Transfer pricing tops list of tax issues for oil and gas execs
Houston, 24 March 2011 — As part of its 2010 Global Transfer Pricing Survey, EY found that 95% of oil and gas finance executives ranked transfer pricing -- the pricing of goods, intangibles, financial instruments and services transferred within an organization -- as very important or fairly important. Seventy six percent said transfer pricing was the most important tax issue they are dealing with, followed by tax minimization and double taxation. Eighty-four percent of respondents feel that a transfer pricing audit is fairly likely or very likely. The survey included independent interviews of 58 high-level (CFO to controller) energy executives.
Even with an improving global economy, governments facing daunting deficits remain focused on raising revenues through taxation, with transfer pricing being a key instrument. For oil and gas companies, the countries or regions with a highest propensity to audit transfer pricing are: Australia, Brazil, Canada, China, Germany, India, Indonesia, Malaysia, Norway, Singapore, Thailand, US and the UK.
A lot of oil and gas companies sell goods and services across borders which can be easily documented with the use of oil indices. These transactions tend to see less controversy due to the availability of third party pricing. It’s the more difficult-to-measure items like services, financing and intangibles that tax authorities are scrutinizing.
Oil and gas industry response
In response to increased scrutiny, oil and gas companies are putting more effort into documentation and approaching it with a mindset that compliance documentation will eventually end up in the hands of tax authorities. Documentation is also becoming more of a centralized function, managed by the parent company or a regional hub. This uniformity creates consistency across countries and entire regions and ultimately simplifies compliance and reporting.
Also, in an effort to streamline processes and reduce the overall manpower devoted to this increasingly crucial effort, larger numbers of oil and gas companies are applying for Advanced Pricing Agreements (APAs). The APA process allows a company to lock in a methodology, pricing structure and results for a set number of years between two or more taxing authorities. This helps to resolve or prevent disputes for the specified period. In these agreements, the concerned tax authority agrees not to seek a transfer pricing adjustment for a covered transaction.
About the survey
Consensus Research International conducted a series of independent interviews of 877 companies across 25 countries to investigate the transfer pricing practices and strategies among multinationals. Fifty eight of the respondents, the data set featured in this news release, were senior-level (CFO, VP to controller) executives representing oil and gas (67%) and mining (33%) companies.
How EY’s Global Oil & Gas Center can help your business
The oil and gas industry is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY’s Global Oil & Gas Center supports a global practice of over 8,000 oil and gas professionals with technical experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oilfield service sub-sectors. The Center works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant key industry issues. With our deep industry focus, we can help your organization drive down costs and compete more effectively to achieve its potential.
EY is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
For more information, please visit www.ey.com.
EY refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. This news release has been issued by Ernst & Young LLP, a client-serving member firm of Ernst & Young Global Limited located in the US.