The financial services industry expects the UK to be the most aggressive tax authority in challenging their transfer pricing policies over the next two years. Executives also predict that US, Japan, France, Germany, South Korea, India, Canada and Australia will also be active with their scrutiny of the industry's practices in the area.
A global survey of transfer pricing in the financial services industry, conducted by Ernst & Young, also found that it was central to the management of tax risk among financial services companies. At least 50% of the respondents set aside a provision for transfer pricing risk in their financial statements.
"Tax authorities around the world have been stepping up their efforts to enforce transfer pricing rules, as it gives them a way to increase tax revenues without raising headline tax rates," said Stephen Labrum, a partner and transfer pricing specialist at Ernst & Young UK.
Fifty-two percent of the participants have global transfer pricing policy guidelines, but only 17% prepare the documentation required by tax rules in a globally coordinated manner. A little more than half, or 56%, perform economic analysis to show tax authorities that their pricing is consistent with tax standards.
The research was carried out during May and June among 108 companies throughout the world, including Australia, Japan, Hong Kong, the UK and the US.
