Harmonization of conflicting transfer pricing documentation rules has been a topic of much analysis and commentary in recent years. Multinational enterprises have expressed strong interest in reducing the burden imposed on them by the current welter of inconsistent standards.
On March 12, the member agencies of the Pacific Association of Tax Administrators (PATA) - the US Internal Revenue Service, the Canada Customs and Revenue Agency, the Australian Taxation Office and the Japanese National Taxation Authority - issued the final version of a joint transfer pricing documentation package.
Taxpayers resident in any of the four countries that elect to compile the package will be deemed to satisfy all contemporaneous documentation requirements of all four countries.
The package was initially floated in draft form in June 2002, and was the subject of considerable commentary, most of it unfavourable. The final version differs from the draft only in minor respects.
None of the four countries have made any changes to their respective laws, regulations, or administrative guidance to allow for a mutual and coordinated reduction in the requirements imposed on taxpayers. As a result, the final package, like the draft version, is additive; it includes virtually every item of information required by any of the countries under its existing rules. In addition, despite paying lip service to chapter V of the OECD Guidelines, the explanation accompanying the package does not explicitly or implicitly incorporate the "prudent businessman" standard of paragraph 5.4 of the guidelines.
US taxpayers, in particular, must carefully weigh the costs and benefits of electing to compile the PATA package. This is so because the package incorporates the requirement (found in paragraph 190 of Canada's Information Circular 87-2R) that taxpayers prepare documentation at the time the transactions are entered into, rather than merely compiling at the time the tax return is filed.
Paul B. Burns (pbburns@kpmg.com), Costa Mesa
