Why Transfer Pricing Should Matter For CFOs

Learning Centre • Why Transfer Pricing Should Matter For CFOs

Why Transfer Pricing should matter for CFOs.

Transfer pricing rules are not fully prescriptive, but rather they provide a collection of guidelines and principles for transfer pricing compliance.

The Organisation for Economic Co-operation and Development (“OECD”), a key player in the area of international taxation, notes transfer pricing is not an exact science, and this represents a window of opportunity for tax authorities to impose transfer-pricing adjustments and recalculation of taxes to be paid. This, together with fiscal shortfalls, has encouraged governments to identify transfer pricing as a soft target with the potential to produce large tax revenues.

When it comes to transfer pricing, ignorance is not bliss. Failure to act could cost a company hundreds of thousands of dollars in legal fees, interest, and penalties. Even what may appear to be a harmless intracompany management fee may attract the attention of the tax authorities who could challenge the amount of the fee or even its deductibility if it’s not adequately priced and/or documented.

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For many companies, the question is not if they will get audited, but when. Financial executives should focus their attention on mitigating transfer-pricing-related risks where and when possible; which means that they should be focusing on strengthening their transfer- pricing policies and helping them adapt to the environment in which they operate.

In this industry, proactive planning is key. One of the best ways to mitigate risk is to conduct a transfer- pricing study for each jurisdiction it will possibly cover.

Transfer pricing studies are in-depth reviews of a company’s pricing strategies and related documentation for the following:

To avoid paying unnecessary taxes and penalties by ensuring that your company has transfer-pricing policies in accordance with all local requirements.
Provide support for recording no tax liabilities for tax exposures in the company’s financial statements.
The role will be expected to identify opportunities to reduce the company’s global effective tax rate by restructuring multinational operations.
Will find ways to ease the burdens of global supply-chain efficiency by helping relocate or reorganize operations.

Transfer pricing has certainly been subject to challenge by tax authorities in the past. But if it’s properly documented and approached, results will stand up to audit.

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