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ANNUAL REVIEW

Transfer Pricing 2017

October 2017  |  CORPORATE TAX

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In recent years, transfer pricing has become an area of focus for companies and for tax authorities. Indeed, the transfer pricing policies of many multinational companies have attracted widespread attention – and criticism – and, as a result, are being subjected to stringent assessment. Tax issues involving some of the world’s largest companies, including Apple, Amazon and Microsoft, have made headlines and highlighted renewed interest in the tax planning and transfer pricing practices of multinationals.

 

UNITED STATES

Kathleen Saunders Gregor

Ropes & Gray LLP

“Historically, companies’ attention to their global transfer pricing policies has been spotty, focusing just on those jurisdictions with the most active enforcement or most developed rules. With the advent of the OECD’s BEPS initiative, companies need to update their policies to undertake a more holistic approach, considering every possible jurisdiction’s transfer pricing. For US-based companies, this means that care should be given to consider rules being implemented throughout the world, and incorporating those rules into policies. Forms of related-party documentation and valuation methodologies will need to be constantly updated to account for the quick pace of development we are seeing around the world.”

 

CANADA

Peter Kurjanowicz

Grant Thornton

“Awareness of transfer pricing continues to increase. In today’s global economy, most businesses of a significant size operate across borders, and in the context of a multinational business the question of how much profit to recognise within a particular jurisdiction has become one of, if not the, most important questions in tax. Canada has a long history of transfer pricing law, longer than most other developed nations. The Canada Revenue Agency’s (CRA) transfer pricing audit mechanisms are well established.”

 

IRELAND

Gerard Feeney

Deloitte

“With the increased focus on transfer pricing matters over the last few years, particularly since the OECD work on Base Erosion and Profit Shifting (BEPS), we are seeing companies in Ireland pay more attention to transfer pricing. Many companies are finding that existing policies need to be reviewed in light of the changes arising from BEPS, which are now formalised in the 2017 OECD Transfer Pricing Guidelines. The changes, in a lot of instances, are quite complex, especially the Action 8 to 10 paper which seeks to align transfer pricing outcomes with value creation. Companies need to ensure that existing policies and operating models are sufficiently robust and align with the changes.”

 

LUXEMBOURG

Loek de Preter

PwC Luxembourg

“With the ongoing and increased focus on transfer pricing by the Organisation for Economic Co-operation and Development (OECD), this topic is high on the agenda of any multinational enterprise. Accordingly, it is difficult for companies to ignore the Base Erosion and Profit Shifting (BEPS) initiative, the EU Anti-Tax Avoidance Directive (ATAD) and state aid cases. There is a general awareness that transfer pricing policies and the resulting profitability of the transacting parties must be aligned with operational reality. When delving into the details, companies realise the complexity of transfer pricing and the importance of OECD-compliant transfer pricing documentation to demonstrate the arm’s-length nature of the pricing they apply.”

 

GERMANY

Michael Freudenberg

KPMG

“The awareness of transfer pricing and its proper implementation, in line with national and international regulations and guidance, is often driven by the tax audit experience of the taxpaying company and the experience of the people in charge. Thus, the picture is still mixed. Many German companies, especially small- and medium-sized groups, have taken a more centralised approach with a focus on German tax matters. This was driven by the fact that entrepreneurial functions and risks have been pooled in Germany and the likelihood of being challenged by tax authorities outside of Germany has previously been low.”

 

ITALY

Aldo Castoldi

Deloitte

“Transfer pricing has been a hot issue in the Italian tax environment for almost 10 years. During that period the attention and aggressiveness of the tax authorities has continually increased, as it has in many other jurisdictions. Multinational enterprises have been gradually adapting to the changing environment, adopting formal transfer pricing policies and documenting them consistently. Nevertheless, when it comes to maintaining compliance between transfer pricing policies and the arm’s length standard over time, not all companies are devoting enough time and resources. For example, both functional and risk economic analyses updates are not performed regularly enough.”

