Transfer pricing audit readiness

Mongolia • No. 01/2021 • June 2021

Transfer pricing audits

Transfer pricing (“TP”) has become a key tax issue that will impact business operations, costs of the business and certainty of tax positions. Improper transfer pricing arrangements may trigger double (or even triple) taxation as well as significant penalties and interests.

First TP audit by the Mongolian Tax Administration

The Organization for Economic Cooperation and Development (the “OECD”) announced that the Mongolian Tax Administration (“MTA”) issued its first TP tax assessment of approximately USD 228 million. As stated in the OECD’s (https://www.oecd.org/tax/mongolian-tax-administration-partners-with-international-organisations-and-issues-first-transfer-pricing-tax-assessment-for-usd-228-million.htm) and the MTA’s (http://www.mta.mn/c/view/800 34) websites, this tax assessment was results of long term technical assistance projects from the OECD, the Intergovernmental Forum on Mining, Minerals, Metals, and Sustainable Development, the United Nations Development Programme and the OECD’s Tax Inspectors Without Borders programme.

Although, the public information refers this tax assessment as being under the dispute, the OECD emphasizes its significance in combating base erosion and profit shifting in the mining sector, aligning the tax rules with the international best practices.

Tax audit regulation

On 15 April 2021, the Mongolian Tax Administration revised the “Tax audit regulation”. Based on the revised regulation, the tax audits by the tax authorities are classified as ordinary, simplified, and comprehensive.

TP adjustments

Typical transactions and TP issues

TP documentation readiness