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Foreword v

Acknowledgements vii

Chapter 1. Introduction to Transfer Pricing and Dispute Resolution 1

Steven C. Wrappe

1. Transfer pricing risk management 12. Basics of transfer pricing compliance 5

2.1. General 52.2. The transfer pricing report 6

3. Dispute process 104. Audit landscape 11

4.1. Tax planning that involves transfer pricing 114.2. Interest rate determination: GE Capital 124.3. Pharmaceutical industry: GlaxoSmithKline Inc. 13

5. Conclusion 14

Chapter 2: Dispute Channels 15

Suzan Arendsen

1. Overview of common dispute process 152. Description of procedures 16

2.1. Audit 162.2. Appeals and litigation 192.3. Mutual agreement procedure and arbitration 21

2.3.1. Mutual agreement procedure 222.3.2. EU Arbitration Convention 26

2.4. Advance pricing agreement 292.4.1. What is an advance pricing agreement? 292.4.2. Advance pricing agreement process 302.4.3. Benefi ts and advantages 332.4.4. Considerations for deciding to seek an

advance pricing agreement 342.4.5. Advance pricing agreements in times

of economic downturn 34

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3. Advantages and disadvantages of means of dispute resolution 353.1. Advantages and disadvantages of the mutual

agreement procedure 353.2. Advantages and disadvantages of arbitration

under the EU Arbitration Convention 363.3. Advantages and disadvantages of an advance

pricing agreement 364. Commentary on discussions and negotiations with

tax authorities 37

Chapter 3: International Developments 39

Monique van Herksen

1. OECD Guidance 391.1. Mutual agreement procedure, new Art. 25 of the

OECD Model Convention and Commentary to Art. 25 40

1.2. Arbitration provision 431.3. Exchange of information 53

2. EU-specifi c requirements 562.1. EU Arbitration Convention 56

2.1.1. Historical background 562.1.2. Strengths and weaknesses of the

Arbitration Convention 592.1.3. Procedure to obtain arbitration under

the Arbitration Convention 602.1.4. Code of Conduct on implementation

of the Arbitration Convention of July 2006 62

2.1.5. Revised Code of Conduct on Arbitration Convention 63

2.2. Intra-group services 642.3. Triangular transfer pricing cases 67

2.3.1. Introduction 672.3.2. EU triangular cases 712.3.3. Non-EU triangular cases 722.3.4. EU Joint Transfer Pricing Forum 75

2.4. Commercial arbitration 772.4.1. World Trade Organization 782.4.2. UN Commission on International

Trade Law 792.4.3. Applicable rules and procedures 80

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Chapter 4: Australia 83

Reynah Tang and Don Spirason

1. Introduction 831.1. Transfer pricing legislation 831.2. Interaction between legislation and tax treaties 851.3. Administrative process 871.4. Key transfer pricing issues in Australia 88

1.4.1. Determination of the appropriate methodology 89

1.4.2. Recharacterization of transactions by the tax authorities 90

1.5. Management of transfer pricing: administrative and legal dimensions 91

2. Audit 922.1. Historical background 922.2. Primary current controversies 932.3. Audit process and milestones 94

2.3.1. Authorities involved 942.3.2. Audit time line 942.3.3. Rights and obligations of taxpayers 982.3.4. Rights and obligations of tax authorities 982.3.5. Information used in tax audits 982.3.6. Confi dentiality of information 992.3.7. Right of access to information 992.3.8. Penalties 992.3.9. Access to foreign-based information 992.3.10. Burden of proof 1002.3.11. Statute of limitations 1002.3.12. Information requests 1002.3.13. Solicitor-client privilege 100

2.4. Recommendations for taxpayers during a tax audit 1013. Appeals and litigation 101

3.1. Historical statistics 1013.2. Appeals and litigation process 1023.3. Notable court decisions 104

3.3.1. Carpenter: relevance of anti-avoidance purpose? 104

3.3.2. Re Roche: methodology 1053.3.3. SNF: methodology and relevance

of sustained losses 1073.3.4. Themes from the cases 108

3.4. Recommendations 110

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4. Mutual agreement procedure and arbitration 1114.1. Historical statistics 1114.2. Mutual agreement procedure 1114.3. Arbitration 114

4.3.1. Baseball arbitration 1154.3.2. Not precedent setting 115

4.4. Advantages and disadvantages 1155. Advance pricing agreements 116

5.1. Historical statistics 1165.2. Advance pricing agreement process 118

5.2.1. Governmental agencies involved 1185.2.2. Domestic regulations; bilateral

and multilateral 1185.2.3. Coverage 1185.2.4. Process 118

5.2.4.1. Step one: pre-lodgement meetings 120

5.2.4.2. Step two: lodgement of formal application 120

5.2.4.3. Step three: analysis and evaluation 121

5.2.4.4. Step four: negotiation and agreement 121

5.2.4.5. Step fi ve: concluded advance pricing agreement 121

5.2.5. Fees 1225.2.6. Timing for fi ling requests for advance

pricing agreements 1225.2.7. Timeline for unilateral advance pricing

agreements 1235.2.8. Timeline for bilateral advance pricing

agreements 1235.2.9. Critical assumptions 1235.2.10. Withdrawals 1235.2.11. Agreement with taxpayer 1235.2.12. Revocation, revision and renewal 1235.2.13. Annual compliance reporting 1235.2.14. Public disclosure of advance pricing

agreements 1245.3. Practical experience with advance pricing

agreements and advance tax rulings 1245.4. Advance pricing agreements in times

of economic downturn 124

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5.5. Special advance pricing agreements 1245.6. Advantages and disadvantages 125

