Need for Transfer Pricing Specialists to Grow
President Obama has plans to shrink a “tax gap” the IRS estimates may be as high as $345 billion. Obama proposed Monday to raise taxes on the overseas profits of U.S. companies and to go after evaders who abuse offshore tax shelters, according to the AP. The report states that under his plan, companies would not be able to write off domestic expenses for generating profits abroad. The goal is to reduce the incentive for U.S. companies to base all or part of their operations in other countries.
The Obama Administration has fleshed out its proposals for raising approximately $210 billion over 10 years by curbing what it says are corporate loopholes, according to BusinessWeek. Among the specific tax loopholes government officials are targeting: the abuse of transfer pricing practices, or the inappropriate shifting of income outside the U.S.
Since tax rates vary between countries, multinational corporations can increase their profits with the help of transfer pricing. Transfer pricing assigns a value to goods, services, credit or intellectual property transferred between divisions of the same company or between affiliated firms. Money does not need to be exchanged within the same company for these goods and services, but they must be valued for tax purposes when traded across different tax jurisdictions. 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.
Potential abuse of transfer pricing schemes has led to an increasing in regulations designed to prevent MNEs from shifting income to operations in countries with lower rates. In short transfer pricing has become increasingly important for both multinational corporations as well as governments seeking to stem the flow of taxation revenue overseas.
President Obama’s fiscal year 2010 budget includes increased funding for U.S. Treasury and Internal Revenue Service initiatives to bolster international tax compliance matters. In fact, Obama says the government plans to hire nearly 800 new IRS agents to enforce the U.S. tax code.
The U.S. tax authority has also established a special transfer pricing council to help coordinate the IRS’ efforts in this area, according to Transfer Pricing Week. The report states the group includes representatives from different parts of the agency with responsibility for transfer pricing, such as the APA Office. Transfer Pricing Week quotes the Council’s Chair, Barry Shott, as saying, “It is stating the obvious to say one of the Services’ biggest challenges is transfer pricing.” Shott says the Council was created amid steadily increasing cross-border business activities which present several significant challenges to tax administrators, including the practice of transfer pricing by U.S. and foreign-based multinational enterprises. According to Transfer Pricing Week, Shott says he formed the council to identify gaps in guidance for employees and taxpayers, and gather the proper resources from within the Service to address these gaps.
“It was evident throughout his campaign that President Obama held strong feelings about how revenues would be raised from international business activities under his administration in order to pay for the tax reforms that were identified as critical domestic policy imperatives. Now that the administration is in place and the process of initiating tax legislation has begun,” states Law.com. The report adds that multinational enterprises (MNEs) are concerned about how the Obama administration’s position will affect their own taxation.
The business community is already putting up a tough fight, according to BusinessWeek. The report states that Business Roundtable, an association of CEOs of the largest U.S. corporations, the U.S. Chamber of Commerce, and other business groups have launched a vigorous lobbying effort against Obama’s proposal, arguing that the $210 billion hit to American businesses would distort the playing field and leave U.S. companies at a disadvantage in the corporate arena compared with other countries’ tax regimes.
Looking Ahead…
University of Texas at Dallas News quotes Dr. Barry Seldon, UTD Professor of Economics, as saying, “Transfer pricing will continue to become increasingly important because of the international nature of business and companies with global operations. According to a 2008 KPMG report, the number of countries that have imposed transfer pricing regulations has approximately quadrupled from 1995 to 2007.” Seldon adds, “In the early 1990s one-third of US firms’ international trade was intra-firm trade, and this grew to 40% by 1997. The need for well-trained transfer pricing specialists will only increase, as will the need for academics prepared to teach the subject.”
Executive search firm, A.E. Feldman is already seeing an increase in demand for talent. Amid the trend, the firm says international tax jobs are opening up. A.E. Feldman’s President, Mitch Feldman, notes that talent with expertise in complex transfer pricing matters, particularly international transfer pricing controversy and advanced pricing agreements are 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.
