Reprinted from 10 March 2003, Worldwide Tax Daily, 2003 WTD 46-6 Choice of Methods of assets and restructuring). However, the example of Section 2 affirms that the taxpayer is not obliged longterm contracts refers to continuous obligations to provide documentation for more than one transfer The decree-law is contradictory. Contemporane- the reasons for choosing the transfer pricing method. transactions. However, section 1 requires the taxpay- This clarification is clearly helpful and in line with er to document, before the transaction, its thinking note 1.69 of the OECD Transfer Pricing Guidelines regarding whether the conditions, including the pric However, section 7 of the decree-law points out ing, are in line with the arm's-length principle that documentation is unusable if the taxpayer uses Actually, th uld. based on the word an evidently improper transfer pricing method. Un- ing of section 1, prepare documentation before the fortunately, evidently improper transfer pricing transaction or at least document its thinking.The method"is not defined. The tax authorities therefore taxpayer should therefore prepare the documenta have the discretion to decide that a transfer pricing tion when the transaction takes place. This conflicts method is inappropriate with section 90, paragraph 3 of the General Tax Furthermore, it remains to be seen whether the Code, which takes precedence over the decree-law tax authorities will start asking why other methods According to the former law, there is no duty to pre- a cific method implicitly requires providing reasons for transactions refusing to apply other methods List of Mandatory Documentation Contemporaneous Documentation Section 4 provides further guidance regarding the mandatory documents would be short. They were di or The business community hoped that the list contemporaneous documentation requirement. The appointed. There are 13 mandatory document e dis- 3 revised draft section 90, paragraph 3 of the General Tax Code that has been approved by Parliament only Further the list of documents relating to general asks for contemporaneous documentation in case of information contains some mandatory elements that are questionable. It seems fair to ask for descriptions of the percentage shareholdings and the organiza Although section 90 of the General Tax Code fails tional and operational structure because the tax au to provide a definition of the term"extraordinary, " thorities need background information on the related extraordinary if it is not within the taxpayers ordi- party transactions section 4 states that a transaction is assumed to be 9a品93 nary business and has a substantial impact on the However, the required information should be lir taxpayers amount of income. Extraordinary transac- ited to transactions that the taxpayer is engaged in tions include: asset transfers in the context of re- There is no need to demand the total organizational tructuring measures; substantial ch anges in func. structure of a MNE. For inland transfer pricing pur tions performed; business transactions after a poses, the taxpayers related party transactions are change in the business strategy; and concluding or interest to the tax auditor. The wording of the de- modifying significant long-term agreements scription of the organization structure should be clar- It is unhelpful when a legislature tries to define ified. The same argument applies to the description of the taxpayers individual activities specific term by referring to its antonym- by ex- plaining“ extraordinary "using the term“ ordinary.” Section 6 also asks for information on the specific Moreover. it remains unclear when a transaction business strategies of the enterprise and set-offs ap- plied. Section 6, which defines the documentation has a substantial impact on the taxpayer's income. that the taxpayer must prepare, should only require Considering the above examples, extraordinary documents that are "necessary "Specific business transactions are probably a one-time event(transfer strategies are only relevant under specific circum- tances, that is, in exceptional cases From a system atic point of view, the section 6 list should not cover exceptional cases, only normal cases The industry and the advisers community sug- gested distinguishing between mandatory doc See Kroppen/Rasch, 11 Transfer Pricing Report 885, 19 Feb uments. the number of which should be limited to a 2003. minimum, and those documents that are"helpful"or "useful. This demand which would have been in line vides that: "For extraordinary business transactions the docu- with the OECD approach, was unsuccessful. The mentation has to be prepared contemporaneously. complete section 6 list includes only mandatory doc Tax Analysts- Worldwide Tax DailyChoice of Methods Section 2 affirms that the taxpayer is not obliged to provide documentation for more than one transfer pricing method. The taxpayer has to only document the reasons for choosing the