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Why country by country reporting is not compatible with transfer pricing realities

An estimated $110 billion disappeared because of transfer mispricing on the import of crude oil in the EU and US between 2000 and 2010, a recent report from Publish What You Pay (PWYP) Norway said.

The report, as covered by www.tpweek.com, says that companies in the extractive industries are using rogue transfer pricing methods to transfer profits from the source countries to the companies themselves.

PWYP, which campaigns for transparency in multinational entities’ financial reporting, also said tax administrations in developing countries rarely have the resources or the ability to check that transfer pricing is in-line with arm’s-length standards.

Country by country reporting (CBCR)

PWYP has put forward a policy proposal for consideration by the EU, which would require multinationals to disclose full financial statements on a per-country basis.

Janine Juggins, global head of tax for Rio Tinto, said she does not think the PWYP report is a fair reflection of the true situation: “It is not possible to accurately quantify the proportion of transfer pricing that is correct versus the proportion that is incorrect, nor would the publication of full financial statements change this conclusion.”

“Many related party transactions take place between countries that have extensive transfer pricing legislation, and transactions with entities in low tax countries will not withstand scrutiny unless supported by the facts,” Juggins added.

Companies in the extractive industries, like all multinationals, are already subject to transfer pricing rules in every operational country that has transfer pricing legislation. They are therefore required to maintain transfer pricing documentation to comply with the relevant laws and to avoid tax penalties, and are subject to tax return filing requirements and tax audits.

To read the rest of the story, visit www.tpweek.com.

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