Transfer pricing

Transfer pricing

Transfer pricing is a term used to describe inter-company pricing arrangements relating to transactions between related business entities. These can include transfers of intellectual property, tangible goods, services, and loans or other financing transactions.

The use of transfer pricing tax strategies has recently attracted a high level of international attention, due in part to the rapid rise of multinational trade, the opening of several significant developing economies and transfer pricing’s increased impact on corporate income taxation. As multinational corporations evolve into true global enterprises compliance with the differing requirements of multiple overlapping tax jurisdictions has become a complicated and expensive task.

In response to these factors, tax authorities around the world have become more aggressive in the transfer pricing arena, introducing stricter penalties, new documentation requirements, increased information exchange, improved audit staff training and increased audit and inspection activity and specialisation.

This intense scrutiny implies significant risks for the unwary and the unprepared, particularly in a complex field such as transfer pricing where each transaction must be analysed under its own unique facts and circumstances.

How we can help you

With the ever-increasing scrutiny of transfer pricing activity by tax authorities worldwide we can assist you in the development of tax-efficient structures that help increase compliance with legal requirements, prepare for rapid audit response, resolve transfer pricing disputes and decrease transfer pricing exposure in future periods.

Singapore

Singapore's income tax rates are traditionally lower than the income tax rates of the majority of Singapore's primary trading partners, but the Inland Revenue Authority of Singapore (IRAS) is increasing its focus on transfer pricing issues. The Singapore Income Tax Act (SITA) contains provisions that may be used in a transfer pricing context to effectively allow IRAS to challenge and revise intercompany transactions.

United States

The US regulatory environment is of great significance for a number of reasons, which are outlined in this document. In general, non-US tax authorities and practitioners alike have tended to be critical of the level of detail included in the US regulations and procedures. However, in considering the US regime, it is important to bear in mind that unlike many of its major trading partners, the US corporate tax system is a self-assessment system where the burden of proof is generally placed on the taxpayer leading to a more adversarial relationship between the government and the taxpayer.

Hong Kong

"The increasing cross-border activities of Hong Kong businesses with those in mainland China and the expansion of the Hong Kong treaty network have made transfer pricing an increasingly important tax issue in Hong Kong. In April 2009, the Inland Revenue Department (IRD) issued notes to provide taxpayers with greater guidance and clarity in the area of transfer pricing. In addition to this, a 2009 court decision contains significant transfer pricing implications. These developments have shaped the transfer pricing landscape in Hong Kong.

Australia

Australia's transfer pricing legislation was introduced with effect from 27 May 1981. Since this time, the Australian Taxation Office (ATO) has issued a series of major rulings and publications providing guidance in applying the legislation. The Australian Government commenced a review of Australia's transfer pricing legislation in 2011. The first stage of changes was enacted in September 2012, and further changes are expected to be introduced shortly.

United Kingdom

The most significant change in the United Kingdom in recent years has been the introduction of a new framework for handling all transfer pricing enquiries. The Transfer Pricing Group (TPG) was introduced in 2008, and all enquiries are now subject to its governance and procedures. Transfer pricing disputes in the UK are usually resolved by negotiation between Her Majesty's Revenue and Customs (HMRC) and the taxpayer. Until recently, there was little case law, but in 2009 the UK had its first substantive transfer pricing case.

India

Since the introduction of a separate code on transfer pricing in 1961, transfer pricing has become the most important international tax issue affecting multinational enterprises operating in India. The regulations are broadly based on the OECD Guidelines and describe the various transfer pricing methods, impose extensive annual transfer pricing documentation requirements, and contain harsh penal provisions for noncompliance.

* Advance pricing agreements