1- What is the role of service providers in assisting multinationals in the issue of transfer pricing?
2- What impact does a global company have on counseling?
3- How are companies fit the requirements of the BEPS project?
4- How do companies make the concept of "value creation" with fiscal legality compatible?
5 – What is the best methodology to address this issue?
6 – How to solve the issue of intangible assets based on digital business?
7- What should a company do when it starts the process of internationalization at the level of transfer prices?
Paulo Mendonça, EY Partner
1- Service providers help companies meet their reporting obligations related to transfer pricing (mandatory documentation, IES, Country-by-Country Reporting), conduct value chain optimization assessments and studies, and ultimately collaborate in the litigation processes faced by companies.
2- As one of the areas where there is greater scrutiny and contentiousness with the tax authority, counseling has a very significant impact as it contributes to a greater level of legal certainty for economic operators.
3- The BEPS project introduces a much higher level of requirement than in the past with regard to business management decisions and their tax consequences. A priori assessment of tax risks has become an obligation since the consequences (criminal liability of administrators, reversal of the burden of proof, more comprehensive anti-abuse rules, corrections and penalties added and more likely than in the past).
4- Value creation, which in the past included fiscal savings through the optimization of the marketing chain, had to be quantified, excluding the effect of these savings. The exception to the rule will be situations in which such savings result, without direct intervention of managers, from the new formulation through absolutely exogenous factors or the prevalence of business factors supported at appropriate levels of substance and economic reasonableness.
5- The criteria of economic reasonableness and substance of the business shall prevail in all circumstances. Then, the correct allocation of revenues and costs along the value chain aligned with the risks, functions and assets employed in each of the corresponding phases.
6- By correctly valuing the different parts of the digital business (ie the development of the platforms, tangible and intangible technological support and the value of the different markets according to the number of buyers) by allocating to each of the jurisdictions where the fair share of the revenues and costs of the business.
7- The exchange of information works more as a deterrent to aggressive fiscal planning and non-compliance than a decision support mechanism by corporations. This is the phase in which greater care is required in the definition of pricing policies that are, on the one hand, compatible with the development of the business and, on the other, that do not create situations that are difficult to reverse when these same businesses are at the speed of cruise. There are some degrees of flexibility in the OECD transfer pricing guidelines
that allow you to do this. The second aspect to be verified is the domestic rules of each country, for example, regarding the documentation and reporting obligations of relevant information, since they are not the same in all countries.
João Aranha, Transfer Pricing & Incentives Partner at Baker Tilly
1- Transfer Prices are increasingly a hot topic for both Tax Authorities and for any economic group and we must take into account that it is a fairly homogenized practice at the global level (with few exceptions and minor local adjustments). In this sense, the service provider must have a global view of the subject and only then can provide a Transfer Pricing service that can meet the needs and expectations of a multinational group.
The consultant must be present in all countries where the multinational group operates (or intends to operate), with the appropriate local Transfer Pricing experts. In this way, the role of the consultant will be on the one hand to ensure the compliance of the Transfer Pricing policy with the local legislation, and on the other hand to be able to anticipate risks and opportunities in Transfer Pricing proposing solutions and alternatives to the multinational group.
2- A Transfer Pricing policy should accompany, reflect, and if possible, optimize (from a fiscal point of view) the value chain of an economic group. In this sense, Transfer Pricing advice must accompany the value chain and respond to the expectations of the economic group, regarding the allocation of income in function of the risks assumed, functions developed and assets employed.
3- BEPS, as a plan of action to combat the erosion of the taxable base and allocation of profits to entities based in fiscally more favorable jurisdictions, aims to redefine a new era of taxation at the international level, suggesting best practices that lead to a fair allocation of income generated by any economic activity.
companies were very quick to understand the challenges and opportunities that the BEPS represented and from our experience tried to follow the suggested best practices. Obviously, in some cases, more than in others, the adoption of new practices / policies in Transfer Pricing entails resources and the implementation of them may be more time consuming. However, the response of the companies was very positive and the adaptation to BEPS was more than reasonable.
4- Taxation is an ancillary aspect of business, and the crux of a business is, in fact, its ability to create value. Value creation should not, at any moment, be the slave of a more or less aggressive fiscal policy. On the contrary, taxation must reflect the value chain of the group, and thus allow compatibility not to be an issue, but a mere reflection of the economic reality of the group.
