For tax directors at multinational companies, the issue of transfer pricing has rocketed up the agenda over the past few years. In part, this is because the patchwork application of transfer pricing tax laws has created a complex and confusing web of compliance requirements and approaches that vary from jurisdiction to jurisdiction.
And while most markets now seem to be falling in line with the OECD principles on transfer pricing, there are a number of outliers – particularly in the emerging markets – where transfer pricing rules are becoming less reasonable or more aggressively applied.
Participants in this Studio session took a journey around the globe, stopping into each region to identify new trends in certain markets. Europe and North America were viewed as being relatively consistent in their application of the OECD guidelines, as were parts of South America and Asia. However, the panel noted that, since many of today’s high growth markets are not members of the OECD, tax directors could not simply assume that the de facto global guidelines would be universally applicable.
The panel, which included a tax director (Ulf Freytag), a recognized tax expert (Hartmut Förster) and a tax advisor (John Neighbour), also identified a number of approaches to help reduce the frequency of transfer pricing disputes now facing many multinational corporations. For example, the panel noted the benefits of creating Advance Pricing Agreements (APAs) or Advance Procedures with tax authorities in order to create a level of confidence and transparency. The need for local and experienced tax counsel – whether internal or external – was also noted as a means of not only responding to transfer pricing disputes when they occur, but also reducing their frequency by ensuring transfer pricing policies align to local regulation.
But given the sheer number of transfer pricing disputes and audits facing larger multinationals, the panel also recognized that it is simply not possible for tax directors to put equal emphasis and attention on each. In response, tax directors should try to identify those jurisdictions and cases where the biggest impact can be made or that directly influence activities that are core to the business.
Ultimately, the panel recommended that tax directors be very careful when communicating and interacting with tax authorities on transfer pricing issues as – in many cases – it is very difficult to revise numbers or prices once a submission or ruling has been made.