactions also bear the obligation to file the transfer pricing notification. They must file the prescribed form on a yearly basis.
2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
Starting from 2014, all transactions meeting the definition of controlled ones are subject to both documentation and notification requirements.
Both domestic and cross-border transactions may fall under the definition of controlled transactions for transfer pricing purposes.
Controlled cross-border transactions include:
  • All related-party transactions, regardless of amount (it may include transactions between related parties with an interposed unrelated party, where the unrelated party does not bring any added-value to the transaction);
  • Third party transactions on sale of goods traded on a foreign trade exchange and where the aggregate value of transactions with the third party in question exceeds RUB 60m (appr. EUR 878,000 as of 21 July 2017) in a calendar year; and,
  • Transactions between a Russian tax resident and an offshore tax resident (located in a jurisdiction specified in the Ministry of Finance blacklist) where the aggregate value of transactions between the parties in question exceeds RUB 60m (appr. EUR 878,000 as of 21 July 2017) in a calendar year.

Controlled domestic transactions include, in the first place, a general provision catching all related-party transactions where the aggregate value of transactions with the party in question exceeds RUB 1bn (appr. EUR 15m as of 21 July 2017) in a calendar year, as well as more specific cases (transactions involving residents of special economic zones, participants in the “Skolkovo” project, parties benefiting from other tax incentives, etc.).
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
In Russian law there is a relatively extensive list of “related parties” which includes both legal entities and individuals.
But transactions between a permanent establishment and its head office are not in the scope of the documentation requirement.
For example, the list of related parties includes:
  • Two companies, where one directly or indirectly holds more than 25% of the charter capital of the other;
  • A company and an individual who directly or indirectly holds more than 25% of its charter capital;
  • Two companies with the same parent company, where the parent has more than a 25% shareholding (direct or indirect) in the charter capitals of each one;
  • A company and its CEO or director, or companies with the same CEO;
  • Successive chains of individuals/companies with more than 50% participation in the capital of the subsidiary, etc.

The list of related parties set forth in the Russian Tax code is not exhaustive. Parties are deemed to meet the definition of related ones where the particular features of their relationship are such that they may influence the terms and/or effects of the transactions they enter into, and/or the economic outcome of their activities or those of persons they represent. The term “influence” includes, in this respect, the ability to influence through the participation of one party in the charter capital of the other, or by virtue of an agreement concluded between the parties, or any other circumstances.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Not applicable.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
In accordance with Russian Tax code the taxpayer is entitled to prepare the transfer pricing documentation in free form, including following the OECD approach, as long as it contains the necessary information required in accordance with the Russian tax code (including choice of sources of information, choice of TP methodology, etc.).
At the same time, Russian tax authorities have issued specific recommendations on form and content of transfer pricing documentation in Russia.
In principle, the key sections of the transfer pricing documentation prepared in accordance with such recommendations in Russia (Description of transactions, Functional analysis, Choice of the transfer pricing method, Economic analysis) are in line with those recommended under the OECD approach.
However, in practice, we suggest taxpayers to strictly follow the recommendations of Russian tax authorities to avoid discrepancies and attracting undesired attention of the tax authorities in case of tax audit.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
As a general rule foreign companies not present in Russia and/or involved in controlled transactions with Russian entities are not subject to the preparation of a specific transfer pricing documentation and/or notification requirements to the Russian tax authorities.
But from a practical standpoint, disclosing the data on foreign related counterparties in the transfer pricing documentation may be required in Russia depending on the transfer pricing method and tested party chosen.
This in particular may be the case when the foreign counterparty is defined to be the routine entity as a result of the functional analysis and should thus be the party which profitability is tested through a benchmark.
In principle Russian tax authorities may as well request other information on the foreign counterparty than that disclosed in the transfer pricing documentation.
In this case the request is placed to the foreign tax administration in accordance with the conventional procedures on exchange of information agreed upon with the respective jurisdictions. However such requests are rather rarely placed in practice.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
Russian transfer pricing legislation provides for the specific hierarchy of the sources of information that should be followed by the Russian taxpayers. More specifically, the search of the comparables through the databases should be preceded with the review of the “primary” sources of information set forth by Russian transfer pricing legislation, namely the following:
  • information on prices and quotations from world trade exchanges for goods traded on such exchanges;
  • customs statistics published by the Federal customs service;
  • information on prices and quotations of any authorities, official sources of information of foreign states, international organisations and other published public sources and information systems;
  • data from specialised agencies involved in prices information activity;
  • ­
  • information on the transactions of the taxpayer.

Furthermore, Russian transfer pricing legislation contains specific search criteria and profitability calculation methodology that do not fully match those applied in terms of Pan-European benchmarking analysis.
Generally speaking, for benchmarking analyses, Russian tax authorities give priority to the information on Russian comparables due to potential incomparability of the market conditions with those of potentially comparable companies chosen in Pan-European studies.
That is why it is usually recommended to conduct a local search if and when possible.
Should the Pan-European benchmarking analysis still be used, it should at least be “russified” to meet Russian law requirements.
In any case the benchmarking study is conducted only after the taxpayer proves the insufficiency of reliable data on the “primary” sources of information set forth by the Russian law. Primary sources include “official” data (information on prices and quotations from world trade exchanges for goods traded on such exchanges, customs statistics, etc.), and accounting and statistical data reported by Russian companies.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
Russian tax legislation does not provide for any “safe harbours” that may be referred to in order not to conduct a benchmarking analysis. Thus the taxpayers falling under transfer pricing documentation requirements are obliged to provide the benchmarking studies in support of their transfer pricing policy.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
All documents provided to Russian tax authorities shall be in Russian language.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
Transfer pricing documentation should be provided to the tax authorities upon their request, which may be issued on or after 1 June of the year following the year of the controlled transaction. The company has 30 calendar days from the date of the request to provide the documentation.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
The simple fact that the documentation is not provided within the applicable timescale, or is incomplete, triggers a penalty in the amount of RUB 200 (appr. EUR 2.9 as of 21 July 2017).
However, if a tax reassessment is made but no documentation or incomplete documentation was provided, there may be a penalty for late payment of tax (defined for each day of delay and is of approximately 12.6% from the amount of underpaid tax for one calendar year, in accordance with the legislation currently in force), and a fine equal to 20% of the additional tax (from 2014) or 40% (from 2017) resulting from the reassessment.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
Absence or incompleteness of the transfer pricing documentation does not reverse the burden of proof as regards the arm’s length character of the transactions in Russia.
But in case of incompleteness or absence of transfer pricing documentation, Russian tax authorities are entitled to choose the transfer pricing approach and estimate the arm’s lengh price at their own discretion which thus increases the risk of potential disputes on the matter.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
In principle, Russian legislation does not contain any explicit restrictions on initiation of mutual agreement procedure in case of imposition of documentation-related penalties.
At the same time, conduct of such mutual agreement procedures is to a very little extent regulated by Russian legislation in force.
In practice, the mechanism of mutual agreement procedures prescribed by the double tax treaties is used in Russia on a very exceptional basis. To the best of our knowledge, no such cases concerning the transfer pricing reassessment exist at this day.
7. Any other relevant aspect not addressed above?
Not applicable.
B. Country-by-Country reporting (“CbCR”)
The draft law introducing the CbCR obligations in Russia which was placed for public hearings last year, was now sent for rework with negative expert opinion. The updated version of the draft law on CbCR is not yet available in public sources. However, it is expected to introduce all three levels of TP documentation in Russia: Master file, local file and CbCR.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
Apart from filing the transfer pricing documentation upon request of the tax authorities, Russian taxpayers are also obliged to notify the tax inspectorate on the controlled transactions performed in the prescribed form on a yearly basis.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
The transfer pricing Notification, which is different from the Notification on participation in International group, is filed in Russian and contains information on the controlled transactions (including types of the transactions performed, income and expenses recognized, units supplied, unit prices, TP methodology used, etc.) and related counterparties (administrative details).
3. What is the deadline for meeting this documentation/filing requirement?
The transfer pricing notification should be filed no later than on 20 May of the year following the year of the relevant controlled transaction.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
This obligation applies to all taxpayers engaged in controlled transactions.
5. What is the penalty for failing to meet this requirement on time?
The failure to file the transfer pricing Notification or the improper filing of the transfer pricing Notification on time results in the penalty in equal RUB 5,000 (appr. EUR 73 as of 21 July 2017).
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Serbia
Contacts
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
The Corporate Income Tax Law (“CIT Law”) imposes obligations to: declare all transactions between related parties, maintain transfer pricing documentation and provide such documentation along with the annual tax balance sheet. Such transactions are declared in the tax balance sheet separately from transactions with non-related parties. This obligation also applies to transactions between permanent establishments in Serbia and their non-resident head offices.
On the basis of current practice, in cases where adequate transfer pricing studies are not available to substantiate transactions between related parties, the taxpayer faces a risk that the tax authorities will not fully recognise the expenses generated or will increase revenues by the difference between the actual and arm’s length prices.
There are no special provisions in the CIT Law limiting the obligation to maintain appropriate documentation to certain categories of taxpayers.
2. What is the content of the documentation that must be prepared?
The documentation must include: analysis of the group; analysis of the company’s business activity; functional analysis; choice of method for checking compliance of transfer prices with the “arm’s length” principle; conclusion; and appendices.
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
A one-off transaction or sum of transactions with a related party within a tax year, which are below RSD 8m threshold, principally do not need to be documented for corporate income tax purposes. However, such documentation may be useful for other purposes such as: customs import purposes (see section 7 below), in case of a foreign exchange audit (for cross-border transactions), and in cases when the tax authorities reassess the transactions in such a way that after the reassessment they exceed the said threshold.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
According to the CIT Law, any person holding (in)directly (i) at least 25% of the shares in a taxpayer, or (ii) at least 25% voting rights in the taxpayer, is considered a related party for tax purposes.
In addition, any non-resident legal entity with a seat or place of effective management in a jurisdiction with a preferential tax regime (“tax heaven”) is considered to be a related party. The list of tax heaven jurisdictions is published by the Ministry of Finance.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Not applicable as Serbia is not an EU Member.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
The content of the documentation is determined by a Rulebook prescribed by the Ministry of Finance, which is a part of the CIT Law and mostly follows OECD guidelines. For all matters not explicitly regulated by the Rulebook, the taxpayers may principally apply the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, and other applicable OECD guidelines.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Upon request from the tax authorities, a resident taxpayer must provide accounting and business records of its permanent business units (e.g. branches) located abroad.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
The tax authorities accept regional benchmark studies if they can be substantiated with reliable documentation.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
A taxpayer is exempt from submitting benchmark studies only if (i) a one-off transaction or the sum of all the taxpayer’s transactions with a related party within a tax year does not exceed the mandatory VAT registration threshold of RSD 8m (approx. EUR 65,000), and (ii) if such transactions were not credit or loan related.
For transactions between related parties in connection with credits or loans, taxpayers may also use “safe harbour” arm’s-length interest rates published periodically by the Ministry of Finance.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
If the documents are in a foreign language and the tax authorities request a translation, the taxpayer must provide them with translation made by a certified Serbian court sworn-in translator.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
The taxpayers must provide transfer pricing documentation along with the tax balance sheet, when filing corporate income tax return. If the taxpayer fails to do so, the tax authorities will issue a warning notice and order the taxpayer to provide the documentation in the following 30 to 90 days.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
A taxpayer may be fined from EUR 800 to EUR 16,000 for each of the following offenses:
  • Failure to separately declare, in the tax balance sheet, the value of all transactions with related parties;
  • Failure to submit or submitting incomplete transfer pricing documentation;
  • Failure to submit requested transfer pricing documentation within the additionally set deadline
  • Failure to submit the accounting and business records from abroad (see section 2.e above)
  • Failure to submit requested Serbian translations of the documents

