Tightened Transfer Pricing Looming

August 21, 2008 International FinanceInternational Taxation  No comments

According to KPMG, international tax authorities are considering expanding the list of actions which can lead to investigations in regards to Transfer Pricing.

A recent KPMG document has highlighted an expanded number of “red flags” that could raise suspicion or even lead to further investigation into a company’s Transfer Pricing policies, this list consists of: persistent losses or low operating profits; sharp changes in profitability from prior year(s); lack of (sufficient) documentations; ignificant inter-company management fees; transactions with group company in tax haven; separation of functions and risks that does not make sense from a business perspective, etc.

In the face of this announcement, KPMG has recommended that any company engaging in Transfer Pricing increase the systematic nature in which they approach the situation. While one authority may be thoroughly supportive of a set-up, a systematic and well documented approach can help resolve issues if a counter-point authority raises any concerns.

This list does not indicate a change in Transfer Pricing regulation, but an expansion in the use of the current regulatory systems.

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