Turning Challenges into Opportunities by Reviewing Transfer Pricing Strategies

Date of Release: 2011/12/12

On 13 December 2011, PwC Taiwan Education Foundation and China Association of Industries Tax Professionals jointly organized a conference on “Latest Transfer Pricing Practices in Multinational Companies – New Trend in Taxation Risk Management”. This conference aimed to discuss issues of double taxation caused by transfer pricing, and study real cases of how tax authorities in Taiwan and China have adopted more stringent standards in auditing transfer pricing practices, while addressing the challenges and opportunities faced by multinational companies. Officials from the tax authority were also invited to explain transfer pricing rules and their development in Taiwan.

Minimize risks of double taxation through self-assessments

PwC Taiwan Tax Partner Howard Kuo said the Chinese tax authority ranks third in the world in terms of tax law enforcement, trailing only behind Japan and India and surpassing USA and European countries that have adopted more advanced tax systems. Although there has been no significant increase in China’s investigations into transfer pricing over the last 2 years, the amount of certified tax shortfalls had multiplied. Howard Kuo further reminded the gathering that there is no tax treaty between Taiwan and China, and any changes to transfer pricing rules by either side will result in double taxation. Companies should conduct thorough assessments before year-end closing to reduce the risk of double taxation.

Review taxation governance to increase corporate value

PwC Taiwan Tax Partner Lily Hsu pointed out that companies should take greater initiative now as audit practices on transfer pricing are maturing and becoming more stringent than ever. Some of the considerations may include: whether the group of companies should redefine its value chain strategy, and whether advanced pricing agreements have been filed in regions with larger transactions, etc. It is recommended for group companies to establish transfer pricing strategies with legal documents, such as contracts, and make them readily available to prepare for any upcoming changes. If properly executed, multinational companies may transform their tax challenges in transfer pricing into value-adding opportunities.