Transfer Pricing Trends
Now, more than ever, transfer pricing must be at the forefront of tax decisions for multinational enterprise's (MNE's). With a rapidly increasing globalized business environment, corporations ought to realize the significant revenue opportunities presented by transferring assets between subsidiaries in various jurisdictions.
As of January 2009, 48 countries had enacted legislation or tax rules with respect to transfer pricing. This is compared with only 5 countries in 1997. As transfer pricing procedures grow in importance for MNE's, and more transfer pricing rules are created in a greater number of jurisdictions, companies must be more cautious than ever. The risk of transfer pricing examinations and audits climbs congruently with the adoption of transfer pricing legislation throughout the world. Companies must be alert, proactive, and make sound valuations in order to avoid costly pricing adjustments.
On May 4, 2009 President Barack Obama offered his remarks on international tax policy reform. One of President Obama's foremost goals is to close corporate tax loopholes being exposed by multinational companies. President Obama stated:
"And I want to see our companies remain the most competitive in the world. But the way to make sure that happens is not to reward our companies for moving jobs off our shores or transferring profits to overseas tax havens."[emphasis added]
Repercussion for Transfer Pricing
While President Obama does not explicitly address transfer pricing, his statement suggests that more attention and scrutiny will be given in an attempt to diminish the transfer of profits overseas. The evidence suggests that there will be an increase in assessments and audits, as President Obama is planning on hiring an additional 800 Internal Revenue Service ("IRS") agents to ensure that the IRS has enough manpower to detect and pursue tax evaders.
MNE's will continue to use transfer pricing techniques in order to generate added revenue in lower tax jurisdictions. However, with President Obama's new proposals it is essential that corporations be even more meticulous than before when creating inter company agreements or transfer pricing valuations.
The President's proposal will likely mean an increase in tax authorities clamping down on transfer pricing methods, and may create a greater number of transfer pricing arrangements that will be evaluated.
There will be an increased role for various tax specialists including directors, accountants, and lawyers. From arranging inter-company agreements, and providing greater accuracy for company valuations, to relieving companies from tax authority audits, there will be an enhanced, and increasingly demanding, role needed for all tax experts.