Tax risk management is the top-most priority in transfer pricing strategy, suggests EY
NEW DELHI, 28 JULY 2013 – EY Global Transfer Pricing Survey 2013, Navigating the choppywaters of international tax, identifies tax risk management as the top-most priority whendevising transfer pricing strategy, with 60% of surveyed Indian parent companies sharing theirconsent. BRICS and Africa were often cited as the most important jurisdictions for transferpricing issues with 40% of surveyed parent companies in India agreeing to it. The increase inthe number of compliance activities by tax authorities in some rapid-growth markets is one ofthe key reasons why companies believe that risk management has become increasinglyimportant. The survey highlights that the growing assertiveness by rapid-growth markets leadsto occurrences of double taxation with 70% of surveyed global companies agreeing to it.
For example, the number of survey respondents reporting that they were subject to a review oftheir transfer pricing policies in India, more than doubled in 2012 from 2007. Emerging markets(India, China, Indonesia and South Korea) made up half of the top eight jurisdictions imposingtransfer pricing penalties. This indicates companies may need to increase their resources andchange their focus to deal with transfer pricing matters in those jurisdictions. The surveyresponses showed permanent establishment allegations were most common in India (morethan 15%), Italy (more than 10%), China, Canada, the UK and Germany (more than 5% each).Furthermore, Advance Pricing Agreements (APAs) have been used as an effective controversymanagement tool with 13% Indian surveyed companies agreeing to it.
Vijay Iyer, Partner & National Leader, Transfer Pricing, EY said, "The last few years oftransfer pricing audits has resulted in exponential increase in TP litigation. Some of thesecontroversial positions may have dampened the spirit of multinationals. The challenge in thenext few years would be to get the tax environment back on track with swift controversyresolution through tools such as MAP/APA."
Among the Indian companies surveyed, 60% stated that documentation to support taxingauthority audits has the highest impact on the transfer pricing process. The survey furtherNews releasePushpanjali SinghEY+9199900 email@example.comEmbargoed until Sunday, 28 June, 2013Tax risk management is the top-most priority in transfer pricingstrategy, suggests EYAsuggests that the taxpayers' geographic priorities have begun to shift in response, but theyhave not necessarily aligned their resources with those priorities. Nearly 30% of parentcompanies with operations in the BRIC and Africa countries identified those regions as theirNo. 1 or No. 2 most important transfer pricing jurisdictions. However, 74% of these companieshad no full-time transfer pricing professionals based in those regions, and 8% had only one.
Based on the survey results, the most common intangible challenge arose from claims ofuncompensated marketing intangibles and disputes over legal versus beneficial ownership.Across all industries, 13% of parent companies reported a tax challenge in the last three yearsasserting the existence of uncompensated marketing intangibles. In the pharmaceuticalindustry, 31% of companies reported such a challenge, primarily in jurisdictions in India, the USand Canada that have witnessed landmark litigation with respect to marketing intangibles.
The report makes several recommendations to companies seeking to better manage risk andthe compressed transfer pricing life cycle. These include developing high-standarddocumentation in a wider range of countries, considering how other tax enforcementmechanisms may affect transfer pricing, as well as aligning resources to better respond toincreased transfer pricing documentation requirements and controversy in rapid-growthmarkets.General audit
About the Transfer Pricing Survey
EY's biennial transfer pricing survey has been an industry benchmark chronicling taxpayers' views onthis essential function of cross-border commerce for nearly 20 years. This report was compiled based oninterviews with transfer pricing and tax professionals at 878 corporations in 26 countries, including 637parent companies. Responses were gathered from Argentina, Australia, Belgium, Brazil, Canada, China,Denmark, Finland, France, Germany, India, Ireland, Italy, Japan, Mexico, the Netherlands, NewZealand, Norway, Russia, South Africa, South Korea, Spain, Sweden, Switzerland, the United Kingdomand the United States. Transfer pricing refers to rates charged by entities within the same multinationalcorporation and can affect where profit is taxed.
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