I recently wrote on the topic of the quantum age and how it will transform the world of cross-border tax compliance. While this might have seemed to be just a quasi-sci-fi speculative exercise, after I had the privilege to attend the TP Minds Australia Conference in late May, it is clear that we are already operating in a model primed to leverage this technological revolution.
Held in Sydney across two days, the conference brought together a diverse group of stakeholders, from policy makers and tax authorities including the OECD and ATO, multinational corporations, tax advisers, legislators, lawyers to software specialists, to offer a multi-faceted perspective on the state of transfer pricing.
Here are my key take-aways for tax professionals:
Variations in BEPS implementation
We have seen a variety of approaches taken by countries in their efforts to implement the BEPS measures, with some favouring a bilateral and others a unilateral application. The global variances in these, particularly in relation to Action 13, has resulted in complex compliance issues for multinationals trying to meet multi-jurisdictional requirements in their CbC reports.
Data-empowered tax authorities
Tax authorities are already able to access and analyse more data at a greater speed than ever before, and as I discussed in my previous blog article, this trend will continue. Australia is at the forefront of the wave of global tax change. The ATO has been equipped with more information, resources and tools than ever before, with BEPS Action 13 reporting, Div 815 transfer pricing documentation, increased co-operation between tax authorities, broadened reconstruction powers, and new laws including the MAAL and DPT.
The complexities and intricacies of the tax laws are beyond the comprehension (and interest) of many people. However, this lack of understanding combined with inflammatory media coverage, can see companies being accused of being tax cheats, or as the ATO’s Mark Konza quipped, “gaming the system.” The potential for CbC reports to be made public and analysed by journalists will only increase this risk. The UK has already legislated this ability and there are ongoing discussions in the EU.
The danger of inconsistent narratives
Without a consistent story to explain and justify the pricing structures and tax outcomes in the Master File – or worse – not having a story at all, will lead to greater scrutiny from the tax authorities and a review can quickly turn into an audit and hefty penalties – and the negative implications are exacerbated if you have the misfortune of ending up in court.
So against these pressures, how can a corporate taxpayer demonstrate best practice? And what even is best practice The challenges are complex but not insurmountable and the key to the solution lies in the issues themselves.
Be prepared and proactive
Tax authority scrutiny of your company is more of a “when” than an “if”, so you will want to have the best possible chance of preventing a review from turning into an audit, particularly if you operate in one of the ATO’s industries of focus, e.g. pharmaceuticals, oil and gas. To be adequately prepared, ensure you understand and comply with the reporting requirements, maintain proper contemporaneous documentation and have intercompany agreements in place to support your position.
Proactive engagement with the tax authorities is not only advisable but it is an opportunity for corporations to work with the authorities in establishing best practice and cultivating a strong positive working relationship. Consider an APA to obtain certainty, and review your transfer pricing policies to ensure value creation is properly rewarded.
The pace of change is not slowing down anytime soon and technology will need to play a greater role in ensuring companies meet their compliance obligations.
In the panel session, “Transfer Pricing Documentation: Progress and Challenges” I discussed the primary practical decisions to be made. These include whether to insource, outsource or take a hybrid approach, and how to best utilise technology to maximise efficiency – every tax team has limited resources so streamlining processes can have immense value. There are so many obligations which differ between jurisdictions (thresholds, deadlines, notifications, types of reports that need to be filed, how they are to be filed, etc) that keeping this in Excel is no longer a viable option. Instead, using an end-to-end global compliance system would be ideal to ensure you always have consistency across master and local files.
There a great deal of uncertainty over how the new world tax order will continue to evolve. But what is clear that conferences such as TP Minds are invaluable to everyone involved in global tax compliance, as they provide such important forums in which to be candid in raising issues and for all parties to collaborate on how to best navigate the emerging trends.
If you would like to discuss in further detail about Transfer Pricing and how Thomson Reuters can provide you the answers you need to help manage today’s transfer pricing risks, I urge you to get in contact with us today. In the meantime, here is a great content piece for you to download:
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