Transfer speculation

Many of us are familiar with the augmented focus and attention being placed on tax morality and transparency all over the world. With this increased scrutiny, transfer pricing has become a real concern for many multinational corporations as they try to fully understand the liabilities, compliance requirements and impact on revenues of their global tax footprint.

Tax authorities in most major markets have instituted their own transfer pricing rules and documentation requirements, which has raised the burden and cost of compliance for global clients to unprecedented levels.

“Transfer pricing is a really hot topic for many big multinationals at the moment,” says Sean Foley, Head of Global Transfer Pricing. “The Organization for Economic Co-operation and Development (OECD), at the request of the G20, is leading the charge to increase transparency by adopting country-by-country reporting as part of the annual transfer pricing documentation requirements. C-by-C, as it is known, will have a real impact on our clients and their businesses.”

Driven by the desire for more transparency around income, profit and tax reporting in all jurisdictions, the OECD is currently developing a set of agreed parameters and reporting standards for multinational corporations.

Global requirements

The requirements of C-by-C include information and detail that are, in the draft recommendation at least, much wider and deeper than has ever been needed before – ranging from the compensation package of a global executive in Singapore to the supply chain process and cost of a manufacturing outfit in China.

This sheer volume and minutiae of the details has provoked concern among corporations. And yet, as Sean explains: “It’s important that our partners and leaders are familiar with the draft template as our clients will soon need to be au fait with what’s required in terms of information.

“The feeling is that much of this draft is strongly backed by the G20 governments and will be passed. If it does, the timeline for compulsory reporting will be quite aggressive – likely towards the end of 2014 – and such a close timeline will be a surprise and concern for many. From my experience, clients are likely to be concerned on a couple of fronts.”

First, the information to be captured is dramatically different to the transfer pricing information needed in the past and a systems overhaul may be required to gather the necessary data. Second, and perhaps of more concern to businesses, the level of information being reported will be visible to many different governments. This means total transparency of all tax structures, incomes and provisions in each jurisdiction.

Sean says: “With this increased visibility, it’s all the more important that organizations tell their story and contextualize the information that’s included. To do that, they need to have the information and understand it – and this is where KPMG can really help.”

What does this mean for our GLPs and their clients?

Sean suggests Partners take the C-by-C template to their clients so they understand what information needs to be captured and have a clear picture of what’s happening before they put anything forward or it is discovered by the auditors. Or, as Sean, puts it: “Forewarned is forearmed.”

It’s also crucial that the business world understands that tax planning is not dead. In fact, it’s more important than ever. If not done properly, it can leave companies exposed to risk, liabilities and, in the worst cases, prosecution by the authorities.

Leading companies are recognizing that by embedding tax planning into all of their projects from the outset, they are opening opportunities to drive cost savings around the globe and mitigate many of the inherent risks.

Sean concludes: “2014 may be the Year of the Horse to the Chinese, but it is certainly the year of transfer pricing to multinationals.” 

The template is on page 16 of the draft transfer pricing documentation provided here.

For easy to use high-level documents on the recent regulations and how they can impact your clients please click here.

For assistance, please refer to the list of country transfer pricing leads or please contact Sean Foley directly.