International tax professionals are concerned that multinational companies could be facing the prospect of double taxation as a result of the Organization for Economic Cooperation and Development's tax changes, according to a new survey.
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Over three-quarters (77%) of those surveyed predict inflation will have a "moderate" or "significant" impact on their transfer pricing policy over the next three years, while slightly over half (51%) say higher interest rates have impacted their medium- and long-term intercompany debt pricing.
Changes in supply chains and commitments to environmental, social and governance objectives add further challenges. Over one-fourth (28%) of the respondents have already changed their transfer pricing policy to account for ESG policy, while 42% say their organizations have relocated production from one jurisdiction to another in the last three years because of geopolitical issues. More than six in 10 (62%) anticipate changes to supply chains having a "moderate" or "significant" impact on their transfer pricing policy in the next three years.
Companies are leveraging technology such as artificial intelligence to respond to the risks, but 75% of the respondents said that ineffective use of technology was their first or second biggest challenge, while 67% ranked "poor data quality" as their first or second biggest challenge. Nearly three-fourths (73%) say that investing in more sophisticated operational transfer pricing technology would result in "moderate" or "significant" improvement in risk management, and 88% expect transfer pricing technology to save their organization money over the next three years.
"Companies now face many new and extremely complex tax reporting requirements globally, with more on the horizon," said Marna Ricker, EY's global vice chair of tax, in a statement. "Many of these requirements include taxation at source as a transaction occurs. New and emerging technologies including generative AI, robotic automation and quantum computing will be key in helping tax professionals meet these demands. Yet, currently, many are in the very early stages of learning how to use and deploy such technologies. It's important that organizations prioritize tax in their data and technology transformation roadmap to help ensure their teams are equipped to deal with these challenges."
The survey found a significant increase in companies turning to advance pricing agreements, so they can negotiate the terms of their intercompany transactions with tax authorities for multiple years before filing tax returns, to create greater certainty around their transfer pricing positions. Some 61% and 59% of the respondents indicate bilateral and multilateral APAs, respectively, will be "very useful," up from 34% and 30%, respectively, in 2021. In addition, 59% of respondents say unilateral APAs will be "very useful" to managing transfer pricing-related controversy over the next three years, more than double the 29% of respondents in 2021.
"It's time that transfer pricing functions break with their traditional linear path in which they first plan, implement and, ultimately, defend positions," said EY global transfer pricing leader Tracee Fultz in a statement. "They should focus instead on the best strategy to achieve certainty. This includes having dispute resolution plans supported by automation and standard data."
