Transfer Pricing

Transfer Pricing

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  • Lukasz Kubicki
    Lukasz Kubicki
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    Tax Audit - FAQ
    Dear Members,

    I would like to ask you for your experience in dealing with tax authorities especially in respect of tax audits. What issues were scrutinised the most and how did you manage to defend your position? The purpose of this discussion is to prepare sort of a FAQ list with generic answers and defense possibilities.

    Kind Regards
    Lukasz Kubicki
    • 23 Feb 2009, 10:31 am
  • Horst Richter
    Horst Richter    Premium Member
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    Re: Tax Audit - FAQ
    Dear Lukasz,

    since 2003 I'm working as interim manager and consultant for transferpricing projects. Since then I've been working on 7 projects. At the moment I'm project manager for a project where we change from R- to TNMM (we call it for tax reasons modified R-).
    Do you have any pratical (!) not theoretical idea for a software tool, allowing us to control TNMM on EBIT of the sales units which we have in the focus at this point of the project? [Background: we don't want to run into VAT and duties problems of a retroactive adjustment hence the control criteria is the EBIT of the next quarters upcoming and the fiscal year end result].

    During two of the projects i had to deal with the tax auditors. One was very intense in Baden Württemberg, Germany. From the audit I have all questionnairs concerning the audit. I assume, this questionnaire will help to set up the FAQ.

    It was a tough but fair audit. Very seldom to say it was co-operative. Writing here in detail would take too long. Let's talk either on the phone - mobile- or skype if your interested.

    The best time is allways from 7 p.m. when I'm in my home office.

    Let's schedule a time if you're interested.

    Kind regards,

    Horst Richter
    • 11 May 2009, 7:45 pm
  • Dr. Eduardo de Proft Cardoso
    Dr. Eduardo de Proft Cardoso    Group moderator
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    Re^2: Tax Audit - FAQ
    Hello Sirs,

    For the FAQ list and generic answers and responses, and reading what our friend said, if i were the Tax auditor i´ll probably think twice ....

    As a general rule, in applying theTNMM, people generally use earning before interest and tax ("EBIT"). This would be appropriate when using a profit level indicator such as return on capital employed. But depending on the profit level indicator it will lead to incongruences.

    That´s why in some cases it may be more appropriate to use earnings after interest but before tax, in which case the correct profit level indicator would likely be return onshareholders funds.

    More, ok there are reasons that suggests that interest on long terms loans should not automatically be included within the calculation of the net margin. it´s arguable and defendable.

    But innevitably, when looking at financing costs relating to assets, e.g. in the case of a capital intensive operation, its commercial viability must take into account its ability to pay the finance costs.

    Considering the arm´s lenght, no third party would calculate a return without considering the finance costs as it does not provide a true reflection of the profitability.

    What to reply to the tax dobermann?

    I don´t know in germany, but in Spain and Portugal, they will surely put this constraint...what do you think about it?
    Best regards,
    Eduardo de Proft
    http://www.iberiantaxexperts.com
    • 12 May 2009, 1:08 pm