MANAGING AND RESOLVING TRANSFER PRICING DISPUTES
CD: Could you provide an overview of the key trends shaping the transfer pricing landscape in recent years? To what extent have you seen a rise in transfer pricing controversies and disputes?
van Herksen: We have seen a definite and sustained rise in transfer pricing controversies and disputes in recent years and expect there is even more to come. The Organisation for Economic Co-operation and Development (OECD) releases annual statistics on transfer pricing cases registered under the mutual agreement procedure (MAP), and globally these show nearly a 50 percent increase in transfer pricing cases starting in a particular year from 616 in 2016 to 1178 in 2020. The global trends fuelling these controversies include growing anti-tax avoidance and anti-base erosion sentiment, which has led to legislative changes such as the Base Erosion and Profit Shifting (BEPS) project and improved and increased exchanges of taxpayer data and information between the tax authorities. Furthermore, the global coronavirus pandemic has created significant fiscal pressures worldwide. Governments need to raise revenue and see transfer pricing as an area where there is still a lot of noncompliance, so it is therefore susceptible to challenge.
Ikawa: The rise in controversies and disputes is because of tax authorities around the world being a lot more aggressive in their investigations, with a general trend being that many tax authorities are not taking transfer pricing documentation reports at face value. For some tax authorities, this means there is a greater focus on ‘fact finding’ and the ‘substance’ of intercompany transactions in order to ensure that the transfer pricing model described in the reports is borne out in reality, and they will request a vast amount of information during the course of an audit to gather the evidence they need to test whether the functional analysis in transfer pricing documentation reports is accurate for their specific jurisdictions.
Apr-Jun 2022 issue
Simmons & Simmons LLP