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Why transfer pricing is currently such a significant issue
- Technology and the associated scope for globalisation are reducing the significance of national borders across business.
- Awareness of TP issues continues to grow among tax authorities, and in the current climate of falling revenues, they are increasing efforts to defend their tax bases.
- Tax authorities are also becoming much more efficient and proactive at sharing information and conducting inspections.
- The volume of cross-border intercompany transactions is growing rapidly and becoming increasingly complex.
- Compliance with the varying requirements of multiple tax jurisdictions is complicated and time consuming and can be fraught with risk.
- Local tax rules can be applied in ways differing widely from the transfer pricing principles set out by the OECD.
Given this environment, it is imperative that companies have a suitable transfer pricing strategy, sufficiently robust documentation in place to support this under challenge. According to the EY 2010 Global transfer pricing survey:
- 74% of parent respondents believe that transfer pricing documentation is more important now than it was two years ago.
- 32% of all respondents identify transfer pricing as one of the most important tax challenges they face.
- 74% percent of parent respondents and 76% of subsidiary respondents believe transfer pricing will be ‘absolutely critical’ or ‘very important’ to them over the next two years.
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