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Operational Transfer Pricing: Addressing the challenges of managing intercompany pricing adjustments
Year-end transfer pricing adjustments have been and continue to be a widely used mechanism by companies to adhere to their transfer pricing (TP) policies and ensure compliance with local TP pricing regulations. However, albeit widely adopted, this mechanism poses various operational and tax challenges, from direct and indirect taxes to management accounting and reporting.
Finding the right balance in terms of process and methodology for determining and implementing periodic and year-end adjustments is subject to debate.
This publication explores some of the common challenges encountered by businesses in implementing and defending such adjustments, as well as practical considerations for determining an optimal framework to effectively implement TP policies.
Watch our webinar playback: Transfer pricing gearing for change
On 18 December 2020, the “OECD Guidance on transfer pricing implications of the COVID-19 pandemic” was published with the aim of aiding tax authorities and taxpayers in dealing with complexities resulting from COVID-19. In Singapore, the IRAS released the “Support Measures and Tax Guidance - Transfer Pricing” which equally provides practical guidance for local taxpayers to consider when preparing upcoming transfer pricing documentations.
This webinar aims to consider the issues and opportunities emerging from the OECD Guidance and to address business concerns of organisations from a transfer pricing angle.
Managing risk and opportunity in a complex and uncertain world
The transfer pricing environment has never been more challenging. Globalized trade and operating models and the transfer pricing policies developed alongside them are increasingly buffeted by technology advances, geopolitical developments, regulatory change, increased transparency and now deep economic uncertainty and tax hungry governments. Against this backdrop, companies need, more than ever before:
- Business aligned and future ready transfer pricing policies
- Reliable pricing of financial instruments and finance and treasury transactions
- Operationally effective and well controlled transfer pricing implementation
- Robust but affordable transfer pricing documentation
- Effective, coherent and aligned dispute resolution strategy
Our experienced team of transfer pricing practitioners, drawn from all corners of the world, can help you navigate the complexities, reduce your risks and maximise your opportunities in this complex and uncertain world.
Our approach
We provide practical and tailor made transfer pricing solutions to your business life cycle needs within the national, regional and international space in the areas of:
Planning and transfer pricing policies
As businesses evolve, their transfer pricing policies need to keep pace. We work with companies to ensure that their transfer pricing policies align profit recognition with value contribution. Our teams are expert in:
- Value Chain Analysis - using a combination of functional analysis and wide ranging empirical data to support the allocation of profit across a group’s value chain.
- Aligning transfer pricing outcomes with underlying business processes and organisational design.
- Aligning IP ownership and/or returns with operational requirements and DEMPE functions.
- Aligning transfer pricing policies with transactional and legal entity models, taking into account PE management and the direct and indirect tax implications of the choices available.
Financial transactions
On 11 February 2020, the OECD issued the long awaited final version of the Financial Transactions paper . The paper reflects a consensus position, for the first time, with respect to the treatment and pricing of intercompany financial transactions. The document, amongst other things, evaluates the approach to thin capitalisation and the pricing of debt, cashpooling, hedging and intercompany guarantees.
With ever more focus by local and regional tax authorities on financial transactions it is important that transfer pricing policies are coordinated and aligned across jurisdictions. Our dedicated team of Financial Services and Financial Transactions specialists are here to help you design, implement, defend and document transfer pricing policies for Financial Transactions and Treasury activities.
Operationally effective and well controlled transfer pricing implementation
A policy is only as good as its execution. It’s the last mile that makes all the difference to managing your transfer pricing risk.
While the outcome of transfer pricing compliance is principally the responsibility of the tax function, execution of intercompany transactions often spreads across several other functions such as controllership, accounting, IT, legal, trade and customs.
Not getting it right can lead to costly financial consequences in the form of transfer pricing adjustments, indirect taxes, customs duties and time-consuming audit defence work.
A clear governance process with responsibilities understood across business functions forms the backbone of good TP execution. This can then support further automation benefits, allowing a less manual and more accurate and efficient process in price setting, monitoring and adjustment.
Recognising that TP execution is more than just a tax function’s responsibility, our team comprises experts not only in transfer pricing but also in customs and trade, indirect tax, accounting, management, IT and change consulting. Our team can help you:
- Review, set and embed the overall strategy, risk and governance framework for transfer pricing.
- Design or remediate cross functional processes for setting, monitoring and adjusting intercompany prices.
- Optimise the efficiency of price setting and controls processes, including support in evaluating and implementing technology and automation solutions.
- Manage the implementation of true ups with the tax and customs authorities.
Robust, affordable documentation
A key feature of the rapidly evolving tax landscape is the drive for increased transparency and reporting and the concomitant increase in taxpayer scrutiny and controversies. Transfer pricing documentation is therefore not only a compliance requirement in most markets, but also represents the first line of audit defence. Accordingly, best in class companies adopt documentation with more than just a compliance mindset and consider it as a central plank in their strategic tax risk management strategy.
Our experts can help you to assess your compliance and strategic needs holistically, and develop a ‘fit for purpose’ approach to managing your transfer pricing risks in a cost effective manner. Our work includes:
- Assisting in the preparation of all aspects of transfer pricing compliance documentation – Local Files, Master File, Regionally or Globally Coordinated Documentation, Related Party Transaction disclosures and country-by-country reporting.
- Gathering evidence in support of “need/benefit” tests for intercompany services.
- Preparing audit ready defence files.
Our services are delivered using a technology enabled approach with leading-edge tools to drive efficiency and improve quality through rich and granular data analysis and a coordinated workflow, document and data management system.
Tax Controversy and Dispute Resolution
With more and more countries introducing formal transfer pricing documentation requirements and against a backdrop of increased transparency, transfer pricing audits and tax controversies are on the increase. As tax authorities become more sophisticated and data driven, and as their expectations of taxpayers grow, so audits are becoming ever more thorough.
This new environment therefore requires multinational corporations to take proactive, coordinated steps to understand their transfer pricing arrangements and documentation requirements, to have a clear view on how tax authority engagement should be managed and to maintain “audit ready” evidence to support the positions they take. Our Tax Controversy and Dispute Resolution experts are ready to help you:
- Manage your audits and examinations, both in Singapore and with regional counterparties. We can help you navigate the issues raised, identify the evidence required and attend the necessary meetings with the Tax Authorities to resolve matters.
- Devise an overall strategy for resolving disputes, including a consideration of the appropriate forum, be that domestic appeals or Mutual Agreement Proceedings. Where, as is often the case, the matters in dispute cover multiple jurisdictions, our teams can work with you to ensure a coordinated and consistent approach is adopted to reduce risk and expedite outcomes.
- Take a proactive stance by initiating unilateral or bilateral APAs.
Transfer pricing in the new normal
As businesses grapple with the fallout from COVID-19, the measures being taken on can have far reaching implications for transfer pricing (TP). With little published guidance available and as we await the OECD to response, how should tax departments react?
Our video series titled Transfer Pricing in the New Normal provides interesting insights, touching on refinancing and the pricing of debt, how to accommodate losses within the transfer pricing policy, managing variances, TP adjustments, Advance Pricing Agreements and documentation.
Join our experts Andrew Fairfoull, Falgun Thakkarr and Abhishek Shukla as they kick off the dialogue covering how businesses should manage their transfer pricing documentations.
5:50
Transfer pricing in the new normal - Benchmarking and
Join our experts Andrew Fairfoull, Falgun Thakkarr and Abhishek Shukla as they kick off the dialogue covering how businesses should manage their transfer pricing documentations.
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