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Global transfer pricing risk management

Wednesday, 28 September 2016   (0 Comments)
Posted by: Author: Okkie Kellerman
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Author: Okkie Kellerman (ENSafrica)

The realities of the business environment in which multinational groups operate today consist of a shrinking domestic market and an ongoing pressure to reduce costs. In addition, multinational groups are also faced with the different expectations of different stakeholders and the increased disclosure requirements of financial data. It seems that many multinational groups may have risk management structures in place, but often lack proper control mechanisms.

Transfer pricing governance needs to be based on the strategic goals and aims of transfer pricing, and multinational groups must consider how to manage their transfer pricing risks and processes to achieve the these goals. It is important to identify individuals within a multinational group who understand transfer pricing and ensure that there is constant communication between these individuals.

At the same time, the management of multinational groups needs to handle the expectations of various stakeholders such as shareholders, banks, tax authorities, auditors and the general public. While shareholders expect a high net profit, public society and tax authorities expect companies to pay their fair share of taxes, while banks also expect proper transparency and auditors expect reasonable tax assurance.

Multinational groups need to understand that contemporaneous documentation is an essential requirement for transfer pricing compliance, that centralised business structures and the use of hybrid entities are being looked at intensely by all tax authorities and that audit trails have to be maintained at the time of preparing the transfer pricing policy.

Multinational groups need to increase the efficiency of their transfer pricing compliance and manage their risks by evaluating their existing transfer pricing processes, determine the best practices required and develop an action plan to bridge any gaps. Better transparency will affect the tax planning of employees and improve communications with all stakeholders.

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