Teks lengkap: Headnote
A survey by Ernst &Young finds that government authorities are putting more attention and more resources to
examining - and even auditing - transfer-pricing transactions.
As multinational companies globalize their operations and international trade continues to increase in
importance, tax issues associated with varying jurisdictions take on new importance increasing government
attention and focus on transfer pricing. Transferpricing audits are becoming more and more common, and
multinational companies are being forced to pay closer attention to their transfer-pricing policies and
procedures, according to the Ernst &Young Transfer Pricing 2003 Global Survey.
The results of the most recent E&Y survey show that transfer pricing is the most important international tax
issue multinational companies (MNCs) now face. This high level of company concern is driven by the fact that
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86 percent of MNC parent company respondents and 93 percent of subsidiary respondents indicated that audits
by tax authorities are becoming a rule rather than an exception. This audit increase is, in turn, driving a new
focus on compliance. Of parent company respondents that have experienced an audit, half have reviewed their
transfer-pricing documentation practices as a result. These findings summarize a spectrum of transfer-pricing
management issues from planning to documentation and controversy.
Staying Current By Planning
It is increasingly important for MNCs to design their transfer pricing by taking into account both tax and
commercial considerations. This view of planning is not the nefarious view that governments have, which holds
that companies artificially manipulate intercompany pricing to achieve undue tax advantages. Rather, this is the
view of planning in which operational and regulatory changes are taken into account in keeping transferpricing
policies current.
Globalization implies supply chain changes. As companies increase their volume of related-party transactions,
change the types of these transactions or switch their, the policies and pricing of the transactions should
change, too. Unfortunately, only a minority of survey respondents seems to recognize the connection: 32
percent of parent respondents said that business unit leaders were involved in transferpricing design.
Survey responses show transferpricing responsibility rests with either the CFO or the tax department. These
results suggest a less balanced allocation or sharing of responsibilities than one might expect, given the
importance of business strategy in the design of transfer-pricing policies as well as the "business approach"
taken by many transactions-based tax regimes.
At the same time, proactively taking into account aggressive new legislative, regulatory and enforcement efforts
aimed specifically at transfer pricing is another aspect of planning. Seventy-two percent of parent company
respondents and 75 percent of subsidiary respondents said they reviewed their current transfer-pricing
documentation in light of current revenue authority pronouncements and trends.
For example, 80 percent of Germany's parent-company respondents indicate they are currently reviewing their
transfer-pricing documentation in relation to newly introduced documentation requirements. In the U.S., the
government has proposed services regulations aimed at recognizing the reality of an increasingly important
global service economy. Keeping up with the changes and understanding the often-subtle differences in local
approaches to the application of the arm's-length principle constitutes sound transfer pricing-based tax
planning.
Documentation and Compliance
Even if MNCs don't take an integrated tax and business approach to transfer-pricing design, it's still a
compliance activity. Indeed, most survey respondents (52 percent of parent companies) said that transfer
pricing is only a compliance activity. Documentation strategies should be driven by an assessment of the
significance of current transactions and which jurisdictions pose the highest risk for examination.
While MNCs are expanding into new tax jurisdictions, they must also expand their transfer-pricing compliance
process to encompass each jurisdiction's requirements. When companies enter a new jurisdiction, they find that
the arm's-length standard is a somewhat fluid transfer-pricing concept, capable of interpretation and
implementation in a variety of ways. Seven more countries introduced transfer-pricing documentation rules in
2003, bringing to 27 the number of countries with effective documentation rules.
The divergence in approach among tax administrations is a growing concern to MNCs, resulting in more focus
on documentation strategies. Nearly two-thirds of parent company respondents, and 56 percent of subsidiary
respondents, see documentation as more important than they did two years ago. Only 1 percent saw it as less
important.
In an attempt to provide some cross-jurisdictional consistency, the Pacific Association of Tax Administrators
(PATA) published a single documentation package in 2003 intended to meet the requirements of the member
jurisdictions (Australia, Canada, Japan and the U.S.). However, without a convergence in policy and practices at
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the national level, the PATA initiative hasn't made much of an impression on the survey respondents: Only
around half of parent respondents and onethird of subsidiaries based in the PATA countries said they were
familiar with the package.
Consistent with the lack of interest in this PATA initiative, most survey respondents said they don't take a global
approach to documentation. Less than one-third of MNCs prepare coordinated multi-country documentation.
The country with the highest proportion of respondents that did so was Switzerland (60 percent of Swissheadquartered
respondents). Interestingly, Switzerland also reported one of the highest percentage of
headquarters companies that have been audited somewhere in the world since 2000. It is not surprising, then,
that most Swiss respondents (72 percent) believed the importance of transfer-pricing documentation has
increased since 2001.
