Tax authorities want to ensure profits are taxed where the value is created. The BEPS (Base Erosion and Profit Shifting) Actions, issued in October 2015, have further increased scrutiny on transfer pricing methodology.
Every international business must give its transfer pricing policy and compliance significant care and attention. Businesses should have documentation in place to articulating the alignment between value creation and where profits are taxed.
You should regularly review and update transfer pricing policies to reflect commercial and operational changes.
Failing to manage transfer pricing effectively can lead to:
- Local tax audits and reassessments, with the potential for additional penalties and interest
- Double taxation, where income is taxed in multiple territories with no relief available under tax treaties
- Costly and time-consuming dispute with tax authorities
- Reputational damage to brand and business
BDO and Transfer Pricing
Our award-winning National UK Transfer Pricing team of experts has technical expertise in tax, law, economics and finance. The team also bring experience from a range of settings including professional services, industry and revenue authorities around the world. This strength and diversity of knowledge delivers fresh thinking and robust transfer pricing solutions.
We are part of the BDO Global network that includes dedicated Transfer pricing experts in more than 50 countries. You benefit from that collective knowledge and experience. We will build a close relationship with you in the UK to bring you the benefit of our global reach and knowledge.
Our advice and insight will help you develop and implement effective transfer pricing policies. We will also help you adapt those policies as new rules emerge or business circumstances change. We can support you with analysis and articulation of your value chain, advance pricing agreements and transfer pricing risk assessments as well as efficient dispute resolution.
There are five general areas where we advise businesses on transfer pricing. These include:
1.Value Chain Analysis
The importance of the value chain and the value creation story should not be underestimated. Understanding and explaining the value chain helps you understand the consequences of business changes and provides vital context for transfer pricing analysis.
The value creation story is an essential tool to support your reporting and is now a key requirement for setting and documenting transfer pricing arrangements under the new standard recommended by the OECD. It can also help pre-empt questions from tax authorities.
Find out more about our Value chain analysis service.
2.Transfer pricing compliance and documentation
Effective compliance with BEPS Action 13 on transfer pricing requires detailed documentation. A master file that sets out a group’s overall structure, transfer pricing and policy must be complemented by local files that record transactions for individual entities and justify pricing.
Our team of transfer pricing experts will help you articulate the policies and information required for the Master file as well as using a modular approach to provide cost-effective coverage. Our approach will help you mitigate the risk of challenges and penalties.
3.Transfer pricing Advisory
There are many factors, internal and external, that can affect a group’s transfer pricing arrangements. Changes can be driven by international expansion, commercial reorganisations, acquisitions or disposals, high growth or legislative change
Whatever the circumstances, we will work with you to find the most efficient structures, mitigate tax risk and develop transfer pricing models that evolve with your business.
4.Transfer pricing dispute resolution
Any tax authority challenge on transfer pricing can become a long and costly dispute. BEPS has made this all the more true. Our extensive experience of interacting with tax authorities across the globe enables us to adapt our approach to specifically meet the requirements of the relevant territory on a case by case basis.
Advanced Pricing Agreements
We have successfully obtained Advanced Pricing Agreements (APAs) in a number of territories and can assist you throughout the process.
Mutual Agreement Procedure (MAP)
MAP is a process that authorises tax authorities to communicate with each other directly for the purpose of resolving the issue and avoiding double taxation. We have in-depth experience of the MAP application process across our global practice and can support you to seek a satisfactory resolution to any tax authority dispute.
5.Financing, debt and thin capitalisation.
Financing arrangements such as loans, cash pooling, captive insurance and group guarantees are all under scrutiny as part of BEPS. Particularly, the deduction of interest expense when calculating business profit has created the potential for groups to use debt flows to shift profits. In the UK, rules focus on the rationale behind financing structure. Authorities want to ensure that there is a commercial justification for funding arrangements so that it can be considered as arm’s length from a transfer pricing perspective.
We will work closely with you to implement and maintain a financing structure that achieves your aims in an efficient and tax-compliant fashion. We will also help produce supporting documentation for financing structures in case of challenge from tax authorities.