6. Recommendations 126

Chapter 5: Brazil 129

Marcelo Natale and Carlos Nicacio

1. Introduction 1291.1. Terms and defi nitions 1291.2. Transfer pricing documentation 136

1.2.1. Requirements and deadlines 1371.2.2. Applicable taxes, penalties, interest

and other fees 1381.3. Local dispute procedure 1381.4. Availability of international procedures and

relief from double taxation 1391.5. Tax authorities 140

1.5.1. Organizational structure 1401.5.2. Other relevant players 1401.5.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 140

1.5.4. Downward transfer pricing adjustments 1411.5.5. Contact information 1411.5.6. Profi le and aggressiveness 142

2.1. Historical background 1432.2. Primary current controversies 1442.3. Audit process and milestones 146

2.3.1. Authorities involved 1462.3.3. Rights and obligations of taxpayers 1472.3.4. Rights and obligations of authorities 1472.3.5. Information used in tax audits 1472.3.6. Confi dentiality of information 1482.3.7. Right of access to information 1492.3.8. Penalties 1492.3.9. Access to foreign-based information 1502.3.10. Burden of proof 1502.3.11. Statute of limitations 1512.3.12. Information requests 1512.3.13. Solicitor-client privilege 152

2.4. Recommendation for taxpayers during a tax audit 152

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3.1. Historical statistics 1523.2. Appeals and litigation process 153

3.2.1. Administrative Council of Tax Appeals 1533.2.2. Judicial courts 153

3.3. Notable court decisions 1543.4. Advantages and disadvantages 156

Chapter 6: Canada 177

David Francescucci and Shiraj Keshvani

1. Introduction 1771.1. Transfer pricing documentation 177

1.1.1. Background, requirements and deadlines 1771.1.1.1. Transfer pricing documentation

requirements 1781.1.1.2. Transfer pricing methodologies 1811.1.1.3. Services 1821.1.1.4. Intangibles 182

1.1.2. Applicable taxes, penalties, interest and other fees 183

1.2. Local dispute procedure 1841.3. Availability of international procedures and relief

from double taxation 1881.4. Tax authorities 189

1.4.1. Organizational structure 1891.4.2. Other relevant players 1901.4.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 191

1.4.4. Downward transfer pricing adjustments 1931.4.5. Contact information 1941.4.6. Profi le and aggressiveness 194

2. Audit 1952.1. Historical background 1952.2. Primary current controversies 1972.3. Process and milestones 199

2.3.1. Authorities involved 1992.3.2. Audit timeline 1992.3.3. Rights and obligations of taxpayers 2002.3.4. Rights and obligations of authorities 2012.3.5. Information used in tax audits 202

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2.3.6. Confi dentiality of information 2032.3.7. Right of access to information 2042.3.8. Penalties 2052.3.9. Access to foreign-based information 2082.3.10. Burden of proof 2102.3.11. Statute of limitations 2102.3.12. Information requests 2102.3.13. Solicitor-client privilege 211

2.4. Recommendations for taxpayers during a tax audit 2113. Appeals and litigation 212

3.1. Historical statistics 2123.2. Appeals and litigation process 2123.3. Notable court decisions 213

3.3.1. GlaxoSmithKline Inc. v. Her Majesty the Queen 214

3.3.2. General Electric Capital Canada Inc. v. Her Majesty the Queen 216

3.3.3. J. Hofert Ltd v. The Minister of National Revenue 217

3.3.4. Indalex Ltd v. Her Majesty the Queen 2183.4. Advantages and disadvantages 219

4. Mutual agreement procedure and arbitration 2194.1. Historical statistics 2194.2. Mutual agreement procedure 220

4.2.1. Notifi cation process and conditions to request 220

4.2.2. Time limits 2244.2.3. Penalties and interest 225

4.3. Arbitration 2264.3.1. History 2264.3.2. Mandatory arbitration under the

Canada–United States treaty 2264.3.3. Not precedent setting 228

4.4. Advantages and disadvantages 2285. Advance pricing agreements 229

5.1. Historical statistics 2295.2. Advance pricing agreement process 230

5.2.1. Government agencies involved 2305.2.2. Domestic regulations; bilateral and

multilateral 2305.2.3. Coverage 2315.2.4. Process 231

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5.2.5. Fees 2315.2.6. Timing for fi ling requests for advance

pricing agreements 2325.2.7. Timeline for unilateral advance pricing

agreements 2325.2.8. Timeline for bilateral advance pricing

agreements 2335.2.9. Critical assumptions 2335.2.10. Withdrawals 2345.2.11. Agreement with taxpayer 2345.2.12. Revocation, revision and renewal 2345.2.13. Annual compliance reporting 2355.2.14. Public disclosure of advance pricing

agreements 2355.2.15. Mandatory arbitration under the Canada–United

States treaty 2355.3. Practical experience with advance pricing

agreements and advance tax rulings 2365.4. Advance pricing agreements in times of economic

downturn 2375.5. Special advance pricing agreements 2385.6. Advantages and disadvantages 239

