Ernst & Young has released its 2010 Global Transfer Pricing Survey - Addressing the Challenges of Globalisation. For the survey, interviews were conducted with 877 multinational enterprises (MNEs) across 25 countries, including Australia. The survey report examines how corporate tax professionals are dealing with the economic, regulatory, and fiscal changes taking place in transfer pricing around the world.
Among other things, the survey revealed that:
- 74% of respondents consider that transfer pricing documentation is more important now than it was two years ago;
- respondents believed transfer pricing audits are increasing in significance, intrusiveness, and scope. The survey found that two-thirds of respondents had undergone a transfer pricing audit, compared with only 52% in the 2007 survey. Also, one in five audit adjustments triggered a material penalty, compared with one in 25 in 2005;
- transfer pricing litigation remains infrequent, but is on the rise;
- only 18% of all respondents had referred a transfer pricing dispute to a competent authority in the last three years.
The survey highlights that transfer pricing remains the number one tax challenge for the world's leading companies. The results show that 68% of Australian parent company survey respondents (and 74% of respondents globally) consider transfer pricing will be "absolutely critical" or "very important" for their group in the next two years.
The key points from the survey which impact Australian companies include:
- Australian taxpayers can expect more reviews or audits of their transfer pricing arrangements. The survey shows that 68% of Australian respondents have had their transfer pricing policy reviewed by the ATO since 2006. The survey said the ATO is planning to employ up to 100 personnel who will be dedicated to transfer pricing and that it will continue its Transfer Pricing Strategic Compliance Initiative into 2011.
- Taxpayers are taking a more globalised and coordinated approach to transfer pricing in response to tax authorities, including the ATO, increasingly exchanging information and making joint efforts to audit taxpayers concurrently.
- Some 76% of Australian respondents have had their service transactions reviewed.
- 53% of Australian respondents have had their intercompany financing transactions reviewed. The controversial October 2010 Taxation Ruling TR 2010/7 on the interaction of the thin capitalisation and transfer pricing provisions (reported at 2010 WTB 46 ) demonstrates the ATO's position with respect to Australian taxpayers.
- While multinational enterprises have continued to undertake business restructures over recent years, these restructures are receiving greater scrutiny from tax authorities, as demonstrated by the OECD's issue of Chapter IX of the OECD guidelines, and the ATO's Draft Taxation Ruling on the application of the transfer pricing provisions to business restructuring by multinational enterprises. Ernst & Young says taxpayers who have undergone or are planning to undertake a business restructure should prepare sound supporting documentation. The firm says particular consideration should be given to any restructures involving intellectual property as the ATO continues to be focused on ensuring local entities receive adequate consideration for any intellectual property developed.
Ernst & Young noted that tax authorities in Australia and around the world have become more sophisticated and are continuing their scrutiny of transfer pricing. Taxpayers must be proactive in reviewing their transfer pricing positions and preparing sound documentation to support the arm's length nature of transfer pricing arrangements, the firm said.