Transfer Pricing Audits Increasing, Talent in Demand
Intel has been hit with a request from Denmark for $651 million in back taxes and related interest, reports Barron’s citing the Danish news site Politkien. According to the story, the case by Denmark’s Tax Authority involves transfer pricing, the under-pricing of exports between affiliated companies in different countries in order to transfer profits out of a country and avoid taxes. The report quotes Professor Aage Mikkelsen, a tax expert at Denmark’s Århus Business School, as saying, “If you sell goods to foreign companies affiliated to a group at a loss, Denmark loses a tax opportunity. The Tax Authority has discovered that billions are being moved abroad.” Professor Mikkelsen describes the level of Intel’s tax evasion – believed to be Denmark’s biggest ever case of transfer pricing – as “shocking.”
Transfer pricing - or the pricing of goods and services, including raw materials, products, and payments such as management fees and intellectual property royalties, within a multi-divisional corporation - has proven to be a minefield for authorities. Some companies abuse transfer pricing schemes by improperly seeking to minimize their taxable profits in the U.S. and shift profits overseas by undercharging or overpaying foreign subsidiaries for goods and services. But now, amid economic uncertainty, transfer pricing schemes are among the loopholes ripe for crackdown.
Facing global recession, 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. For example, in the U.K. alone, the number of transfer pricing investigations is set to rise, according to Accountancy Age. The report quotes Lee Corrick, Assistant Director of corporate tax and VAT at HMRC, as saying that between 75 and 100 new transfer pricing enquiries have been issued within the past fiscal year. He adds that he expects that figure to increase in the next 12 months.
Potential abuse of transfer pricing arrangements has also led to the rise of regulations as governments seek to stem the flow of taxation revenue overseas, according to the New York Times. The NYT adds that curtailing transfer-pricing arrangements could force a slew of big corporations to pay large amounts in back taxes and penalties.
Transfer pricing is a risk issue for multi-national enterprises (MNEs) when it comes to financial reporting, according to Ernst & Young’s Global transfer pricing survey. The report concludes that transfer pricing audits are increasing, and tax authorities are increasingly willing to impose adjustments and penalties.
Among the key findings of the report:
- 40% of all respondents identified transfer pricing as their most important tax issue.
- 52% of all respondents have undergone a transfer pricing examination since 2003, with 27% resulting in adjustments by tax authorities.
- 87% of all respondents consider transfer pricing a risk issue in relation to managing financial statement risk.
- 65% of respondents from parent MNEs believe transfer pricing documentation is more important today than two years ago.
In short, transfer pricing in a slowing economy remains a critical issue for multinational corporations. In fact, the Organization for Economic Cooperation and Development (OECD) has just opened registration for its Conference “Transfer Pricing and Treaties in a Changing World“, which will take place in September in Paris. Already, more than 600 participants from all over the globe are expected to convene for the event.
Amid the growing trend, from supply chain restructuring, to transfer pricing planning and compliance with documentation requirements, executive search firm, A.E. Feldman says that international tax jobs are opening up. Already, this month, KPMG made a series of additions to its U.S. transfer pricing team, according to Transfer Pricing Weekly. Global economic consulting firm, CETERIS, also announced last month that it has added a new senior level transfer pricing expert. 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.
Are you an accountant or transfer pricing specialist? If you want to grow your career or discuss your company’s talent needs, contact A.E. Feldman’s President, Mitch Feldman today.
