Demand Escalates for Transfer Pricing Specialists
Transfer pricing continues to be one of the most critical matters facing multinational companies. In fact, Ernst & Young’s Global Transfer Pricing Survey 2007-2008 shows that transfer pricing continues to be the number one international tax issue of interest to multi-national enterprises. Why? E&Y says it’s a risk issue for financial reporting. The IRS and numerous tax authorities worldwide are intensifying their focus on how corporations allocate income and expenses among related entities abroad because of the potential to shift income inappropriately to lower tax jurisdictions, according to NY accounting firm, Citrin Cooperman & Co. E&Y adds that as transfer pricing audits increase, tax authorities are more than willing to impose adjustments and penalties.
Facing economic uncertainty and globalization, governments around the world have begun imposing tighter trading rules and aggressively pursuing tax revenues. As a result, multinational organizations are facing increasing demands from different jurisdictions as authorities attempt to collect taxes on cross-border activities. From supply chain restructuring, to transfer pricing planning and compliance with documentation requirements, executive recruiting firm, A.E. Feldman says that international tax jobs are opening up. A.E. Feldman President, Mitch Feldman, also notes that talent with expertise in complex transfer pricing matters, particularly international transfer pricing controversy and advanced pricing agreements among the most sought after candidates.
Transfer pricing is the pricing of goods and services, including raw materials, products, and payments such as management fees and intellectual property royalties, within a multi-divisional corportation. Essentially, when one subsidiary sells goods or services to another subsidiary in a different country, the price charged for these goods or services is called the transfer price. The rules on transfer pricing requires multinational corporations to conduct business between their subsidiaries at “arm’s length.” That means all transactions between the subsidiaries should be priced as if the transaction was conducted between two unconnected parties.
Transfer pricing affects the division of total profits among parts of a company. Since tax rates vary between countries, multinational corporations can increase their profits with the help of transfer pricing. By lowering prices in countries where tax rates are high and raising them in countries with a lower tax rate, corporations can reduce their overall tax burden and boost profits. This has led to the rise of transfer pricing regulations as governments seek to stem the flow of taxation revenue overseas.
Today, transfer pricing audits are increasing, and tax authorities are willing to impose adjustments and penalties, according to the findings of E&Y’s latest survey. The research also reveals that 40% of all respondents identified transfer pricing as their most important tax issue. More than half, 52%, of all respondents have undergone a transfer pricing examination since 2003, with 27% resulting in adjustments by tax authorities. Furthermore, the study shows that 87% of those polled consider transfer pricing a risk issue in relation to managing financial statement risk and 65% of believe transfer pricing documentation is more important today than it was just two years ago.
The stakes are high, according to Citrin Cooperman & Co. The accounting firm says transfer pricing penalties in the U.S. are severe. Specifically, if the IRS makes adjustments in an audit, the company is liable for additional tax, interest and penalties. Depending on the situation, auditors can also impose a 20-40% penalty on the underpaid tax. Multinational corporations also face the risk of double taxation if two countries seek tax on the same profits.
Just last month, a ruling in the tax court of Canada against GlaxoSmithKline Canada could cost the pharmaceutical company millions in back taxes, penalties and interest, reports International Tax Review.
Amid increased scrutiny of transfer pricing, companies must minimize their tax liability and audit exposure. In order to mitigate tax risk on all cross-border market driven initiatives, transfer pricing specialists must manage the development of complex transfer pricing design, compliance and audit defense strategies. As a result, demand in escalating for talent with expertise in international tax, particularly international transfer pricing controversy and advanced pricing agreements.
A.E. Feldman’s accounting division is constantly researching industry trends and developments. To learn more about these issues or inquire about existing and future accounting jobs, the lines of communication are open. Contact the firm’s cutting edge accounting recruiting team here.
