Understanding the global transfer pricing landscap − 2018
International taxation is undergoing the biggest shake-up for a generation. The already complex world of transfer pricing is at the front and centre of these disruptive changes, both in the rules that govern it and in the heightened scrutiny it now faces.
The chief driver of change is the global roll-out of the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan. More than a hundred countries have pledged to implement at least some of the Action Plan elements.
As part of the global tax reforms, your business needs to demonstrate that transfer pricing reflects the economic substance of value creation and exchange. Substance can appear quite straightforward in areas such as manufacturing, where it’s obvious that a factory or warehouse exists.
However, what we refer to here are the ‘significant people functions’ – where are the people controlling the important risks in the business, such as new product development, or procurement. Where substance gets even more complex, and makes transfer pricing all the more complicated, is in areas such as the creation and development of intellectual property and other intangible assets.
Key questions include: does transfer pricing within your organisation reflect the substance of where and how value is created and exchanged?
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