6. Recommendations 240

Chapter 7: China 243

Cheng Chi and Ho Yin Leung

1. Introduction 2431.1. Transfer pricing documentation 243

1.1.1. Requirements and deadlines 2441.1.2. Applicable taxes, penalties, interest

and other fees 2471.2. Local dispute procedure 2481.3. Availability of international procedures and

relief from double taxation 2481.4. Tax authorities 249

1.4.1. Organizational structure 2491.4.2. Other relevant players 2501.4.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 250

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1.4.4. Downward transfer pricing adjustments 2501.4.5. Contact information 2501.4.6. Profi le and aggressiveness 251

2. Audit 2522.1. Historic background 2522.2. Primary current controversies 2532.3. Audit process and milestones 254

2.3.1. Authorities involved 2552.3.2. Audit time line 2552.3.3. Rights and obligations of taxpayers 2552.3.4. Rights and obligations of authorities 2562.3.5. Information used in tax audits 2562.3.6. Confi dentiality of information 2562.3.7. Right of access to information 2572.3.8. Penalties 2572.3.9. Access to foreign-based information 2572.3.10. Burden of proof 2572.3.11. Statute of limitations 2582.3.12. Information requests 2582.3.13. Solicitor-client privilege 258

2.4. Recommendations for taxpayers during a tax audit 2583. Appeals and litigation 259

3.1. Historical statistics 2593.2. Appeals and litigation process 2593.3. Notable court decisions 2593.4. Advantages and disadvantages 260

4. Mutual agreement procedure and arbitration 2604.1. Historical statistics 2604.2. Mutual agreement procedure 261

4.2.1. Notifi cation process and conditions to request 261

4.2.2. Time limits 2614.2.3. Penalties and interest 261

4.3. Arbitration 2625. Advance pricing agreements 262

5.1. Historical statistics 2625.2. Advance pricing agreement process 264

5.2.1. Governmental agencies involved 2645.2.2. Domestic regulations; bilateral or

multilateral 2645.2.3. Coverage 2645.2.4. Process 265

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5.2.5. Fees 2685.2.6. Timing for fi ling requests for advance

pricing agreements 2685.2.7. Timeline for unilateral advance pricing

agreements 2685.2.8. Timeline for bilateral advance pricing

agreements 2685.2.9. Critical assumptions 2695.2.10. Withdrawals 2695.2.11. Agreement with taxpayer 2705.2.12. Revocation, revision and renewal 2705.2.13. Annual compliance reporting 2705.2.14. Public disclosure of advance pricing

agreements 2715.3. Practical experience with advance pricing

agreements and advance tax rulings 2715.4. Advance pricing agreements in economic downturn 2725.5. Special advance pricing agreements 2725.6. Advantages and disadvantages 272

6. Recommendations 273

Chapter 8: France 277

Bruno Gibert

1. Introduction 2771.1. Transfer pricing documentation 277

1.1.1. Requirements and deadlines 2771.1.2. Applicable taxes, penalties, interest and

other fees 2801.2. Local dispute procedure 2801.3. Availability of international procedures and

relief from double taxation 2811.4. Tax authorities 282

1.4.1. Organizational structure 2821.4.2. Other relevant players 2841.4.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 284

1.4.4. Downward transfer pricing adjustments procedure 284

1.4.5. Contact information 2841.4.6. Profi le and aggressiveness 285

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2. Audit 2852.1. Historical background 2852.2. Primary current controversies 2862.3. Audit process and milestones 286

2.3.1. Authorities involved 2862.3.2. Audit timeline 2862.3.3. Rights and obligations of taxpayers 2882.3.4. Rights and obligations of authorities 2892.3.5. Information used in tax audits 2902.3.6. Confi dentiality of information 2912.3.7. Right of access to information 2912.3.8. Penalties 2922.3.9. Access to foreign-based information 2922.3.10. Burden of proof 2932.3.11. Statute of limitations 2942.3.12. Information requests 2942.3.13. Solicitor-client privilege 294

2.4. Recommendations for taxpayers during a tax audit 2953. Appeals and litigation 295

3.1. Historical statistics 2953.2. Appeals and litigation process 2953.3. Notable court decisions 2963.4. Advantages and disadvantages 2984.1. Historical statistics 2994.2. Mutual agreement procedure 299

4.2.1. Notifi cation process and conditions to request 299

4.2.2. Time limits 3024.2.3. Penalties and interest 303

4.3. Arbitration 3044.3.1. Baseball arbitration 3044.3.2. Not precedent setting 305

4.4. Advantages and disadvantages 3055. Advance pricing agreements 306

5.1. Historical statistics 3065.2. Advance pricing agreement process 306

5.2.1. Governmental agencies involved 3065.2.2. Domestic regulations; bilateral and

multilateral 3075.2.3. Coverage 3075.2.4. Process 3085.2.5. Fees 308

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5.2.6. Timing for fi ling requests for advance pricing agreements 309

