Transfer Pricing: Rules and Practice in Selected Countries (M-P) (Portfolio 6965)

Tax Management Portfolio, Transfer Pricing: Rules and Practice in Selected Countries (M–P), presents the rules and practice related to transfer pricing in Mexico, the Netherlands, and New Zealand.

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Chapter 110, “Transfer Pricing Rules and Practice in Mexico,” analyzes the transfer pricing rules in Mexico. The chapter explains the origin of the current transfer pricing regime, the background for the arm's length standard, the unique features of the documentation requirements, as well as the technical aspects of transfer pricing methods and comparability standards. It covers the audit process, the rules for APAs, and Competent Authority. One section is devoted to transfer pricing for maquiladoras, reflecting the importance of this industry. The chapter was written with non-Mexican practitioners in mind, with an emphasis on the interaction of the U.S. and Mexican rules.

Chapter 115, “Transfer Pricing Rules and Practice in the Netherlands,” first describes the Dutch legal transfer pricing framework, i.e., the statutory transfer pricing provisions included in Dutch tax law since 2002. These provisions aim to: (1) authorize the adjustment of consideration paid in related party transactions; and (2) force taxpayers to maintain transfer pricing documentation. However, these provisions do not prescribe the use of a specific transfer pricing method or deal with how transfer pricing adjustments are accounted for. Therefore, OECD guidelines, jurisprudence, and certain decrees issued by the Dutch Ministry of Finance are discussed. The author further focuses on how taxpayers can defend themselves against transfer pricing adjustments imposed by the Dutch tax authorities. He also highlights the tax treatment of secondary transfer pricing adjustments, and the tax treatment of penalties and fines related to adjustments. The burden of proof in the case of transfer pricing adjustments generally rests with the Dutch tax authorities. The chapter concludes with a description of other dealings with the Dutch tax authorities with respect to transfer pricing, such as requesting an Advance Pricing Agreement, entering into a Mutual Agreement Procedure, as laid down in all Dutch income tax treaties, or starting an arbitration procedure under the EU Arbitration Convention. In an appendix, the author provides a non-exhaustive list of documentation which a company should have available for submission to the tax authorities.

Chapter 120, “Transfer Pricing Rules and Practice in New Zealand,” provides a description of the New Zealand transfer pricing environment, including details of the legislative rules and how these rules are applied and administered by New Zealand's revenue authority, the Inland Revenue Department (IRD). The chapter begins with an overview of the New Zealand tax system and its administration, followed by discussions of the types of transactions that are subject to New Zealand's legislative transfer pricing provisions, the interaction of the transfer pricing rules with other New Zealand tax regimes, and a summary of New Zealand transfer pricing case law. A detailed discussion of the IRD's Transfer Pricing Guidelines is provided, as well as the New Zealand transfer pricing reporting and documentation requirements and the application of penalties and interest to transfer pricing adjustments. The chapter includes an overview of the IRD's enforcement programme and its approach to transfer pricing reviews and audits, as well as Advance Pricing Agreements and Competent Authority proceedings, and concludes with a discussion of the interaction of New Zealand's transfer pricing, customs valuation, and anti-dumping rules.

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Transfer Pricing: Rules and Practice in Selected Countries (M–P) was authored by the following experts.
Ulises Ruíz, Senior Manager with Latin American Business Center of Ernst & Young in New York; more than 15 years of experience in international taxation and transfer pricing; joined Ernst & Young in 2004, extensive experience in transactions between Mexico and the United States, including consulting and tax planning in both international tax and transfer pricing, as well as tax dispute resolution; studied law at the Instituto Tecnológico Autónomo de Mexico (ITAM), with graduate degrees in Taxation and Constitutional Litigation from the Universidad Panamerica (Mexico), and LL.M. (Tax) from New York University; licensed to practice law in Mexico; from 1992 to 1996, worked in the International Division of the Mexican Ministry of Finance; from 1997 to 2004, worked with PricewaterhouseCooper's international tax practice in New York. Ulises Ruíz has been a speaker at seminars sponsored by the Mexican Group of IFA, the Annual Federal Tax Conference of the University of Chicago, CITE, and the EEI.

