Service (Transfer Pricing & International Tax Consulting)
| Why transfer pricing taxation exists? |
A CEO who says “Pricing between our group companies should be freely set! It is ridiculous for tax authorities to intervene!” might be dangerous, however at the same time he is hitting the nail on the head. Actually there is a conception that group companies are united and integrated one another to create higher added value than the mere gathering of independent parties, thus it is not appropriate to compare related-party transactions with third-party transactions.
On the other hand, there is an opposite conception that related-party transactions can easily be manipulated so that the arm’s length principle should be applied to prevent cross-border tax avoidance. Transfer pricing taxation based on this conception has been spread worldwide and has become a global consensus. Multinational enterprises now must comply with the transfer pricing regulations around the world.
| Fear for transfer pricing risk |
As transfer pricing taxation is based on the arm’s length principle, which does not provide absolute right answer, to comply with transfer pricing regulations taxpayers should set a most appropriate price between both countries through the use of economic analysis. Further, under the transfer pricing taxation non-arm’s length transactions will be taxed regardless of the intention to shift income abroad. Consequently, transfer pricing tax risk is more difficult to manage and takes more costs than other tax risks.
Besides, the impact of transfer pricing taxation as a result of not-sufficient compliance efforts would be much bigger. Recently there have been many newspaper articles reporting that multinational companies got huge transfer pricing tax adjustments, while more small companies have been getting the transfer pricing adjustments with larger impact on their financial results.
In Japan, transfer pricing enforcement has been strengthened year-by-year; for example more transfer pricing tax examiners experienced in Tokyo Regional Taxation Bureau have been moved to local tax offices to target local multinationals. Companies having foreign related parties but not initiating transfer pricing compliance should bear in mind that they could be the next target for tax examination.
| How to manage transfer pricing risk |
To comply with transfer pricing regulations, taxpayers should set the well-balanced pricing or profitability between both counter-parties of the transaction. Therefore, it is important to conduct appropriate economic analysis as well as accurate interpretation of relevant tax regulations. Companies would need human resources having not only transfer pricing specialties but also the language skill and the ability to understand a certain level of economics and financial theory, if they have to deal with transfer pricing on their own. Otherwise, they would have to engage transfer pricing specialists for support and advice.
To avoid significant charges and damages with regard to transfer pricing taxation：
- Internal documents such as related-party agreements and transfer pricing policy memorandum should be prepared. These internal documents are the first ones the tax authorities request at the outset of transfer pricing examination, so getting advice from transfer pricing specialists is recommended for safety. Of course these documents should be prepared before the initiation of tax examination.
- Simultaneously it is recommended that taxpayers assess the rough level of their potential group-wide transfer pricing risk. The risk assessment enables taxpayers to take the most appropriate next steps to manage the risks.
| Feature of our transfer pricing service |
(1) High quality service with reasonable cost
As we do not incur unnecessary indirect costs not contributing to service quality, we can provide high quality transfer pricing services with reasonable cost.
(2) Provision of detailed review services
Not only project-based services such as documentation, risk assessment and APA, we also provide review & support services to assist multinationals’ daily transfer pricing related activities such as preparing / amending inter-company agreements, setting / amending prices, and for the purpose of providing second opinions.
(3) Real global network
We have a global network covering major regions of the world by the alliance with Transfer Pricing Associates (“TPA”), a Dutch based transfer pricing service firm. Recognizing that even the big accounting firms having so many offices around the world may not be united and coordinated due to strong independence of each local office, TPA and we have been successful to form a real global organization and team to provide clients with highly integrated services.
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TPA Global group is an independent professional service and solutions partner that serves its client globally through a network of Members and Alliance Partners in over 60 countries.Our solutions range from international tax related services such as Tax Governance,Transfer Pricing and Indirect Taxes, to Merger & Acquisitions support to Operational Performance enhancement services like location selection,supply chain optimization,etc.For more details of our innovative services,please visit our website at www.tpa-global.com.
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