Netherlands
By Richard Smeding and Thomas VanderVliet, Greenberg Traurig
Amsterdam
#1 The Dutch General Tax Act stipulates that Dutch taxpayers are required to prepare and keep all documentation deemed relevant to establishing a company's taxable position and provide this if and when requested by the Dutch tax authorities. In addition, a statutory obligation to prepare and keep TP documentation applies. There is, however, no obligation to submit such documentation without a specific request to do so.
#2 A taxpayer is expected to update their TP documentation if the conditions under which a transaction is carried out change substantially. The TP documentation must cover the financial year in which the relevant transaction takes place. Moreover, under Dutch case law TP documentation is expected to be available from the moment that the transaction takes place. Upon request of the Dutch tax authorities, a taxpayer is obliged to provide the requested documentation information within 4 weeks after the request is made. In case of complex transactions, this deadline may be extended to 3 months.
#3 No.
#4 There are no specific rules for small, medium-sized or large enterprises; both are obligated to prepare and keep TP documentation. However, in practice the TP documentation obligation is applied in a flexible manner; small companies may often be permitted to provide less detailed TP documentation than large companies.
#5 TP documentation involving transactions between a permanent establishment and an associated entity should be retained. The documentation requirements are identical.
#6 Under Dutch law both international and domestic transactions require TP documentation. The documentation requirements are identical.
#7 In principle, having TP documentation on file does not protect a taxpayer from (possible) transfer pricing adjustments. However, the burden of proof lies with the Dutch tax authorities if a taxpayer is able to present documentation that sufficiently demonstrates that the transfer prices are consistent with the arm's length principle. Under these circumstances, the Dutch tax authorities will have to provide reasonable proof that the agreed transfer prices are not in line with the arm's length principle. It should be noted that the burden of proof will shift to the taxpayer if the taxpayer is unable to present sufficient information or documentation.
#8 The Netherlands has a well-known, extensive APA practice. The taxpayer may conclude an APA with the tax authorities on a unilateral, bilateral or multilateral basis. In the latter two situations the Dutch tax authorities will first negotiate country specific agreement with the other jurisdiction(s) involved and thereafter conclude the national APA with the Dutch taxpayer based on that bilateral or multilateral agreement. The APA is an enforceable settlement agreement subject to Dutch civil law just like any other form of agreement.
#9 A wide range of data carriers are accepted to prepare and keep TP documentation (eg. paper, electronic forms etc), provided that the taxpayer's taxable position can be established from the documentation at any time.
#10 TP documentation is expected to be available at the moment of the transaction. Upon request of the Dutch tax authorities a taxpayer is obliged to provide the required information within 4 weeks. In case of complex transactions this deadline may be extended to 3 months.
#11 Under Dutch case law every intra-group transaction requires TP documentation.
#12 Both Dutch and English are permitted. Translations are considered as valid documentation, provided that either of these languages are used to present the TP documentation.
#13 In principle, the burden of proof lies with the Dutch tax authorities if a taxpayer is able to present documentation that sufficiently demonstrates that the transfer prices used are consistent with the arm's length principle. However, the burden of proof will shift to the taxpayer if the taxpayer is unable to present sufficient supporting information.
#14 There is no exhaustive list of information that should be included in the TP documentation. The required information depends on the specific case at hand, and more specially, on the degree of complexity of the relevant transaction.
#15 In principle, an enterprise is obliged to prepare and keep TP documentation on an independent basis. This is also the case when an enterprise belongs to a consolidated group (e.g. a Dutch fiscal unity). In practice however, the Dutch tax authorities accept that the core part of the TP documentation is centralised at group level, as long as the relevant documentation is also available at the level of the relevant Dutch company.
#16 Yes (for example Amadeus).
#17 In principle, both internal and external comparables are considered as valid comparable uncontrolled transactions.
#18 Regional comparables are accepted, subject to the relevant facts and circumstances.
#19 At first glance, the burden of proving the arm's length principle will shift in both cases to the taxpayer if the taxpayer is unable to present sufficient information. In addition, the absence of TP documentation could lead to penalties of up to 100% of the tax due.
#20 The taxpayer may request from the Dutch tax authorities a so called "corresponding adjustment", a transfer price adjustment corresponding with the transfer price adjustment of another jurisdiction.
Furthermore, all tax treaties which Netherlands has concluded contain a provision comparable with art. 25 of the OECD model convention, a socalled "Mutual Agreement Procedure". This provision aims to assist taxpayers in eliminating double taxation by way of a consultation procedure between the relevant treaty parties.
Finally, an EU-member could use the Arbitration Convention, which obligates members to eliminate double taxation.
#21 The Dutch corporate income tax rate for the year 2009 is 25.5%, with lower brackets of 20% and 23% for the first EUR 40 000 and subsequent EUR 160 000 of taxable income respectively.
Poland
By Pawel Sylwestrzak and Mateusz Serafinski
#1 Polish CIT and PIT regulations stipulate that a formal transfer pricing documentation should be prepared if annual volume of the transactions exceeds the given thresholds. Possessing the TP documentation is obligatory. It can prevent tax authorities from applying a penal 50% CIT / PIT rate if they question the applied price levels.
