Firms Seek Talent as Transfer Pricing Becomes Increasing Burden
U.S. and Australian officials have agreed to work together to combat tax evasion, fraud and tax havens ahead of the G20 summit to be held in Pittsburgh in September, according to the AAP. The report states that Australian Assistant Treasurer Nick Sherry recently met with key U.S. tax officials and legislators in Washington. Following his meeting, Senator Sherry said in a statement, “It’s very clear following my talks on Capitol Hill and with the IRS, that Australia and the United States share a strong commitment to cooperate to stamp out tax abuse wherever it occurs.”
One common tax-savings technique used by multinational corporations is transfer pricing. Today, however, as the global recession has put extreme pressure on company balance sheets and tax revenues, it has become one of the most controversial international tax issues currently being examined by the U.S. Treasury Department as well as governments around the world.
Experts note there has already been a substantial increase in transfer pricing tax audits and willingness by tax authorities to impose adjustments and penalties. (Ernst & Young’s 2009 Global Transfer Pricing Survey). Tax authorities are going after their piece of the global profits earned by multinational companies, according to FinancierWorld.com. “They are demanding new documents, sharing information among them and issuing harsher penalties to companies. The result is a breeding ground for tax-related disputes between companies and tax authorities, both domestically and in a cross-border context,” the report states.
“New jurisdictions are introducing ‘documentation’ and disclosure requirements, and particularly at this time, tax authorities are wishing to protect their tax base at all costs,” says Richard Fletcher, a Principal Tax Adviser and head of UK transfer pricing at Baker & McKenzie LLP. “Often, significant amounts of tax are at stake, and as a result tax authorities will take aggressive and intransigent views on pricing, which can give very different answers in affected jurisdictions and lead, in worst cases, to costs of double taxation.” The bottom line: transfer pricing is an increasing burden for taxpayers.
A growing number of multinational corporations are already addressing this issue on Capitol Hill. According to second-quarter lobbying reports, large technology firms in particular, have continued pressing Washington, D.C. lawmakers and regulators on the issue of transfer pricing, according to the WSJ. The report argues their persistence underlines the high stakes involved for companies such as Oracle and Microsoft with significant amounts of income made and held offshore.
” Tech firms and other U.S. companies generally keep income overseas to avoid what they see as double taxation, both by the foreign country where profit is earned and at home. However, many have also been able to capitalize on deferral of taxes on overseas earnings by setting up so-called “transfer pricing” structures, which enable them to recognize more income at subsidiaries safely located in countries with lower tax rates,” the WSJ states.
Aside from their lobbying efforts, companies are taking preemptive action to add the staff with expertise to ensure their documentation is up to date, so they are prepared for a tax audit, assessment or adjustment.
“To be sure, this process adds an economic and administrative burden on the company, but concerns about tax penalties seem to be overriding these drawbacks. It is important to realize that if a company is proactive, the tax authorities tend to be easier to work with than if the authorities act first, FinancierWorld.com quotes Mark Kral, Managing Director at RSM McGladrey, as saying. “In the US, if a company is unable to produce its documentation within 30 days, the IRS effectively has carte blanche to tell them what their transfer pricing should have been, which obviously creates problems,” he adds.
Amid the increased scrutiny and documentation requirements FinancierWorld.com also quotes Robert Alltop, VP and Practice Leader of the Ballentine Barbera Group, CRA International’s transfer pricing practice as suggesting that the burden can be minimized by taking the following steps:
- Develop a clear, corporate transfer pricing policy and implementation procedures and communicate these to managers overseeing intercompany transactions.
- Review intercompany pricing on a periodic basis to determine if changes in market conditions, transaction volumes, costs structure, or other factors, necessitate a pricing change.
- Centralize the oversight of corporate transfer pricing documentation to facilitate consistency and to leverage economic analyses.
In short, effectively managing the economic and transfer pricing challenges of the current recession will be the focus of multinational corporations now and in the foreseeable future. Executive search firm, A.E. Feldman says the need for well-trained transfer pricing specialists is growing, and international tax jobs are opening up as Tax Directors seek tax efficiencies at all levels of their company. The firm is currently working with the investment advisory community on transfer pricing matters and anticipates continued demand for talent.
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.
