The Transfer Pricing Policy
Towards a New
World Order?
28 November , 2012
Lately…..
More and more
complex
regulation
Scope of rules
expanding
Business
restructuring
and exit charges
More audits,
disputes and
litigation
Non OECD
approaches
Dissatisfaction
with profit
based methods
Location
advantages
Aggressive
practices by
tax authorities
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Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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Today…..
Arm’s Length
vs Formula
Apportionment
Public Backlash
on Transfer
Pricing
Tax
Transparency
OECD vs
United Nations
Non OECD
approaches
becoming
codified?
Developing
Country Debate
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Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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The Backlash
“…a technique known as
transfer
pricing…carves
“It is common knowledge
that most
an estimated
multinationals …are actively
engaged$60
in billion
a aim
yearof
from the U.S.
these practices, with the
Treasury
as it combines
transferring their profits
to countries
and
with the most favorabletax
taxplanning
regimes…”
alchemy.”
“Transfer pricing is the
“What’s more that they
are aided in
corporate
equivalent of
this by major financial consultancy
and audit firms.” the secret offshore
accounts of individual
Eurodad 2011
“A Swiss corporation
discovers a drug at its
research lab in England,
manufactures it in
Belgium and sells it in
the US. The difference
between production
cost and selling price is
large but where does
the profit arise?
Surely not in the
Netherland Antilles,
where the company that
tax dodgers,” said U.S.
owns the patent is
Senator Carl Levin…
resident.”
__________________
_____________________
“Improper transfer pricing practices cost the
developing
world
Financial
Times
2011
Bloomberg 2010
$400 billion to $440 billion between 2000 and 2008.”
____________________________
Global Financial Integrity 2011
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Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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“The Arm’s Length Problem”
The Australian
The problem is that because
of
OECD
approach to transfer pricing,
“The central question
synergies within large both theoretically, and
is……: Are the rulescorporations….the
of
economic
“Companies and
empirically, falls apart” Michael
the game so permissive
relationships
between
entities
within
a Director
“The
arm’s
length
"Transfer
pricing
is the
leading
government
spend
Durst,
former
APA
of IRS.
that even if applied group
are
notofthe
same
as between
edge
what
is wrong
with
method simply is not
extraordinary
amounts
…on
correctly, multinationals
unrelated
parties.
The
practical
problem
international tax” Lee Sheppard,
can decide the amount
efforts
compliance
and
working…it offers little
is the
lack
ofatof
truly
editor
Taxcomparable
Notes International
of taxes they pay? transactions…”
documentation….yet
and Forbes blogger, 2012more than a general
companies and the IRS
The Australian
framework for
- Roberto Schatan (exCongressional
Testimony
by
Martin
typically are dramatically
OECD), Tax Notes Sullivan,
negotiations, in which
Phd Economist and contributing
International, Januaryeditor
far
in their
of apart
Tax Analysts,
2011
MNEs hold an upper
2012
determination of arm’s
hand….”
length pricing”
The Hamilton Project,
Brookings Institution 2007
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Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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Perceptions matter – the SAB Miller Story
In 2010, ActionAid publishes its 40 page report: “Calling Time, why SAB
Miller should stop dodging taxes in Africa”.
Led to numerous tax investigations in several African countries and was one
of key drivers behind Ghana enacting Transfer Pricing legislation in 2012.
The report has been voted as one of the five leading global forces in
Transfer Pricing in 2012, by the readers of the Transfer Pricing Week.
© 2012 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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Developing countries
“The OECD guidelines only
protect the interests of OECD
countries which are parties to
such convention”…..”it is
improper to suggest that they
represent internationally
agreed guidance….”
“Developing countries….face a
set of unique issues which
have not been addressed….by
the OECD Guidelines.”
Indian Government letter to the
UN, March 2012.
China Country Practices, UN
Transfer Pricing Manual, October
2012.
© 2012 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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The China View (from the UN process)
Profit
HQ
China
Total
Market Premium
Brand
Pollution Permission
Management
＋
Cost Savings
＝
Double
Taxation
＞ MAP?
Supply Chain
Management
Distribution
R&D
Manufacturing
Manufacturing
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Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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The Future?
Hybrid Models?
Convergence vs
Regulatory
Competition?
ALP to prevail?
Increased Disclosure and
Transparency?
Institutionalized
Double Taxation?
© 2012 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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Will the Arm’s Length Principle prevail?
≠
ARM’S LENGTH
PRINCIPLE
CUP
RPM/
C+
TNMM
FORMULA
APPORTIONMENT
PROFIT
SPLIT
© 2012 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
FORMULA
APPORTIONMENT
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OECD
“The current transfer pricing rules are difficult for governments to
implement, not just for developing countries but for OECD
countries… we have overcomplicated some of the rules”.
The Australian
Pascal Saint-Amans, Director, OECD Centre for Tax Policy, 2012
“Tax officials from 90 countries agreed on the need to simplify
transfer pricing rules, strengthen the guidelines on intangible issues
and improve the efficiency of dispute resolution.”
The OECD press release on 28 March 2012 following OECD’s first Global
Forum on Transfer Pricing,
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Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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What can you do?
Dispute
Resolution
Assess
Risk/
Define
Strategy
Transfer Pricing
Management
Framework
Implement
and
Document
Plan and
Design
2011 KPMG Tax Limited,
limited liabilityfirm
company
in Hong Kong
and a member
firm of the KPMG network
of independent
firms affiliated
KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
© 2012 KPMG, a Hong Kong©partnership
andaaBVImember
of operating
the KPMG
network
of independent
member
firmsmember
affiliated
withwith
KPMG
International
Cooperative ("KPMG International"), a Swiss entity. All rights reserved. Printed in Hong Kong.
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Presenter’s contact details:
Kari Pahlman
Principal
Asia Pacific Leader
Global Transfer Pricing Services
+852 2143 8777
kari.pahlman@kpmg.com
© 2012 KPMG, a Hong Kong partnership and a member firm of the
KPMG network of independent member firms affiliated with KPMG
International Cooperative ("KPMG International"), a Swiss entity. All
rights reserved. Printed in Hong Kong.
The KPMG name, logo and “cutting through complexity” are registered
trademarks or trademarks of KPMG International.