#2 As a rule, the TP documentation needs to be prepared separately for each tax year, provided that the volume of transactions exceeds the given threshold for that year. TP documentation must be provided to the tax authorities within 7 days after request. If the documentation is not presented within the above timeline, tax authorities are entitled to apply a 50% CIT / PIT rate to the adjusted tax result.
#3 No, documentation requirements are the same for all companies.
#4 Enterprise size does not have an influence on TP documentation requirements. However, the volume of the transaction does: the TP documentation refers only to transactions where the annual turnover in a given tax year exceeds the PLN equivalent of:
EUR 100,000 – if the value of the transaction does not
exceed 20% of the share capital of the company,
EUR 30,000 – in the case of rendering services or sale of
intangible values,
EUR 50,000 – in all other cases,
EUR 20,000 – for all payments made to tax havens.
#5 Transactions between a PE and other group companies should be regarded in the same manner as transactions between companies.
#6 There are identical requirements for TP documentation documenting domestic and cross border transactions.
#7 No, it only protects taxpayers from a penal 50% CIT / PIT rate to these adjustments.
#8 Poland has an APA procedure, it can be concluded on a unilateral, bilateral and multilateral basis. As a result of the APA procedure, the tax authority issues a decision on the APA. The decision is binding for a period of maximum 5 years and may be renewed for the following periods.
#9 This is not regulated but in practice the TP documentation is usually stored on paper.
#10 The TP documentation must be provided to the tax authorities within 7 days from their request. No other timeframes have been provided. In practice, since it is difficult to produce TP documentation within 7 days, taxpayers should prepare such documentation immediately after the end of the tax year.
#11 Every intra-group transaction is hit provided that the value of the transaction exceeds given thresholds.
#12 The TP documentation should be prepared in Polish or translated into Polish by a certified translator.
#13 The tax authorities are required to prove that the arm's length principle has not been respected.
#14 TP documentation is a formal document that should include all elements stipulated in the CIT / PIT Act.
#15 It should be possible.
#16 This jurisdiction does not indicate database search for comparables as an obligatory element of a TP document, but it may be included as an appendix to the documentation.
#17 External comparables are preferred.
#18 Searching for comparable transactions is not an obligatory element of TP documentation.
#19 The only penalty is the application of a penal 50% CIT / PIT rate to the adjusted profit. Tax authorities may also choose to prosecute personnel responsible for preparing the company's tax position.
#20 There is a provision allowing correction of the price level where the tax authorities in another EU country have adjusted the price level of the related party with whom the transaction was made.
#21 19%
Romania
By Cosmin Petru-Bonea
#1 Taxpayers who carry out transactions with affiliated persons are liable to prepare and provide TP documentation, at the request and within the terms granted by the relevant tax authority.
The tax authority's request to prepare and provide the TP documentation shall be in writing on a special form signed and stamped by the head of the relevant tax authority.
#2 Applicable Romanian regulations require the TP documentation to be prepared at the request of the relevant tax authority, the documentation shall be up to date as of the date of preparation.
#3 The same TP documentation requirements are applicable to parent companies and subsidiary companies.
#4 There is no difference in TP documentation compliance between small and medium-sized companies and large companies.
#5 Transfer pricing regulations apply also to transactions between a permanent establishment and an associated entity. TP documentation requirements are similar to those applicable to affiliated parties.
#6 TP documentation requirements are applicable to all transactions carried out between affiliated persons, irrespective of their place of residence, so that identical documentation compliance requirements are applicable to all such transactions.
#7 Although there is no specific provision expressly stating this, the preparation of proper TP documentation protects the taxpayers from transfer pricing adjustments made by the relevant tax authority.
#8 Under Romanian law, the National Agency of Fiscal Administration is the authority authorised to issue APAs.
The APAs may be concluded on a unilateral, bilateral and multilateral basis, but bilateral or multilateral APAs may be issued only for transactions with taxpayers from countries with which Romania has concluded double taxation treaties.
The APAs are opposable and mandatory for the relevant tax authorities provided that their terms and conditions have been fully observed by the taxpayer. Otherwise, the APA is no longer valid from the fiscal year when the terms and conditions were breached by the taxpayer.
#9 In general, TP documentation should be prepared and provided to the relevant tax authority on paper. However, an electronic format agreed on between the taxpayer and the relevant tax authority is permitted.
#10 The TP documentation has to be provided at the request and within the time frame specified by the relevant tax authority. This may not exceed 3 calendar months from the date of the request. The taxpayer can request a time extension for a period equal to the one initially established by the relevant tax authority.
#11 The TP documentation requirements are applicable to all transactions carried out between affiliated parties.
#12 Generally, the TP documents should be presented in Romanian, but a certified translation in Romanian should also be provided with documents in other languages.
#13 On a general note, the refusal to provide TP documentation or the submission of incomplete documentation is regarded as a transaction between affiliated parties without a justified transfer price. This will trigger a transfer price estimation by the relevant tax authority.
The taxpayer is then liable to prepare and provide complete TP documentation within the time frame communicated by the relevant tax authority. Otherwise, the relevant tax authority may proceed with the transfer price estimation based on the procedure regulated by the Romanian law.
#14 The information to be included in the TP file is described in general terms (eg. information about the group; information about the taxpayer).
#15 Considering that under Romanian regulations, the TP documentation should be presented only at the request of the relevant tax authority, this is the taxpayer's decision. It is however essential that the taxpayer can provide the TP file within the time frame established by the relevant tax authority.
