CMS Ex­pert Guide to Trans­fer pri­cing doc­u­ment­a­tion re­quire­ments in 30 coun­tries


The determination and verification of a transfer pricing policy involves the consideration of a range of information not necessarily contained in the documents that must be submitted to a tax authority (such as a company’s tax returns or contracts). This specificity of transfer pricing, together with the fact that, generally, the tax authorities bear the burden of proof for making adjustments, has led various States to introduce specific documentation obligations in this context.

These obligations are recent (they are mostly less than ten years old) and undoubtedly reflect the increasing attention that the tax authorities are paying to transfer pricing. The first State to impose such requirements on its taxpayers was the United States in the mid-1990s. It was not until the mid-2000s that the phenomenon became widespread, with the introduction of documentary requirements in States such as Germany (2003), China (2008), Spain (2009), France (2010) or Russia (2012). According to the UN manual described below, the number of countries having specific transfer pricing documentation requirements rose from approximately 15 in 2001 to almost 60 in 2012.

Alongside these national initiatives, several multilateral groups have also turned their attention to the matter. Firstly of course there is the OECD, whose 1995 guidelines provided directions that have been used in practice by taxpayers and authorities without change to national laws. More recently (October 2012), the UN issued the “Practical transfer pricing manual for developing countries” which includes developments on transfer pricing documentation.

Standardised approaches have also been proposed by other multilateral groups in order to reduce the cost to businesses of producing such documentation. In 2003, the Pacific Association of Tax Administrators (comprising Australia, Canada, Japan and the U.S.) published the final version of its standard multilateral documentation and, more recently, the European Union Joint Transfer Pricing Forum produced a code of conduct which was adopted by the Council of Ministers of the EU in 2006. The application of this Code of Conduct is becoming widespread in Europe, even though Member States are not strictly obliged to incorporate it into their national law, either by the introduction of laws (like the obligations introduced in Spain and France) or by administrative practice. In Europe, it is becoming increasingly advisable for companies to retain the type of documentation proposed by this Code of Conduct.
As shown in this CMS Tax Connect, the provisions of national laws are far from being harmonised (either in respect of the range of companies to which such requirements apply, the content of the documentation required, or the penalties resulting from the absence of such documentation). However, in relation to the content of the documentation, a consensus is emerging based on the following four main points:

  • A description of the group and the industry in which it operates;
  • A functional analysis – a description of the business functions, risks and assets – of entities involved in intra-group transactions;
  • A description and justification of the method(s) utilised for setting transfer prices for the various intra-group transactions;
  • One or more economic / benchmark studies, intended to justify the parameter(s) of the methods applied.

These documentary requirements impose constraints and additional costs on businesses. However, they also provide legal certainty to taxpayers, as they specify what information is expected by the government, thereby avoiding certain discussions having to take place during assessments.

Keeping such documentation also enables companies to better identify the potential risks they face in this context and enables them, if necessary, to change their transfer pricing policy to limit such risks.

Finally, the documentation also acts as a precise statement of the company’s position on transfer pricing. It should therefore not be seen as a compilation of information, but rather as the primary tool enabling businesses to persuade tax authorities that their transfer pricing policies are consistent with the arm’s length principle.