Tax & Accounting Blog

Bloomberg BNA Transfer Pricing Forum Examines Treatment of Secret Comparables

ONESOURCE, Transfer Pricing October 2, 2013

By Kevin Bell

A survey of practitioners from 26 countries found that nine jurisdictions—Argentina, Australia, Canada, China, Germany, India, Italy, Mexico, and Switzerland—use secret comparables to varying degrees, in violation of Organization for Economic Cooperation and Development transfer pricing guidelines.

However, the May survey by Bloomberg BNA’s Transfer Pricing Forum also found that Austria, Belgium, Brazil, Denmark, France, Hong Kong, Ireland, Israel, Luxembourg, the Netherlands, New Zealand, Portugal, Singapore, South Korea, Spain, the United Kingdom, and the United States do not use secret comparables.

The OECD guidelines recommend that a tax administration not use secret comparables when making a transfer pricing adjustment. The rationale is that it is unfair to a taxpayer when a tax administration applies a transfer pricing method on the basis of secret information, including information obtained by a tax administration during its examinations of other taxpayers.

However, the OECD guidelines state that a tax administration may apply a transfer pricing method on the basis of such data if “the tax administration was able, within the limits of its domestic confidentiality requirements, to disclose such data to the taxpayer so that there would be an adequate opportunity for the taxpayer to defend its own position and to safeguard effective judicial control by the courts.”

The survey by the Transfer Pricing Forum asked leading practitioners in the 26 countries whether tax authorities in their jurisdictions use secret comparables. Below are summaries of their responses.


It is a common practice of the Argentine Revenue Service to refer to secret comparables in order to assess Argentine taxpayers’ income tax. One common example is the use of internal comparables of a competitor of the company subject to audit.

The Argentine practitioner responding to the survey said his firm is contesting before Argentine courts the level of information that the ARS must deliver when using secret comparables, in order to allow a taxpayer to fully exercise its rights to a well-grounded defense.


In practice, the Australian Taxation Office periodically will endeavor to use non-public data, including information extracted from tax returns and other inquiries and databases, in administering the Australian transfer pricing laws during an investigation. This
generally will arise only where the ATO is not satisfied with the taxpayer’s analysis and benchmarks or the commercial realism of the taxpayer’s outcome.

The use of this data then becomes yet another point of contention in settlement negotiations.


The Austrian tax authorities do not use secret comparables when making transfer pricing adjustments.


The Belgian tax authorities do not use secret comparables.


In Brazil, there is no legal provision permitting the tax authorities to use secret comparables.


In isolated cases, the Canada Revenue Agency may use third-party comparable information, gathered by the CRA in accordance with the Income Tax Act, as the basis of a transfer pricing assessment.

However, in practice, the CRA does not use secret comparables as the primary basis for raising an assessment.


In deciding whether related-party transactions comply with the arm’s-length principle, China’s tax authorities are authorized to use both public information and non-public information in evaluating the taxpayer’s transfer pricing analysis.

However, in practice, the tax authorities usually use public information, including the OSIRIS database, when searching for comparable companies. The database currently is the most widely used database by the Chinese tax authorities when conducting transfer pricing audits or negotiating advance pricing arrangements.


The Danish tax authorities do not use secret comparable data and taxpayers thus generally can expect that the Danish tax authorities’ comparability analysis will be based on publicly available data.

Depending on the nature of the transaction, the tax authorities may use commercial databases, containing accounting data based on annual reports. The tax authorities’ preferred databases include Amadeus and TP Catalyst.


Secret comparables are not used by the French Tax Administration.

The FTA generally uses Bureau Van Djik databases. With the increasing number of companies available in the databases, and the increased knowledge and sophistication of the FTA and the taxpayers, comparability requirements have increased in recent years, and except where the market is France-specific, pan-European comparables usually will be requested by the French judge in the course of the benchmarks.


The German transfer pricing regulations explicitly permit the tax authorities to use secret comparables when proposing adjustments.

However, while this method can be used for proposed adjustments, the reliability of such information before a court is severely limited due to the secrecy. Thus, the German tax authorities rarely use secret comparables except to get a first impression of the case.