#16 Romanian law is rather lacking in this respect, having a general provision that the comparative analysis shall consider the territorial criterion in the following order: national, European Union, international. However, Romanian law makes express reference to the OECD Transfer Pricing Guidelines as a supplementation of the rules provided by domestic legislation.
#17 Romanian law stipulates that information regarding external or internal comparable transactions must be included in the TP documentation. From a reasonable interpretation of the specific legal provision, it appears that either internal or external comparables may be considered when preparing the TP file.
#18 As mentioned in response #16, Romanian law has a general provision that the comparative analysis shall consider the territorial criterion in the following order: national, European Union, and international.
#19 According to the Romanian Fiscal Procedure Code, taxpayers who carry out transactions with affiliated parties are obliged, at the request of the relevant tax authority, to prepare and submit the TP file in view of establishing the transfer price.Failure to comply with this legal obligation is deemed a misdemeanour, sanctioned by fines ranging between RON 12 000 and RON 14 000 (equivalent of EUR 2850 – 3300).
Failure to present or presenting insufficient TP documentation within the time frame granted by the tax authority entitles the tax authority to estimate the transfer price, which may lead to transfer pricing adjustments.
#20 Romanian law is silent concerning specific procedures to mitigate/eliminate potential double taxation related to TP adjustments. Such matters are dealt with in terms of the mutual agreement procedure stipulated in the double taxation treaty between the two countries involved in transactions, if such a treaty exists.
#21 Currently, the standard corporate income tax rate in Romania is 16% subject to minimum tax payable based on the company's total income. The minimum tax provision was recently approved to prevent companies registering losses for indefinite periods of time.
Russia
By Boris Bruk
#1 Current Russian TP rules do not require preparation and submission of any specific documentation to the tax authorities. Russian law introduces a rebuttable presumption stating that the price applied by a taxpayer is a fair market price.
Should the tax authorities decide to challenge the price applied by the taxpayer, they will have to prove that this price is not in line with the TP statutory principles. The tax authorities must use official sources of information (eg. statistics, data received from the customs authorities) in order to support their estimate of what they believe to be the fair market price. In practice, the tax authorities have started using authoritative expert appraisals (eg. expert appraisals of the RF Academy of Science) more and more frequently and the courts have accepted such appraisals as evidence.
Although there is no statutory obligation to submit any TP documentation, Russian companies and foreign companies doing business in Russia are nowadays increasingly concerned about potential attacks on their prices (both intra-group and prices applicable to trade with external customers / suppliers) by the Russian tax authorities. As a possible countermeasure, they develop comprehensive TP or marketing policies describing their intra-group pricing and external trading methodology and the factors affecting such methodology (including marketing strategies, system of discounts etc). It is believed that such documentation laid down on paper in advance could provide additional support in disputes with the tax authorities and for persuading a court.
It should also be noted that the Russian Government is currently considering amending the Russian TP rules to make them more efficient. The TP draft bill1 (not yet submitted to the parliament but expected to become the law from January 1st, 2010) introduces a number of novelties, including special documentation requirements. In particular, companies and individual entrepreneurs will have to file (together with the respective annual profit tax (CIT) returns, personal income tax returns and returns filed under the special tax regimes) special forms describing the terms of their qualifying transactions (i.e. the transactions, which could be subject to TP review). The forms will have to be filed, if income and expenses incurred in connection with the qualifying transactions with the same counterparty (or same counterparties) will exceed RUR 10 million (app. EUR 229 000) per year (the RUR 10 million criterion)2.
The information to be included in the forms should cover:
- Description of the type and the subject matter of the qualifying transactions;
- Information about foreign individuals and foreign companies which were a party to the qualifying transaction (including information about their respective jurisdictions);
- Information about the prices applied in the qualifying transactions;
- Description of TP methods applied by a taxpayer to ensure that the prices applied in the qualifying transactions are fair market prices;
- Description of information (including sources of this information) used by the taxpayer to ensure that the prices applied in the qualifying transactions are fair market prices;
- Information about income / expenses incurred by the taxpayer from the qualifying transactions.
The company / individual entrepreneur will have to sign the TP forms attached to the tax returns and will therefore be held personally liable for the correctness of the information provided.
#2 As discussed in response #1, Russian tax law does not currently address TP documentation issues.
The draft TP bill implies that the TP documentation has to be provided at least once a year. In addition to the information about qualifying transactions, which has to be submitted by the taxpayers to the tax authorities together with the tax returns, the tax authorities will be able to request additional information about the qualifying transactions in the course of a tax audit. This could include:
- Description of the terms of qualifying transaction, including the payment terms;
- Information about the parties of the qualifying transactions;
- Functional and risk analysis describing the roles of the taxpayer and its counterparties in the qualifying transactions, including information about the assets used by the taxpayer in the qualifying transactions and the risks assumed by each of the parties;
- Description of the methods and the information used by the taxpayer to verify whether the prices applied in the qualifying transactions are fair market prices;
- Calculation of income and profits arising from the qualifying transactions;
- Information about any other economic benefits received by the taxpayer from acquisition of information and IP rights (if applicable);
- Information about other factors that affected the applied prices, including information about the market strategies of the taxpayer.