In each of these instances, a taxpayer’s responsible person may be additionally fined from approximatively EUR 80 to EUR 800.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
Generally, the burden of proof is borne:
  • With respect to facts establishing a tax liability, by the tax authorities,
  • With respect to facts reducing or eliminating a tax liability, by the taxpayer.

However, as an exception to this general rule, if the tax authorities challenge and reassess the tax base during a tax audit, the burden of proof shifts to the taxpayer.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
No, the imposition of document-related penalties does not prevent the taxpayer from initiating mutual agreement procedure contained in the applicable tax treaty with a view to eliminate any double taxation resulting from the transfer pricing reassessment
7. Any other relevant aspect not addressed above?
The availability of transfer pricing documentation and benchmark studies prior to annual filing of a transfer pricing report may be prudent for import purposes, as these may be used to prove that transfer prices are at arm’s length if this is challenged by the Customs Authority.
This mostly applies to companies importing products and raw materials, as the Customs Authority may apply a market price, instead of the invoiced price, when assessing the customs and excise duties.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
There is no obligation to file a CbCR. So far, the introduction of this obligation has not been contemplated.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
Not applicable.
3. Which taxpayers have to file a CbCR in your jurisdiction?
Not applicable.
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Not applicable.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
Not applicable.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
Not applicable.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
No, the only documentation and filing requirements in relation to transfer pricing are the ones provided above.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
Not applicable.
3. What is the deadline for meeting this documentation/filing requirement?
Not applicable.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Not applicable.
5. What is the penalty for failing to meet this requirement on time?
Not applicable.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Spain
Contacts
Diego de Miguel Hernando, diego.demiguel@cms asl.com
Ricardo Héctor Lorca, ricardo.hector@cms-asl.com
Maria González Fornos, maria.gonzalez@cms-asl.com
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Spanish transfer pricing rules have been recently modified in order to align the Spanish legislation with the standards included in the final report on Action 13 of the Organization for Economic Cooperation and Development (“hereinafter, “OECD”) Base Erosion and Profit Shifting (hereinafter, “BEPS”) project.
In this regard, the new Corporate Income Tax Law 27/2014 of 27 November 2014 (hereinafter, “CITL”) and the new Royal-Decree 634/2015 of 10 July 2015 for the approval of the Regulations of the Corporate Income Tax (hereinafter “CITR”), have maintained the obligation for taxpayers to keep transfer pricing documentation at the Spanish Tax Authorities (hereinafter, “STA”) disposal upon request, in order to justify that transactions carried out between relative parties comply with the arm’s length principle.
Notwithstanding the above, several types of transactions are not subject to documentation requirements, mainly:
  • Transactions carried out between companies forming part of a tax consolidation group;
  • Transactions that an economic interest grouping (« Asociación de interés económico ») or a joint venture (« Unión Temporal de Empresas » or « UTE ») carries out with its members or with other entities belonging to the same tax consolidation group. However, joint ventures (« UTE ») and other equivalent structures which apply the exemption established in article 22 of the CITL on the income attributable to foreign permanent establishments have to meet the documentation requirements;
  • Transactions carried out in the context of a takeover bid or a public stock offering; and
  • Transactions with the same related individual or entity when the total market value of the same does not exceed EUR 250,000.

2. What is the content of the documentation that must be prepared?
Two categories of documentation requirements are in general established in the CITR: documentation relating to the group to which a taxpayer belongs, if any (Master file) and documentation relating to the taxpayer itself (Local file). Additionally, the new CITR established an additional requirement applicable to controlling companies resident in Spain with a consolidated turnover exceeding EUR 750m: the Country by Country Report.
On this basis:
  • If the taxpayer belongs to a group as described in article 42 of the Spanish Commercial Code, it is generally obliged to fulfil both the documentation requirement relating to the group (Master file and, if applicable, CbCR) and the documentation requirement relating to the taxpayer itself (Local file).
  • If the taxpayer does not belong to a group as described in article 42 of CC, it is only asked to fulfil the documentation requirement relating to itself (Local file).

For these purposes, a group is deemed to exist when a company holds, or may hold1, directly or indirectly, the control over one or several others. In particular, there shall be presumed to be control when a company, which shall be classified as controlling, is in a relation with another company, which shall be classified as dependent, in which any of the following situations arise:
  • it holds the majority of the voting rights;
  • it has the power to appoint or dismiss the majority of the members of the governing body;
  • it may dispose, by virtue of agreements entered into with third parties, of the majority of the voting rights; or
  • it has used its votes to appoint the majority of the members of the governing body who hold office at the moment when the consolidated accounts must be drawn up and during the 2 business years immediately preceding. In particular, that circumstance shall be assumed when the majority of the members of the governing body of the controlled company are members of the governing body or top management of the controlling company, or of another company controlled by it. In that event, consolidation shall not arise if the company whose directors have been appointed is bound to another in any of the cases foreseen in (a) and (b) above.

