转让定价 – 您需要知道的五件事
Governments around the world are worried that multinational companies are transferring profits through inappropriate transfer pricing. Goods, services, royalties and pricing of cross-border loans to determine how many multinationals have to pay income tax to States 1 .
1. Companies that do not follow the “independent transaction” principle will face additional income tax, related interest and non-deductible fines. Transfer pricing is the number one issue facing global multinational companies
Tax audits can greatly increase taxable income through transfer pricing tax adjustments and enable companies to pay taxes “fairly.” In fact, more than 70 countries now regard transfer pricing enforcement as an area where the investment of audit resources can obtain the most lucrative returns. The following example lists the amount of a IRS tax adjustments to improve by economist transfer pricing tax revenue 2 :
In addition to additional taxes, related interest and non-deductible penalties, companies also face double taxation issues. In other words, if a tax authority makes tax adjustments to transfer pricing, the company usually cannot get a refund from double taxation for several years, if there is a refund.
Making transfer pricing audit conclusions often requires management to invest more than ten years of time and resources. In addition, since transfer pricing audits are mainly based on specific facts and circumstances, management in R&D, engineering, sales, marketing, finance, and other key areas are expected to be inquired and provided with detailed relevant information.
Example: The U.S. Internal Revenue Service makes a transfer pricing tax adjustment of 10M (ten million) dollars
|Increased taxable income @21% tax rate =||$ 2.1M|
|Non-deductible penalty @20% =||$420,000|
|Total =||$2.52M + related interest + state tax|
2. In transfer pricing, companies need to meet the requirements of two or more tax authorities.
Each multinational company faces the dilemma of transfer pricing. To charge excessively high prices for inter-company transactions, multinational companies are questioned for failing to pay taxes fairly locally; if they charge too low a price, the company is accused of transferring profits overseas. Although almost all countries agree with the “independent transaction” principle, the interpretation and application of this principle often vary greatly in practice.
Regardless of whether it is preparing documents or conducting an audit, taxpayers need to prove that the pricing of goods, services, intangible assets, and loans in the company’s intra-group transactions is equivalent to that of unrelated companies. Generally, documents that meet the requirements of one country often bring tax audit risks in another country. Because the tax authorities of various countries can share transfer pricing documents under many tax treaties to avoid double taxation.
3. The US Internal Revenue Service has transferred a large amount of resources to transfer pricing enforcement, and medium-sized companies in the market can no longer stay aloof
Beginning in October 2012, the US Internal Revenue Service established a new transfer pricing department. Not only the transfer pricing experts of the entire organization are concentrated here, but also hundreds of auditors who have been engaged in domestic taxation in the past have been redeployed to the international tax business. For medium-sized companies in the market, this reorganization represents a huge change. In fact, when introducing these new measures for international taxation, the Deputy Director of the Service and Enforcement Department of the US Internal Revenue Service also pointed out that “I think many medium-sized companies may face the same problems as large companies, or even more.”
4. “Subsidiaries should obtain stable profits”-usually the starting point for auditors
For the “domestic” companies, many tax authorities to obtain certain subsidiaries expect to see operating profit 3 . Such expectations often surprise companies struggling under difficult market conditions. Transfer pricing auditors generally believe that operating losses should be borne by the parent company or the owner of the intangible assets. In other words, the subsidiary is considered a low-risk service provider and should have a stable level of profitability.
If this question is expected before being audited, then the company can prepare for the losses suffered and prove that this is a normal business loss and not caused by excessive charges by the affiliated company. Based on our experience, transfer pricing auditors are more likely to accept the analysis materials done by the company before the audit.
5. Transfer pricing documents are your first choice and the best opportunity to avoid transfer pricing audits
According to §1.6662 of the fiscal regulations, the company can prepare the transfer pricing documentation for the same period to avoid relevant penalties in the case of tax adjustments. “Year” means the declaration of corporate income tax table while preparing the report file 4 . This regulation lists 10 items that need to be included in the transfer pricing document, but in essence the transfer pricing document report needs to include the following information:
- Explain in detail the functions, assets and risks of each company, as well as the organization structure of the group (functional analysis)
- Explain how recent industry developments affect the company’s business (industry analysis)
- Describe intra-company transactions within the group and analyze relevant financial information and pricing (financial/economic analysis)
- Choose the “best method” for the pricing of various types of transactions as a benchmark, and prove that its profitability or pricing is in line with the “independent transaction” principle (financial/economic analysis)
Based on our experience, transfer pricing auditors expect a clear explanation of how the company’s business in the US differs from its overseas business. The report should also refer to the selected “best method” benchmark to provide a clear assessment of the company’s performance.
The Internal Revenue Service now requires obtaining transfer pricing documents as part of each tax audit. Please note that only transfer pricing policies or similar comparable benchmark research reports are not enough to avoid the risk of fines in tax adjustments.
The number one advantage of the transfer pricing document is that this report is the company’s first and best opportunity to show why the company’s transfer pricing is reasonable. In addition, companies with contemporaneous documents can better protect themselves in transfer pricing audits.
Most importantly, there is a huge difference between being proactively prepared for transfer pricing issues and not taking any action when being audited by the IRS.
1 In fact, any intra-group cross-border transaction has transfer pricing issues
2 Once the tax adjustment reaches US$20 million and above, the IRS transfer pricing penalty will rise to 40%
3 Earnings before interest and taxes (EBIT) is often used to calculate operating profit
4 For companies with the same financial statement date as the calendar year, the reporting period is October 15th of the following year, including the extension period