The additional information will have to be submitted to the tax authorities within 5 days after requested by the tax authorities. The taxpayer may request an extension of the deadline. Taxpayers who submit the required information will not be subject to tax penalties for errors in tax accounting, underpayment of tax or tax agent penalties, if the errors in tax accounting, underpayment of tax and failure to withhold taxes arise out of TP review of the qualifying transactions.
Neither current Russian tax law nor the proposed draft TP bill directly addresses the issue of updating the TP documentation or retroactive effect thereof. Currently any TP documentation voluntarily drafted by the taxpayer may be updated by the taxpayer and may have retroactive effect. The draft TP bill implies that the TP documentation will be submitted on yearly basis (subject to the RUR10 million threshold), so effectively the TP information will be updated annually. No retroactive effect of the TP information is envisaged by the draft law.
#3 Neither current tax law nor the proposed draft TP bill require different TP documentation for parent and subsidiary companies.
#4 The current Russian TP rules do not differentiate between small, medium-sized and large companies. Therefore, each type of company may find it useful to prepare TP documentation, as discussed in Q. 1.
It should be noted that the RUR 10 million threshold under the draft TP bill suggests that the TP documentation requirements will likely affect medium-sized and large enterprises. The bill does not differentiate TP documentation requirements for these two types of companies.
#5 Currently, Russian TP rules should equally apply to Russian companies and permanent establishments of foreign legal entities. So, both types of businesses may find it useful to draft TP documentation, as described in response #1.
We would expect that the TP documentation requirements (to be introduced by the draft TP bill) should apply equally to Russian companies and permanent establishments of foreign legal entities (where the permanent establishments fulfil the RUR 10 million threshold). No difference in TP documentation between permanent establishments and large companies is envisaged in the bill.
#6 Since both current Russian TP rules and the proposed draft TP bill cover crossborder and certain types of domestic transactions, TP documentation should be addressed in those cases where the domestic transactions qualify for the TP review.
The proposed TP draft bill does not require different documentation for domestic and cross-border transactions. Neither does it differentiate between the TP documentation requirements for qualifying enterprise size.
#7 No, the TP documentation does not and will not (under the draft TP bill) protect taxpayers from TP adjustments.
As discussed in response #1, currently the voluntarily-prepared TP documentation could be viewed as the source of additional arguments protecting the position of the taxpayer in disputes with the tax authorities, but it is not compulsory for either the tax authorities or for the courts.
Under the TP draft bill this information (a statement of the position of the taxpayer) will be the starting point for discussion with the tax authorities and may also protect the taxpayer from penalties.
#8 No APA is available at the moment. The draft TP bill introduces APAs for "large taxpayers". The following are the key terms proposed for the APAs:
- The APA may be concluded between a large enterprise and the tax authorities with regard to one or several similar transactions;
- The term of the APA will not exceed 3 years (but may be extended for not more than 2 years);
- The draft APA will be prepared by the taxpayer and signed by the taxpayer and the Chief Executive (Deputy Chief Executive) of the Federal Tax Service;
- Taxpayers applying for an APA will have to provide information regarding qualifying transactions, as described in response #2. The tax authorities may demand submission of any additional information they believe necessary for conclusion of the APA (not limited by the lists of information described in responses #1 and #2 above);
- The taxpayer will have to pay state duty for consideration of its APA application;
- The maximum term for consideration of the APA application is one year (may be extended by 3 months);
- The APA will become effective immediately after the parties sign the document;
- Once executed the APA will be sent by the Federal Tax Service to the local tax authorities (where the taxpayer is registered);
- The APA may be amended by application of the taxpayer of by decision of the Federal Tax Service (the grounds which may trigger such decisions are currently unknown);
- The APA may be terminated by the agreement of the parties, by court or by the Federal Tax Service (if the taxpayer fails to comply with the terms of the APA);
- Failure of the taxpayer to comply with the terms of the APA may trigger revision by the tax authorities of the qualifying transactions and potential recapture of underpaid taxes and assessment of late payment interest (if applicable).
#9 In practice both formats could be used (for example, currently the Russian tax authorities practice e-filing of tax returns).
#10 Currently the voluntarily prepared TP documentation is likely to come into play if and when the tax authorities start discussion about the prices used by a taxpayer.
Under the proposed draft TP bill the TP documentation will both have to be submitted together with the annual tax return and additional information may be demanded by the tax authorities.
#11 As a general rule, preparation of the TP documentation is only necessary for those transactions which may be subject to the TP review. Currently those are:
- Any transactions between the related parties;
- Barter (exchange of goods, works, services) transactions;
- International trade (cross-border) transactions;
- Transactions involving the same or similar goods (works, services), carried out within a short period and triggering more than 20% dispersal of prices up or down.
The proposed draft TP bill expands the scope of application of the TP rules by:
- Covering those transactions between the related parties carried out through a non-related party (eg. where the same items are sold by one related party to an independent purchaser and then the same items are sold by the independent purchaser to the second related party);
- Covering transactions involving offset of mutual claims;
- Expanding the scope of TP to transactions involving information, IP rights and other proprietary rights;
- Covering any transactions where one party is a resident in a state blacklisted by the Ministry of Finance.
