Government tax authorities around the world are requiring multinational companies to provide more documentation to support their transfer pricing strategies as countries seek additional tax revenue.
A new report from KPMG advises multinationals to redraw their transfer pricing policies to adapt to the new environment and plan for economic recovery. The economic events of 2008 and 2009 have dramatically tested the entire transfer pricing system a system that has been developed over a period of increasing globalization and prosperity," said KPMG principal Steven Fortier, who leads the firms Global Transfer Pricing Services Group. Multinational companies now need to adjust rapidly to new, much more difficult conditions and take a careful look at guidance from tax authorities, as well as their own current practices, in order to redraw transfer pricing policies in the new and different economic environment.
To meet increasingly stringent tax authority requirements, corporate taxpayers will need to find new ways to demonstrate that prices charged for inter-group transactions are appropriate, he added
A key challenge during the transfer pricing audit process has been the lack of comparable transactions to act as benchmarks for intra-group commerce, as economic activity around the world has slowed.
Advanced pricing agreements, often considered to be clear solutions to transfer pricing issues, have also come under strain, the report found. APAs are binding contractual agreements, the terms of which are fixed while the agreement is in force. But companies that want to modify the agreements because of market changes, falling prices or revenue losses may find it difficult to adjust or terminate APAs that no longer match up with business realities.
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