KPMG has released a publication on transfer pricing controversies, highlighting how tax authorities worldwide are relying on specific "red flags" to tighten their enforcement and audit efforts.
The publication, "A Meeting of Minds - Resolving Transfer Pricing Controversies," discusses the warning signs that tax authorities look for when they launch an investigation. They include unusually high profits or losses in a group company, sharp changes in profitability from prior years, corporate restructurings involving closures or reductions in operations, significant inter-company management fees, dealings with a group company in a tax haven, and location in a low-cost country.
Other warning signs include different prices and markups charged between related and unrelated parties for similar transactions, lack of sufficient documentation, high royalties with a licensee that has low profits or operating losses, royalties charged for intangibles that are not legally protected, and significant asset impairment charges.
Restructuring charges, inventory write-offs, significant year-end adjustment to inter-company prices, actual behavior not consistent with documented TP policy, closing costs when the company was making profits, and separation of functions and risks that does not make sense from a business perspective are further red flags.
The publication, which includes contributions from 39 KPMG authors in 19 countries, emphasizes that companies should take a systematic approach to setting and documenting their inter-company transactions. They should identify those transactions that may attract a tax authority's interest, prepare the necessary documentation, include a thorough transfer pricing policy document and decide what their objectives might be.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access