It should be noted, however, that apart from the general TP rules, some special provisions of the RF Tax Code regarding calculation of the tax base for VAT [Art. 154), Profit tax (Art. 274 (4-6)] and Personal Income tax [Art. 211 (1) and Art. 212 (1-2 and 3)] purposes contain references to the principles laid down in the TP rules or similar rules. This means that where the activities of the taxpayers fall under these specific rules the tax authorities may perform TP analysis even if the qualifying activities do not fall under the general TP rules.
Since there are no TP documentation requirements whatsoever at the moment, the taxpayers are left free to decide whether they would like to prepare the TP documentation with regard to any transactions which, although not being subject to general TP rules, may nevertheless be controlled under specific provisions of the RF Tax Code.
Although subject to further clarifications from the tax authorities and courts, it seems that the TP documentation requirements to be introduced by the draft TP bill will not be extended to transactions covered by the above listed specific provisions of the RF Tax Code, if the transactions do not fall under the general TP rules. The taxpayer could, nevertheless, be advised to prepare such documentation as it could still bolster their position should a dispute arise with the tax authorities.
#12 All TP documentation should either be prepared or translated into Russian.
#13 Currently, the burden of proof that the prices applied in a transaction are not fair market prices is shifted to the tax authorities. In practice, however, the courts expect that taxpayers will actively defend their pricing policies and bring forward counter arguments against the position of the tax authorities.
The draft TP bill retains the rebuttable presumption that prices applied by the taxpayer are correct. This implies that the tax authorities will have to prove this is not the case if they decide to challenge. It seems, however, that the effective burden of proof will continue to be balanced between the parties (ie. each party will have to prove its position).
#14 As discussed above, currently there are no statutory requirements at all for TP documentation.
The draft TP bill provides that the information submitted to the tax authorities on an annual basis will be filed in forms to be developed by the Ministry of Finance as an attachment to tax returns. Taxpayers will be able to submit the additional TP information, which may be requested by the tax authorities in the course of a tax audit, in any format unless the tax authorities will request specific documents which have to be furnished under Russian law in a particular format.
#15 Preparation of TP documentation is currently optional and therefore a group of companies may choose to prepare unified TP documentation (eg. the group marketing policy). Establishing a unified intra-group TP policy could be beneficial for protection of the prices applied by the Russian companies of the group, as this will show that all entities of the group utilise the same TP principles (this should demonstrate that the group has no intention to use its TP policy in order to avoid Russian taxes). Nevertheless, it could still be necessary to take into account specifics of the market in particular countries / regions and the functions of particular companies of the group, so the general intra-group TP policy could be developed on per country / company level.
As discussed above, the TP documentation requirements to be introduced by the draft TP bill imply filing of the TP information attached to the tax reporting package which will include information about the TP qualifying transactions of a particular company. It should be noted though that the Russian government is considering introduction of the consolidated group tax regime (the qualifying Russian companies of a group will be able to file tax returns on a consolidated basis). Should this regime become effective, it could be expected that consolidation of the TP documentation will be possible, at least at the level of the Russian entities of international company groups.
#16 Currently Russian TP rules require that the tax authorities use publicly available information about fair market prices, including statistics and exchange quotes when performing the TP study. No developed TP data infrastructure has been developed at the moment. State statistics (as well as information collected by other governmental authorities) are scarce and too general (may not take into account all the factors which affect the price, including the terms of the transactions), which makes the TP rules difficult to apply in practice in many cases. The taxpayers sometimes use the pricing information of their competitors to defend their own prices.
In principle, if a database contains the publicly available official information about comparable transactions between unrelated parties, the searches in such database could be used to perform the TP study both by the taxpayers and the tax authorities.
The proposed draft TP bill is more specific about the sources of information which may be used for a TP study. These include:
- World exchange quotes – for publicly traded goods;
- Customs statistics;
- Official statistics published by any regional or municipal authorities of the Russian Federation;
- Exchange quotes published in the mass media or information systems (this, most likely, covers databases);
- Valuations made by independent appraisers.
Therefore, to the extent the databases (information systems) contain information about comparable transactions between the unrelated parties, searches in these databases will have to be admitted as a valid source of information when performing the TP study.
#17 Currently the TP rules do not provide clear distinctions between internal and external comparables. The law is quite straightforward: the transactions of unrelated parties are the preferred comparables. The transactions between related parties may only exceptionally be used as comparables, if the relationship between the parties did not affect the terms of these transactions. It could, therefore, be concluded that both the internal and the external comparables could be acceptable in the TP analysis if these represent the transactions between unrelated parties. It should be noted that currently TNMM is not applicable under Russian tax law3.
The proposed draft bill reduces the possibilities for comparables. The bill clearly indicates that the fair market price is the price is the price established between unrelated parties. Again, no clear distinction is made between internal and external comparables. Therefore, where the TP study is performed either by a taxpayer or by the tax authorities, the transactions of the controlled taxpayer with unrelated counterparties may be taken into account when establishing the fair market price.
#18 The current TP rules provide that the comparables should be searched based on the locality principle, ie. within a distance from the location of a controlled taxpayer (purchaser or supplier) not requiring significant additional costs to be incurred by the taxpayer in order to acquire or supply the goods, works or services. In practice this means that the comparables should be preferably identified within the territory where the controlled supplies (acquisitions) of the goods, works or services take place. Depending on the place (market) of acquisition or supply, the comparables could be Russian or foreign (international). If, for example, a Russian enterprise sells the goods in the EU market (from the warehouses located in a EU country), then the EU comparables in the same EU country should be acceptable.
