Tax Experts in Demand as Governments Take a Harder Line on Transfer Pricing
The economic slowdown has triggered heightened transfer pricing enforcement around the world and greater compliance demands. Long a focus of the IRS, transfer pricing is now garnering more attention and is the subject of increased scrutiny in even previously tax-friendly countries, like China and India, reports CFO.com. As a result, U.S.-based multinational corporations are facing new transfer pricing risks. The report quotes Larry Harding, CEO of High Street Partners, a consulting firm that helps businesses with international expansion, as saying, “A lot of U.S. companies will be exposed.”
Today, corporations operating globally need to have very clear transfer pricing guidelines in place ahead of any potential audits. As a result, 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. 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 (APA) are among the most sought after candidates.
Tax Authorities Seeking Revenue
Transfer pricing is the pricing of sales between subsidiaries of a multinational corporation with the intent of minimizing taxes by reporting profits in jurisdictions with relatively low corporate tax rates. The practice has been the subject of controversy for nearly two decades. Today, however, facing mounting pressure to find new and additional sources of revenue, governments around the globe are taking a harder line on the taxation of transfer pricing, according to CFO.com. The report calls the trend, “another unwelcome side effect of the global recession: hungrier international tax authorities.
A growing number of governments are jumping on the bandwagon, according to Forbes. The report lists several recent examples, including Japan where Takeda Pharmaceutical, Honda and Sony have all been targets of local tax authority investigations over transfer pricing, citing the Nikkei Report.
Today, even China and India are looking to fill their coffers by squeezing more from U.S.-based multinationals on sales between subsidiaries, notes CFO.com. The report points out that last year, China’s tax authorities issued new rules requiring foreign multinationals to submit extensive transfer-pricing documentation by year-end. More recently, the report adds, they circulated a notice to local tax authorities urging rigorous enforcement on a variety of business-tax issues, including transfer pricing.
China isn’t alone. CFO.com quotes Garry Stone, global transfer-pricing leader for PricewaterhouseCoopers, as saying, “There’s an explosion of transfer-pricing controversies out there.” Stone adds the number of such disputes among his clients doubled over the past year, lead by India, Canada, Turkey, and Greece.
The U.S. is no exception. Although, as Raymond Baker, Director of Global Financial Integrity, a non-profit in Washington, D.C., points out to Forbes, “the IRS accepts a handful of formulas for determining acceptable intra-company transfer prices, all of which can be manipulated within a certain acceptable range,” the IRS is currently maintaining an aggressive approach to transfer pricing. In fact, the IRS contends the abuse of the tactic deprives federal coffers of billions of dollars in tax revenue each year. Stone told CFO.com he understands the IRS is adding 1,200 people to its international staff this year, while the 2010 budget accounts for another 800.
Transfer Pricing Increased Source of Risk
Amid these developments, transfer pricing has become an increased source of risk for multinational companies of all sizes. The New York Times has reported that curtailing transfer-pricing arrangements could force a slew of corporations to pay large amounts in back taxes and penalties.
“Abusive transfer pricing is becoming more important in the global agenda, and that has not yet satisfactorily trickled into the thinking of multinational corporations,” Forbes quotes Baker as saying. “The reputational risks [of getting caught] are enormous. Shareholders need to know this.”
As a result, Stone told CFO.com that more companies are seeking Advance Pricing Agreements. He also warns that updated documentation and clear explanations of methodologies are critical.
Are you an international tax or transfer pricing specialist? If you want to grow your career or discuss your company’s talent needs, talk with A.E. Feldman’s President, Mitch Feldman.