Having settled the above, the CITR develop the content of each of the abovementioned documents:
Master File (article 15 of CITR – effective for FY commencing on or after 2016):
Information concerning the structure and organization of the group:
  • General description of the organizational, legal and transactional structure of the group, as well as any relevant changes;
  • Identification of the intra-group companies.

Information concerning the activities of the group:
  • Description of the main activities of the group, its main geographic markets, its main income sources and the supply chain of those goods and services representing at least 10% of the consolidated turnover of the group;
  • General description of the functions performed, risks assumed and main assets used by the group entities, including changes with respect to previous year;
  • Description of the transfer pricing policy followed by the group, including the valuation methods adopted (compliance with the arm’s length principle);
  • Details regarding any significant cost sharing agreements and service agreements within the group;
  • Description of the operations of reorganization and acquisition or transfer of relevant assets, if any.

Information concerning intangibles of the group:
  • General description of the global strategy followed by the group in respect of the development, ownership and exploitation of intangible assets, including the placement of the main facilities where R&D activities are carried out;
  • Details regarding the ownership of patents, trademarks and other intangible assets (list of relevant intangible assets for the purposes of transfer pricing – including ownership and general description of the intangible policies implemented within the group-, amount of compensations and details related to related-party transactions derived from the use of the intangibles, agreements settled between related-parties in connection to the aforementioned intangible assets and any details that could be provided in respect of any transfer of intangible properties).

Information concerning financial activities of the group:
  • Details regarding the tax and financing situation of the group (i.e. general overview of the group’s financing methods, details related to the group’s companies involved in financing functions and description of the transfer pricing policies followed by the group in connection with financing agreements between companies of the group).

Please note here that, according to article 15.2 of CITR, the obligation to hold the Master file will not apply regarding groups as described in article 42 of the CC with a consolidated turnover lower than EUR 45m (the limit with the prior CITL was EUR 10m).
CbCR (article 14 of CTIR):
Please see section B below.
Local file (article 16 of CITR - effective for FY commencing on or after 2016):
Information concerning the taxpayer:
  • Description of the management structure of the taxpayer, organization chart and description of the individuals or entities to whom the management reports are addressed, including the countries in which such individuals or entities are tax resident;
  • Description of the activities conducted by the taxpayer, business strategy and its participation in asset transfers or restructuring transactions in the FY; and
  • Key competitors.

Information concerning related-party transactions:
  • Description of the nature, characteristics and amounts of the related-party transactions carried out;
  • Identification data/details of the taxpayer and the related parties involved in the transactions;
  • Comparability analysis (article 17 CITR).
  • Explanation regarding the valuation methods that have been chosen, reasons for the implementation thereof, comparable obtained and the resulting values or ranges of values;
  • When appropriate, criteria for the distribution of jointly rendered services in favour of other related parties and any services and/or cost sharing agreements related thereto;
  • Copy of any Advance Pricing Agreements (hereinafter, “APAs”) currently in force as well as other analogous procedures involving the group and the tax authorities;
  • Any other relevant information used by the taxpayer to determine the valuation of the transactions carried out between related parties.

Economic/financial information concerning the taxpayer:
  • Annual financial information of the taxpayer;
  • Reconciliation between the data used in order to apply the transfer pricing methods and the annual financial statements, when relevant; and
  • Financial data concerning the comparables used.

Please note here that, according to articles 18.3 of CITL and 16.4 of CITR, related individuals or entities with a net turnover under EUR 45m are entitled to hold the Local file with the following simplified content:
  • Description of the nature, characteristics and amounts of the transactions carried out between related parties;
  • Identification data regarding the taxpayer and the related parties involved in the transactions carried out;
  • Identification of the valuation method applied;
  • Results achieved from the comparability analysis and value (or range of values) obtained from the valuation method applied.

Notwithstanding the above, and according to articles 18.3 of CITL and 16.5 of CITR, the aforementioned simplified content would not apply, in general terms, regarding the following transactions:
  • Transactions accomplished by Personal Income Tax taxpayers in the course of an economic activity.
  • Business transfers;
  • Share transfers;
  • Real-estate transfer transactions;
  • Transactions involving intangible assets.

Finally, according to article 16.4 of CITR, the obligation to hold the Local file regarding Small and Medium Enterprises (“SME”)2 shall be deemed complied through the filing of an official model issued by the STA.
Additionally, according to article 16.5 of CITR, SME and individuals would be exempt from the obligation to include a comparability analysis provided that the transactions are not accomplished with parties which are tax resident in tax heavens.
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
Please refer to question 1 above.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
Article 18.2 of CITL contains an extensive description of cases and circumstances in which there is deemed to be an “association” for the purposes of the application of the Spanish transfer pricing regime (e.g. companies which are part of a group under article 42 of CC or companies – or individuals – holding a direct or indirect participation of 25% in their subsidiaries).
In particular, article 18.2.i) of CITL establishes that an entity and its permanent establishments abroad would be considered as associated parties for the purposes of the Spanish transfer pricing regime.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Yes. Since Spanish legislation has been amended to comply with OECD requirements, the content of the documentation required under the Spanish transfer pricing regime globally covers the one described in the Code of Conduct on transfer pricing documentation for associated enterprises in the EU (“EU TPD”).
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
Yes. As stated in question 1 above, the amendments introduced in the Spanish transfer pricing rules by the new CITL and CITR aim to align the Spanish legislation to the standards included in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of BEPS project).
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
The STA are entitled to require documentation or additional information about the group that, under their view, may be necessary to determine whether the transactions directly or indirectly affect those carried out by the taxpayer. For these purposes, foreign parent companies (of a group) must appoint a resident entity of the group to be responsible for storage of the documentation, although the STA can summon any taxpayer of the group to furnish such group documentation.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
From a practical perspective, pan-European benchmarks are accepted by the STA. However, no specific provisions are established in this regard and therefore, the practical criterion may be different depending on the particular case analysed.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services3 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
It depends on the particular case analysed. However, please refer to question 2 above, in respect of the particular exemptions (concerning documentation) applicable to SME.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
Although no specific rule has been laid down in the Spanish legislation, the STA have informed that the documentation should be generally accepted for review in English, except in the case it is very complex, when specific translation is requested. In any case, since the language of Spanish administrative procedures is generally Spanish according to law, it is always possible that translation of the documentation is requested, so it is preferable to keep the documentation in Spanish.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
As established in the CITR, all the documentation must be maintained at disposal of the STA by the filing date of the annual CIT return. Therefore, the STA would be entitled to request all the documentation that is to be at their disposal by said date.
In this regard, assuming that the fiscal year of the company coincides with the calendar year, the documentation must be at the STA disposal by 25 days following the period of six months from the closing of the company’s tax period.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
According to article 18.13 of CITL, if the taxpayer fails to comply with the aforementioned documentation requirements, penalties could be imposed as this failure constitutes a tax violation. These penalties would be determined as follows:
  • If the STA do not modify the taxpayer’s valuation, penalties consist of a fixed amount of EUR 1,000 per item and EUR 10,000 per group of items with regards to each one of the documentation requirements that is not complied with or which is improperly complied with, under the CTIR. The aforementioned penalty is limited to the lower of:
  • 10% of the amount of the overall transactions subject to the Corporate Income Tax, the Personal Income Tax or the Non-Residents Personal Income Tax in the relevant tax period; or
  • 1% of net turnover.
  • If the STA modify the taxpayer’s valuation, the penalty consists of 15% of the amounts resulting from any corrections made.

