The demands on anyone dealing with transfer pricing from within a multinational are increasing with the introduction of new rules either at the OECD level or local country level. Furthermore, the current economic climate, increased globalisation of business, coupled with a reduced intake of tax receipts makes Transfer pricing a number 1 target for cash collection for tax offices globally.
Charter International Plc operates in over 40 different countries. Each of these countries presents a unique set of demands with respect to transfer pricing and these demands largely depend on the size of the local company, the complexity of the local rules, and the aggressiveness of the local tax authority.
The transfer pricing demands can be placed into three main areas:
1. Developing policies internally to ensure the results will comply with the arm’s length principle whilst also remaining commercially practical/easy to implement;
2. Managing the ever growing compliance requirements of transfer pricing documentation; and
3. Managing the increasingly challenging environment of tax/transfer pricing audits.
We take a proactive approach to transfer pricing with a view to ensuring overall compliance with the arm’s-length standard.
Step 1 – involves having an internal transfer pricing specialist in your company. The transfer pricing specialist will be able to develop strong relationships based on trust and a commercial understanding with the key stakeholders. This will provide the opportunities to implement robust transfer pricing policies that will mitigate and prevent adverse tax audit outcomes.
Step 2 – take a structured approach to documentation. Internally, we evaluate the size of the business, the rules in that local country and ultimately the current and potential future profitability. Based on this simple risk analysis, it enables attention to be focused on the ‘must do’ countries. Once you have established the ‘must do’ countries, we identify any areas whereby synergies can be obtained.
For instance, European documentation is becoming more structured and using the format of the EU JTPF can be useful, even if you do not wish to add all the sections. This assists in creating a type of ‘modular’ transfer pricing documentation, which can be adapted/added to/updated as and when required for a number of countries.
Step 3 – be proactive in managing audits. Do not leave the local entities to fight the battles alone. Effective controversy management fosters a good relationship with local Tax Authorities which can be very important in moving an audit towards a conclusion rather than having the issues languishing. Internally, we work closely with the local country management and, depending on circumstances, will be directly involved with the local Tax Authority discussions and negotiations.
Lastly, don’t forget your external advisors. They can be an invaluable resource in any of the above 3 steps. However, use them selectively. In our experience, it has been the individuals involved that can create the difference, not necessarily the name on the door of the firm they work for.
Roy Herzgsell, Transfer Pricing Manager, Charter International Plc
The demands on anyone dealing with transfer pricing from within a multinational are increasing with the introduction of new rules either at the OECD level or local country level. Furthermore, the current economic climate, increased globalisation of business, coupled with a reduced intake of tax receipts makes Transfer pricing a number 1 target for cash collection for tax offices globally.
Charter International Plc operates in over 40 different countries. Each of these countries presents a unique set of demands with respect to transfer pricing and these demands largely depend on the size of the local company, the complexity of the local rules, and the aggressiveness of the local tax authority.
The transfer pricing demands can be placed into three main areas:
1. Developing policies internally to ensure the results will comply with the arm’s length principle whilst also remaining commercially practical/easy to implement;
2. Managing the ever growing compliance requirements of transfer pricing documentation; and
3. Managing the increasingly challenging environment of tax/transfer pricing audits.
We take a proactive approach to transfer pricing with a view to ensuring overall compliance with the arm’s-length standard.
Step 1 – involves having an internal transfer pricing specialist in your company. The transfer pricing specialist will be able to develop strong relationships based on trust and a commercial understanding with the key stakeholders. This will provide the opportunities to implement robust transfer pricing policies that will mitigate and prevent adverse tax audit outcomes.
Step 2 – take a structured approach to documentation. Internally, we evaluate the size of the business, the rules in that local country and ultimately the current and potential future profitability. Based on this simple risk analysis, it enables attention to be focused on the ‘must do’ countries. Once you have established the ‘must do’ countries, we identify any areas whereby synergies can be obtained.
For instance, European documentation is becoming more structured and using the format of the EU JTPF can be useful, even if you do not wish to add all the sections. This assists in creating a type of ‘modular’ transfer pricing documentation, which can be adapted/added to/updated as and when required for a number of countries.
Step 3 – be proactive in managing audits. Do not leave the local entities to fight the battles alone. Effective controversy management fosters a good relationship with local Tax Authorities which can be very important in moving an audit towards a conclusion rather than having the issues languishing. Internally, we work closely with the local country management and, depending on circumstances, will be directly involved with the local Tax Authority discussions and negotiations.
Lastly, don’t forget your external advisors. They can be an invaluable resource in any of the above 3 steps. However, use them selectively. In our experience, it has been the individuals involved that can create the difference, not necessarily the name on the door of the firm they work for.
Roy Herzgsell, Transfer Pricing Manager, Charter International Plc