Hong Kong.

Transfer pricing rules in Hong Kong are still relatively new and the Inland Revenue Department has only recently commenced carrying out benchmarking analysis as part of its tax audits.

Currently the IRD is not using secret comparables as part of its benchmarking approaches; however, there is no statute prohibiting such use.


Tribunals in India have upheld the use of secret comparables by the tax authorities.

Although the tax authorities are entitled to search for data using powers under the Indian tax laws, the tribunal decisions caution that a taxpayer under audit should be furnished with the secret comparables and given an opportunity to present its objections, which the tax authorities then must consider.


Ireland’s transfer pricing rules do not specifically address whether secret comparables may be used.

However, in line with the OECD guidelines, it is important that the identification of comparable third-party transactions is transparent, systematic, and verifiable, and thus it is unlikely that Irish Revenue Commissioners would adopt an approach of using secret comparables.


The Israeli Tax Authority does not use secret comparables.


In Italy, there have been several cases where the tax authorities have referred to comparables that were not accessible to the taxpayer as they derived from the tax authorities’ own databases.

This breaches the tax authorities’ duty of clarity in making tax assessments.


The Luxembourg Tax Administration does not use secret comparables.


There have been rare cases in which Mexican tax authorities have used secret comparables to determine compliance with the arm’s-length principle.

For example, the Mexican Tax Administration Service used secret comparables in a transfer pricing audit of a Mexican pharmaceutical company that had purchased active ingredients from its foreign related parties. The secret comparables were based on the customs values of generic ingredients imported by unrelated pharmaceutical companies.

Under Mexican law, the tax authorities may use confidential information obtained from third parties to determine the includible income and allowable deductions of taxpayers that have not conducted their transactions at arm’s length.


The Dutch tax authorities do not use secret comparables.

A Ministry of Finance official, in an answer to a Parliamentary question, said that the Netherlands tax authorities will not use secret comparables to substantiate transfer pricing adjustments unless there is a reversal of the burden of proof.

New Zealand.

The Inland Revenue Department has not endorsed the use of secret comparables in the New Zealand transfer pricing guidelines, and in practice, has not applied secret information against New Zealand taxpayers under audit.


Currently, the Portuguese tax authorities are not using secret comparables in making transfer pricing adjustments, although Portuguese taxpayers are advised to be ready to challenge this approach should it be implemented.


Based on practitioners’ experience with the Inland Revenue Authority of Singapore, the IRAS generally does not refer to secret comparables.

South Korea.

The use of secret comparables is not explicitly addressed in the Korean transfer pricing regulation.


The Spanish tax authorities do not use secret comparables in transfer pricing audits because local courts would not uphold a transfer pricing adjustment based on data not disclosed to the taxpayer.

Such a fact pattern would be considered to create a situation in which the taxpayer does not have the ability to effectively appeal the transfer pricing adjustment.


Swiss tax authorities may raise the issue of secret comparables during verbal negotiations with a taxpayer during the transfer pricing audit.

However, the tax authorities may not use secret comparables in litigation.

United Kingdom.

In the United Kingdom, a transfer pricing inquiry should not be dependent on secret comparables.

The relevant H.M. Revenue and Customs guidance states that the OECD guidelines do not sanction the use of hidden comparables and therefore HMRC officers should not use information that is only available to them.

However, the guidance also states that HMRC can object to the use of particular companies presented by the taxpayer as comparables if the officer has information that suggests conclusively that the company is not comparable.

United States.

The U.S. transfer pricing regulations do not explicitly address the use of secret comparables because publicly disclosed comparable data is widely and readily available on U.S. companies. Independent, publicly traded companies are required to file their financial statements with the Securities and Exchange Commission and licensing agreements are filed with the SEC by both the licensor and licensee for various intellectual property transactions.

There also are a number of third-party databases that provide business descriptions, financial data, license agreements, and other company-specific data for U.S. companies.

The Internal Revenue Service is precluded from using any data or methods that are specific to a particular taxpayer in an examination, negotiation, or judicial proceeding involving another taxpayer.

This article originally appeared in BNA’s International Tax Monitor.