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The insurance of transfer pricing (TP) risk is top of the agenda of the C-suite. In this article, Baker Tilly tax experts Iris Burgstaller (International Tax Partner, Austria), Tanja De Decker (Tax Partner, Belgium) and Chris Denning (International Tax Partner, UK) discuss Advance Pricing Agreements as an insurance policy
Survey: transfer pricing and permanent establishments top the list of tax concerns for multinational businesses for second year running
These were among several key findings in research initiated and conducted by the Baker Tilly network and its Global Corporate Tax Business Development Team (DaVinci), released today in its second annual tax survey.
The report explores the sources of tax uncertainty in an increasingly globalised economy, and the impact of these on daily business.
"While transfer pricing and permanent establishments continue to top the list of concerns keeping the C-suite awake at night, concerns over the handling of tax disputes with authorities and the impact of technology have rocketed," explains Androulla Soteri, Global Tax Director for the Baker Tilly network.
“Since we conducted the survey, the world has been hit by COVID-19, which has triggered shockwaves across supply chains worldwide. In turn, this is majorly impacting existing transfer pricing models of supply chains and so much more." - Androulla Soteri"Legislative changes such as the ATAD, DAC 6 and US tax reform, along with any expected changes resulting from Brexit, surprisingly featured lower down on the list of concerns for clients, possibly indicative of businesses being attuned to dealing with changes of this nature in a way that they are not equipped to address the heightened use of technology by tax authorities and the consequential impact on how tax is assessed and enquiries arising.
"Since we conducted the survey, the world has been hit by COVID-19, which has triggered shockwaves across supply chains worldwide. In turn, this is majorly impacting existing transfer pricing models of supply chains and so much more.
"Businesses around the world are grappling with questions such as which group entity bears the risks from procurement, transport and logistics, reduced manufacturing capacity and market disruptions? Which entity needs to assume additional costs resulting from COVID-19 crisis? How is intercompany funding for liquidity priced? Which entity is responsible for new sales strategy and who bears the costs of any such new strategy? How are subsidies reflected in the intercompany charging systems? Now, more than ever it is crucial to have a robust transfer pricing model."
As we emerge from COVID-19, Soteri believes data will play a much more important and central role in efficient tax management, not only regarding the best possible evaluation and use of tax-relevant data by a business, but also the actual tax authorities’ approach in general. This a view echoed by Ines Paucksch, the network's Global Corporate Tax Leader.
"Tax departments are challenged to develop digital strategies and prepare themselves in the best possible technical way for the future." - Ines Paucksch"Like big business enterprises, tax authorities will also be working more intensively with company data in the future. For this purpose, tax authorities will request data in a much wider, more detailed and more direct form from enterprises in order to make data-based evaluations that they were not able to do due to lack of information or only by investing a great deal of time and effort. This means that in future, data will have to be made available to the tax authorities quicker, in greater detail and in a format defined by the tax authorities.
"An effective data management process within the tax sphere will minimise risks and at the same time optimise control mechanisms to allow enterprises to meet the increased demands of the tax authorities. This provides a great opportunity for enterprises to improve the transparency of their own tax relevant data which will allow them to manage aspects such as their group tax rate or other key performance indicators in a more adequate and target-orientated manner," explains Paucksch.
"Tax departments are challenged to develop digital strategies and prepare themselves in the best possible technical way for the future. As has already been seen in many other business sectors, these changes make it necessary that all business processes are evaluated and set up adequately for the upcoming challenges. Data and technology are the basis to handle all tax subjects that enterprises will have to cope with in the future," adds Paucksch.
Meet the experts
|Androulla Soteri||Ines Paucksch|
|Global Tax Director||Global Corporate Tax Leader|