5.2.7. Timeline for unilateral advance pricing agreements 309

5.2.8. Timeline for bilateral advance pricing agreements 310

5.2.9. Critical assumptions 3115.2.10. Withdrawals 3115.2.11. Agreement with taxpayer 3115.2.12. Revocation, revision and renewal 3125.2.13. Annual compliance reporting 3125.2.14. Public disclosure of advance pricing

agreements 3125.3. Practical experience with advance pricing

agreements and advance tax rulings 3135.4. Advance pricing agreements in times of economic

downturn 3135.5. Special advance pricing agreements 3145.6. Advantages and disadvantages 3155.7. Recommendations 315

Chapter 9: Germany 319

Werner Stuffer, Roman Lang and Christian Reichardt

1. Introduction 3191.1. Transfer pricing documentation procedure 319

1.1.1. Requirements and deadlines 3191.1.2. Applicable taxes, penalties, interest and

other fees 3231.2. Local dispute procedure 3241.3. Availability of international procedures and relief

from double taxation 3251.4. Tax authorities 325

1.4.1. Organizational structure with relevant areas of jurisdiction 325

1.4.2. Other relevant players 3261.4.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 327

1.4.4. Downward transfer pricing adjustments 3281.4.5. Contact information 3291.4.6. Profi le and aggressiveness 329

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2. Audit 3292.1. Historical background 3292.2. Primary current controversies 3302.3. Process and milestones 331

2.3.1. Authorities involved 3312.3.2. Audit time line 3312.3.3. Rights and obligations of taxpayers 3322.3.4. Rights and obligations of tax authorities 3332.3.5. Information used in tax audits 3332.3.6. Confi dentiality of information 3342.3.7. Right of access to information 3342.3.8. Penalties 3352.3.9. Access to foreign-based information 3352.3.10. Burden of proof 3362.3.11. Statute of limitations 3372.3.12. Information requests 3382.3.13. Solicitor-client privilege 338

2.4. Recommendations for taxpayers during a tax audit 3383. Appeals and litigation 339

3.1. Historical statistics 3393.2. Appeals and litigation process 3413.3. Notable court decisions 3433.4. Advantages and disadvantages 345

4. Mutual agreement procedure and arbitration 3454.1. Historical statistics 3454.2. Mutual agreement procedure process 346

4.2.1. Notifi cation process and conditions to request 346

4.2.2. Time limits 3474.2.3. Penalties and interest 348

4.3. Arbitration procedure 3484.4. Advantages and disadvantages 350

5. Advance pricing agreements 3515.1. Historical statistics 3515.2. Advance pricing agreement process 351

5.2.1. Government agencies involved 3515.2.2. Domestic regulations: bilateral and

multilateral APAs 3525.2.3. Coverage 3535.2.4. Process 3535.2.5. Fees 3565.2.6. Timing for fi ling advance pricing

agreements 356

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5.2.7. Timeline for unilateral advance pricing agreements 356

5.2.8. Timeline for bilateral advance pricing agreements 357

5.2.9. Critical assumptions 3575.2.10. Withdrawals 3585.2.11. Agreement with the taxpayer 3585.2.12. Revocation, revision and renewal 3585.2.13. Annual compliance reporting 3595.2.14. Public disclosure of APAs 359

5.3. Practical experience with APAs and advance tax rulings 360

5.4. APAs in times of economic downturn 3605.5. Special APAs 3605.6. Advantages and disadvantages 361

6. Recommendations 362

Chapter 10: India 363

Rajendra Nayak and Srinivasa Rao

1. Introduction 3631.1. Transfer pricing documentation 364

1.1.1. Requirements and deadlines 3661.1.1.1. Generally 3661.1.1.2. Safe harbours 3681.1.1.3. Timing and period of

documentation 3691.1.2. Applicable taxes, penalties, interest

and other fees 3711.2. Local dispute procedure 3741.3. Availability of international procedures and relief

from double taxation 3751.4. Tax authorities 375

1.4.1. Organizational structure 3751.4.2. Other relevant players 3771.4.3. Programmes to ensure consistent

application of transfer pricing policies/penalties 377

1.4.4. Downward transfer pricing adjustments 3781.4.5. Contact information 3791.4.6. Profi le and aggressiveness 379

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2. Audits 3802.1. Historical background 3802.2. Primary current controversies 381

2.2.1. Selection of comparable data 3812.2.2. Treatment of losses 3832.2.3. Royalty and management fees 3842.2.4. Marketing intangibles 3842.2.5. Contract research and development and

business process outsourcing services 3872.2.6. Procurement and sales support services 3872.2.7. Attribution of profi ts to a permanent

establishment 3882.3. Process and milestones 393

2.3.1. Authorities involved 3932.3.2. Audit time line 3932.3.3. Rights and obligations of taxpayers 3952.3.4. Rights and obligations of tax authorities 3962.3.5. Information used in tax audits 3972.3.6. Confi dentiality of information 3972.3.7. Right of access to information 3982.3.8. Penalties 3982.3.9. Access to foreign-based information 3982.3.10. Burden of proof 3982.3.11. Statute of limitations 3992.3.12. Information requests 3992.3.13. Solicitor-client privilege 400

