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Transfer Pricing is Here to Stay
Transfer pricing issues faced by multinational businesses have been exacerbated in recent years by the introduction of new legislation and a legion of global transfer pricing disputes with tax administrations. However, significant savings can be achieved with effective tax planning involving transfer pricing design supported by economic analysis. Taxand UK and Taxand US set out some expected global transfer pricing trends for 2011.
Business restructurings have been applied extensively in recent years by multinational businesses to achieve financial benefits and this will be facilitated in 2011 by the finalisation of the OECD's guidance in this area. Transfer pricing disputes also continue to attract headlines due to the volume of tax adjustments. With 40 jurisdictions now applying transfer pricing legislation, disputes and litigation have been increasing at an alarming rate with multi-million pound settlements resetting the transfer pricing environment.
Businesses have also been spending a significant amount of management time in relation to transfer pricing, often engaging advisors to prepare extensive transfer pricing reviews in an attempt to mitigate the impact of a potential transfer pricing audit. However, given the subjective nature of transfer pricing, adjustments may still be sought by tax administrations.
With a variety of changes to Transfer Pricing and the increasing amount of jurisdictions that are now applying it, companies will need to follow best practice in each region that they operate in to ensure that they abide by local laws and avoid unnecessary litigation.
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