Harmen van Dam heads the Loyens & Loeff N.V. Transfer Pricing Team. Harmen holds a law degree from the University of Leiden (1991) and an LLM in Taxation from the New York University School of Law (1996). He teaches regularly at the International Tax Center in Leiden and at the IBFD. Harmen advises a diverse group of clients (ranging from Fortune 100 companies to medium-sized companies that have started international operations) on transfer pricing, including Advance Pricing Agreements, general audits, corresponding adjustments, and Mutual Agreement Procedures. Harmen also focuses on Dutch corporate tax and dividend tax in international tax structures.

Robyn Russell is a former partner in the Auckland office of Deloitte, where she led Deloitte's Auckland Transfer Pricing Team. Robyn was involved in providing transfer pricing solutions for Deloitte clients in New Zealand since the inception of New Zealand transfer pricing rules in 1996. Robyn also has international experience working in Deloitte's London transfer pricing practice and its U.S. practice. Robyn holds a Bachelor of Management Studies (Hons) degree from the University of Waikato.

Julie Harrison is a former associate director on Deloitte's Auckland Transfer Pricing Team. Julie has extensive experience in assisting New Zealand businesses in the implementation of transfer pricing strategies and in the preparation of transfer pricing documentation. Julie holds Master of Commerce and Master of Taxation Studies degrees, and is currently completing her Ph.D. in accounting at the University of Auckland.

Lara Utatao is a former manager on Deloitte's Auckland Transfer Pricing Team. Lara has been involved in providing transfer pricing advice to clients, including on transfer pricing planning, documentation, and policy development. Lara also has experience with helping clients manage IRD audit activities. Lara holds a Bachelor of Commerce (Hons) degree from the University of Auckland.


Portfolio 6965-1st: Transfer Pricing: Rules and Practice in Selected Countries (M-P)

Portfolio Description


Technical Advisors


Significant Developments

Significant Developments



Enacted Legislation

Amendment to 2012 Tax Law

Legislation Implementing Rules on PE Status of Maquila Operations


Court Ruling on Resale Price Method


Enacted Legislation

The Netherlands Replaces Thin Capitalization Rules with Interest Deduction Limitations

Administrative Developments

Secretary of Finance Issues Guidance on Attribution of Profits to Permanent Establishments, IFZ 2010/457M


Ruling on Sale of Intellectual Property Rights to Third Party, Nr. 11/00045

Ruling on Tax Treatment of Non-Arm's-Length Related-Party Loan, Nr. 11/00027 and Nr. 11/00049

Ruling on Tax Treatment of Non-Arm's-Length Related-Party Loan, Nr. 11/00357

Supreme Court Ruling on Tax Treatment Non-Arm's-Length Related-Party Loans


Pending Legislation

Change to Thin Capitalization Rules Included in 2013-14 Budget

Detailed Analysis

CHAPTER 110: TRANSFER PRICING RULES AND PRACTICE IN MEXICO by Ulises Ruíz Licenciado en Derecho Ernest & Young Mexico

