Global Transfer Pricing Conference 2019
Washington, D.C | October 2019.
Taxation, and transfer pricing in particular has attributes to be(come) a fast lane or speedbump on the international trade highway. The ongoing debate around “trade wars” and "tit-for-tat strategies" between large countries serves as a catalyst to ultimately question the way in which multinational enterprises allocate their "system profit" over the various entities in the many countries in which they operate.
The TP practitioner of today needs to be cognizant of how US tax reform, EU competition law (earmarked by the (in)famous state aid litigations), Brexit, the OECD's current work on taxing digital economy and unilateral actions affect a company's overall tax bill. Moreover, the various stakeholders need to be known and their agendas understood to diligently manage the TP function. Besides the OECD and the EU, one needs to factor in organizations such as the IMF, the UN and the World Bank. Think eg about the recent work on the development of (draft) toolkits such as documentation that are destined to accommodate emerging and developing countries. They can hence pose a threat to the sustainability of profit allocation throughout the value chain. TP practitioners grapple with supply chain organization, customs and the like and other functional domains for which other departments are responsible although they ultimately affect their own performance indicators.
On the mere compliance side there is a tendency for companies to embrace the opportunities offered by cooperative compliance on the one hand. This means that we will see more cooperation between tax authorities and corporate taxpayers and hence a strong emphasis on corporate governance and effective internal controls for TP matters. On the other hand, the “Transparency mantra” necessitates companies to “get their story right” on how the overall system profit is allocated across the value chain and country borders.
As a result of the OECD BEPS project, coherence, substance and transparency are the cornerstones of tax planning. Next to the OECD, the UN, EU, IMF and other organizations play a catalyst role for groups to think about sustainability in how they deal with tax planning.
Tax effectiveness is conditional upon being able to explain through convincing, consistent and coherent documentary evidence that the ultimate group-wide system profit allocation reflects the functionality and entrepreneurial risk profile of the constituent parts of the multinational enterprise.
This implies an (implicit) need to look at tax matters through the lens of end to end compliance first (Intercompany Design and Execution ‘IDE’ as we call it), with TP taking an important stake in that. The implication is that cost effective TP documentation is to be compiled, however based on a thorough understanding of what drives value and profitability in an industry-specific way, taking into account metrics and internal governance systems.
Our global conference theme this year ‘Forging local paths amid competing regional landscapes’ is a discussion which is a continuation of the building blocks of this rapidly changing tax and transfer pricing ecosystem. Traditional models of complying with transfer pricing with results aggregated annually which were siloed and static are being pushed into new models that can do a better job of addressing the issues in advance and solutions that are technologically efficient, consistent and coherent. The use of TP analytics may serve as a good illustration of where we are heading to. There is the exploitation potential of big data and the emerging technologies in TP. There is also the use of data analytics with robust workflow management and automated tasks (which may even not need to be outsourced). The extent of data stored and analysed in a growing global algorithmic ecosystem, together with our current analytics capabilities may serve as a most comprehensive and powerful basis for our clients’ needs.
In this year’s conference, we created a programme that is focusing on the future of transfer pricing and tax environment with the following (and many more) topics we have:
BEPS 2.0: Since the introduction of the initial BEPS report several years ago, revenue authorities’ approach to transfer pricing continues to evolve, from an emphasis on where investments such as IP are located, to a focus on people functions (e.g., DEMPE). New “substantial activities requirements” in low-tax jurisdictions may override transfer pricing rules for allocating profits. Attention is increasingly turning to where ultimate consumers are located, creating ever more complexity for multinationals.
US and global tax reform: US Tax Reform is likely to give rise to sweeping changes for both outbound and inbound US companies. Not only are these changes reflected in new US tax provisions, but are likely to prompt reactions from other revenue authorities worldwide, including how the EU, OECD, and several multinational enterprises are responding.
The evolving framework for taxing the "digitalising" economy: Businesses and tax authorities are increasingly addressing the tax challenges related to the digitalisation of the economy, that is, the ongoing shift towards digital products and transactions. Not only relevant to technology companies, the digitalising economy exists for any entity transacting electronically.
Trade, tariffs and transfer pricing: Uncertainty around global trade continues to be a dominant theme for businesses. Proactive conversations about the impact of trade, tariff, and sanctions policies and regulations should be part of a company’s overall business plan.
Our experts are looking forward to share their latest insights and experiences in Transfer pricing being at the heart of sustainable tax management and corporate governance. We tapped from our brainpower from across the globe to make sure you take away what's most valuable to manage your tax and TP priorities in a most effective way. We are happy and grateful that you choose us to join you in this most challenging journey!