Demand Growing for Talent with Expertise in Complex Transfer Pricing Matters
Drug giant, GlaxoSmithKline, is battling the IRS over a potential $1.9 billion in back taxes, interest and penalties, according to Reuters. The case centers on a tax-savings technique used by the company known as “earnings stripping.” The practice involves reducing domestic taxable profits by claiming excessive interest deductions on intercompany loans from units abroad. Reuters adds that Glaxo is contesting the IRS claim over tax liabilities going back to 2001 and does not expect a court decision before 2011. This is just latest in a series of disputes between Glaxo and U.S. tax authorities. Reuters notes in 2006, the company agreed to pay more than $3 billion to settle a dispute over so-called “transfer pricing,” a year before it was due to go to trial.
Today, transfer pricing remains one of the most controversial international tax issues currently being examined by the U.S. Treasury Department as the global recession has put extreme pressure on company balance sheets… as well as tax revenues.
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.
Now, amid the downturn, tax officials are looking to shrink a “tax gap” the IRS estimates may be as high as $345 billion by restricting or closing several widely used tax loopholes. Meanwhile, every part of a business’ supply chain is being examined. Corporations must identify the best location for their company to locate their activities to derive the most tax benefit.
The current economic environment presents not only major commercial and financial challenges for many multinational companies but has also heightened the focus on transfer pricing arrangements, according to EUCommerz.com. According to the report, companies operating globally must closely monitor and review the impact of today’s abnormal market conditions and the measures taken by management on the assumptions embedded in the transfer pricing systems.
The report also notes that the economic crisis also provides companies with a unique transfer pricing planning opportunity to revisit current arrangements and consider amendments for the future. For example, the EUCommerz.com report argues that multinationals may consider using the decrease in profitability to transfer intangible property (IP) among related parties. It states, “Transferring IP to an IP holding company in a favorable tax jurisdiction, or as part of a value chain restructuring in the current market conditions, could be beneficial in more than one way.”
In short, effectively managing the economic and transfer pricing challenges of the recession will be the focus of multinational corporations now and in the foreseeable future. EUCommerz.com concludes, “Understanding the impact of the worsened economic conditions on existing transfer pricing arrangements and intercompany transactions is essential for multinationals to successfully manage the risks and exploit the opportunities. ”
Right now, as Tax Directors seek tax efficiencies at all levels of their company, the need for well-trained transfer pricing specialists is increasing. 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.
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. 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.
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.