 

UKRAINE

Olga Trifonova

PwC Ukraine

“There has not been sufficient attention paid to transfer pricing in Ukraine in recent years and there are several factors which explain this. First of all, the practice of transfer pricing audits and reviews of transfer pricing documentation have been limited. Therefore, many businesses believed that transfer pricing was not a priority for the tax authorities, but this is no longer the case. The second factor was the lack of experience in transfer pricing among Ukrainian companies, in particular among local businesses. Over the last year there has been increased interest in transfer pricing among both local and multinational businesses, which is reflected in a significantly increased number of companies seeking transfer pricing assistance this year.”

 

CAMEROON

Magloire Tchande

PwC Cameroon

“Recently, we have seen an increase in the frequency of transfer pricing documentation requests from companies in Cameroon. Most companies are in the process of updating their current fiscal year transfer pricing documentation. The tax authorities are emphasising the importance of discipline, particularly with regard to tax audits, which encourage companies to achieve compliance with transfer pricing regulations as they are aware of the consequences of non-compliance.”

 

DEMOCRATIC REPUBLIC OF CONGO

Emmanuel Le Bras

PwC Democratic Republic of Congo

“Most companies which have not yet been challenged over their tax audits consider transfer pricing policies as ‘nice to have’ rather than essential. Typically, they prefer waiting for an audit to prepare documentation despite a number of attempts to convince them that transfer pricing is receiving greater attention from the tax authorities. Moreover, companies tend to think that having a master file is enough. The introduction of the compulsory annual filing of a simplified transfer pricing documentation should lead companies to pay more attention to transfer pricing.”

 

TANZANIA

David Gachewa

KPMG Advisory Limited

“Historically, companies enjoyed the absence of specific transfer pricing legislation to circumvent transfer pricing compliance matters. Since the implementation of the Income Tax (Transfer Pricing) Regulations in 2014, we have noted that the majority of the multinational enterprises operating in Tanzania have become aware of the requirement to maintain contemporaneous transfer pricing documentation, and maintain compliant transfer pricing policies. Most multinational enterprises have begun to appreciate the challenges and complex intricacies of maintaining compliant contemporaneous documentation, which conforms to the documentation requirements stipulated in the transfer pricing regulations.”

 

KENYA

Peter Kinuthia

KPMG Kenya

“There is increased attention by companies on transfer pricing partly due to increased focus and aggressive assessments by the tax authorities in the East Africa region. However, many companies rely on parent company documentation and have not taken the additional step of localising their global policies. Another concern is that unlike the tax authority, companies have not paid adequate attention to the base erosion and profit shifting (BEPS) initiatives and the impact that they will have on existing supply chains and transfer prices.”

 

THAILAND

Sumet Mingmongkolmitr

Blumenthal Richter & Sumet Ltd.

“In Thailand, large companies pay very close attention to the challenges and complexities of maintaining compliant transfer pricing policies. Transfer pricing is subject to review by the revenue department and the risk of a tax investigation is always present. As such, group companies and multinationals implement transfer pricing strategies as part of their tax planning. Having a proper transfer pricing model in place is cost-efficient in the long run and large companies recognise this. Rules are in place and guidelines have been issued for operators to follow as a basis for establishing appropriate prices for sales and services among intragroup companies.”

 

AUSTRALIA

Zara Ritchie

BDO

“In terms of transfer pricing policies, we see a wide variety of situations – from no policies or agreements, to basic, to comprehensive covering all transactions. Most companies would fall into the lower to mid quartile in this regard. Multinationals operating in Australia tend to be cognisant that the ATO is a sophisticated tax authority when dealing with transfer pricing matters. In our experience, most groups will seek to cover their Australian transfer pricing risk through the preparation of Australian specific transfer pricing documentation in order to minimise transfer pricing penalties.”


CONTRIBUTORS

BDO

Blumenthal Richter & Sumet Ltd.

Deloitte

Grant Thornton

KPMG

KPMG Advisory Limited

KPMG Kenya

PwC Cameroon

PwC Democratic Republic of Congo

PwC Luxembourg

PwC Ukraine

Ropes & Gray LLP

 


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