2.4. Recommendations for taxpayers during a tax audit 4003. Appeals and litigation 401

3.1. Historical statistics 4013.2. Appeals and litigation process 4013.3. Notable court decisions 403

3.3.1. Marketing intangibles 4033.3.2. Interest-free loans 4053.3.3. Importance of functional analysis 4073.3.4. Selection of comparable data 4063.3.5. Adjustment for differences 4073.3.6. Recognition of actual transactions 408

3.4. Advantages and disadvantages 4084. Mutual agreement procedure and arbitration 408

4.1. Historical statistics 4094.2. Mutual agreement procedure 409

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4.2.1. Notifi cation process and conditions to request 409

4.2.2. Time limits 4104.2.3. Penalties and interest 410

4.3. Arbitration 4114.4. Advantages and disadvantages 411

5. Advance pricing agreements 4136. Recommendations 413

Chapter 11: Japan 415

Toshio Miyatake

1. Introduction 4151.1. Japanese transfer pricing legislation 415

1.1.1. Legislative history 4151.1.2. Foreign related transactions 4151.1.3. Transfer pricing methodologies 4161.1.4. Intangibles 4171.1.5. Effect 4181.1.6. Repatriation 4181.1.7. Additions to tax 4191.1.8. Statute of limitations 4191.1.9. Transfer pricing disputes 4191.1.10. Suspension of tax payments 420

1.2. Transfer pricing documentation 4201.2.1. Requirements and deadlines 4201.2.2. Applicable taxes, penalties, interest and

other fees 4211.3. Local dispute procedure 4211.4. Availability of international procedures and relief

from double taxation 4231.5. Tax authorities 423

1.5.1. Organizational structure 4231.5.2. Other relevant players 4241.5.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 425

1.5.4. Downward transfer pricing adjustments 4251.5.5. Contact information 4261.5.6. Profi le and aggressiveness 426

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2. Audit 4272.1. Historical background 4272.2. Primary current controversies 4272.3. Audit process and milestones 427

2.3.1. Authorities involved 4292.3.2. Audit timeline 4292.3.3. Rights and obligations of taxpayers 4302.3.4. Right and obligations of tax authorities 4312.3.5. Information used in tax audits 432

2.3.5.1. Information requests 4322.3.5.2. Supply of information during

tax audits 4322.3.6. Confi dentiality of information 4332.3.7. Right of access to information 4332.3.8. Penalties 4332.3.9. Access to foreign-based information 4342.3.10. Burden of proof 4352.3.11. Statute of limitations 4352.3.12. Information requests 4352.3.13. Attorney-client privilege 436

3. Appeals and litigation 4363.1. Introduction 436

3.1.1. Request for reinvestigation 4363.1.2. Request for reconsideration 4373.1.3. Advantages and disadvantages 438

3.2. Litigation and appeals process 4393.2.1. Introduction 4393.2.2. Court procedure 439

3.3. Notable court decisions 4413.3.1. Imabari Zosen: Takamatsu High Court,

13 October 2006, appealed from Matsuyama District Court, 14 April 2004 441

3.3.2. Thai Bahts Loan: Tokyo District Court, 26 October 2006 442

3.3.3. Adobe: Tokyo High Court, 30 October 2008, appealed from the Tokyo District Court, 7 December 2007 442

3.3.4. Nippon Asshuku Tanshi: Osaka District Court, 11 July 2008 443

3.4. Advantages and disadvantages 4444. Mutual agreement procedure and arbitration 444

4.1. Introduction 444

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4.1.1. Taxation not in accordance with the treaty 4444.1.2. Corresponding adjustment 445

4.2. Mutual agreement procedure 4474.2.1. Notifi cation process and conditions for

requesting 4474.2.2. Mutual agreement procedure application 4484.2.3. Relationship to remedies under Japanese

domestic law 4484.2.4. Payment of tax and the mutual agreement

procedure 4494.2.5. Mutual agreement procedure process 4494.2.6. Consent of the taxpayer to the mutual

agreement 4504.2.7. Implementation of mutual agreement

procedure 4504.2.8. Interest on tax refunds and

delinquency tax 4514.3. Arbitration 4514.4. Advantages and disadvantages 4514.5. Options for transfer pricing dispute resolution 452

4.5.1. Audit stage 4524.5.2. Correction notice stage 4524.5.3. Administrative appeals and court procedure 4524.5.4. Mutual agreement procedure 452

5. Advance pricing agreements 4535.1. Introduction 4535.2. APA application 457

5.2.1. Due date of fi ling a request for an advance pricing agreement 457

5.2.2. Supporting documents 4575.2.3. Fees 4585.2.4. Timing for fi ling a request for advance

pricing agreement 4585.2.5. Timeline for unilateral advance pricing

agreements 4585.2.6. Timeline for bilateral advance pricing

agreements 4585.2.7. APA period 4595.2.8. Rollback period 4595.2.9. Effect of advance pricing agreement

application 459

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5.2.10. Non-acceptance of advance pricing agreement application 459

