Obama’s Tax Plan Side-Steps Transfer Pricing, Talent in Demand
President Barack Obama recently sent the corporate tax community reeling with a radical set of plans to change the U.S. tax code. Obama’s aim is to shrink a “tax gap” the IRS estimates may be as high as $345 billion by restricting or closing several widely used tax loopholes. One routinely used tactic not tackled “head on” by the plan, however, is transfer pricing. Transfer pricing remains a critical issue for corporations operating globally, according to executive search firm, A.E. Feldman. The firm is currently working with the investment advisory community on transfer pricing and anticipates continued demand for talent with expertise in complex transfer pricing matters.
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. In short, multinational corporations (MNEs) use transfer pricing methods to reduce the U.S. taxes they owe by keeping their profits offshore in low-tax or no-tax havens.
With the Obama plan closing other loopholes, corporations are “now going to get crazy with their transfer pricing,” the New York Times quotes Lee Sheppard, a commentator for Tax Analysts, a trade publication as saying. The report also quotes Robert Willens, an independent tax and accounting expert in New York as saying that corporate America “will still have the ability to do and use transfer pricing — it’s still there.”
University of Texas at Dallas News also 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. Transfer pricing, however, is garnering more attention from governments around the world that are imposing tighter trading rules and more aggressively pursuing tax revenues.
Facing global recession governments are seeking to preserve their tax base. According to BNA International’s Tax Management Transfer Pricing Report, adverse changes in the market undoubtedly will affect the analysis of transfer pricing issues within the financial services industry.
Already there has been a substantial increase in transfer pricing tax audits and willingness by tax authorities to impose adjustments and penalties, according to the findings of Ernst & Young’s Global Transfer Pricing Survey. Additionally, according to a 2008 KPMG report, the number of countries that have imposed transfer pricing regulations has approximately quadrupled from 1995 to 2007.”
Here in the U.S., IRS officials are targeting transfer pricing methods the agency says deprives the Treasury of billions of dollars each year. In fact, the NYT reports that transfer pricing abuses have become the single largest source of tax avoidance in corporate America, citing a senior government official.
Now, as authorities attempt to collect taxes on cross-border activities, multinational organizations are facing increasing demands from different jurisdictions. This comes as multinational corporations are being pressured to restructure their worldwide business operations in order to maximize efficiency and minimize their overall global tax burden. Amid the trend, Seldon adds the “need for well-trained transfer pricing specialists will only increase, as will the need for academics prepared to teach the subject.”
A.E. Feldman is already seeing an increase in demand for talent. 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.