Please note however that no penalties would be imposed, even if the taxpayer’s valuation is modified, when the taxpayer has followed the documentation requirements and has valued a transaction based on the transfer price derived from such documentation.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
Formerly, the burden of the proof was borne by the STA, but currently, based on the recent legislative amendments to the Spanish CITL, the burden of proof now relies on the taxpayer. In this regard, as the taxpayer must value the related-party transactions on an arm’s length basis consistently with the documentation filed, the documentation obligation has achieved primary importance in terms of providing detailed evidence (helping also to reduce the likelihood of the STA proposing adjustments).
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
Article 21 of Royal Decree 1794/2008 related to mutual agreement procedures on direct taxation establishes that a taxpayer who has been formally and definitively sanctioned for a serious infringement (including Transfer Pricing infractions described in Section A.4) is not entitled to initiate any mutual agreement procedure which may be provided for by an applicable tax treaty with the aim of eliminating any double taxation resulting from a transfer pricing reassessment.
7. Any other relevant aspect not addressed above?
Not applicable.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
Yes. As stated in question 1 above, the Spanish transfer pricing regime has recently been modified in order to align the Spanish legislation with the standards included in the final report on Action 13 of the OECD BEPS project.
In this regard, the new CITR has introduced in articles 13 and 14, among other modifications, the CbCR obligation which is applicable for tax periods commencing as of 1st January 2016.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
As stated in question 1 above, this obligation entered into force for tax periods commencing on or after 1 January 2016. In this regard, the CbCR form (i.e.Form 231), approved by Order HFP/1978/2016, of 28 December 2016, shall be fulfilled within a 12 month period from the close of the fiscal year to which the CbCR refers (i.e. for fiscal year 2016, the CbCR should be filed by 31 December 2017).
3. Which taxpayers have to file a CbCR in your jurisdiction?
According to article 13 of CITR, CbCR must be submitted by resident entities in Spain considered as parent companies of a group within the meaning of article 18.2 of CITL, provided that they are not dependent on another resident or non-resident entity.
Additionally, said obligation also applies to resident entities dependent on a non-resident entity not dependent on other entities, or the permanent establishments of foreign entities, when one of the following circumstances apply:
  • The Spanish entity has been appointed by its parent company to submit the aforementioned documentation;
  • No CbCR obligations exist (similar to the ones applicable in Spain) in the residence country of the parent company;
  • The country of residence of the parent company has not signed an automatic exchange of information agreement with Spain.
  • Despite the existence of an automatic exchange of information agreement with Spain, the parent company did not comply with it systematically.

In this regard, as stated in section A above, this obligation should not be fulfilled when the consolidated turnover of the persons or entities belonging to a group is below EUR 750m (article 14.1 of CITR).
Additionally, Spanish-resident entities belonging to a group that is required to submit the CbCR, will have to communicate to the STA the identity of the entity required to prepare the report before the end of the reporting period. The referred communication is required for fiscal years starting on or after 1 January 2016 although no specific form or procedure has been announced yet.
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Yes. As noted in question 1 above, the amendments introduced in the Spanish transfer pricing regime by the new CITL and CITR, including the new CbBR obligation, aim to align the Spanish legislation with the standards included in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of BEPS project).
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
Although no explanations have been issued by the STA in this respect, according to the criteria issued by several Spanish tax authors, the penalty regime applicable to the non-filing of the CbCR should be considered as independent from the one applicable to the non-compliance with the other transfer pricing documentation requirements (as described in section A. 4 above).
In this regard, certain tax authors consider that the penalty regime applicable to the non-fulfilment of the CbCR should be the one generally established in article 198 of the Spanish General Tax Law: EUR 20 per record or per pack of records with a minimum of EUR 300 and a maximum of EUR 20,000.
Since as noted above, this is not a clear-cut issue, and moreover, no related resolutions or binding rulings have been issued yet (as stated previously, the CbCR return corresponding to fiscal year 2016 should be filed by 31 December 2017), further legislative development or administrative practices will have to be taken into consideration.
Regarding the possibility of imposing penalties to local subsidiaries:
CbCR must be submitted not only by resident entities in Spain considered as parent companies of a group but also by resident entities dependent on a non-resident entity when certain circumstances apply (e.g. it said subsidiary is appointed by the parent entity for CbCR submission purposes).
Should this be the case, Spanish subsidiaries could be imposed CbCR penalties in Spain.
However, in accordance with the wording of the Spanish CIT Law, dependent Spanish companies that are not under the specific circumstances above referred, are only obliged to communicate the STA the identify data (legal name and tax residency) of the parent entity or the subsidiary that is subject to the CbCR obligations.
Notwithstanding the above, and as stated previously, the penalty regime applicable to the non-compliance of the CbCR obligation is not a clear cut issue. Therefore, risks of penalties in this respect could not be discarded.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
As previously noted, the CbCR obligation has been introduced in the Spanish legislation with effects from FY commencing on or after 1 January 2016. In this regard, there are still no tax treaties signed by Spain foreseeing the communication of CbCR with other jurisdictions.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?

No. The Spanish transfer pricing rules established in CITL and CITR do not foresee additional documentation/filling requirements apart from those described in sections A and B above.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
Not applicable.
3. What is the deadline for meeting this documentation/filing requirement?
Not applicable.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Not applicable.
5. What is the penalty for failing to meet this requirement on time?
Not applicable.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • The Spanish commercial code refers to the situation where a company currently holds, or could have the faculty of holding, the control over one or several companies. In this respect, the term “control”, not only includes the stake held in a given entity (e.g. percentage of equity), but also potential voting rights acquired or to be acquired (e.g. situation where an entity has the right of acquiring voting rights although said voting rights may only be excercised at a later stage).
  • SME are defined in article 101 of CITL as companies whose net turnover in the immediately preceding tax year was lower than EUR 10m. If the company belongs to a group of companies as described in article 42 of CC (regardless their tax residency and their obligation to submit consolidated financial statements), the EUR 10m net turnover refers, in general terms (subject to certain accounting adjustments), to the net consolidated turnover of the group.
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

Ukraine
Contacts
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Ukrainian taxpayers conducting controlled transactions are obliged to maintain transfer pricing documentation.
Starting from 1 January 2017 business transactions of Ukrainian taxpayers qualify as “controlled transactions” if the following criteria related to (i) type of transaction, and (ii) thresholds are met simultaneously:
  • type of transaction criteria:
    • transactions with non-resident related parties;
    • international sale and purchase of goods by Ukrainian companies via non-resident commission agents ;
    • transactions with non-residents (regardless of related status) registered in a “black list” of jurisdictions established by the Cabinet of Ministers of Ukraine. The “black list” includes jurisdictions, which (i) have income tax rate lower by 5 and more percentage points than in Ukraine (i.e. 13% and lower), and/or (ii) have no information exchange agreements with Ukraine and/or (iii) competent authorities of such states (jurisdictions) do not provide comprehensive and timely exchange of tax and financial information;
    • transactions with non-residents who do not pay corporate profit tax (including on foreign-source income) and/or are not tax residents of jurisdiction of their incorporation.
    • chain transactions between a taxpayer and its non-resident related party where title to the goods passes to non-related party(ies) before being transferred to a related party, and where the non-related intermediaries (i) do not perform significant functions related to acquisition/sale of goods between the related parties, and (ii) do not use significant assets and/or do not undertake significant business risks in connection with the purchase/sale of the goods (services) between the related parties.
  • threshold criteria:
    • annual income of the Ukrainian taxpayer from any activity exceeds UAH 150m (net of indirect taxes) for the fiscal (reporting) year;
    • volume of the transactions listed under (i) above of the taxpayer with each counterparty exceeds UAH 10m (net of indirect taxes) for the fiscal (reporting) year.

2. What is the content of the documentation that must be prepared?
Transfer pricing documentation can be prepared in any format, but should include the following:
  • information about related parties;
  • information about the group, including the legal structure, description of the activities, as well as the group’s transfer pricing policy;
  • description of management structure and its organizational chart;
  • description of activities performed by the taxpayer, particularly, economic conditions of the activity, analysis of relevant markets of goods/services where the taxpayer performs its activities, major competitors;
  • information on participation in business restructurings or transfer of intangible assets in the reporting or the previous year with explanation of how they affect taxpayer’s activity;
  • description and conditions of the controlled transaction, with copies of the respective agreements (contracts);
  • description of the goods (works, services) including physical characteristics, quality and market reputation, country of origin and producer, trademark, other information on quality characteristics of goods;
  • information on payments made (amount, currency, date, payment documents);
  • factors that influenced the price determination, including business strategies that impact the price of goods (works, services);
  • information about functions performed, assets used and economic risks assumed by the parties to the controlled transaction;
  • economic and comparability analysis including a benchmarking study, justification of the appropriateness of the transfer pricing method(s), amount of income (profit) and/or expenses related to the controlled transaction, its profitability, source of information used;
  • information about the year-end adjustment(s) performed by the taxpayer (if any).

