KPMG Report Highlights Tighter Enforcement Of Transfer Pricing Globally

by Mike Godfrey, Tax-News.com, Washington

20 August 2008

Taxing authorities seeking to enforce transfer pricing regulations are considering a broader range of company transactions that can result in more detailed investigations, according to a new publication from KPMG International.

According to KPMG, among the “red flags” now seen by tax authorities worldwide as possible reasons to investigate further are: unusually high profits or losses in a group company; 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.

These are among the instances of tightening regulations discussed in 'A Meeting of Minds – Resolving Transfer Pricing Controversies,' a publication that focuses on transfer pricing controversy issues and resolution alternatives which incorporates contributions from 39 KPMG authors from 19 countries.

“Companies operating internationally are discovering that their transfer pricing positions may face challenges from one tax authority, even when that position is well-supported and accepted by other tax authorities operating under the umbrella of the OECD Guidelines,” said Steven Fortier, Global Managing Principal of KPMG’s Global Transfer Pricing Services.

The KPMG publication emphasizes that companies should take a systematic approach to setting and documenting inter-company transactions, identifying those transactions that may attract a tax authority’s interest, preparing the necessary documentation, including a thorough transfer pricing policy document, and deciding what their objectives might be.

“A company’s priority might be to limit conflicts with tax authorities, to improve predictability in financial statements, to manage the effective tax rate, or to meet cash flow targets,” added Fortier. “The company will likely try to balance a number of these objectives. The important thing is to have a clear and well-supported rationale for the decisions that are made.”

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