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The Transfer Pricing Learning Curve
Transfer pricing remains the most challenging area of tax for multinationals, identified by 20% of survey respondents, although companies are becoming more familiar with compliance demands and developing their relationships with tax authorities. In Asia, the learning curve has been steep following a 50% increase in transfer pricing legislation over the past 5-10 years. However, despite an increased understanding, the rising scrutiny of financial transactions from a transfer pricing standpoint is starting to cause some concern amongst multinationals.
"Essentially we are seeing a dichotomy in transfer pricing. Across much of the globe, we are seeing harmonised systems with consistent approaches to transfer pricing principles. Despite this, we still have a few select countries working to slightly different rules and practices, and others that have some catching up to do in terms of enforcement; this is most notable in emerging markets where the transfer pricing knowledge base is relatively low amongst the tax authorities."
Transfer pricing disputes arising from audits are increasing in various forms (litigations, amiable or arbitrage inter-States procedures). The outcome is often favourable provided that the taxpayers' position is sufficiently supported from the origin of the transfer pricing policy implementation. As such, multinationals should not hesitate to use all levers at their disposal to achieve success.
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