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It is vital that companies maintain compliant transfer pricing policies, particularly given the increasing importance placed on such matters by tax authorities globally. However, doing so is often fraught with complexity and risks for multinational enterprises.

UNITED STATES

Clark Armitage

Caplin & Drysdale

“Most of the largest companies – organisations with revenues of $2bn or more – are keenly focused on transfer pricing. The highest risks are for companies with annual revenues between $500m and $2bn. These are often complex companies, operating in a dozen or more countries. In many cases, these companies have grown rapidly over the last decade and are still struggling to catch up to the financial, legal and regulatory demands of multiple countries. These mid-sized companies are often surprised by the need for comprehensive transfer pricing reviews and the need for documentation to cover their operations across the globe, and do not always prioritise transfer pricing.”

MEXICO

Omar López

BaseFirma

“There is a growing concern regarding transfer pricing regulations, nevertheless local companies still have a lot of work to do to be fully compliant with transfer pricing rules.”

UNITED KINGDOM

Richard Fletcher

Baker McKenzie

“In our experience, companies are aware of complexities and risks involved with maintaining compliant transfer pricing policies. However, the approach of individual companies when dealing with these issues tends to vary. While the general awareness is present, companies still underestimate the complexity and resource requirements involved in successfully managing compliance and potential challenges. For example, the growing complexity and pace of business change makes it increasingly difficult to strike a balance between efficiency and the ability to prepare robust documentation support for transfer pricing policies.”

NETHERLANDS

Juan Dosal

RSM Netherlands

“Transfer pricing is becoming increasingly important on the compliance and planning agendas of many multinational enterprises (MNEs). MNEs today have an increasing awareness of how transfer pricing can impact the distribution of taxable income between their countries of operation. However, although transfer pricing rules and regulations around the world continue to grow in number and complexity, coupled with the increasing transfer pricing scrutiny of local tax authorities, some MNEs still underestimate the importance of having consistent transfer pricing policies, monitoring mechanisms and robust transfer pricing documentation.”

LUXEMBOURG

Oliver R. Hoor

ATOZ Tax Advisers S.A.

“Over the last few years, transfer pricing and related documentation has become a hot topic in Luxembourg taxation. In the past, taxpayers have viewed tax rulings as a way to obtain legal certainty and to mitigate tax risks relating to investments and the pricing of intra-group transactions. However, for several reasons this is no longer the case. Instead, transfer pricing documentation is the means of choice to substantiate the arm’s length pricing. This trend has been accompanied by the introduction of new transfer pricing legislation, a new circular on the tax treatment of finance companies and new reporting obligations regarding intra-group transactions, which place more emphasis on transfer pricing.”

GERMANY

Michael Freudenberg

KPMG

“We continue to observe a very heterogeneous picture among companies in Germany in terms of transfer pricing. This is due to the respective experience of the individuals in charge of tax administration on both a national and international level. However, the growing sensitisation of companies is being driven not least by the increasing number of observable criminal tax proceedings relating to transfer pricing. The challenge is not so much the willingness to change things but being able to build a bridge between the past and the future without creating additional tax risks.”

ITALY

Aldo Castoldi

Studio Tributario e Societario

“Transfer pricing has probably been the hottest issue in the Italian tax environment over the last 10 years. Multinationals have been gradually adapting to the changing environment, stepping up their transfer pricing policies and documenting them more consistently. However, when it comes to maintaining compliance between transfer pricing policies and the arm’s length standard, not all companies are devoting appropriate time and resources, considering the aggressiveness of the Italian tax agency.”

ROMANIA

Liviu-Mihai Gheorghiu

Mazars Consulting SRL

“Although Romanian transfer pricing legislation was introduced more than 10 years ago, there are still a large number of companies that have not achieved compliance. One reason may be that, without the obligation to submit a transfer pricing report to the Romanian tax authorities (RTA), companies only tend to focus on transfer pricing when they are faced with a potential tax audit. Recent debates about the level of Romanian taxable results registered by multinationals have brought transfer pricing to the attention of the public and the topic is now higher on the priority list of decision makers.”

RUSSIAN FEDERATION

Alexey Shvyndenkov

JSC Mazars

“Many Russian businesses have learned to correctly prepare transfer pricing reports. However, not all Russian companies pay enough attention to the transfer pricing planning of intragroup transactions. Many large Russian companies that have tax departments deal with transfer pricing and focus on the issue of minimising the tax risks arising from the transfer pricing framework. In such structures, analysis of transfer pricing is usually carried out prior to the conclusion of a transaction, and transfer pricing policies are developed as an integral part of the internal finance processes aimed at describing the pricing algorithm in the main company’s transactions.”

INDIA

Rahul Mitra

Dhruva Advisors LLP

“Generally, while many multinational corporations (MNCs) have been conscious of maintaining largely compliant transfer pricing policies, their approach has been biased toward jurisdictions which have more stringent regulations. MNCs need to appreciate that a pricing policy which may be compliant in the headquarter jurisdiction may not be compliant with local benchmarks and regulations. Every jurisdiction has its own regulations and thus MNCs must ensure that their transfer pricing policies adhere to local laws as well.”