110:I. Overview of the Mexican Tax System

110:II. Background

A. Rules Before 1997

B. The 1996 Reform

110:III. Basic Statutory Rules

A. The Arm's-Length Principle

1. Reporting Requirement

2. Authority to Make Adjustments

3. Presumption for Transactions with Persons in Tax Preferential Regimes

4. Exceptions

B. Related Parties

C. Comparability

1. Definition

2. Characteristics of the Transaction

3. Functions, Risks and Assets

4. Contractual Terms

5. Economic Circumstances

6. Business Strategies

7. Adjustments for Differences in Geographical Markets

D. Transactional Approach and Aggregation

E. Tested Party

110:IV. Methods

A. Traditional and Profit-Based Methods

B. Product &  Business Life Cycles

C. Hierarchy

1. Law Prior to 2006

2. Current Law

D. Best Method Rule

1. Law Prior to 2006

2. Current Law

E. Comparable Uncontrolled Price Method

F. Resale Price Method

G. Cost Plus Method

H. Profit Split Method

I. Residual Profit Split Method

J. Transactional Net Margin Method

K. Use of Non-Specified Methods

L. Guidelines for the Application of Methods

M. Profit Level Indicators

N. Use of Mexican GAAP

110:V. Reporting and Disclosure Requirements

Introductory Material

A. Disclosure Requirements Under Mexican Financial Information Norms

B. Information Return on Related-Party Transactions

C. Dictamen Fiscal

1. The Dictamen Fiscal

2. Obligation to Disclose Tax Contingencies

3. Scope of the Obligation

D. Requirements for Public Companies

110:VI. Documentation Requirement

Introductory Material

A. Taxpayers Under the Obligation to Produce Documentation

B. Detailed Discussion of Documentation Requirements

C. Scope of the Obligation

D. Deadline

E. Consequences of Noncompliance

F. Language

G. Items Not Required as Part of the Transfer Pricing Documentation

H. Conclusion of the Documentation

I. Documentation of Domestic Intercompany Transactions

J. Transfer Pricing Documentation for Banks

110:VII. The Maquiladora Industry

A. Background

B. Brief History of the Tax Treatment of the Maquiladoras

C. Current Rules

1. Permanent Establishment

2. Article 216-BIS of the MITA

a. Safe Harbor

b. Arm's-Length Plus One Percent of Foreign-Owned Machinery and Equipment

c. TNMM with Return on Foreign-Owned Machinery and Equipment

3. Presidential Decree

4. Asset Tax

D. Salient Issues

1. Maquiladoras and the Tax Treaty Between Mexico and the United States

a. Income Tax

b. Asset Tax

c. Maquiladora MAP

d. Income Tax Regulation 4-A

2. Comparables and Comparability Adjustments

3. Domestic Sales and Other Non-Maquila Activities of Maquiladoras

110:VIII. Procedural Rules

Introductory Material

A. Transfer Pricing Audits

1. Types of Audits and Ordering Rules

2. Review of the Dictamen Fiscal

3. Written Requests of Information

4. On-Site Examinations

5. Burden of Proof

6. Exchange of Information

7. Use of Secret Comparables

8. Notice of Deficiency

9. Collateral

B. Statutes of Limitations

1. Statute of Limitations on Assessment

2. Statute of Limitations on Collection

3. Statute of Limitations on Refund Claims

C. Settlement and Closing Agreements

D. Domestic Law Remedies

1. Administrative Appeal

2. Reconsideration

3. Tax Litigation

4. Constitutional Litigation

5. Juicio de Lesividad

E. Mutual Agreement Procedure

F. Transfer Pricing and Criminal Law

G. Privilege

110:IX. Transfer Pricing Adjustments

Introductory Material

A. Adjustments Outside an Audit

B. Audit-Related Transfer Pricing Adjustments

C. Effect on Tax Attributes

1. Net Operating Losses


3. Profit Ratio for Estimated Payments

D. Additions to Tax

1. Indexation

2. Interest

3. Penalties

4. Tax Amnesty

E. Mandatory Profit Sharing

F. Corresponding Adjustments

G. Secondary Adjustments

H. Relation with Other Taxes

1. Value Added Tax

2. Excise Tax

3. Customs Duties

4. Local Taxes

110:X. Advance Pricing Agreements

Introductory Material

A. APAs as Administrative Determinations

B. Scope: Transactions, Person and Fiscal Years

1. Transactions

2. Persons

3. Fiscal Years

C. Terminations of APAs

D. Pre-Filing Meetings

E. Submission Requirements

F. Procedure

G. Annual Report

H. User Fee

I. Other Administrative Determinations

J. APA-Related Litigation

K. APAs in the Examination Environment

110:XI. Constitutional Considerations

A. General Considerations

B. Fundamentación and Motivación

C. Article 5 of the Mexican Constitution

D. Secret Comparables

E. Transfer Pricing and Legality

F. Transfer Pricing and Equity

G. Transfer Pricing and Proportionality