a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
The documentation requirement applies to all “controlled transactions” as listed under A.1. above.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
Ukrainian tax legislation provides that in addition to ownership (20% direct or indirect shareholding) or control criteria (appointment of at least 50% of executive body of a company), parties can also be recognized as related parties based on financial criteria – i.e., if the amounts of all loans provided (and/or guaranteed) by one party to another exceed a ratio of 3.5 of the recipient company’s own capital.
With amendment of the Tax Code in 2015, the tax authorities were granted the right to initiate court proceedings to establish that the parties are related “based on facts and circumstances” by demonstrating that one legal entity (or individual) has practical control over another entity’s (or both entities’) business decisions. Currently no related case law is available.
The recent clarification by Ukrainian tax authorities addresses only documentation requirements relating to controlled transactions between a permanent establishment (hereinafter “PE”) in Ukraine of a non-resident and a Ukrainian taxpayer. There is no guidance as to whether transactions between a PE and its head office should fall within the scope of the documentation requirement.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
As Ukraine is not an EU member, Ukrainian taxpayers should comply with local documentation requirements.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
Ukraine is not a member of the OECD, furthermore, Ukrainian legislation does not allow taxpayers to freely choose the approach to transfer pricing documentation. Therefore, Ukrainian taxpayers can only use (comply with) local guidelines (requirements).
At the same time, the content of Ukrainian transfer pricing documentation is generally similar to that described in the revised chapter V of the OECD transfer pricing guidelines. However, Ukrainian legislation does not provide for either (i) a master file, or (ii) country-by-country reporting. In a limited manner, master file is implemented within transfer pricing documentation as “information about the group, including the legal structure, description of the activities, as well as the group’s transfer pricing policy”.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Non-residents are not obliged by law to provide transfer pricing information upon requests of Ukrainian tax authorities. Ukrainian tax authorities may request Ukrainian taxpayers to provide information, which is located in another state. Under the general rule, if the tax authorities request particular tax related documents/information, the taxpayer should provide such documents/information, or explain why such provision is not possible.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
Comparable studies are included within the list of information to be gathered in a transfer pricing documentation. However, as Ukrainian approach to transfer pricing documentation is relatively new, currently there are no guidelines or clarifications from the Ukrainian tax authorities whether regional benchmark studies can be accepted.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
Ukrainian legislation does not provide for safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies. Absence of such studies may result in tax authorities’ request for provision of such studies and/or explanation that controlled transactions comply with “arm’s length” price.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
Ukrainian language has to be used in all communication with the Ukrainian tax authorities. If the documents/information are not in Ukrainian, a certified translation should be provided.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
Tax authorities can request transfer pricing documentation either (i) after submission of the report on the controlled transaction (the transfer pricing report – see C. below), which should be submitted by taxpayers involved in controlled transactions, no later than October 1 following the reporting year, (ii) follow-up request for additional information after initial request for transfer pricing documents (as stated in i above), and (iii) within the course of the transfer pricing tax audit.
Depending on the type of request, the taxpayer has the following timescales for provision of transfer pricing information:
  • Upon request following submission of the transfer pricing report – within 30 calendar days from the date of receipt of the request,
  • Upon follow-up request for additional information – within 30 calendar days following receipt of the follow-up request,
  • During the transfer pricing tax audit – within 10 working days from the beginning of the audit and during 15 working days following the date of request receipt if additional documents are needed.

4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
Failure to provide transfer pricing documentation is fined with an amount of 3% of the value of the controlled transactions, for which transfer pricing documentation was not provided, but is capped at the amount of UAH 320,000 (approximately Euro 10,700) (as of 2017). The capped fine amount applies to all controlled transactions concluded globally within the reporting year.
Late submission of transfer pricing documentation is subject to fine of UAH 3,200 (approximately EUR 110) (as of 2017) for each calendar day of delay in submitting transfer pricing documentation, but is capped at the amount of UAH 320,000 (approximately Euro 10,700) (as of 2017).
In addition, if a taxpayer does not provide transfer pricing documentation within 30 calendar days following the due day for payment of penalties for non-provision of transfer pricing documentation the fine in the amount of UAH 8,000 (approximately EUR 270) is applied for each day of non-provision of transfer pricing documentation (please note that this penalty is not capped).
Ukrainian law does not provide safe harbor rules with respect to this fine. Therefore, if the transfer pricing documentation is incomplete or not provided within the applicable timescale the taxpayer could face the abovementioned fine.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
The general rule is that the tax authorities have the burden of proof. During a tax audit, the tax authorities may ask a taxpayer to provide documents justifying the contractual price and the taxpayer can either provide such documents or refuse to do so and refer to the provision placing the burden of proof on the tax authorities.
Generally, refusals to provide documents are unusual and taxpayers usually try to substantiate their contractual prices and provide relevant documentation.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
Transfer pricing reassessment may be ground for initiation of the mutual agreement procedure provided by double tax treaties effective for Ukraine. Ukrainian legislation does not have any legal provisions depriving the tax payer from the mutual agreement procedure in case of lack of transfer pricing documents. In case of lack of the transfer pricing documents the penalties as listed under A.4. above apply. Please however note, that, we are not aware of any instance of the mutual agreement procedure being used in Ukraine
7. Any other relevant aspect not addressed above?
Not applicable.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
Ukraine did not implement the obligation to file CbCR. Introduction of CbCR as part of transfer pricing documentation Tax Code of Ukraine is currently being discussed.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
Not applicable to Ukraine.
3. Which taxpayers have to file a CbCR in your jurisdiction?
Not applicable to Ukraine.

4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Not applicable to Ukraine.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
Not applicable to Ukraine.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
Not applicable to Ukraine.
7. Any other relevant aspect not addressed above?
Not applicable.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
Ukrainian legislation provides for preparation and filing of the transfer pricing report.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
The report on controlled transactions (defined under A.1. above) should include the following: (i) information about the taxpayer, (ii) general information about controlled transactions conducted within the fiscal (calendar) year, (iii) information about counterparties of controlled transactions, and (iv) information about related parties.
The transfer pricing report should be prepared in Ukrainian language.
3. What is the deadline for meeting this documentation/filing requirement?
Each year, the transfer pricing report should be submitted by a taxpayer before 1 October, and should list controlled transactions for the previous year.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
The report should be submitted by taxpayers, which conduct controlled transactions (as described in more detail under A.1 above).
5. What is the penalty for failing to meet this requirement on time?
Ukrainian Tax Code provides for the following penalties for failing to meet reporting requirement:
  • failure to file the report is subject to a fine in the amount of UAH 480,000 (approximately EUR 16,000) (as of 2017);
  • failure to include controlled transactions into the report is subject to fine in amount of 1% of the value of the controlled transactions, which were not reported, but is capped at the amount of UAH 480,000 (approximately EUR 16,000) (as of 2017);
  • non-submission of the transfer pricing report within 30 calendar days following the due day for payment of penalties for non-submission of the transfer pricing report the fine in the amount of UAH 8,000 (approximately EUR 270) is applied for each day of non-submission of the transfer pricing report;
  • untimely filing of the transfer pricing report is subject to fine of UAH 1,600 (approximately EUR 60) (as of 2017) for each calendar day of delay in filing transfer pricing report, but is capped at the amount of UAH 480,000 (approximately EUR 16,000) (as of 2017);
  • untimely reporting of the controlled transaction in the transfer pricing report is subject to fine of UAH 1,600 (approximately EUR 60) (as of 2017) for each calendar day of untimely reporting of the controlled transaction, but is capped at the amount of UAH 480,000 (approximately EUR 16,000) (as of 2017).

