a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)? All transactions involving the transfer of tangible and intangible property, the provision of services, the extension of a loan or advance, and the use of property (e.g., leases and rental agreements) between related parties must be documented. The US rules and regulations do not provide thresholds or otherwise contain safe harbor provisions for small taxpayers, for example
b) What is the definition of “associated enterprises” for the purposes of this requirement?
Section 482 of the Internal Revenue Code applies a very broad definition of associated enterprises or related parties. Indeed, Treasury Regulation § 1.482-1(i) (4) defines “controlled” to include: “… any kind of control, direct or indirect, whether legally enforceable or not, and however exercisable or exercised, including control resulting from the actions of two or more taxpayers acting in concert or with a common goal or purpose. It is the reality of the control that is decisive, not its form or the mode of its exercise. A presumption of control arises if income or deductions have been arbitrarily shifted”. Thus, parties can be considered to be related under Section 482 even if one party has less than 50%, or even 0%, ownership in another party.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Documentation requirements are applicable to all US taxpayers. For purposes of this discussion, “taxpayer” includes any person required to file a US tax return under US tax law. It is important to note that transfer pricing rules and regulations apply to all taxpayers so defined, not just those persons that actually file a return. As such, taxpayers are required to maintain information that pertains to related party transactions involving a US taxpayer in the form of principal and background documents, and the Internal Revenue Service may request this information. For example, a US affiliate of a foreign-based parent company is required to provide information on the parent company and any other foreign-based related parties with which the US affiliate transacts. Such information may include an organizational chart and functional analysis, financial data and projections that may impact the economic analysis, marketing materials and analyses, and accounting records.
e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
The use of regional benchmarks, such as pan-continental comparable sets, is not explicitly addressed in the US transfer pricing rules and regulations. Data on US companies is readily available, as independent, publicly-traded companies are required to file their financial statements with the Securities and Exchange Commission in a Form 10-K. In addition, there are a number of third-party databases that provide business descriptions, financial data, and other company-specific data for US companies. Such databases are commonly used to identify companies that may provide reliable benchmarks in transfer pricing matters. Thus as a practical matter US comparables are generally used to benchmark a US tested party. In practice, pan-regional comparable sets are sometimes used to test a non-US party if data on local comparables are not sufficiently available.
f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
While the US transfer pricing rules and regulations are silent as to the language to be used in transfer pricing documentation, in practice, documentation is prepared and submitted in English.