#19 Currently there are no specific penalties for absence of TP documentation. The proposed draft bill is expected to introduce a RUR 5000 (app. EUR 114) penalty for failure to submit the required TP documentation on time or submission of incorrect TP information to the tax authorities.
#20 Currently there are no statutory requirements for the Russian tax authorities to make corresponding mirror adjustments for one party of a transaction if the TP adjustments were made for another party of this transaction (either with regard to domestic or cross-border transactions). In theory the first party may recalculate its tax liabilities based on the prices established by the tax authorities and file the amended tax returns. This party should, however, be ready to defend its position in court, as the local tax authorities may disagree with this approach. The case should be strong enough if the primary TP adjustment is made by other local Russian tax authorities or is confirmed by the ruling of a Russian court. In cross-border transactions Russian tax authorities are unlikely to feel themselves bound by the decision of their foreign colleagues, if the latter decide to adjust the profits of the foreign counterparty of the Russian taxpayer. It is not clear whether such decisions will be honoured in Russian courts.
In theory, the taxpayer may invoke the mutual agreement procedure (if available under the respective double tax treaty) in cross-border transactions in order to avoid double taxation arising from TP adjustments, however, there is currently no extensive publicly available information about how to use this tool.
The proposed draft TP bill does not provide for mirror adjustments in case the prices applied by the parties are successfully challenged by the tax authorities, so the uncertainty about the mirror TP adjustments will likely to remain in the future unless the bill is amended accordingly.
#21 The general Corporate Income tax (Profit tax) rate in Russia is 20%. Special rates apply to dividend income, Russian source income received by foreign legal entities (where such income is not attributable to Russian permanent establishment of the foreign legal entity) and to income from certain types of securities.
Spain
By Iria Flavia Heredero Cruces
#1 Yes, there is an obligation for groups of companies involved in transactions to submit TP documentation.
TP documentation is compulsory under the Royal Decree 1793/2008, of November 3 2008 which came into force on the 19 February 2009.
The taxpayer does not need to file documentation at any particular time, but shall keep the documentation available for the tax authorities. Documentation is divided into that related to group (master file) and documentation related to the Spanish company of the group (local file).
The contents of these documents are to be in line with the OECD Transfer Pricing Guidelines and the recommendations of the European Joint Transfer Pricing Forum on transfer pricing documentation.
#2 Each company must prepare the TP documentation when the transaction is performed for the first time. It should be updated only if the circumstances change.
TP documents should be prepared and available as they may be required by the Spanish tax authorities at any time before the deadline for filing the Corporate Income Tax return of the tax period in which the transaction took place.
It is not possible to prepare TP documentation with retroactive effects. In practice, the file can be prepared during six months after closing of the accounts, but it is advisable to prepare it before this.
#3 As stated in response #1, taxpayers must prepare a master file for the group. It consists of a set of documents containing common standardised information relevant for all group members. The master file should cover a general overview of the business and of the group, with special focus on transfer pricing policy, the risks assumed by all the entities and the functions performed by each member of the group.
The parent company usually prepares this documentation but the subsidiaries must keep a copy in case they are required to provide it to the tax authorities.
Moreover, there is a country-specific documentation (country or local file) which consists of several sets of standardised documents containing the specific data of the Spanish company, emphasizing the comparability analysis to prove the selected transfer pricing method and the criteria used for sharing costs among related entities.
#4 There could be several types of documentation compliance burdens depending on the characteristics of the parties involved. The elements to be taken into account are firstly a turnover of EUR 8 million or more, which may trigger a requirement to provide further and more thorough information. Secondly, transactions held with entities or individuals based in tax havens.
#5 Yes, it applies also to permanent establishments, their headquarters and any other related entities, as long as the transactions held between them fall within the scope of the TP documentation obligations.
The documentation compliance burdens mentioned in response #4 above apply to these transactions.
#6 Yes, transfer pricing documentation requirements apply to domestic transactions as far as such transactions are held by intra-group companies; these obligations do not apply to individuals even when they close transactions with related companies.
#7 No. Even though TP documentation requirements are fulfilled, the tax authorities could make adjustments. Nevertheless, complying with TP documentary support obligations would prevent the taxpayer from being penalised.
#8 It is possible to conclude an Advance Pricing Agreement with the Spanish Tax Authorities and other Regional Tax Administrations. The procedure starts by filing an application form with all the relevant information (valuation proposal, description of the method proposed and proof that the arm's length principle is applied). All involved parties will have to file a single consistent application form. The tax authorities could request clarification of relevant information. Within a maximum 6-month period, the tax authorities must either (i) approve the valuation proposal filed; (ii) approve – with the acceptance of the taxpayer- a different proposal or; (iii) refuse the proposal. In all cases, the answer must be duly motivated. Failure of the tax authorities to respond within six months has to be understood as a refusal.
Tax authorities and taxpayers must apply the outcome of the approved proposal. If the taxpayer applies the resolution, no adjustments may be made by the Tax Authorities.
APAs can be concluded in a multilateral basis when the company or companies carrying out transaction with related entities are based in Spain. APAs can also be concluded in the countries where the related entities have their residence if the respective foreign tax authorities request or approve of this.
All the involved parties must agree with the terms of the APA before foreign tax authorities can sign it.