H. Practical Considerations

110:XII. Other Considerations

A. Status of OECD Transfer Pricing Guidelines

B. Use of Foreign Comparables

C. Special Considerations for Intangible Property

1. Transactions Involving Intellectual Property

2. Legal Ownership of Intangibles

3. Transfer of Going Concern and Goodwill

D. Corporate Allocations and Management Fees

1. General Considerations

2. Pro Rata Allocations

3. Intercompany Services

4. Retroactive Charges

E. Special Considerations for Financial Transactions

F. Special Considerations for Transfers of Shares

1. In General

2. Losses

G. Cost Contribution Arrangements

H. Limited Risk Structures

1. Conversion Issues

2. Structural Issues

3. Audit Activity

I. Transfer Pricing and Economic Substance

J. Peer Review



115:I. Overview of Dutch Tax System and Administration

A. Income over Which the Netherlands Asserts Taxing Jurisdiction

1. General

2. Income Derived by Netherlands-Based Entities from Transactions Involving Foreign Activities or Payments

a. General

b. Tax Rate

c. Taxable Income

d. Relief from Double Taxation

3. Income Derived by U.S.-Based Entities from Transactions Involving Netherlands Activities or Payments

B. Assessment of Income

C. Audit Procedures

1. General

2. Extent of Obligations

3. Right to Refuse to Provide Information

4. Introductory Meeting

5. Audit Report

D. Administrative Appeals of Disputed Audit Findings

E. Judicial Appeals of Disputed Audit Findings

1. Appeals at the District Court and the Courts of Appeals

2. Appeals at the Supreme Court

3. Reimbursement of Legal Costs and Court Fees

115:II. Basic Dutch Transfer Pricing Rules

A. General

B. Historical Perspective

C. Current Law

1. Introduction

2. Transactions Subject to the Rules

a. General

b. Not Under Arm's-Length Conditions

c. Agreed or Imposed

D. Definition of Related Parties Subject to Transfer Pricing Reallocation Rules

1. Introduction

2. “Related Parties” Under Statutory Rules

a. Main Rule

b. No Statutory de Minimis Exception

c. Transactions Between a Head Office and Permanent Establishments

E. Transfer Pricing Standards

1. Statutes

2. Administrative Instructions and Jurisprudence

a. Influence of OECD Standards

b. Tangible Property Transactions

c. Intangible Property Transactions

d. Services

e. Financial Transactions

3. Defenses to Transfer Pricing Adjustments

a. General

b. Burden of Proof

c. Double Awareness

d. Marginal Test; Prudent Business Behavior or Motivation

e. Market Share Strategies

f. Setoffs

F. Treatment of the Secondary Transaction (Secondary Adjustments)

1. Introduction

2. Foreign Parent Company Confers a Benefit on a Netherlands Subsidiary

3. Netherlands Subsidiary Confers a Benefit on Its Foreign Parent Company

4. Netherlands Parent Company Confers a Benefit on Its Foreign Subsidiary

5. Foreign Subsidiary Confers a Benefit on Its Netherlands Parent Company

6. Netherlands Company Confers a Benefit on an Unrelated Person

115:III. Transfer-Pricing-Related Reporting and Documentation Requirements

A. The Netherlands Reporting and Documentation Requirements

B. Coordination with U.S. Documentation Requirements

115:IV. Penalties, Tax Amnesty, Deferral of Payment, and Interest Charges with Respect to Transfer Pricing Adjustments

A. Penalties

B. Tax Amnesty

C. Deferral of Payment

D. Interest Charges

115:V. Dealing with the Dutch Tax Authorities on Transfer Pricing Issues

A. Advance Rulings

1. Introduction

2. Old Ruling Policy

3. New Ruling Policy

a. General

b. Advance Pricing Agreements

c. Financial Service Companies

d. Ease or Difficulty in Obtaining Rulings

4. Extent to Which Rulings Bind the Taxpayer or the Dutch Tax Authorities

B. Procedures in the Case of Bilateral or Multilateral APAs

C. Transfer Pricing Audits

D. Refund Claims Following U.S.-Initiated Allocations of Income from Dutch Entities to U.S. Taxpayers

E. Negotiated Settlements of Dutch-Initiated Adjustments

115:VI. Practical Aspects of the Competent Authority Process

A. Application for Dutch Competent Authority Assistance

1. Mechanics of Application

2. When Assistance Can Be Requested

B. Degree of Foreign Taxpayer Involvement with the Dutch Competent Authority

C. Dutch Competent Authority's Willingness to Deviate from Dutch Transfer Pricing Rules

D. Dutch Competent Authority's Willingness to Deviate from Dutch Penalty and Interest Rules

E. Administrative Arrangements for the Implementation of the Mutual Agreement Procedure of the Netherlands-U.S. Income Tax Treaty