Furthermore, failure to submit (or late filing of) the transfer pricing report is one of the grounds for conducting a transfer pricing tax audit.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

United Kingdom
Contact
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Yes. Under general record-keeping obligations imposed by Corporation Tax Self Assessment, records must be kept as may be needed to enable a taxpayer to deliver correct and complete tax returns within 12 months of the relevant year end, including any adjustments to their commercial profits that arise where the provision between two connected persons differs from an ‘arm’s length’ provision, and profits used to calculate UK tax are reduced, or losses increased, as a result of that provision.
UK transfer pricing legislation provides for certain exemptions for enterprises that are defined under EU rules as small and medium sized. Where the enterprise is part of a group or association, the limits apply to that group. The criteria, tested on the basis of the whole consolidated group, are:
Small Enterprise
  • Maximum number of staff: 50
  • And less than one of the following limits:
    • Annual turnover: EUR 10m
    • Balance sheet total: EUR 10m

Medium Enterprise
  • Maximum number of staff: 250
  • And less than one of the following limits:
    • Annual turnover: EUR 50m
    • Balance sheet total: EUR 43m

If the UK company is within a group that qualifies as small, it is exempt from the need to apply and document arm‘s length prices in respect of transactions with related parties in countries with which the UK has a double tax treaty with an appropriate non-discrimination article.
If the UK company is within a group that qualifies as medium sized, the UK company need not apply arm‘s length transfer pricing unless it is dealing with related parties in territories without a qualifying double tax treaty (as for ‘small’ groups above). However HM Revenue and Customs (“HMRC”) can subsequently require a medium sized group to apply arm‘s length transfer pricing to any of its related party transactions during a given chargeable period.
2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
Any provision between ‘connected persons’ must be documented. The definition of ‘provision’ is broad, and represents a transaction or series of transactions including arrangements, understandings and mutual practices whether or not they are, or are intended to be, legally enforceable.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
‘Connected persons’ are where one party controls the other, or where parties are under common control, with control generally meaning the power to secure by the means of holding of shares or the possession of voting or other powers that the affairs of a company are conducted in accordance with the wishes of the person tested. With effect from 1 April 2004 a 40% participant in a joint venture is also deemed to control that joint venture, a joint venture for these purposes being a company or partnership which is controlled by two persons, each of whom has at least a 40% interest in the venture.
Under the UK rules the ‘separate enterprise principle’ applies when determining the chargeable profits of a UK permanent establishment, and therefore the arm’s length principle and the transfer pricing documentation requirements explained in the OECD transfer pricing guidelines will apply.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
HMRC will accept documentation prepared in accordance with EU TPD guidelines. It is recommended that taxpayers who intend to explicitly follow the EU TPD Code of Conduct in relation to local documentation advise HMRC of this in writing.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
The UK transfer pricing rules explicitly state that the entirety of the UK transfer pricing legislation is to be construed in the light of the OECD guidelines. Draft legislation has been introduced to amend the UK transfer pricing legislation so that it refers to the latest version of the OECD’s transfer pricing guidelines, incorporating the revisions made as part of the OECD’s BEPS project. The changes will have effect for accounting periods beginning on or after 1 April 2016 (for corporation tax purposes) and from 2016–17 (for income tax purposes).
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Yes, to the extent that the foreign taxpayer is a counterparty to a transaction involving a UK legal entity, information relating to the foreign taxpayer may be requested from the UK party to substantiate the pricing of that transaction for UK tax purposes.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
Sometimes, if UK data is unavailable/limited.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
The UK, by virtue of it having adopted the revised OECD Transfer Pricing Guidelines, accepts the proposals on low value adding services in chapter VII of those guidelines. HMRC also accept the findings of the EU Joint Transfer Pricing Forum guidelines on low value added services.
In addition, it its International Manual HMRC states that it does not want businesses to suffer disproportionate compliance costs, so taxpayers should prepare and keep such documentation as is reasonable given the nature, size and complexity of their business or of the relevant transaction (or series of transactions) but which adequately demonstrates that the taxpayer’s transfer pricing meets the arm’s length standard.
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
English.

3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
There are no specified deadlines for provision of transfer pricing documentation. Taxpayers should maintain records of transactions and adjustments for a given period prior to the filing date of the relevant tax return; general information powers under Corporation Tax Self Assessment require that the taxpayer provides evidence that pricing of transactions is at arm’s length usually within 30 days from the date of request by the tax authorities.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
Penalties may be raised:
  • If an incorrect return is made and a business has been careless or negligent in establishing the arm’s length basis for the return; or.
  • If a business does not maintain the appropriate documentation necessary to demonstrate that it has made its returns on the basis that the terms of connected party transactions were considered to be on arm’s length terms.

These penalties fall within general provisions relating to incorrect corporation tax returns, namely that a transfer pricing adjustment may lead to a maximum 100% penalty based on potential tax lost, the rate of the penalty being dependent on the behaviour giving rise to the understatement: penalties are up to 30% for negligence or carelessness, up to 70% for deliberate inaccuracies, and up to 100% for a deliberate inaccuracies aggravated by concealment.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
No. There are no specific UK documentation rules relating to transfer pricing, these fall under Corporation Tax Self Assessment regulations as outlined above.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
No.
7. Any other relevant aspect not addressed above?
No.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
Yes, regulations implementing CbCR were passed on 26 February 2016 and are effective from 18 March 2016.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
The reporting obligation relates to accounting periods beginning on or after 1 January 2016 or accounting periods ending on or after 31 December 2015. Companies will have 12 months from the end of the relevant accounting period in which to file a report with HMRC.
3. Which taxpayers have to file a CbCR in your jurisdiction?
A UK resident parent company of a multinational enterprise (“MNE”) with a consolidated group turnover of GBP 750m or more has to file a CbCR. The measure also includes a requirement for the top UK entity of an MNE to file a CbCR, when it is not the ultimate parent entity of the MNE and the ultimate parent entity is resident in a country that either does not require CbCR or does not exchange reports with HMRC in accordance with an effective multilateral competent authority agreement. There is an exemption if the results the UK entity would be required to file have already been included in a CbCR that HMRC can receive. Voluntary reporting is also possible.
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
Yes.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
A MNE which does not file a CbCR on time is liable to a fine of GBP 300. HMRC may also charge an additional penalty of GBP 60 per day if the CbCR is not filed after the MNE has been notified of the penalty. If no CbCR is filed within 30 days of issue of a penalty, HMRC may apply to the tax tribunal to give an order for an increased daily penalty, which the tax tribunal may in their discretion increase up to a maximum of GBP 1,000 per day.
Any entity under an obligation to file a UK CbCR can suffer a penalty for late filing. In addition to the penalties for late filing, a penalty of up to GBP 3,000 may be charged if inaccurate information is carelessly or deliberately provided to HMRC.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
On 27 January 2016, the UK along with 30 other countries signed the Multilateral Competent Authority Agreement for the automatic exchange of country-by-country (“CbC”) reports (“CbC MCAA”). This sets outs the rules and procedures for tax authorities, including HMRC, to exchange automatically CbC reports, prepared by the reporting entity of a multinational enterprise and filed with the tax authority of that entity’s jurisdiction of tax residence, with the tax authorities of all jurisdictions in which the MNE operates. The first exchanges will start in 2017–18 for 2016 information. Countries not covered by the CbC MCAA may participate either through double tax conventions or tax information exchange agreements. The UK has a large number of tax treaties with suitable information exchange provisions, as well as information exchange agreements enable the communication of CbCR with other countries.
7. Any other relevant aspect not addressed above?
There are anti-avoidance measures in place in the UK which target arrangements that are entered into for the purpose of avoiding an obligation under the CbCR regulations, the effect of which is that those arrangements are to be disregarded.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
No.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
Not applicable.
3. What is the deadline for meeting this documentation/filing requirement?
Not applicable.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Not applicable.
5. What is the penalty for failing to meet this requirement on time?
Not applicable.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

