The Shipping Issue
The Burden of Proof
How to Meet the Burden of Proof
At an early stage in risk assessment and audits, fiscals are requiring taxpayers to produce evidence to support their transfer pricing position. Country-by-Country reporting Master file and Local files, as well as required local related party dealings schedules and transfer pricing (TP) documentation, give tax administrations early insights into the evidence supporting a transaction. TP documentation - as well as the facts on which it relies - can demonstrate that the pricing policies and practices meet TP regulations. Board minutes, emails, meeting notes, commercial analysis and other documentation shouldn’t be ignored. Supporting contemporaneous evidence and documentation should therefore be captured using a wide net.
Witness testimony from taxpayers’ key decision-makers in the transaction can also serve as compelling evidence, as seen in Glencore’s success in other aspects of its case, as well as in the SNF and Roche transfer pricing cases.
These key decision-makers are usually the directors and senior management responsible for the relevant transaction or arrangement. These personnel can provide the court with insight into the commercial context and intention of the taxpayer’s pricing, which may not be apparent from the corporate documents. They can provide details regarding other options that were considered and dismissed, and can clarify other evidence. Board minutes, for example, are useful, but could fail to appropriately articulate and provide crucial context for the commercial objectives of the arrangement.
Industry or transfer pricing experts may help establish what might have happened between third parties, but their testimony needs to be supported by directly relevant evidence, such as reliable comparables and TP methods or personal experience with similar transactions. It is also important to note that the Court does not serve as a third expert. it cannot resolve theoretical or other differences between competing experts, as the court generally doesn’t have the expertise to do so.
In a hearing, the court needs to be persuaded that your argument is more plausible based on the available evidence. An Australian civil court will then rule based on their view of the balance of probabilities.
Moussa, E., & Daly, M. (2017). "Three Things You Need to Know About the Burden of Proof," The Tax Institute. Retrieved from https://www.taxinstitute.com.au.
Commissioner of Taxation v Glencore Investment Pty Ltd (2020) FCAFC 187
Geoff Morris is an independent transfer pricing advisor with more than 20 years' experience analyzing, negotiating and resolving transfer pricing disputes. As Senior Director with the Australian Taxation Office’s Economist Practice from 2010-2020, he helped develop the ATO’s economic position on transfer pricing risk reviews, audits, advance pricing arrangements and supporting competent authority negotiations.
He can be contacted at: email@example.com
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