1. General

2. Progress of the Mutual Agreement Procedure

3. The Role of the Taxpayer During the Procedure

4. Resolution of Cases

5. Collection and Interest

6. Confidentiality of Taxpayer Information

7. Meetings Schedule

115:VII. Arbitration Within the European Union

A. Introduction

B. The Procedure Under the Convention

C. Code of Conduct with Respect to the Convention

115:VIII. Exchange of Information

A. Legal Framework for the Exchange of Information

B. Survey in the Netherlands to Fulfil a Request from a Foreign Authority

C. Actual Exchange of Information

1. Introduction

2. Notification, Objection, and Appeal

3. Reasons for Objection

115:IX. Coordination of Transfer Prices with Dutch Customs Values

CHAPTER 120: TRANSFER PRICING RULES AND PRACTICE IN NEW ZEALAND  by Robyn Russell, Partner Julie Harrison, Associate Director Lara Utatao, Manager Transfer Pricing, Deloitte Auckland, New Zealand

120:I. Overview of New Zealand Income Tax System and Administration

Introductory Material

A. Income over Which New Zealand Asserts Taxing Jurisdiction

1. Income Derived by New Zealand Resident Entities

2. Income Derived by Non-Resident Entities

B. Assessment of Income Tax

1. Tax Payments and Provisional Tax

2. Use of Money Interest (UOMI)

3. Tax Pooling

4. Penalties

C. Audit Procedure

1. Forward Audits

2. Post-Filing Audits

D. Administrative Appeals of Disputed Audit Findings

E. Judicial Appeals of Disputed Audit Findings

120:II. New Zealand's Transfer Pricing Rules

A. Legislative Framework

1. Overview

2. Section GC 6 — The Arm's-Length Principle Applied to Separate Legal Entities

a. Meaning of Cross-Border Arrangement

b. Meaning of Associated Persons

c. Meaning of Acquisition or Supply

d. Reduction in the Taxpayer's Net Income

e. Section GB 2 — Transfer Pricing Anti-Avoidance Rule

3. Section YD 5 — The Arm's-Length Principle Applied to Single Legal Entities

4. Double Tax Agreements

B. Detailed Discussion of Transactions Subject to § § GC 6–14

1. Overview

2. Application of §§ GC 6–14 to Non-Arm's-Length Transactions

a. Section GC 7 — Payment of Excess Consideration

b. Section GC 8 — Receipt of Inadequate Consideration

c. Subsections GC 8(2) and (3) — Non-Application of § GC 8(1)

