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Firms Expect Transfer Pricing Policy Impact From BEPS Project
November, 11th 2014

A vast majority of companies headquartered in the United States expect increased scrutiny of their transfer pricing practices in the short-term as a result of the Organisation for Economic Cooperation and Development's (OECD's) base erosion and profit shifting (BEPS) project.

A recent EY survey, Connecting The Dots, concluded that 30 percent of worldwide respondents are already seeing tax authorities raise audit issues that reflect various issues being addressed by the BEPS project, primarily in Europe (74 percent), but also in Asia Pacific (33 percent), and North America (32 percent).

More than half of respondents (53 percent) said they are currently being audited in more countries than ever before. In addition, 65 percent of respondents judge the enforcement posture and tactics of foreign tax authorities as more aggressive than before.

The EY survey – covering at least 400 senior tax executives from large public and private companies across 29 countries – concluded that 60 percent of respondents ranked transfer pricing as the number one focus area currently being raised as an audit issue. When asked about the top challenge in foreign country audits, 39 percent selected transfer pricing related to tangible goods and services, while 24 percent chose transfer pricing related to charges for intellectual property.

The survey found that tax directors worldwide are increasingly convinced that the BEPS project will generate significant changes over the next five years. However, only 28 percent expect to make any BEPS-driven changes in the next two years.

While a quarter of all respondents expect the biggest impact on their business to be increased information reporting, 53 percent said they have not yet begun to analyze what country-by-country reporting would mean for their company.

Among all anticipated changes to the companies' tax profile, transfer pricing documentation was most frequently cited (50 percent), followed by transfer pricing methodology (38 percent).

Jeff Michalak, EY Americas Director for International Tax Services, said: "These findings are consistent with the results of a recent Tax Risk and Controversy Report in which 79 percent of US-based companies said they have faced more aggressive tax audits in the last two years."

"The report also found that another 69 percent see an increase in disclosure and transparency requirements imposed upon companies, and 74 percent see an increase in cross-border focus by tax authorities. It's clear that, given the increased incidence and aggressiveness of income tax audits, companies must devote more resources than ever before to managing their global tax risk profile and to administering government inquiries and audits. In this environment, 67 percent say they are more likely to consider using the Advance Pricing Agreement (APA) process to help manage risk and obtain certainty, a 12 percent increase last year."

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