Audits and Controversy
The importance of maintaining documentation is also directly linked to the incidence of audit. It is logical that
Swiss-headquartered companies were also most likely to have been subject to a transfer-pricing audit, since 80
percent of Swiss respondents experienced a transfer-pricing examination somewhere in their global operations
in the past three years. Overall, since 1999, nearly half (49 percent) of parent company respondents said they
"were subject to a transfer-pricing audit somewhere in their organization. A similarly high number of
respondents expect this audit attention to continue. In 2003, 76 percent of parent respondents and 77 percent of
subsidiary respondents believed that a transfer-pricing examination will likely occur within their group during the
next two years.
Survey respondents also believe transfer-pricing audits are increasing because revenue authorities are more
sophisticated about transfer-pricing issues. Tax authorities confirm that perception, reporting that they are
adding to their transfer-pricing examining staffs and the amount of training they receive.
The focus of the authorities is still large companies and tangible property transactions. However, as the volume
of services transactions increases, the examination of these transactions is also increasing. In the 2003 Survey,
29 percent of audits involved services transactions - an increase of 12 percent over the 2001 results. With the
introduction of the recently released U.S. proposed regulations on services, attention on these transactions will
likely grow and lead to more audits.
The problem for multinational companies is not only the increased likelihood of audit, but the increasing difficulty
of the examinations as authorities' understanding of the issues gets more sophisticated. One-third of audits
concluded since 1999 led to an adjustment.
Parent-company respondents noted that 40 percent of adjustments resulted in double taxation. Even worse,
one in three of the adjustments also included a threat of penalty, and half of those threatened had some form of
penalty actually imposed. To resolve transfer-pricing disputes with the tax authorities, companies have to
engage in a time- and resource-consuming process.
The Importance of Globally Consistent Documentation
Given this information about the actual audit experience, it comes as no surprise that strengthening and
improving documentation is a priority among survey respondents who have had recent audit experiences. This,
coupled with the stated intent of many tax authorities around the world to continue their focus on transfer
pricing, should serve as a "heads up" to other MNCs to tighten up their approach.
Globally consistent transfer-pricing documentation should be a key component of a multinational company's
controversy and risk management strategy. Most respondents that have experienced an audit and subsequently
reviewed their documentation report improving their documentation practices as a result. Further, a significant
portion (half or more) of both parent and subsidiary companies have documentation maintenance protocols to
review intercompany pricing policies in light of business change.
As companies expand their operations around the world, it is becoming increasingly important for them to pay
attention to all aspects of transfer pricing: from an operations and tax planning perspective, to controversy
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management and compliance strategies.
Sidebar
Since 1999, nearly half (49 percent) of parent company respondents said they were subject to a transfer-pricing
audit somewhere in their organization.
Sidebar
M&A Implications Of Transfer Pricing
The Ernst &Young Transfer Pricing 2003 Global Survey reveals that many multinationals fail to re-examine their
transfer-pricing policies in the wake of mergers or acquisitions. Strategic business actions are an appropriate
justification for reevaluation of both entities' current intercompany pricing systems. However, the survey shows
that such reviews are the exception rather than the rule.
While nearly half (46 percent) of the survey's parent respondents had been through a merger or acquisition in
the last two years, only 18 percent either recognized the need or used the opportunity to reexamine their over
all transfer-pricing policies. Sadly, the practice has not really changed since the last E&Y transfer pricing survey
in 2001, when 50 percent of those respondents that had been through a merger or acquisition reported applying
the dominant company's transfer-pricing policy.
In the most recent survey, almost half of the respondents who went through a business combination again
simply used the dominant player's transfer-pricing policies. Further, another 27 percent ofthat group simply let
multiple systems continue without a clear proactive review. Indeed, less than one in five in this group
reexamined the entire transfer-pricing policy in light of the business change.
These responses demonstrate a disconnect between management and fiscal transfer pricing. Only 40 percent
of parent company respondents and 36 percent of subsidiaries believe that transfer pricing is more than just
compliance. This often means that as businesses restructure, the pattern of transactions and the allocation of
functions, assets and risks between entities change, but transfer pricing policies don't keep up.
With the increasing scrutiny of transfer-pricing policies, it is essential for a multinational company (MNC) to
review the impact of any business change on its transfer-pricing risk profile. In many cases, this will highlight the
company's need to redesign its basic transfer-pricing policies. Failure to adjust these policies following major
business changes may leave an MNC exposed when the years in question come up for review. Furthermore,
alignment of transfer prices with management views of the business as it changes can enhance the defensibility
of the transfer prices, ease administrative burden and add to the effectiveness of a transfer-pricing program.
MNCs aiming to maximize shareholder value must integrate tax into the supply chain planning process to
ensure the operational savings and cost reductions from a merger or acquisition are not eroded or unexpectedly
offset by higher taxes. The combination of constant business change in an increasingly challenging transferpricing
environment presents new opportunities for multinationals to reap the benefits of aligning their tax
strategy with their global business strategy.
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