How to Resolve Tax Issues in Transfer Pricing
How to Resolve Tax Issues in Transfer Pricing
The rapid increase in multinational trade and the use of transfer pricing tax strategies has attracted a high level of international attention. As multinational corporations are evolving into global enterprises, it is fast becoming a complicated and expensive task to comply with the differing landscape of legal precedents, regulations and local country nuances for transfer pricing issues.
Tax authorities around the globe have increased efforts to get the extra tax dollars and become more aggressive in the transfer pricing arena. With the introduction of stricter penalties, increased information exchange, increased audit and inspection activity, it is critical to be informed and avoid costly penalties later. The intense scrutiny implies significant risks for the unwary and unprepared, especially in intercompany transfer pricing where every transaction needs to be analyzed under a different set of facts and circumstances. As transfer pricing varies across countries and it is difficult to keep abreast of all the information, for instance in
Australia: The Australian Taxation Office (ATO) has stated that it will significantly increase spotlight on transfer pricing over the next four years starting with 2010 in the large taxpayer market (revenue greater than A$250 million).
Brazil: proposes to introduce thin capitalization rules dealing both with situations where the beneficiary of the payment is not resident in a tax haven jurisdiction and where the beneficiary is a resident in a tax haven.
Hong Kong: Recently issued it's first-ever guidance on transfer pricing. The note provides the views of the Inland Revenue Department (IRD) on relief for double taxation under double taxation agreements, reporting of losses from related party transactions, among a few.
France: Has introduced a new transfer pricing documentation that states that the law does not provide for any de minimis exemption, transfer pricing documentation must be made available to the French tax administration at the start of a tax audit etc.
How to resolve tax issues in transfer pricing?
Transfer pricing does not exist in a vacuum so ignoring the best practices can affect your corporate strategy. Having a robust global transfer pricing strategy in place will help in addressing Tax issues in transfer pricing:
If you do not have a transfer pricing agreement, address it urgently.
Review your operations and consider whether you are within the size limits specified by the relevant country.
Review your activities in the country and check whether these have expanded or changed in any way since you last reviewed your transfer pricing arrangements.
Consider whether your structure and activities are likely to invite tax authority's attention, making a tax audit more likely.
If you have a transfer pricing agreement, it is still wise to check for changes in transfer pricing rules in the relevant countries such as those above that may warrant amendments to the agreement
If you have an agreement but it has not been benchmarked, get one in place before you are advised of a tax audit.
Remember benchmarking does take time, begin the process timely.
Even if you are not subject to transfer pricing documentation regulations by your size, the rules constitute good practice, complying with them mitigates penalties in a transfer pricing audit.
Keep in tune with changing transfer pricing regulation.
In an international business expansion, it is advantageous to have a trusted service provider can that can assist you in creating an appropriate tax and legal structure to optimize your new operating configuration. You can have unlimited assistance in aligning your tax profile and a good service provider would be focused on providing exceptional assistance in keeping you in tune with changing transfer pricing regulation.
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