Standing up to scrutiny: Balancing the risks and rewards in transfer pricing documentation
Increasing sophistication in combatting base erosion and profit shifting, and the corresponding increase in transfer pricing documentation, have posed a challenge for businesses. The following article considers the tension between the competing demands.
Companies are facing a proliferation of transfer pricing documentation demands. While the new requirements set out in the OECD’s Base Erosion Profit Shifting (“BEPS”) Action Plan will raise the bar still further, they could also provide the catalyst for the development of a more sustainable approach. So what are the key considerations for documentation policies as companies look at how to balance the need to meet tax authority expectations with curbing cost and complexity?
Globalisation is transforming the transfer pricing landscape. The rapid growth in the volume of transactions subject to transfer pricing and the countries across which supply chains stretch are creating an increasingly complex web of inter-company arrangements.
The need to create and demonstrate defensible arrangements is heightened by the intensifying spotlight on transfer pricing as cash-strapped governments look for ways to increase revenues and the taxes paid by corporations come under ever more intense media scrutiny. Some tax authorities are taking increasingly outlying positions, even if this leads to prolonged conflicts with taxpayers. Failure to resolve such disputes opens up the threat of penalties, adjustments and the risk of double taxation.