CHINA

Anthony Tam

Mazars Tax Services Limited

“China’s transfer pricing (TP) rules were first rolled out 10 years ago. In response to base erosion and profit shifting (BEPS), Chinese tax authorities introduced new TP regulations in 2016 which put TP in the spotlight again. In terms of outbound investment, particularly under the ‘One Belt One Road’ initiative, Chinese enterprises are fully aware of the importance of TP policies, BEPS initiatives and TP regulations in different jurisdictions. Hong Kong introduced its TP regulations in 2018. Because of its relatively low profits tax rate and the territorial concept of taxation, Hong Kong has never paid much attention to TP before.”

SINGAPORE

Gene Kwee

Mazars LLP, Singapore

“Globalisation and the close integration of world economies have made the transfer pricing landscape quite complex for any multinational enterprise (MNE) engaged in cross-border transactions. Following the implementation of the Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) initiative, there has been an increased focus on transfer pricing related matters as the BEPS programme tends to match transfer pricing outcomes with value creation. In line with the BEPS initiative, the Inland Revenue Authority of Singapore (IRAS) published revised transfer pricing rules in 2018 to reinforce the importance of determining the ‘correct transfer price’ for Singapore taxpayers.”

INDONESIA

Julia Yang

Mazars

“Awareness of maintaining compliant transfer pricing (TP) policies and documentation has been increasing over the last five years, largely due to the requirement by the Directorate General of Taxes (DGT) to maintain TP documentation on an annual basis and TP audit experience. There are statements and forms regarding transactions with related parties that need to be attached to a corporate income tax (CIT) return. These outline the availability of local file and master file, the type and amount of transactions with related parties, and the TP methodology used in determining the pricing, which in absence or non-compliance of the requirements, would result in the rejection of a CIT return by the Indonesian tax authorities (ITA) and imply the possibility of a deemed adjustment by the DGT during a tax audit.”

AUSTRALIA

Jason Casas

Grant Thornton Australia Limited

“Currently, there is an important level of awareness from taxpayers, but perhaps a lot of companies have not yet dedicated enough attention or resources to their transfer pricing policies. Nonetheless, this situation is likely to change, as the Australian transfer pricing environment has continually evolved in recent years with landmark cases, new legislation and the base erosion and profit shifting (BEPS) initiative. The Australian Taxation Office (ATO) is continuously releasing guidance materials. This has created an additional burden on companies and the requirement to dedicate more resources to manage existing policies to make sure they continue to comply with the latest developments.”

UNITED ARAB EMIRATES

Markus Susilo

Crowe UAE

“The UAE has not yet fully adopted Base Erosion and Profit Shifting (BEPS) Action 13 for transfer pricing documentation. However, UAE-headquartered businesses with international operations and UAE subsidiaries of foreign companies have become increasingly aware of the complexities and importance of maintaining adequate documentation conforming to the transfer pricing legislation of the relevant country where their operations or parent company is located.”

NIGERIA

Uhabia Ojike

Mazars

“With the emergence of the Income Tax (Transfer Pricing) Regulations 2018 in Nigeria, it is fair to say that companies have started paying increasing attention to difficulties in maintaining and complying with appropriate transfer pricing (TP) policies, albeit at a slow pace. This is expected, as a full grasp of the requirements of TP compliance will not happen overnight. It is, however, worth noting that maintaining a proper TP policy is a means to an end, but the end itself is complying with already established policies.”

EGYPT

Kamel Magdy Saleh

Deloitte, Saleh, Barsoum & Abdelaziz – Egypt

“According to Deloitte Middle East’s 2018 transfer pricing survey, 65 percent of chief financial officers (CFOs) and heads of tax are highly concerned about the transfer pricing compliance of their companies and 82 percent strongly agree that current transfer pricing structures are under greater scrutiny in the region. This clearly indicates how businesses have already given some thought to increasing base erosion and profit shifting (BEPS) standards and maintaining compliant transfer pricing policies, although most companies have not yet been challenged in audits on transfer pricing issues.”

KENYA

Peter Kinuthia

KPMG East Africa

“Companies have generally increased their focus on the importance of having compliant transfer pricing policies. This is largely driven by developments in local legislation, such as the draft Income Tax Bill (Kenya), which proposes to introduce robust transfer pricing legislation, as well the Organisation for Economic Co-operation and Development (OECD)’s work on base erosion and profit shifting (BEPS). Moreover, companies are more cognisant of the importance of having contemporaneous transfer pricing documentation that is aligned to their overall business operations.”

UGANDA

Peter Kyambadde

KPMG Uganda

“With the exception of some multinationals, most companies do not pay particular attention to maintaining compliant transfer pricing (TP) policies.”

TANZANIA

David Gachewa

KPMG Advisory Limited

“Companies in Tanzania are becoming more aware of the complexities of maintaining compliant transfer pricing (TP) documentation. This awareness is being increasingly driven by the introduction of the ‘Tax Administration Regulations’ in April 2018, following the revocation of the Income Tax (Transfer Pricing) Regulations, 2014. The new TP regulations introduced the filing requirement for companies with related party transactions meeting the threshold of 10bn Tanzanian Shillings, approximately $4.35m.”

CONTRIBUTORS

ATOZ Tax Advisers S.A.

Baker McKenzie

BaseFirma

Caplin & Drysdale

Crowe UAE

Deloitte, Saleh, Barsoum & Abdelaziz – Egypt

Dhruva Advisors LLP

Grant Thornton Australia Limited

JSC Mazars

KPMG

KPMG Advisory Limited

KPMG East Africa

KPMG Uganda

Mazars

Mazars Consulting SRL

Mazars LLP, Singapore

Mazars Tax Services Limited

RSM Netherlands

Studio Tributario e Societario