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Coming soon: Deloitte’s guide to TP controversy prevention and resolution

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In a new guide to be launched through ITR on September 27, tax experts from Deloitte member firms around the world will offer insights on how best to negotiate the increasingly challenging transfer pricing environment.

Heading into 2022, many anticipated that when public health restrictions on travel and business activity eased, normal conditions would resume. The reality, unfortunately, did not align with expectations, as multinational enterprises (MNEs) faced supply chain disruptions, unpredictable fluctuations in demand, labour shortages, and other uncertainty resulting from the pandemic.

While some MNEs struggle to adapt, most tax authorities have now resumed pre-pandemic-level transfer pricing audits, and mutual agreement procedure (MAP) and advance pricing agreement (APA) programmes have revived as well, although backlogs and long cycle times remain a concern.

The BEPS project imposed additional documentation requirements regarding cross-border transactions (for example, a local file and a master file). Tax authorities have become proficient at using these new resources to identify taxpayers that are deemed to pose an elevated risk of incorrect transfer pricing.

Insights from Deloitte experts

Next week, we will bring out an edition in which professionals from several Deloitte member firms will idenfity ways to reduce the chances of transfer pricing controversy and efficiently resolve controversies that may arise.

The edition will begin with transfer pricing documentation. Despite expanded documentation requirements, transfer pricing controversy continues to expand. This underscores the importance of documentation that demonstrates pricing in accordance with the arm’s-length principle. When documentation is prepared to meet a minimum standard, the likelihood of a challenge sharply increases.

Chapter 3 will consider BEPS-related guidance regarding profit split methods, financial transactions, and other issues arising from this tranche of guidance.

Chapter 4 will address the role played by APAs, focusing on India and China. Although these programmes face challenges, both countries have expanded the availability of APAs, which marks a positive development.

Chapter 5 will examine the potential for controversies in two important sectors: automotive and media. These sectors underwent significant changes during the COVID-19 pandemic. It may be appropriate to rethink established paradigms, particularly when industry participants are undergoing fundamental transformation.

Chapter 6 will examine several key aspects of the post-COVID-19 environment, including remote working conditions, increased availability and importance of data, and the rapid evolution of business models in response to a new operating envireonment

Chapter 7 will explore the relationship between transfer pricing and the emerging environmental, social, and governance (ESG) agenda. In view of recent initiatives put forward by the EU, the OECD, and others, transfer pricing has emerged as a key risk facing many MNEs.

Chapter 8 will evaluate several recent trends regarding audits and litigation. Information requests in audits have become increasingly sophisticated and comprehensive, as auditors seek detailed information, including data regarding the motivation for specific transactions. A growing body of transfer pricing case law is also developing.

Chapter 9 will provide insights regarding the arbitration of tax treaty disputes, including transfer pricing cases under the MAP article. As arbitration becomes more widely available, it holds the prospect of facilitating timely and principled resolution of difficult disputes, although a range of procedural and substantive issues remain to be resolved.

We hope you will like our edition. Stay tuned.

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