#9 There is no predetermined system for preparing and storing TP documentation. Any system could be considered as valid under Spanish tax law.
#10 The timeframe is the tax year in which the transaction within the group takes place. The obligation to prepare the TP documentation begins at the moment the pricing is determined. It is not possible to prepare TP documentation once the tax audit has started.
#11 It applies to all related transactions.
#12 Spanish legislation does not prescribe this but the Spanish tax authorities can require these documents be provided in Spanish.
#13 In some countries (such like the Netherlands, Belgium or the US) it is regular practice for the tax authorities to actively cooperate with taxpayers in the preparation of TP documentation by proposing agreements and "meeting points", or even supplying data and comparables to the company or companies that have proposed the APA. But in Spain the taxpayer is the one who assumes the whole burden of proof, with no cooperation with the Spanish tax authorities who only adopt a passive role of inspection and control.
#14 Documentary support that the taxpayer must supply to the Spanish tax authorities, if required, in order to set the arm's length value of transactions, is contained in RD 1793/2008, dated November 3 which modified the Regulations of the Corporate Income Tax details The Regulations provide for two types of documentary support obligations, one referring to the whole group and the other to the single taxpayer.
#15 In pursuance of the Spanish legislation, if the documentary support obligation is referred to a group of companies, the ultimate parent company may opt to prepare and store the entire documentary support of the whole group.
If the ultimate parent company is not based within Spanish territory, a subsidiary company based in Spain shall be appointed to prepare and store the documentary support of the transactions held by such company and any other related entity. If required by the Spanish tax authorities, the Spanish-based entity will have to provide them with the true and thorough documentary support corresponding to the group of companies it belongs to.
#16 Yes, it is an acceptable procedure for searching for comparables but it is not compulsory to use it if there are other available sources like internal comparables.
#17 For CPM, RPM or TNMM method, internal comparables are preferred over external ones.
In the CPM, the profit mark-up is ideally determined by reference to the profit mark-up earned by the same supplier in a comparable dealing with an independent party.
The RPM takes the price at which the product is resold to an independent customer and deducting the gross profit margin that a reseller purchasing from an independent supplier would have derived in comparable circumstances.
The TNMM is a transactional profit method that compares the net profit margin achieved by a company on its controlled transactions with the returns derived by a company engaging in uncontrolled transactions.
#18 The Spanish tax authorities do not require local searches for comparable transactions. Regional or international comparables are accepted. The relevant requirements are that market features and other economic factors associated with independent transactions have to be equivalent or similar to those closed between related parties.
#19 There are specific transfer pricing infringements and penalties. Defaults in the transfer pricing documentation attract a fine of EUR 1500 per data and EUR 15 000 per set of data. Defaults in the transfer pricing documentation attract a fine of 15% of the value of the transfer pricing adjustment with a minimum penalty of EUR 30 000.
#20 It is possible to evaluate the transactions and make adjustments in the Corporate Income Tax return, even if corporations may not have duly recorded the transaction's price in their financial statements. In that case, the companies involved should make the same adjustment in order to reduce or mitigate the tax impact.
#21 For SMEs, tax is levied at 25 % up to EUR 120 020 (taxable base) and 30 % above this. For large companies (over EUR 8 million annual turnover): 30 %
Ukraine
By Sergiy Melnyk
#1 Ukrainian tax law provides different criteria for applying transfer pricing regulations for corporate profit tax ("CPT") and value added tax ("VAT") purposes.
For VAT purposes, the transfer pricing regulations apply to all VAT-able transactions. This means that the tax base of VAT-able supplies of goods or services (works) must be determined based on contractual prices, but not lower than arm's length prices and not 20% higher than arm's length prices.
For CPT purposes, the transfer pricing regulations apply mainly to transactions with related parties and non-residents. This means that a taxpayer's taxable income from sales of goods or services (works) to related parties or non-residents must be determined based on contractual prices, but not on lower than arm's length prices. On the other hand, the taxpayer's deductible expenses for the acquisition of goods or services (works) from related parties or non-residents must be determined based on contractual prices, but not higher than arm's length prices.
The comparable uncontrolled price method ("CUPM") is the main method for determining arm's length prices in Ukraine. Arm's length prices are calculated based on prices for identical (or similar, if there are no identical) goods or services (works) being transferred between independent parties in comparable circumstances. Also one can refer to prices for identical (similar) goods or services (works) in the market in comparable circumstances.
If an arm's length price cannot be determined under the CUPM, the resale price method and cost-plus method may be used. However, there is no clear methodology as to the application of such methods.
Ukrainian tax law does not contain any requirement to retain and produce TP documentation to the Ukrainian tax authorities. However, a taxpayer may provide tax authorities with substantiation of a price's conformity with an arm's length figure if, during a tax audit, the tax authorities request such substantiation from the taxpayer.
#2 Ukrainian tax law does not contain any requirement to keep and produce TP documentation to the Ukrainian tax authorities.
#3 Ukrainian transfer pricing regulations apply equally to a parent company and a subsidiary company.
#4 Ukrainian transfer pricing regulations apply irrespective of the size of an enterprise.
#5 For CPT purposes, transfer pricing regulations apply to all sales transactions (including those with associated entities) carried out by permanent establishments of non-residents in Ukraine.
