Alan Rajah
I’m thrilled that GGI International Tax Practice Group (ITPG) has produced this third special edition of the FYI – International Taxation Newsletter. In this edition, we will be looking at the issue of Transfer Pricing Filing Obligations and how these are currently regulated by the tax authorities in different jurisdictions around the world.
Transfer pricing is the method for pricing transactions between associated enterprises or, in some cases, within different divisions of the same company.
Depending on the terms of the transfer pricing documents, transfer pricing as an accounting practice can lead to savings for companies. However, this can also lead to challenges from the taxation authorities in which can pose both reputational and financial risks.
Tax authorities around the globe require that these transactions are treated as “arm's length” transactions, similar to how they would undertake business with any third-party company or organisation.
Transfer pricing can often be a cross-border practice, such as when divisions of a company are based in different countries. In practice, this can often lead to companies charging higher amounts for goods and services in countries where the tax rate is higher and less in countries where it is lower. This is an attempt to reduce the tax burden on the parent company and pass some of it to the subsidiaries or divisions based in other countries. Multinational companies are presently allowed to use transfer pricing to allocate earnings among their subsidiaries, though some taxation authorities worry that these arrangements are being used to game the system.
As part of the GGI Global Alliance, we are all leaders in navigating the changing regulatory landscape for our clients. Undoubtedly, we are in uncharted waters following the global COVID-19 pandemic, with all the economic shocks and uncertainty stemming from this extended event. That said, we can take a long, hard look at how the landscape will likely to change and adapt accordingly to provide an exemplary service to our clients and protect their interests.
Looking at the near to mid-term future, most Governments are moving toward standardising document requirements to meet the OECD’s Master and Local file requirements. There will also be a 30-day requirement for producing these documents. Some countries have already introduced an “International Dealings Schedule” (IDS), which would notify the tax office of material cross-border interactions that fall within the transfer pricing regime.
These changes will likely to offer a degree of flexibility for smaller and medium businesses. Indeed, an exemption already exists for many SMEs. Specific limits on employee headcount and turnover are considered when determining whether a UK-based company is considered to be Small, Medium or Large for taxation purposes.
In other financial jurisdictions, the relevant taxation authority, such as the Inland Revenue Service (IRS) in the USA, will also have their own rules and ways of dealing with transfer pricing. In most jurisdictions, transfer pricing agreements are fairly tightly regulated, and there are well-formulated guidelines on how they should operate. Ensuring that companies are operating to the highest standard in this regard is where we can add value for clients. This creates investor confidence, strengthens working relationships, and protects them from any potential reputational damage.
One of the most critical factors that often involves taxation authorities is ensuring that companies aren’t facing double taxation over their transfer pricing arrangements. For many companies, being taxed in different countries for the same transaction would represent a significant financial hurdle. Hence, it is vital for us as an industry to ensure that this is something that is avoided wherever possible.
GGI ITPG members can assist companies that don’t already have transfer pricing documents in place to work out the best way to proceed in ways that won't draw the ire of the taxation authorities in the countries they operate. There have been some significant, recent legal battles on the subject involving well-known international brands such as Rio Tinto (Australia), Maersk Oil and Gas (Denmark), Fiat Chrysler Finance Europe (European Commission), Mc Donald’s France (France), ST Dupont (France), Blackrock (UK), Kellogg India (India), ConocoPhillips Skandinavia (Norway), as well more recent cases in USA involving 3M, Coca-Cola and Medtronic. It is apparent that transfer pricing rulings indicate that global tax authorities are not shying away from taking disputes to court as the amounts involved are significant.
It is important for multinational companies to seek professional advice when embarking on cross border work and I am pleased that members of GGI’s ITPG are able to provide the required advice. I am pleased to note that members of GGI’s ITPG members have developed a strong working relationship with members around the world and by working together on a cross border matters, we have been able to assist our international clients to meet their compliance obligations across multiple jurisdictions.
We are currently living in a complex and challenging world and I am extremely grateful to all GGI ITPG members, who are international tax experts in their respective countries, to have contributed towards this special edition. I would also like to thank Graeme Saggers of Nolands for initiating this topic as well as Barbara Reiss from GGI Head Office for coordinating this project.
I hope that you will be able to obtain an insight into how each country manages their transfer pricing filing obligations and would encourage you to contact the respective authors if you have any specific question in any particular jurisdiction.
Should you have any questions or comments on this subject, please feel free to contact me, and I will be happy to assist you.
Alan Rajah Responsible Editor & Global Vice Chair of the GGI ITPG
GGI member firmLawrence Grant LLP, Chartered AccountantsLondon, England, UKT: +44 208 861 75 75
Advisory, Auditing & Accounting, Fiduciary & Estate Planning, and Tax
Established in 1969, Lawrence Grant LLP, Chartered Accountants provides audit, accounting, tax, business advisory and cross-border tax advice. They are focused on providing business solutions to clients to enable them to grow their businesses both in the UK and overseas. In an era of digital transformation, the firm offers a selection of cloud and digital software solutions using AI technology.
Alan Rajah joined Lawrence Grant LLP in 1994 and he is involved in all areas of general practice, specialising in cross border tax planning, due diligence, mergers and acquisitions and inheritance tax planning. His client portfolio includes UK and overseas companies and individuals. Alan is the Global Vice Chair of the GGI International Tax Practice Group and a Trustee of British Foundation for International Reconstructive Surgery & Training (BFIRST).Contact Alan.
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The information provided in this International Taxation News – Special Edition on Transfer Pricing Filing Obligations, a publication of the GGI International Taxation Practice Group, came from reliable sources and was prepared from data assumed to be correct. However, prior to making this data the basis of a decision, it must be verified. Ratings and assessments reflect the personal opinion of the respective author only. We neither accept liability for nor are we able to guarantee the content. This publication is for GGI internal use only and intended solely and exclusively for GGI members.
