14. Globalization complicates taxation issues and the ability of tax administrations to track down trade and income flows. By increasing significantly the amount and type of income earned abroad, globalization also reduces the ability of tax administrations to verify the accuracy of taxpayers’ transfer pricing. In the light of limited resources available, tax administrations need to maximize administrative efficiency. Enterprises, on the other hand, are confronted with varying and often extensive documentation requirements and are also more and more exposed to penalties for non-compliance with such documentation requirements or the arm's length principle. The Forum therefore briefly discussed the issue of risk assessment in the context of documentation requirements from the point of view of both the tax administration and business and identified specific and common objectives.
15. For tax administrations, risk assessment is regarded as the most important case selection tool and as a tool for specific inquiries and tax audits. For business on the other hand risk assessment may help taxpayers to concentrate pro-actively on "risk" transactions which may require more detailed explanations and documentation and can also help to improve the transfer pricing system applied.
16. The common objective of risk management is to enable a business or a tax administration to establish what amount of effort and cost is appropriate in establishing, in particular circumstances, what the “arm’s length” result of a transaction between associated enterprises should be and how evidence should be kept to demonstrate that result. In other words, risk assessment enables both tax administrations and business to allocate and use their scarce resources as efficiently and effectively as possible.
17. The Forum concluded that the more common understanding there was between businesses and tax administrations about the basis of risk assessment, the greater would be the benefits for all concerned. It considered that an agreed procedure for reviewing tax risks with a company would be particularly helpful in questions concerning transfer pricing.
18. The Forum examined the risk assessment process, reviewed risk indicators and ratios and considered the scope for an EU-wide risk assessment procedure and the possible merits of a standardized risk assessment form. However, it was not possible to complete the work on risk assessment because, due to time constraints, the Forum decided to pursue the more important work on transfer pricing documentation for associated enterprises in the EU.