5.2.11. Withdrawals 4605.2.12. Review of advance pricing agreement

request 4605.3. Advance pricing agreement 461

5.3.1. Agreement with taxpayers 4615.3.2. Confi rmation by tax authorities 4615.3.3. Effect of advance pricing agreement 461

5.4. Critical assumptions 4625.5. Revocation, revision and renewal 4625.6. Annual compliance reporting 4625.7. Compensating adjustments 4635.8. Public disclosure of advance pricing agreements 4635.9. Advantages and disadvantages 463

6. Conclusion 464

Chapter 12: Mexico 465

Moisés Curiel García

1. Introduction 4651.1. Transfer pricing documentation 465

1.1.1. Requirements and deadlines 4651.1.1.1. Related-party transactions 4651.1.1.2. Transfer pricing methods 4661.1.1.3. Best-method rule 4661.1.1.4. Generally accepted accounting

principles 4661.1.1.5. Related parties 4661.1.1.6. Required documentation 4671.1.1.7. Information return 4671.1.1.8. Compliance deadlines 4671.1.1.9. Maquiladoras 4681.1.1.10. Corporate fl at tax 469

1.1.2. Applicable taxes, penalties, interest and other fees 469

1.2. Local dispute procedure 4711.3. Availability of international procedures and relief

from double taxation 4711.4. Tax authorities 472

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1.4.1. Organizational structure and relevant areas of jurisdiction 474

1.4.2. Other relevant players 4731.4.3. Programmes to ensure consistent

application of policies and penalties 4741.4.4. Downward transfer pricing adjustments 4741.4.5. Contact information 4751.4.6. Profi le and aggressiveness 475

2. Audit 4762.1. Historical background 4762.2. Primary current controversies 4762.3. Audit process and milestones 477

2.3.1. Authorities involved 4772.3.2. Audit timeline 4782.3.3. Rights and obligations of taxpayers 4782.3.4. Rights and obligations of tax authorities 4792.3.5. Information used in tax audits 4802.3.6. Confi dentiality of information 4802.3.7. Right of access to information 4802.3.8. Penalties 4812.3.9. Access to foreign-based information 4812.3.10. Burden of proof 4822.3.11. Statute of limitations 4822.3.12. Information requests 4832.3.13. Solicitor-client privilege 484

2.4. Recommendations for taxpayers during a tax audit 4843. Appeals and litigation 485

Procedure to challenge notices 4853.1. Historical statistics 4853.2. Appeals and litigation process 4863.3. Notable court decisions 4863.4. Advantages and disadvantages 487

4. Mutual agreement procedure and arbitration 4884.1. Historical statistics 4884.2. Mutual agreement procedure 489

4.2.1. Notifi cation process and conditions to request 489

4.2.2. Time limits 4894.2.3. Penalties and interest 490

4.3. Arbitration 4904.3.1. Baseball arbitration 4904.3.2. Not precedent setting 490

4.4. Advantages and disadvantages 491

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5. Advance pricing agreements 4915.1. Historical statistics 4915.2. Advance pricing agreement process 491

5.2.1. Government agencies involved 4925.2.2. Domestic regulations; bilateral and

multilateral 4925.2.3. Coverage 4925.2.4. Process 4935.2.5. Fees 4935.2.6. Timing for fi ling requests for advance

pricing agreements 4935.2.7. Timeline for unilateral advance pricing

agreements 4945.2.8. Timeline for bilateral advance pricing

agreements 4945.2.9. Critical assumptions 4945.2.10. Withdrawals 4945.2.11. Agreement with taxpayer 4945.2.12. Revocation, revision and renewal 4955.2.13. Annual compliance reporting 4965.2.14. Public disclosure of advance pricing

agreements 4965.3. Practical experience with advance pricing

agreements and advance tax rulings 4965.4. Advance pricing agreements in times of

economic downturn 4965.5. Special advance pricing agreements 4975.6. Advantages and disadvantages 497

6. Recommendations 497

Chapter 13: Netherlands 499

Eduard Sporken, Jeannette van der Vegt and Harald Dols

1. Introduction 4991.1. Transfer pricing documentation 500

1.1.1. Requirements and deadlines 5001.1.2. Penalties, interest and other fees 501

1.2. Local dispute procedure 5021.3. Availability of international procedures and relief

from double taxation 5021.4. Tax authority 503

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1.4.1. Organizational structure 5031.4.2. Other relevant players 5041.4.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 504

1.4.4. Downward transfer pricing adjustments 5041.4.5. Contact information 5041.4.6. Profi le and aggressiveness 504

2. Audit 5062.1. Historical background 5062.2. Primary current controversies 5062.3. Audit process and milestones 507

2.3.1. Authorities involved 5072.3.2. Flow chart 5072.3.3. Rights and obligations of taxpayers 5082.3.4. Rights and obligations of the tax

authorities 5092.3.5. Information used in tax audits 5102.3.6. Confi dentiality of information 5112.3.7. Right of access to information 5112.3.8. Penalties 5122.3.9. Access to foreign-based information 5122.3.10. Burden of proof 5122.3.11. Statute of limitations 5132.3.12. Information requests 5142.3.13. Solicitor-client privilege 514