transfer pricing method. This clarification is clearly helpful and in line with note 1.69 of the OECD Transfer Pricing Guidelines. However, section 7 of the decree-law points out that documentation is unusable if the taxpayer uses an evidently improper transfer pricing method. Un￾fortunately, “evidently improper transfer pricing method” is not defined. The tax authorities therefore have the discretion to decide that a transfer pricing method is inappropriate. Furthermore, it remains to be seen whether the tax authorities will start asking why other methods have not been rejected. Providing reasons for one spe￾cific method implicitly requires providing reasons for refusing to apply other methods. Contemporaneous Documentation Section 4 provides further guidance regarding the contemporaneous documentation requirement. The revised draft section 90, paragraph 3 of the General Tax Code that has been approved by Parliament only asks for contemporaneous documentation in case of “extraordinary” transactions.12 Although section 90 of the General Tax Code fails to provide a definition of the term “extraordinary,”13 section 4 states that a transaction is assumed to be extraordinary if it is not within the taxpayer’s ordi￾nary business and has a substantial impact on the taxpayer’s amount of income. Extraordinary transac￾tions include: asset transfers in the context of re￾structuring measures; substantial changes in func￾tions performed; business transactions after a change in the business strategy; and concluding or modifying significant long-term agreements. It is unhelpful when a legislature tries to define a specific term by referring to its antonym — by ex￾plaining “extraordinary” using the term “ordinary.” Moreover, it remains unclear when a transaction has a substantial impact on the taxpayer’s income. Considering the above examples, extraordinary transactions are probably a one-time event (transfer of assets and restructuring). However, the example of long-term contracts refers to continuous obligations. The decree-law is contradictory. Contemporane￾ous documentation is only required for extraordinary transactions. However, section 1 requires the taxpay￾er to document, before the transaction, its thinking regarding whether the conditions, including the pric￾ing, are in line with the arm’s-length principle. Actually, the taxpayer should, based on the word￾ing of section 1, prepare documentation before the transaction or at least document its thinking. The taxpayer should therefore prepare the documenta￾tion when the transaction takes place. This conflicts with section 90, paragraph 3 of the General Tax Code, which takes precedence over the decree-law. According to the former law, there is no duty to pre￾pare contemporaneous documentation for ordinary transactions. List of Mandatory Documentation The business community hoped that the list of mandatory documents would be short. They were dis￾appointed. There are 13 mandatory documents. Further, the list of documents relating to general information contains some mandatory elements that are questionable. It seems fair to ask for descriptions of the percentage shareholdings and the organiza￾tional and operational structure because the tax au￾thorities need background information on the related party transactions. However, the required information should be lim￾ited to transactions that the taxpayer is engaged in. There is no need to demand the total organizational structure of a MNE. For inland transfer pricing pur￾poses, the taxpayer’s related party transactions are of interest to the tax auditor. The wording of the de￾scription of the organization structure should be clar￾ified. The same argument applies to the description of the taxpayer’s individual activities. Section 6 also asks for information on the specific business strategies of the enterprise and set-offs ap￾plied. Section 6, which defines the documentation that the taxpayer must prepare, should only require documents that are “necessary.” Specific business strategies are only relevant under specific circum￾stances, that is, in exceptional cases. From a system￾atic point of view, the section 6 list should not cover exceptional cases, only normal cases. The industry and the advisers community sug￾gested distinguishing between mandatory doc￾uments, the number of which should be limited to a minimum, and those documents that are “helpful” or “useful.” This demand, which would have been in line with the OECD approach, was unsuccessful. The complete section 6 list includes only mandatory doc- 6 Tax Analysts — Worldwide Tax Daily Reprinted from 10 March 2003, Worldwide Tax Daily, 2003 WTD 46-6 (C) Tax Analysts 2003. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content. 12See Kroppen/Rasch, 11 Transfer Pricing Report 885, 19 Feb. 2003. 13Section 90, paragraph 3, of the General Tax Code only pro￾vides that: “For extraordinary business transactions the docu￾mentation has to be prepared contemporaneously