Siemens on how transfer pricing in Asia can be different
Li Ying, tax director and transfer pricing for North East Asia at Siemens, and one of the speakers at International Tax Review’s Asia Tax Forum in Singapore in May, talks about the issues that are taking up her time, how transfer pricing in Asia Pacific can be different to the rest of the world and the one change that would make her life easier.
International Tax Review (ITR): Which countries in the part of the Asia Pacific region that you cover are getting your attention at the moment?
Li Ying (LY): I am only responsible for Greater China and Mongolia. Although India is not within my scope, I always keep a keen eye on Indian TP developments. There's no doubt that Indian TP enforcement is distinctive, for example, in the use of the arithmetic mean instead of interquartile range; specific domestic transactions (SDT); and the assessment of marketing intangibles. It's apparent that developing countries, including China,are taking leverage of TP administration experiences from India.
ITR: What are the particular transfer pricing issues you are having to deal with there?
LY: Intangibles (including royalty) and financial transactions are getting more and more attention. Apart from that, China’s tax authority is also exploring the anti-avoidance of offshore share transfers.
ITR: Transfer pricing compliance is a hot topic worldwide now. Has anything changed in how tax authorities deal with this?
LY: In addition to the information collected through traditional TP compliance channels (for example, TP returns and TP documentation reports), tax authorities are getting their information from other sources, including information exchange with treaty partners, Customs offices and banks where taxpayers get their loans. Moreover, for key taxpayers, the tax authorities follow their financial news on public media and the company's own websites. It is becoming more difficult to hide anything from the tax authorities.
At the same time, the tax authorities are also aware that TP compliance is also a huge burden for themselves in terms of human resources and money. Therefore, they are also keen to develop simplified measures for non-significant transactions by introducing safe harbours, for example.
ITR: Asia Pacific countries such as China and India take a different approach to the OECD on some aspects of transfer pricing. Is this a serious problem for multinationals or just something you have to get used to when doing business?
LY: It's perfectly true that China and India are having their own voices in some aspects of TP practices. As an MNE, we factually feel the pain. It is a serious problem but it is only one of the risks that management balance when making investment decisions to those countries. Sometimes double taxation is the price that an MNE must pay in order to enter a market.
The best way to solve it is to have a BAPA (bilateral advance pricing agreement). However, considering the time cost, financial cost, the risk of divulgence, and the short lifetime of a BAPA in A dynamic economy, some MNEs simply choose to take the double taxation directly.
ITR: Anti-avoidance rules, both statutory and non-statutory, have also become a hot tax topic worldwide recently. Are such rules in this region easy to understand and simple to comply with?
LY: China and India are competing with each other for the most "difficult, ambiguous, and uncertain TP regime in Asia". Comments from practitioners indicate that TP rules are short, obscure and subject to various unpredictable applications across the country. They are definitely hard to understand and difficult to comply with.
ITR: If one change to transfer pricing rules in any part of Asia would help you in your role, what would it be?
LY: Introducing safe harbours for simple functions (like contract manufacturing, routine distributors, and contract R&D service providers) to reduce uncertainties for taxpayers doing business in Asia.