- 76% of transfer pricing leaders are challenged by volume and complexity of global tax reforms
- 65% feel they lack input into key business decisions
- 58% see new legislation among their top three transfer pricing risks
International tax reforms and supply chain transformations accelerated by the COVID-19 pandemic are contributing to an unprecedented level of uncertainty and risk for businesses’ transfer pricing functions, according to a new EY report.
The 2021 EY International Tax and Transfer Pricing survey looks at the role and impact of transfer pricing – a critical tax function for organizations around the world that oversees internal corporate transactions including cross-border payments between subsidiaries, property leases and intellectual property licenses.
The biennial survey canvassed the views of 979 transfer pricing professionals in 53 jurisdictions across 25 industries. It highlights the burden of increased workloads on transfer pricing executives fueled by recent developments.
Seventy-six percent of respondents say they are challenged by the volume and complexity of global tax reforms. Seventy-one percent of respondents say that these reforms will lead to increased transfer pricing-related costs for their organizations – 30% predict that costs will rise by at least 10% over the coming three-year period.
The survey also shows that 58% of transfer pricing leaders say they are not involved as much as they need to be in key business decisions as the world starts to emerge from the pandemic. Of this total, 24% say they are involved in some, but not all, decisions; and 30% report that they are only involved on a reactive basis.
New or evolving legislation is seen by 58% as one of the top three factors in transfer pricing risks, with 25% mentioning it as the biggest contributor.
According to the survey, fundamental changes in the dynamics of businesses around the world, in particular the restructuring of supply chains and changing working patterns, will have a real impact on transfer pricing work. Sixty-one percent of survey respondents say they will likely be taking steps to modify their organization’s approach to transfer pricing as well as their operations, compliance and documentation within the next two years.
Respondents cite a number of different drivers for these changes, ranging from changes to their business model (52%), supply chain (43%), work from anywhere practices (46%) or environmental, social and governance (ESG) pressures (36%).
Tracee Fultz, EY Global Transfer Pricing Leader says:
“Supply chains are under strain from market pressures and a barrage of new tax laws and regulations. Most of this is arising from issues due to the COVID-19 pandemic. Evolving digital business models including working from anywhere policies raise new tax issues around permanent establishment, substance and profit allocation.”
As organizations increasingly work from anywhere the survey shows that many respondents anticipate impacts resulting from workers being stranded outside the jurisdiction in which they are employed – 47% say they face these challenges now and 49% expect to do so over the next two years. In addition, 75% say they will struggle to find workers with the necessary transfer pricing talent.
There is also a view shared among survey respondents that more frequent and rigorous audits will become the norm. Sixty-five percent predict a rising number of transfer pricing audits overall; 53% anticipate greater scrutiny of transfer pricing documentation; and 48% anticipate more rigorous audits in general, often investigating multilateral issues or entire value chains.
The issues that respondents believe are most likely to come under scrutiny include intellectual property-related matters such as location and ownership of assets and control of risk (cited by 38% of respondents), permanent establishment (37%) and headquarter and management services transactions (36%).
Jeff Michalak, EY Global International Tax and Transaction Services Leader, said:
“The COVID-19 pandemic has led to profound disruptions to business models, in particular in supply chains, but also to ways of working and ESG. These trends are having an immediate and material impact when it comes to taxes – specifically creating transfer pricing challenges. In order to manage these impacts, transfer pricing executives must secure greater alignment with their businesses, streamline transfer pricing functions and embrace digital models.”
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Notes to Editors
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