Transfer pricing is setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. It continues to be a critical issue on multiple and converging fronts.
While on the other hand, globalization and the continued growth of international trade have made inter-company pricing an everyday necessity for many businesses, the echoing of new regulations, audits, enforcement actions including higher penalties continues to grow by leaps and bounds.
In an epoch of fiscal shortfalls, tax authorities see transfer pricing as a soft target, and more and more countries are implementing new transfer pricing documentation requirements. At the same time, transfer pricing strategies are increasingly the subject of unwanted controversy — with the phrase ‘transfer pricing’ frequently used in the same sentence as ‘tax shelters’ or ‘tax evasion’ on the business pages of newspapers.
The stakes are high :
Although many of the drivers of this intensified scrutiny are based on factors beyond the control of most companies, the risks to your organization are nonetheless very real. They include:
• double taxation, where income has already been taxed elsewhere and relief under tax treaties is not available;
• secondary tax consequences, such as carry-forward of unfavorable revenue determinations, creating additional future liabilities;
• uncertainty as to your worldwide tax burden, leading to the risk of earnings restatements and investor lawsuits;
• expensive and time-consuming conflicts with regulatory authorities.