United States of America
Contacts
A. Transfer pricing documentation requirement
1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
In the United States, tax law governing transfer pricing is addressed under Internal Revenue Code Sections 482 and 6662, and associated regulations. Taxpayers with controlled transactions are required to maintain transfer pricing documentation, as covered in Section 6662, in order to avoid the imposition of penalties in the event of an adjustment to taxable income by the Internal Revenue Service. It is worth noting that a taxpayer is not automatically subject to penalty if contemporaneous transfer pricing documentation is not maintained. Transfer pricing related penalties can only be triggered by an adjustment to taxable income. This requirement applies to all US taxpayers, as the US rules and regulations do not provide a safe harbor for small taxpayers. Documentation requirements can be segmented into two categories: “Principal Documents” and “Background Documents”. Taxpayers and practitioners generally view an annual transfer pricing report documenting the arm’s length nature of intercompany transactions that cross US borders as comprising the Principal Documents.
These Principal Documents are:
  • An overview of the taxpayer’s business, including an analysis of the economic and legal factors that affect the pricing of its property or services;
  • A description of the taxpayer’s organizational structure (including an organization chart) covering all related parties engaged in transactions potentially relevant under Section 482, including foreign affiliates whose transactions directly or indirectly affect the pricing of property or services in the United States;
  • Any documentation explicitly required by the regulations under Section 482, such as for substantiation of a market share strategy or documentation required for cost sharing arrangements;
  • A description of the method selected and an explanation of why that method was selected;
  • A description of the alternative methods that were considered and an explanation of why they were not selected;
  • A description of the controlled transactions (including the terms of sale) and any internal data used to analyse those transactions. For example, if a profit split method is applied, the documentation must include a schedule providing the total income, costs, and assets (with adjustments for different accounting practices and currencies) for each controlled taxpayer participating in the relevant business activity and detailing the allocations of such items to that activity;
  • A description of the comparables that were used, how comparability was evaluated, and what (if any) adjustments were made;
  • An explanation of the economic analysis and projections relied upon in developing the method. For example, if a profit split method is applied, the taxpayer must provide an explanation of the analysis undertaken to determine how the profits would be split;
  • A description or summary of any relevant data that the taxpayer obtains after the end of the tax year and before filing a tax return, which would help determine if a taxpayer selected and applied a specified method in a reasonable manner; and
  • A general index of the principal and background documents and a description of the recordkeeping system used for cataloguing and accessing those documents.