Unlike other CPT payers, a permanent establishment is obliged to provide the tax authorities with substantiation of a price's conformity with an arm's length figure if, during a tax audit, the tax authorities request such substantiation from the permanent establishment.
#6 For CPT purposes, the transfer pricing regulations also apply to a number of domestic transactions, in particular, to those with related parties, barter transactions and transactions with persons who do not pay CPT (eg. individuals).
Ukrainian transfer pricing requirements are generally the same for domestic and crossborder transactions.
#7 Under the general rule, contractual prices are presumed to correspond to arm's length prices unless otherwise is proved.
During a tax audit, the tax authorities may request the taxpayer to substantiate the contractual price figure. Should this be the case, the taxpayer may either (i) provide the tax authorities with substantiation of the price's conformity with an arm's length figure; or (ii) refer to the presumption of price conformity with an arm's length figure.
In our experience, the first option has proved to be more efficient as it decreases the risk of conflict with the tax authorities. At the same time, even if the taxpayer provides such substantiation, the tax authorities may disagree with this and make a transfer pricing adjustment.
Ukrainian transfer pricing regulations do not specify which substantiating documents may be relied upon by taxpayers. In practice, the contractual price figure may be substantiated by information on official market statistics, public announcements, market research reports, the company's internal pricing policies, price-lists, etc.
#8 No, Ukrainian tax law does not contain any APA mechanism.
#9 Ukrainian transfer pricing regulations do not specify in which form a taxpayer must prepare substantiating documents. In practice, the substantiating documents are produced in paper form.
#10 As mentioned above, may provide the tax authorities with substantiation of a price's conformity with an arm's length figure if, during a tax audit, the tax authorities request such substantiation from the taxpayer. There is no specific term for a response to the tax authorities' request, but if the taxpayer decides to produce any substantiation, this should be done by the end of the tax audit.
#11 For CPT purposes, the transfer pricing regulations apply mainly to all transactions between related parties. From a tax perspective, a related party is a person falling into one of the following categories:
- a legal entity which exercises control over a taxpayer or is controlled by such taxpayer or is under the joint control with such taxpayer;
- an individual or family members of such individual who exercise control over a taxpayer;
- a taxpayer's executive, authorised to conduct legal matters on behalf of the taxpayer giving rise to, changing or terminating legal relationships for the taxpayer, as well as the family members of such an executive.
#12 If a taxpayer decides to provide substantiation of a price's conformity with an arm's length figure upon request of the tax authorities, the substantiating documents must be produced in Ukrainian. If such documents are prepared in a foreign language, they should be accompanied by a certified Ukrainian translation.
#13 The burden of proof in challenging a price's conformity with an arm's length figure always rests with the tax authorities. The tax authorities can only apply transfer pricing adjustments to tax liabilities by court action.
#14 Ukrainian transfer pricing regulations do not contain any list of substantiating documents to be submitted by the taxpayer if, during a tax audit, the tax authorities request substantiation of the contractual price figure from such taxpayer. In practice, substantiating documents are produced by the taxpayer on a case-by-case basis.
#15 A taxpayer should personally provide the tax authorities with substantiation of price conformity with an arm's length figure if, during a tax audit, the tax authorities request such substantiation from the taxpayer.
#16 In practice, database searches for comparables (particularly, official statistics databases) may be used to substantiate the contractual price figure although Ukrainian transfer pricing regulations do not provide clear guidelines in this respect.
#17 As mentioned above, the comparable uncontrolled price method ("CUPM") is the main method for determining arm's length prices in Ukraine. When applying the CUPM, one can have recourse to internal comparisons and external comparisons (none of these comparisons prevail per se). If an arm's length price cannot be determined under the CUPM, the resale price method and cost-plus method may be used. However, there is no clear methodology as to the application of such methods.
#18 Ukrainian transfer pricing regulations do not rule out the possibility of referring to comparables in international markets, but in practice comparables in the Ukrainian market are analysed in the first instance.
#19 No penalties apply for an absence of transfer pricing documentation, as it is the taxpayer's choice (and not an obligation) whether to provide the tax authorities with substantiation of price conformity with an arm's length level.
#20 Ukrainian tax regulations do not provide measures designed to mitigate/ eliminate potential double taxation resulting from transfer pricing adjustments.
#21 The Ukrainian corporate profit tax rate is 25%.
Footnotes
1 The below analysis is based on the latest publicly available text of the bill, which may be subject to significant changes before it becomes the law and is provided for information purposes only. Therefore, you should not consider this analysis of the draft bill as guidance for any subsequent action.
2 It is expected that the TP draft law will introduce a five-year transitional period when the TP documentation requirements will be applying if income and expenses from qualifying transactions with a same counterparty (or same counterparties) will exceed RUR 100 million (app. EUR 2.2 million), RUR 80 million (app. EUR 1.8 million), RUR 60 million (app. EUR 1.4 million), RUR 40 million (app. EUR 917 000), RUR 20 million (app. EUR 460 000) per year respectively. The RUR 10 million threshold will apply from the start of the sixth year.
3 There are only three methods which are currently applicable under Russian TP rules: CUP (Comparable Uncontrolled Price), Resale Minus and Cost Plus. In practice the Russian courts consider CUP as a preferred method. Whenever Resale Minus or Cost Plus are utilised, the courts require that tax authorities or taxpayers prove they were unable to apply CUP.
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