2.4. Recommendations for taxpayers during a tax audit 5153. Appeals and litigation 515

3.1. Historical statistics 5153.2. Appeals and litigation process 5163.3. Notable court decisions 5173.4. Advantages and disadvantages 520

4. Mutual agreement procedure and arbitration 5214.1. Historical statistics 5214.2. Mutual agreement procedure 5234.3. Arbitration procedure in the European Union 527

4.3.1. The EU arbitration procedure 5274.3.2. Baseball arbitration 5334.3.3. Not precedent setting 5334.3.4. Arbitration clause in tax treaty 534

4.4. Advantages and disadvantages 534

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5. Advance pricing agreements 5375.1. Historical statistics 5375.2. Advance pricing agreement process 538

5.2.1. Government agencies involved 5385.2.2. Domestic regulations; bilateral and

multilateral 5385.2.3. Coverage 5395.2.4. Process 5405.2.5. Fees 5415.2.6. Timing for fi ling request for advance

pricing agreements 5415.2.7. Timeline for unilateral advance pricing

agreements 5415.2.8. Timeline for bilateral advance pricing

agreements 5435.2.9. Critical assumptions 5445.2.10. Withdrawals 5445.2.11. Agreement with taxpayer 5455.2.12. Revocation, revision and renewal 5455.2.13. Annual compliance reporting 5465.2.14. Public disclosure of advance pricing

agreements 5465.3. Practical experience with advance

pricing agreements and advance tax rulings 546

5.4. Advance pricing agreements in times of economic downturn 547

5.5. Special advance pricing agreements 5475.6. Advantages and disadvantages 547

6. Recommendations 548

Chapter 14: South Africa 549

Wally Horak and Johan Kotze

1. Introduction 5491.1. Transfer pricing documentation 549

1.1.1. Requirements and deadlines 5491.1.2. Applicable taxes, penalties rest and

other fees 5521.2. Local dispute procedure 555

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1.3. Availability of international procedures and relief from double taxation 563

1.4. Tax authorities 5651.4.1. Organizational structure 5651.4.2. Other relevant players 5651.4.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 565

1.4.4. Downward transfer pricing adjustments 5651.4.5. Contact information 5661.4.6. Profi le and aggressiveness 566

2. Audit 5662.1. Historical background 5662.2. Primary current controversies 5672.3. Audit process and milestones 567

2.3.1. Authorities involved 5672.3.2. Audit timeline 5682.3.3. Rights and obligations of taxpayer 5682.3.4. Rights and obligations of tax authorities 5702.3.5. Information used in tax audits 5712.3.6. Confi dentiality of information 5712.3.7. Right of access to information 5722.3.8. Penalties 5742.3.9. Access to foreign-based information 5742.3.10. Burden of proof 5752.3.11. Statute of limitations 5752.3.12. Information requests 5752.3.13. Solicitor-client privilege 5752.3.14. Recommendations for taxpayers

during tax audits 5763. Appeals and litigation 577

3.1. Historical statistics 5773.2. Appeals and litigation process 5773.3. Advantages and disadvantages 578

4. Mutual agreement procedure under tax treatiesand arbitration 5784.1. Historical statistics 5784.2. Mutual agreement procedure 578

5. Advance pricing agreements 5786 Recommendations 579Appendix A – Offi cial text alternative dispute resolution 579Appendix B – Flowchart illustrating the dispute

resolution process 588

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Chapter 15: United Kingdom 589

Philip Croall and Murray Clayson

1. Introduction 5891.1. Transfer pricing documentation 589

1.1.1. Requirements and deadlines 5891.1.2. Applicable taxes, penalties, interest and

other fees 5901.2. Local dispute procedure 5901.3. Availability of international procedures and

relief from double taxation 5911.4. Tax authorities 591

1.4.1. Organizational structure 5911.4.2. Other relevant players: tribunal and court

system 5911.4.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 592

1.4.4. Downward transfer pricing adjustments 5921.4.5. Contact information 5931.4.6. Profi le and aggressiveness 593

2. Audits 5932.1. Historical background 5932.2. Primary current controversies 5942.3. Audit process and milestones 595

2.3.1. Authorities involved 5952.3.2. Audit time line 5952.3.3. Rights and obligations of taxpayers 5962.3.4. Right and obligations of tax authorities 5972.3.5. Information used in tax audits 5972.3.6. Confi dentiality and privilege 5972.3.7. Right of access to information 5982.3.8. Penalties 5982.3.9. Access to foreign-based information 5992.3.10. Burden of proof 5992.3.11. Statute of limitations 5992.3.12. Information requests 5992.3.13. Solicitor-client privilege 600

2.4. Recommendations for taxpayers during atax enquiry 601

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3. Appeals and litigation 6013.1. Historical statistics 6013.2. Appeals and litigation process 6033.3. Notable court decisions 6063.4. Advantages and disadvantages 608

