Majority of businesses identify tax risk management as top transfer pricing priority

Singapore, 22 December 2016

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  • Less than a quarter globally say they are fully compliant with global documentation rules and close to half view lack of automation as the biggest operating model challenge

Seventy-five percent of businesses identify tax risk management as their top transfer pricing priority, according to an EY report, In the spotlight: a new era of transparency. Rising from 66% in 2013, the survey of 623 tax and finance executives across 36 countries reflects the striking impact of global calls for greater tax transparency on the boardroom agenda.

With initiatives such as the OECD’s Base Erosion and Profit Shifting (BEPS) project compelling businesses to share more information about their operations, businesses that are not prepared to meet new reporting and disclosure standards will come under increasing pressure to be proactive in supporting transfer pricing approaches. The report finds, however, that 21% of businesses surveyed globally lack operational readiness to adapt to changing transfer pricing requirements and only 21% are fully compliant with global documentation rules.

Luis Coronado, Partner, EY Asean International Tax Services Leader, Ernst & Young Solutions LLP says:
“The Singapore government has made significant changes to its transfer pricing framework over the last few years, with expanded transfer pricing reporting requirements and approaches introduced every year. Not unlike in other jurisdictions, staying compliant can be onerous as transfer pricing documentation rules are supplemented with requirements around Country-by-Country reporting (CbCR) and transfer pricing disclosures on the company tax returns.

“For example, since the announcement of Singapore’s commitment to adopt the four minimum standards under the BEPS Project (as a BEPS Associate Country), the Inland Revenue Authority of Singapore (IRAS) has released an e-Tax Guide with details on the implementation of CbCR for Singapore tax resident multinational enterprise groups. More recently, on 19 December 2016, the IRAS announced that Singapore multinational enterprise groups may file their CbC Reports for financial year beginning on or after 1 January 2016 to IRAS on a voluntary basis.”

“This new era of tax transparency is expected to drive monumental change throughout modern tax functions, and businesses need to begin gathering essential data to build a clearer and more optimized long-term strategy for their transfer pricing positions.”

While 69% of global respondents consider establishing a clear vision and strategy as the best approach to addressing operational issues relating to transfer pricing, only 35% describe their readiness to do so as “high.” And with many businesses still hindered by manual systems and processes, 49% identify lack of automation as the most difficult challenge in adapting the operating model. 73% of survey respondents still monitoring transfer pricing results on just a quarterly or annual basis, it is clear that a significant step change still needs to take shape.

Henry Syrett, Partner, Transfer Pricing, Ernst & Young Solutions LLP says:
“As governments increasingly move toward real-time reporting processes and the focus on transfer pricing intensifies, businesses need to evaluate the tools available to align their transfer pricing activities with IT reporting systems. Relying on periodic, ad hoc manual adjustments is no longer enough and could be costly both in terms of time and resources.

“It is clear that the Singapore government is fully focused on adopting digital technology to drive future economic growth as well as in tax administration so as to maintain the country’s reputation as one that views tax compliance obligations seriously. Companies must play their part by ensuring that they are managing transfer pricing effectively and meeting all local compliance obligations in substance as well as in form.”

Chung-Sim Siew Moon, Head of Tax, Ernst & Young Solutions LLP adds:
“Getting their transfer pricing wrong is not an option and in this era of heightened tax risks and controversy, businesses identifying tax risk management as their top transfer pricing priority is indeed not a surprise.”


Notes to Editors

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About the survey

In the spotlight: a new era of transparency is the first instalment of EY’s 2016 Transfer Pricing Survey Series, conducted between April 2016 and June 2016. The respondents included 623 tax and finance executives representing more than 17 industry sectors in 36 countries, including Singapore.