Fortunately, there are alternatives to costly and time-consuming transfer pricing audit controversies — alternatives that may prove quite beneficial to your company. Specifically, by negotiating an advance pricing agreement (APA), companies can agree on their transfer prices for future years with tax authorities and, where permitted by local tax authorities, for certain prior years.
An APA offers significant advantages to multinationals by helping to reduce uncertainty, avoid disruptive audits (thereby lowering related audit compliance costs), and mitigate the risk of double taxation.
The cost in pursuing an APA lies in the necessary disclosure of detailed information to the tax authorities. Hence, your transfer pricing activities may be closely scrutinized. However, the potential benefits are convincing — avoidance of double taxation, certainty in your transfer pricing methods and outcomes, and the possibility of resolving past audit disputes.
KPMG’s GTPS professionals have extensive experience in negotiating APAs. We can assess the risk of a tax authority challenge to your transfer prices and advise whether an APA is the right approach for you.
KPMG’s GTPS process for negotiating multilateral APAs draws on seasoned professionals throughout our global practice, including former tax authority officers. Our highly experienced economists can advise on arguments that are intellectually robust and economically sound.
One of the risks of international business transactions is potential double taxation by multiple tax authorities. A transfer pricing adjustment in one jurisdiction does not automatically mean an offsetting adjustment in another jurisdiction. Most tax treaties between countries provide a mechanism to avoid double taxation. Multinationals can file a competent authority (CA) claim requesting the relevant tax authorities to resolve disputes concerning double taxation. KPMG’s significant GTPS experience in dealing with CA claims means we can advise you on when such claims should be made, thus helping you achieve a tax-neutral position.