Background documents are supplemental material to support “[t]he assumptions, conclusions, and positions contained in the principal documents”. Examples of background documents include accounting records, legal agreements, projections, and invoices.
2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
All transactions involving the transfer of tangible and intangible property, the provision of services, the extension of a loan or advance, and the use of property (e.g., leases and rental agreements) between related parties must be documented. The US rules and regulations do not provide thresholds or otherwise contain safe harbour provisions for small taxpayers, for example.
b) What is the definition of “associated enterprises” for the purposes of this requirement (in particular, are transactions between a permanent establishment and its head office in the scope of the documentation requirement)?
Section 482 of the Internal Revenue Code applies a very broad definition of associated enterprises or related parties. Indeed, Treasury Regulation § 1.482-1(i) (4) defines “controlled” to include: “… any kind of control, direct or indirect, whether legally enforceable or not, and however exercisable or exercised, including control resulting from the actions of two or more taxpayers acting in concert or with a common goal or purpose. It is the reality of the control that is decisive, not its form or the mode of its exercise. A presumption of control arises if income or deductions have been arbitrarily shifted”. Thus, parties can be considered to be related under Section 482 even if one party has less than 50%, or even 0%, ownership in another party.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
Not applicable.
d) For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to chapter V of the OECD transfer pricing guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
A US transfer pricing documentation report under Section 6662 should be a standalone document that addresses a multinational’s division of functions and risks across affiliates, and other factors of relevance, with a focus on the intercompany transactions affecting the company’s US affiliates. The US documentation should also be written to specifically follow the US transfer pricing regulations of Section 482, in particular the selection and application of analytic transfer pricing methods described in those regulations. As a result, US documentation will usually include more content and different regulatory references than a typical Action 13 “local file” might contain. It is therefore not recommended to submit a “local file” to the IRS without adjusting it to conform to US documentation requirements.
Similarly, an Action 13 “master file” report is typically not appropriate for US documentation purposes. Usually these reports are broader in scope than what is required for US purposes, with a global focus and often less detail than is needed to meet Section 6662 requirements. Further, US documentation does not need to address Action 13’s checklist of requirements for master file reports, such as intercompany financing, for any topics that are not relevant to the multinational’s US tax position. For these reasons, companies should prepare a report specifically for US documentation purposes, rather than relying on the Action 13 local file and master file approach. While a separate US report is recommended, the master file and local files created for other jurisdictions can usually be leveraged to ease the burden of creating US documentation.
e) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Documentation requirements are applicable to all US taxpayers. For purposes of the discussion, “taxpayer” includes any person required to file a US tax return under US tax law. It is important to note that transfer pricing rules and regulations apply to all taxpayers so defined, not just those persons that actually file a return. As such, taxpayers are required to maintain information that pertains to related party transactions involving a US taxpayer in the form of principal and background documents, and the Internal Revenue Service may request this information. For example, a US affiliate of a foreign-based parent company and any other foreign-based related parties with which the US affiliate transacts. Such information may include an organizational chart and functional analysis, financial data and projections that may impact the economic analysis, marketing materials and analyses, and accounting records.
f) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
The use of regional benchmarks, such as pan-continental comparable sets, is not explicitly addressed in the US transfer pricing rules and regulations. Data on US companies is readily available, as independent, publicly-traded companies are required to file their financial statements with the Securities and Exchange Commission in a Form 10-K. In addition, there are a number of third-party databases that provide business descriptions, financial data, and other company-specific data for US companies.
Such databases are commonly used to identify companies that may provide reliable benchmarks in transfer pricing matters. Thus as a practical matter US comparables are generally used to benchmark a US tested party. In practice, pan-regional comparable sets are sometimes used to test a non-US party if data on local comparables are not sufficiently available.
g) If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum guidelines on low value adding services1 or revisions to chapter VII of the OECD transfer pricing guidelines about low value adding intra-group services) in your jurisdiction or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances taxpayers are exempted from benchmark studies?
The IRS allows for conditional safe-harbours in two specific areas: intercompany loans and intercompany services charges. For loans, a US taxpayer is permitted to charge an interest rate equal to the Applicable Federal Rate (“AFR”), provided certain qualifying criteria are met. AFR are interest rates published monthly by the IRS and include different rates for short-term loans (less than three years), medium-term loans (between three and nine years), and long-term loans (over nine years). Qualifying criteria for using AFR include the following. First, the lender must not be in the business of lending to third parties. Second, the funds must not be “obtained by the lender at the situs of the borrower” (i.e., a lending affiliate may not simply borrow from a third-party in the borrower’s locale and on-lend those funds on a related-party basis using the AFR). Finally, the loan must be denominated in U.S. dollars. From a practical standpoint, the AFR safe harbour can usually only be applied for funds lent from a US affiliate to its related parties outside of the US. The reason is that AFR are typically low interest rates, often below market rates, meaning a non-US lender would likely not be permitted under its local rules to earn interest at such low rates.
The US safe-harbour for intercompany services allow for an at-cost charge (i.e., charges of cost with no profit markup) under certain qualifying conditions. This safe harbour is referred to as the Services Cost Method (“SCM”). The SCM is an elective method; a taxpayer may always include an arm’s length profit markup at its discretion. To qualify for the SCM, the activity must be evaluated under several sequential criteria. First, certain activities are excluded from the safe harbour outright (these include (i) manufacturing, (ii) production, (iii) extraction, exploration, or processing of natural resources, (iv) construction, (v) reselling distribution, acting as a sales or purchasing agent, or acting under a commission or other similar arrangement, (vi) research, development, or experimentation, (vii) engineering or scientific, (viii) financial transactions, including guarantees, and (ix) insurance or reinsurance). For all non-excluded activities, the taxpayer’s “business judgement” must be applied regarding whether the activity contributes “to key competitive advantages, core capabilities, or fundamental risks or successes of the business of the [service] renderer, the [service] recipient, or both” – any activity contributing as such is disqualified from the SCM. Assuming an intercompany service passes the above tests, the SCM can only be applied for activities that also either: 1) align with one or more activities on the Treasury’s list of “specified covered services” (there are 101 such identified activities), or 2) has a median comparable company profit markup less than or equal to 7.0 percent. For intercompany services passing all of these criteria, an at-cost intercompany charge of the fully loaded cost of providing the services is permissible. The SCM is usually applied to US-outbound charges only (this is because non-US jurisdictions will accept an at-cost inbound charge for services, but are likely to dispute an outbound services charge that does not include a profit markup).
h) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
While the US transfer pricing rules and regulations are silent as to the language to be used in transfer pricing documentation, in practice, documentation is prepared and submitted in English.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
The US maintains a contemporaneous documentation requirement, meaning that the documentation must be in existence at the time the tax return is filed. Therefore the existence of documentation alone is not sufficient to avoid penalties; taxpayers must prepare such documentation with the timely filing of the US tax return. Specifically, the principal documents numbers 1 through 8 must be prepared by the tax filing. Upon request from the Internal Revenue Service in the course of an audit, taxpayers must produce all ten principal documents within 30 days. An additional request for background documents may also be provided, which must be produced within 30 days of request.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
The regulations under Section 6662 of the Internal Revenue Code contain specific penalty rules for transfer pricing misstatements. There are two types of penalties that can be imposed on an adjustment to taxable income: a transactional penalty and a net adjustment penalty. For each type of penalty, the regulations allow for either a “substantial” or a “gross” misstatement penalty depending on the severity of the tax misstatement. The penalties are calculated as a percentage of the underpayment of tax (i.e., the difference between the adjusted taxable income as determined by the Internal Revenue Service and the taxable income reported by the taxpayer). An adjustment may be excluded from penalties if the taxpayer demonstrates reasonable cause and good faith efforts, including maintaining contemporaneous documentation.
A transactional penalty is applicable if the taxpayer’s transfer prices are over – or under –stated by certain percentage thresholds. Therefore, a transactional penalty may be triggered even if the adjustment is relatively small on an absolute dollar basis. A substantial valuation misstatement is defined in Treasury Regulation § 1.6662-6: “In the case of any transaction between related persons, there is a substantial valuation misstatement if the price for any property or services (or for the use of property) claimed on any return is 200% or more (or 50% or less) of the amount determined under Section 482 to be the correct price.” In the event of a substantial valuation misstatement, the applicable transactional penalty is equal to 20% of the resultant underpayment of tax. A gross valuation misstatement occurs “[…] if the price for any property or services (or for the use of property) claimed on any return is 400% or more (or 25% or less) of the amount determined under Section 482 to be the correct price.” In such instances, the applicable penalty increases to 40% of the tax underpayment.
Penalties can also be triggered by the aggregate of all allocations made under Section 482 (the net adjustment penalty): “The term net Section 482 adjustment means the sum of all increases in the taxable income of a taxpayer for a taxable year resulting from allocations under Section 482 (determined without regard to any amount carried to such taxable year from another taxable year) less any decreases in taxable income attributable to collateral adjustments as described in Treasury Regulation § 1.482-1(g).” As in the transactional penalty, “substantial” and “gross” misstatement thresholds are established for the net adjustment penalty, but are based on absolute rather than relative size. A substantial valuation misstatement occurs if a net Section 482 adjustment is greater than the lesser of USD 5m or 10% of gross receipts. In the event of a substantial valuation misstatement, the applicable penalty is equal to 20% of the resultant underpayment of tax. A gross valuation misstatement occurs “[…] if a net Section 482 adjustment is greater than the lesser of USD 20m or 20% of gross receipts.” In such instances, the applicable penalty increases to 40% of the tax underpayment.
In theory, an adjustment could trigger both a transactional and a net adjustment penalty. To address this potential taxpayer concern, the regulations under Section 6662-6(f) require coordination of penalties and do not allow the Internal Revenue Service to impose multiple penalties on the same adjustment. If an adjustment triggers both a gross valuation transactional penalty (e.g., the reported price is less than 25% of the adjusted price) and a substantial valuation net adjustment penalty (e.g., the adjustment is USD 10m), the amount of the adjustment that is related to the gross valuation misstatement under the transactional penalty is subject to a 40% penalty, and the remaining amount of the adjustment is subject to a 20% penalty. If an adjustment were to trigger both a substantial transactional penalty and a gross valuation net adjustment penalty (e.g., the adjustment is greater than USD 20m), the entire amount is subject to the net adjustment penalty of 40%; no portion would be subject to a 20% penalty.
5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
The Internal Revenue Service is granted broad discretion in transfer pricing cases. Section 482 of the Internal Revenue Code provides that the Internal Revenue Service “[…] may distribute, apportion, or allocate gross income deductions, credits, or allowances […] if […] such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect […] income.” Thus, the burden of proof rests with the taxpayer, regardless of whether or not documentation is prepared. In general, to avoid a transfer pricing adjustment, a taxpayer must prove that the adjustment initiated by the Internal Revenue Service was “arbitrary, capricious or unreasonable” and that the disputed transaction satisfies the arm’s length standard under Treasury Regulation § 1.482-1(b).
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
In the US, taxpayers are not prevented from seeking Competent Authority relief as specified in the mutual agreement procedure provisions of applicable tax treaties in the event of a transfer pricing adjustment, irrespective of whether the proposed adjustment would imply a penalty. Competent Authority relief may not alleviate documentation-related penalties, however. For example, if an adjustment initiated by the Internal Revenue Service included a penalty, the Competent Authority process can eliminate the penalty only if the settlement results in an adjustment below the thresholds described in Sections 6662(e) and 6662(h) of the Internal Revenue Code. Otherwise a potential penalty will be evaluated in reference to the adjustment amount as determined in the settlement.
7. Any other relevant aspect not addressed above?
No.
B. Country-by-Country reporting (“CbCR”)
1. Did your jurisdiction implement the obligation to file a CbCR? If not, is the introduction of the CbCR in your jurisdiction contemplated and, if so, when?
The IRS adopted the OECD’s CbCR initiative through final regulations issued in July of 2016. The IRS regulations require US-parent entities of multinational enterprise groups to submit CbCR for tax years beginning 30 June 2016 and onwards. Many US-based multinationals had expressed concern that this implementation timeline does not match that of other jurisdictions in which they operate. Specifically, early adopter countries are requiring CbCRs for tax years beginning 1 January 2016, creating a six-month gap between the US and non-US requirements. On 19 January 2017, the IRS responded to this concern by allowing for US-based multinationals to file CbCR for periods prior to 30 June 2016, including situations where the taxpayer has already filed their US tax return.
2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
Tax years beginning 30 June 2016 and onwards.
3. Which taxpayers have to file a CbCR in your jurisdiction?
CbCR will be required for US taxpayers that are part of a multinational group that has consolidated annual revenue for the preceding annual accounting period of USD 850m or more. Accordingly, US taxpayers that are the “ultimate parent entity” of such a multinational group will have to file, as will US taxpayers whose ultimate parent is located in a country that has not yet adopted CbCR (unless a surrogate entity has filed a CbCR).
4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
The CbCR template and process for administration is generally in line with the OECD model.
5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
No specific new penalties are associated with the CbCR regulations; however, the general reporting-related penalties under Section 6038 do apply.
6. Are there tax treaties in force in your jurisdiction allowing the communication of CbCR with other jurisdictions?
The US are not party to the OECD’s Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports. Instead, the IRS plans to exchange CbCR information under bilateral Competent Authority agreements intended to safeguard data and confidentiality. The IRS has also provided certain criteria under which these information exchange agreements would be suspended. These Competent Authority agreements are currently being finalized and implemented.
7. Any other relevant aspect not addressed above?
No.
C. As the case may be, other documentation/filing requirement in relation to transfer pricing?
1. In your jurisdiction, are there any other documentation/filing requirements in relation to transfer pricing?
The US Federal tax return includes forms that require a listing of the taxpayer’s intercompany transaction volumes with non-US affiliates (i.e., Forms 5471, 5472, 8865). All US taxpayers with cross-border intercompany transactions must fill out one of these forms (the specific form being dependent on the details of the taxpayer). In addition, for US taxpayers with cost-sharing agreements, in addition to and separate from the comprehensive documentation required for the initial and annual analyses, an annual filing is required as part of the tax return.
2. If so, what is the content of such documentation/filing requirement? What language(s) are to be used by taxpayers?
The intercompany transaction forms are filed with affiliate names and transaction amounts for the applicable tax year. The annual cost-sharing filing is a list of general information about the agreement itself, such as the participants and effective dates. All documentation and filings are to be provided in English.
3. What is the deadline for meeting this documentation/filing requirement?
Annually with the filing of the Federal tax return.
4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
The intercompany transaction forms must be filed by all taxpayers with cross-border intercompany transactions. The cost-sharing filings only apply to US taxpayers that participate in intercompany cost-sharing agreements.
5. What is the penalty for failing to meet this requirement on time?
The intercompany transaction forms and cost-sharing filings are part of the Federal tax return and thus subject to certain penalties that apply for a missing or incomplete filing. These penalties are separate from the accuracy-related penalties of Section 6662, described earlier in this response.
6. Any other relevant aspect not addressed above?
Not applicable.
References
  • Report called “Guidelines on low value adding intra-group services” adopted by the European Union Joint Transfer Pricing Forum during the meeting of 4 February 2010.

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