4. Mutual agreement procedure and arbitration 6104.1. Historical statistics 6104.2. Mutual agreement procedure 610

4.2.1. Notifi cation process and conditions to request 611

4.2.3. First Notifi cation 6134.3. Arbitration 614

4.3.1. “Baseball arbitration” 6154.3.2. Not precedent setting 615

4.4. Advantages and disadvantages 6154.4.1. Advantages 6154.4.2. Disadvantages 616

5. Advance pricing agreements 6165.1. Historical statistics 6165.2. Advance pricing agreement process 616

5.2.1. Governmental agencies involved 6175.2.2. Domestic regulations; bilateral and

multilateral 6175.2.3. Coverage 6175.2.4. Process 6185.2.5. Fees 6195.2.6. Timing for fi ling request for an advance

pricing agreement 6195.2.7. Timeline for unilateral advance pricing

agreements 6195.2.8. Timeline for bilateral advance pricing

agreements 6195.2.9. Critical assumptions 6185.2.10. Withdrawals 6215.2.11. Agreement with taxpayer 6215.2.12. Revocation, revision and renewal 621

5.2.12.1. Renewal of advance pricing agreements 621

5.2.12.2. Revision of advance pricing agreements 622

5.2.12.3. Revocation of advance pricing agreements 622

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5.2.13. Annual compliance reporting 6225.2.14. Public disclosure of advance pricing

agreements 6225.3. Practical experience with advance pricing

agreements 6235.4. Advance pricing agreements in times of economic

downturn 6235.5. Special advance pricing agreements 6235.6. Advantages and disadvantages 624

5.6.1. Advantages 6245.6.2. Disadvantages 624

6. Recommendations 624

Chapter 16: United States 627

Lawrence M. Hill

1. Introduction 6271.1. Transfer pricing documentation 627

1.1.1. Requirements and deadlines 6271.1.2. Applicable taxes, penalties, interest and

other fees 6291.2. Local dispute procedure 6301.3. Availability of international procedures 6321.4. Tax authorities 633

1.4.1. Organizational structure 6331.4.2. Other relevant players 6341.4.3. Programmes to ensure consistent

application of transfer pricing policies and penalties 635

1.4.4. Downward transfer pricing adjustments 6361.4.5. Contact information 6361.4.6. Profi le and aggressiveness 637

2. Audit 6382.1. Recent events 6382.2. Primary current controversies 6392.3. Audit process and milestones 640

2.3.1. Authorities involved 6402.3.2. Audit timeline 6402.3.3. Rights and obligations of taxpayers 6412.3.4. Rights and obligations of authorities 6412.3.5. Information used in tax audits 642

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2.3.6. Confi dentiality of information 6422.3.7. Right of access to information 6422.3.8. Penalties 6422.3.9. Access to foreign-based information 6442.3.10. Burden of proof 6442.3.11. Statute of limitations 6452.3.12. Information requests 6452.3.13. Solicitor-client privilege 646

2.4. Recommendation for taxpayers during a tax audit 6493. Appeals and litigation 649

3.1. Historical statistics 6493.2. Appeals and litigation process 6493.3. Notable court decisions 651

3.3.1. Xilinx, Inc. v. Commissioner 6513.1.2. Veritas Software Corp. v. Commissioner 652

3.4. Advantages and disadvantages 6554. Mutual agreement procedure and arbitration 656

4.1. Historical statistics 6564.2. Mutual agreement procedure 657

4.2.1. Notifi cation process and conditions to request 657

4.2.2. Time limits 6584.2.3. Penalties and interest 659

4.3. Arbitration 6594.3.1. Baseball arbitration 6594.3.2. Not precedent setting 660

4.4. Advantages and disadvantages 6615. Advance pricing agreements 662

5.1. Historical statistics 6625.2. Advance pricing agreement process 663

5.2.1. Government agencies involved 6645.2.2. Domestic regulations; bilateral and

multilateral advance pricing agreements 6655.2.3. Coverage 6655.2.4. Process 6665.2.5. Fees 6675.2.6. Timing for fi ling request for an advance

pricing agreement 6675.2.7. Time line for unilateral and bilateral

advance pricing agreements 6685.2.8. Critical assumptions 6685.2.9. Withdrawals 668

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5.2.10. Agreement with taxpayer 6685.2.11. Revocation, revision and renewal 6695.2.12. Annual compliance reporting 6705.2.13. Public disclosure of advance pricing

agreements 6705.3. Practical experience with advance pricing

agreements 6705.4. APAs in times of economic downturn 6715.5. Special advance pricing agreements 6715.6. Advantages and disadvantages 672

6. Recommendations 672Appendix A – US transfer pricing dispute procedure fl owchart 673

Chapter 17: Case Study 675

Australia – Case Study 676Brazil – Case Study 679Canada – Case Study 688China – Case Study 697France – Case Study 703Germany – Case Study 714India – Case Study 719Japan – Case Study 726Mexico – Case Study 730Netherlands – Case Study 735South Africa – Case Study 741United Kingdom – Case Study 744United States – Case Study 750

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