5- Baker Tilly supports its clients by identifying their needs, analyzing the value chain, studying intra-group flows and realizing each client's challenges, risks and opportunities.
Based on these activities, we have developed several alternative scenarios, including (in some of them) reallocations of functions, risks and assets and allowing the client to perceive for each scenario the effective taxation of the Group as a whole. This methodology can be broadly termed 'Tax Efficient Supply Chain Management'. However, we like to point out that each customer has unique needs and specificities and that Baker Tilly does not have standard answers, but multidisciplinary teams that allow us to offer solutions tailored to each situation.
6- At the level of Transfer Pricing, I believe that the solution goes through the adoption and implementation of Profit Split Method to each of these businesses. With the ability to attribute to each function, risk and asset a given profitability the issue of intangibles may be exceeded. However, although it is an idea that makes perfect sense in theory, the implementation of this method can raise a great subjectivity (both from the perspective of the taxpayer and from the Tax Authorities).
7- In the foreground, you should make an analysis of the intra-group transactions that may occur (eg management services, personnel assignments, brand use, financing, redemptions) and of which potential providers and beneficiaries in these intra-group transactions and what their A benchmarking of full competition intervals for the various intra-group transactions (eg, mark-up from 10% to 15%, royalty rate from 3% to 7%, interest from 5% to 9% , etc.) and to perceive the impact of the application of each of the limits of the range in the taxation of a group as a whole, never neglecting, of course, the functions, risks and assets of each entity present in the transaction. various scenarios presented in the light of the possibility of various intra-group transactions and distinct competitive intervals, opt for and implement the transfer pricing policy that best reflects the value chain and satisfies the needs of the Group.
Susana Pinto, Associate Partner, Tax Transfer Pricing at KPMG
1- The fiscal envelope is constantly changing at local, regional and global levels. Economic activity is a multi-geography reality and, in this sense, the pressure exerted by the states to raise their fair share of the taxes generated in the cycles of creation of value makes the support of transfer pricing specialists almost indispensable.
2- In fact, the impact is based on two perspectives: on the one hand, companies must adopt consistent and compliant policies and transfer prices with the rules in force in the countries where they operate; on the other hand, this is an area where the actual tax burden incurred in each geography can be reviewed and optimized and, consequently, at a consolidated level.
3- The approach to the BEPS theme is a priority of the governments of several countries and with a clear impact on business. As a result of the BEPS project and the reporting of fiscal and financial information at the global level, there has been a greater scrutiny of the pricing policies adopted by the groups, with an increase in multilateral inspections. In fact, in recent years there has been a greater focus on this matter, in particular in conducting risk analysis and review processes
pricing policies and agreements.
4- On the (good) principles of fiscal governance, this issue does not pose particular difficulties.
Value creation and efficient fiscal management of the tax burden go hand in hand. Both are, moreover, legal obligations of managers, as enshrined in Portuguese law and internationally recognized in European jurisprudence. Contrary to what sometimes goes beyond public opinion,
among the duties of managers is an efficient fiscal management of the companies they lead.
This, of course, has nothing to do with practices that violate the law or merit criticism on the social plane.
5- The example of prices and transfers is very significant in answering this question.
KPMG has developed a 'Value Chain Analysis' methodology, which consists of identifying the activities that lead to the creation of value, based on analytical techniques and tools to support groups in this area. In this way, price policies are aligned
of transfer with "creation of value", thus responding to Actions 8 – Intangibles, Action 9 – Risks and Capital, Action 10 – High Risk Transactions and finally Action 13 – Documentation and 'Country by Country Report' of the BEPS project.
6- First, whether and to what extent intangible assets boost digital business. Identifying and categorizing intangibles, it is important to evaluate the DEMPE (development, improvement, maintenance, protection and exploitation) activities conducted by each entity for the creation and generation of value in the group and to determine the model of contribution of each entity to the same with a view to the pricing of these operations.
7- The use of such instruments results in a more favorable legal framework for foreign direct investment. As a result of an increase in the exchange of information – whether reactive or proactive – overall, there has been a greater mitigation of fiscal obstacles
and better prevention in the areas of combating fraud and tax evasion. In essence, it is important that, before doing so, serious consideration should be given to the conditions to be defined in intra-group operations so that they adequately reflect the functions and risk-taking capacity of each entity vis-à-vis the model business to adopt.