What was the most significant development in your region/jurisdiction's transfer pricing practice in the past 12 months?
The most important developments remain the consequences of the OECD Base Erosion and Profit Shifting ('BEPS') initiative, such the recent draft paper on financial transactions, the OECD guidance on the application of the profit split, or the public consultation on the challenges of the digitalisation of the economy. Also noteworthy is the recent publication by the US Internal Revenue Service on the use of profit split. These developments emphasize the importance that both intellectual property and financial transactions have for transfer pricing. They also follow a wave of national regulations that more or less implemented the documentation guidance of the OECD into local legislation.
What was the most notable effect of that change?
First, we note that taxpayers are increasingly inclined to document in detail all intercompany transactions, across jurisdictions. Next, we observe increased field activity by tax auditors and a tendency to approach the selection of audit candidates more systematically. Then follow lengthy and in-depth transfer pricing audits with perhaps less likelihood of negotiated settlement/compromise than in the past.
After a few years, where mostly goods and services transactions were reviewed, we note a renewed attention for financial and intellectual property transactions.
Where is the market moving in this practice area?
Post-BEPS alignment, proactive documentation is surging in turn requiring more automated, system-embedded solutions. The increase in litigation too means that legal and economic talent are gaining importance on the market to address controversy in all its aspects. Finally, only slightly further in the future, (global) profit split, is likely to become of paramount importance, first by serving as reasonableness test, then later, as full-fledged transfer pricing method.
What kind of impact will this have on your work?
The changes outlined above will compel advisers to propose a broader, more specialized array of services that will include technology, legal and economics-related areas. The more 'routine' tasks associated to documentation and compliance are likely to be either internalised by taxpayers or subcontracted to advisers for greater automation.
Do you anticipate any significant legislative changes in the future with a material impact on transfer pricing in your region?
The OECD has produced a lot of guidance lately. There seems to be a convergence towards that OECD guidance in the different jurisdictions' own regulations. We however still see selected countries with stricter requirements, generally going beyond the OECD recommendations. Further, other supranational regulatory frameworks like the guidance published by the United Nations seem to generally align positions with the OECD. Finally, if additional guidance comes, we expect it to be around how 'arm's length' can be split on a combined tax basis.
If these come into force, how will the industry look in the future?
The industry will still look the same. It is likely, however, to increasingly embed automatic 'arm's length' transfer pricing systems into Enterprise Resource Planning (ERP) systems that will then systematically produce transfer pricing compliance material.
How would you describe the transfer pricing controversy landscape in your region/jurisdiction?
Still in its infancy, as many disputes are settled out of court. However, it is becoming more difficult to settle on the basis of reasonable compromise. And, as jurisdictions continue to vie for tax share, transfer pricing disputes will increasingly require settling under the internationally accepted Mutual Agreement Procedures.
Do you expect transfer pricing procedures in your region to move towards common standards or diverge in the future?
We observe a general convergence to a common standard, the guidance developed by the OECD.
Is the global drive towards regulation going to affect TP practice? If yes, in which areas?
Yes, it will. With reference to the above: adjustment of transfer pricing structures the generally comply with BEPS, more systematic preparation of documentation, targeted audit and increased dispute resolution.
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