Operationalizing global transfer pricing
In this final installment of our 2016-17 Transfer Pricing Survey, we examine the work needed to respond to the seismic shifts taking place in the world of global taxation. Below we examine the findings of what 623 respondents in 36 jurisdictions across 17 industries have to say regarding forging a practical response to so much change — or as this report refers to such matters, operationalizing.
For tax and transfer pricing, it is an era of transformation. As earlier installments have shown, transparency is now the watchword, with tax authorities now having access to more data than ever before. Meanwhile, new laws based on recommendations to curtail base erosion and profit shifting (BEPS) from the Organization for Economic Co-operation and Development (OECD) are being written or legislated and enacted at a blistering pace. Put it all together and the likelihood and scale of controversy, and the level of resource required to address this, has only one place to go — higher.
So there’s much to attend to in order to tighten the internal position. In terms of prioritization, the key areas of focus identified by respondents include:
Establish a clear vision and strategy
Both the survey and anecdotal evidence point to the overwhelming importance of adopting a strategic approach to all that is happening. As EY Global and Americas Transfer Pricing Leader Peter Griffin explains, “Over the past few years, companies have done a better job analyzing how transfer pricing affects their operations. But the levels of transparency and scrutiny that are just taking hold today are much more intense than what we’ve seen in the past.”
Consequently, says Griffin, “it really is time to take a step back to look at everything from a global perspective — the same perspectives are becoming available to tax authorities in every jurisdiction where you do business.” The total picture, says Griffin, “has to tell a consistent global story, and that requires absolutely clear strategic vision of what the transfer pricing objectives are and how to achieve them.”
Evaluate and ensure data quality/accuracy
More than a third of executives, 37%, say their future work will include an intensive focus on making sure that data used for decision-making and provided to tax authorities is indeed accurate and reliable.
“Generating data and outputs that drag results from your systems reflective of the intended policies has cross-purpose benefits,” says Robbert Kaufman, EY Americas Transfer Pricing Market Leader. It gives comfort to both internal users for decision-making regarding resource allocation, key business decisions and performance reviews, whilst also to tax authorities in the event of an enquiry or audit, so they are comfortable that the outputs reflect the intended policy.”
"Over the past few years, companies have done a better job analyzing how transfer pricing affects their operations. But the levels of transparency and scrutiny that are just taking hold today are much more intense than what we’ve seen in the past.” – Peter Griffin, EY Global and Americas Transfer Pricing Leader
Integrate more closely with business operations
34% of companies is building closer coordination between tax and business units. The fact is, amid so much change, says Ronald van den Brekel, EY Global Head of Transfer Pricing Technology, companies have actually been handed somewhat of an operational opportunity, in particular from the OECD’s focus on development, enhancement, maintenance, protection and exploitation of intangibles (DEMPE) functions and business alignment.
“The need to align tax and the business models is critical — tax authorities are already questioning and seeking to understand the alignment as a starting point of inquiries, audits or from proactive discussions.” “It’s not only just so many changes to the rules,” says van den Brekel, “but companies should also be taking a look at the impacts from all the advances in technology.” Closer integration, says van den Brekel, “presents an opportunity to not only make better core strategic choices, but also to streamline operations.”
Another key priority for nearly a third of businesses, 32%, will be taking a fresh look at fundamental, day-to-day procedures. Again, companies will not only be seeking to align policies/procedures/processes to a wide range of new realities; they will also be seeking to automate, streamline and, wherever possible, improve efficiency and accuracy, and optimize information for decision-making.