d. Treatment of Transactions that Increase a Taxpayer's Net Income

3. Interaction of §§ GC 6—14 with the Dividend Rules

4. Interaction of §§ GC 6—14 and the Controlled Foreign Companies Regime

5. Interaction of §§ GC 6—14 with Other Parts of the Income Tax Act 2004

6. Calculating the Arm's-Length Amount

7. Burden of Proof

8. Collateral Adjustments

a. Compensating Adjustments

b. Consequential Adjustments

C. New Zealand Transfer Pricing Case Law

120:III. Transfer Pricing Guidelines

A. Overview

B. Methods

1. Overview

2. Transactional Methods

a. Comparable Uncontrolled Price Method

b. Resale Price Method

c. Cost Plus Method

3. Profits-Based Methods

a. Profit Split Method

b. Comparable Profits Methods

4. Practical Issues

a. Hierarchy of Methods

b. Tested Party

c. Use of Overseas Comparable Data

d. Analyses Prepared for Foreign Tax Administrations

e. Grouping of Transactions

f. Use of Ranges

g. Use of Secondary Methods

C. Comparable Data

1. Product Differentiation

2. Functional Differentiation

3. Functional Analysis

4. Other Factors Affecting Comparability

a. Economic Circumstances

b. Business Strategies

c. Government Policies

D. Intangible Property

1. Importance of Functional Analysis

2. Valuation of Intangibles

3. Use of Standard International Royalty Rates

E. Intragroup Services

1. Has a Chargeable Service Been Provided?

2. Determining an Arm's-Length Charge

3. Administrative Practice for Services

F. Financing

G. Cost Contribution Arrangements (CCAs)

120:IV. Transfer Pricing Reporting and Documentation Requirements

A. Statutory Requirement to Maintain Documentation

B. Cost Risk Assessment

C. Documentation Requirements

D. Best Practice Elements of Documentation

120:V. Penalties and Interest on Transfer Pricing Adjustments

A. Overview

B. Shortfall Penalties

1. Failure to Take Reasonable Care

2. Unacceptable Tax Position

3. Gross Carelessness

4. Abusive Tax Position

5. Evasion

C. Interest

120:VI. Dealing with New Zealand Tax Authorities on Transfer Pricing Issues

A. IRD Transfer Pricing Enforcement Programme

1. International Audit Unit — Transfer Pricing Team

2. IRD's Approach to Transfer Pricing Reviews and Audits

3. IRD's Assessment of Risk

4. Burden of Proof Rule

5. IRD Activities to Assess and Prioritize Risk

a. Step One: High Level Risk Review

b. Step Two: Detailed Risk Analysis

c. Step Three: Audit

6. General and Special Surveillance

B. Information Disclosure

1. Transfer Pricing Disclosure Requirements

2. Exchange of Information Agreements

C. Advance Pricing Arrangements (APAs)

D. The Competent Authority Process

120:VII. Interaction of Transfer Pricing, Customs Valuation, and Anti-Dumping Rules

Introductory Material

A. Customs Value

B. Anti-Dumping


Working Papers

Table of Worksheets


Worksheet 1 Annual Tax Return for Corporations

Worksheet 2 Form 5 (User Fee)

Worksheet 3 Form 28: Certificate of Payments to Nonresidents with Mexican-Source Income

Worksheet 4 Form 30 Annex 9: Information on Transactions with Nonresident Related Parties

Worksheet 5 Form 32: Refund Claim Application

Worksheet 6 Form 36: Application for Mexican Certificate of Residence

Worksheet 7 Form 54: Information Return on Investments in Low-Tax Jurisdictions in Companies or Entities Residing or Located in Such Jurisdictions

Worksheet 8 Organizational Chart of the Mexican Tax Administration Service

Worksheet 9 Reference Guide for Deadlines and Figures

Worksheet 10 Table of Transfer Pricing Clauses in Mexican Tax Treaties

Worksheet 11 Chart of Mexican Tax Treaties

Worksheet 12 Table of Transfer Pricing Cases and Transfer-Pricing-Related Cases

Worksheet 13 Pronouncement 67/2006-2007 DICTAMEN FISCAL 200: Report on the Review of Transfer Pricing

Worksheet 14 IRS Notice 2008-3

Worksheet 15 Press Release IR-INT-1999-13

Worksheet 16 Information Release 2000-56

Worksheet 17 List of Relevant Authorities

Worksheet 21 Non-Official Standard List of Documentation

Worksheet 22 Decree of 30 March 2001, No. IFZ2001/295M: Transfer Prices, The Application of the Arm's-length Principle, and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations

Worksheet 23 Besluit van de Staatssecretaris van Financiën van 21 augustus 2004, nr. IFZ2004/680M

Worksheet 24 Decree of the Coordination Group on Transfer Pricing of 11 August 2004, no. DGB2004/1339M

Worksheet 25 Decree of 11 August 2004, nr. IFZ2004/126M: Intra-group financial service companies without a real economic presence in the Netherlands; no advance certainty, exchange of information, and limited withholding tax credits

Worksheet 26 Decree of 11 August 2004, nr. IFZ2004/124M: Procedure for advance pricing agreements

Worksheet 27 Decree of 11 August 2004, nr. IFZ2004/125M: Procedure for dealing with requests for advance certainty in the form of an advance tax ruling

Worksheet 28 Decree of 11 August 2004, nr. DGB2004/1337M: Advance certainty; good faith between treaty partners






OECD Documents

EU Documents

(New Zealand)


Administrative Pronouncements





Important Websites

(New Zealand)