In response, the focus by governments and tax authorities is on more aggressive transfer pricing compliance activities. Attitudes to tax compliance however are changing, with tax decisions by corporations coming under more scrutiny than ever.
In Australia, there is a view that the Australian Tax Office (ATO) will pursue selective audit activity focusing on low tax jurisdiction transactions, financial transactions and business restructurings.
Japan’s recent amendments to transfer pricing regulations include:
- abolishing the hierarchy among transfer pricing methods
- introducing the arm’s length 'range' concept and Berry ratio
- restricting the use of secret comparables.
The potential for strong enforcement is therefore likely to continue, yet the evidence points to a Tax Office working more constructively with the taxpayer.
For India, the new Advance Pricing Arrangement (APA) program (effective 1 July 2012) may have a profound effect in helping to reduce the high levels of complexity, uncertainty and litigation that currently exists for corporations dealing with associated enterprises.
Korea’s harmonisation of transfer pricing adjustments with corporate tax and customs duty obligations (2012), and the ability to determine an arm’s length price for intercompany guarantees (2013) are hot topics right now. Predictions are that the ATO will further strengthen its APA and international tax audit teams whilst maintaining focus on transfer pricing related tax issues.
Thailand’s APA Guidelines (issued in April 2010), allow for bilateral APAs only. The absence of rollback adjustments for prior years hinders the opportunity to solve transfer pricing issues using APAs. In response, the government may have to amend its Tax Law to legislate transfer pricing, introduce annual reporting on intercompany transactions and laws to prevent abusive tax evasion, and introduce pre-assessment agreements.