Transfer Price Tax Risk ‘a priority’ For Companies
26 July 2013
Posted by: Author: Amanda Visser
Author: Amanda Visser (BusinessDay)
Transfer pricing and the tax risk it presents to companies have become a major priority for 66% of companies surveyed globally by auditors EY for its latest transfer pricing report.
This represented a 50% increase from its 2010 survey. But in South Africa, 80% of tax professionals interviewed considered managing the risk associated with transfer pricing as their top priority. Transfer pricing is the price charged by one part of a company for products and services it provides to another that should reflect a price charged to a third party.
Controversy over transfer pricing has been on the rise in Africa. Limited resources, along with inexperience by taxpayers and tax authorities, have made managing the risk and obtaining resolutions a major challenge, EY transfer pricing director for Africa Karen Miller says.
Ms Miller said revenue authorities in the Brazil, Russia, Indian, China (Bric) countries and in Africa struggled with limited capacity, although there was increasing support from more developed regions.
She said 30% of the companies with operations in the region and in Africa identified the management and finalisation of transfer pricing issues among their main priorities.
Yet 74% of companies in these countries said they had no full-time transfer pricing personnel.
According to the survey, which was conducted in 26 countries, nearly 70% of the companies said they had been doubly taxed as a result of an adjustment to their transfer pricing assessments. There has also been an increase in the number of parent companies subjected to tax penalties, with 24% being penalised in the past three years compared with 19% in the 2010 survey and 15% in the 2007 survey.
South Africa has been included in the survey only since 2010. There were no figures relating to penalties and interest raised in South Africa.
According to the report, tax authorities were voicing concerns about existing transfer pricing rules that granted taxpayers "excessive latitude", with intangibles being defined too narrowly and being valued too conservatively, as well as the freedom to restructure activities by moving key functions and risks to low-tax jurisdictions.
The report said this had led to an "unprecedented level" of activity at the Organisation for Economic Co-operation and Development on a variety of topics, including intangibles and base erosion and profit shifting. EY global transfer pricing director Thomas Borstell said companies would need to take steps to monitor changes around the world to ensure they complied with changing rules and avoid being doubly taxed.