TP Week has polled senior tax directors, transfer pricing directors and leading tax advisers worldwide, to compile its top ten list of the toughest tax authorities for transfer pricing.
Polling has been running for the past month and, while the core group has remained similar, their relative positions have moved substantially. In the end tax authorities which have been aggressive for a long period occupied the top places in the table.
There are a fair few bubbling under as well. These are largely Latin American jurisdictions which attracted a range of votes but not quite enough to feature in the final top 10. Hong Kong was mentioned by one tax director with particular bad experiences.
We intend to keep the table running as a regular feature of TP Week and we welcome your nominations if you are a tax director, transfer pricing director or a senior tax adviser. Please write to tpweek@euromoneyplc.com.
Japan was a constant feature in the early polling in the top three but votes from the US and Asia confirmed its status as the toughest transfer pricing jurisdiction worldwide.
One leading tax director said: “I have been in this business for 15 years and I can state unequivocally that Japan has been the most aggressive authority to deal with for many years. I don’t think there is a single authority which has been so tough for so long.”
This view was borne out throughout our survey. However, in early polling France appeared at number one. But mid-way through our exercise, the tide turned. Tax directors’ assessment of the French mellowed. “France is tough but it is ultimately fair,” said a local TP director.
“It takes a robust view on compliance issues. Its transfer pricing audits are rigorous but the appeals process is balanced and fair.”
Germany was a different story. It has adopted an approach which is causing pain now to a range of professionals across our community and as such scored consistently at the top of our list.
“The German tax authority is worried about the number of companies which are moving out to lower tax jurisdictions and it is taking the view that it will take what it can get. It is viewed by many of my colleagues as being unfair,” said a senior TP adviser.
The US is a major centre for transfer pricing and the IRS has traditionally taken an absolute perspective on transfer pricing rules. Last week’s US Treasury report says that some of its rules are now way out of date and that passage of new more flexible rules is an urgent priority.
It was a consistently held among respondents that the IRS is over-zealous in the application of its TP policy and that it gives little room for compromise.
Top 10 toughest tax authorities for transfer pricing |
|
1. |
Japan |
2. |
Germany |
3. |
US |
4. |
Australia |
5. |
France |
6. |
India |
7. |
Korea |
8. |
China |
9. |
Canada |
10. |
UK |
Across the patch in tax, the Australia Tax Office is seen as an aggressive force which sees potential evasion and tax planning schemes. “It has become much worse in the last few years,” says a tax director based in Sydney. “Audits are tougher and more frequent. The Tax Office appears to assume that we are in the wrong and it takes no prisoners.”
One tax director and one adviser put Korea at the top of their lists. “Uncompromising and relentless is how I would describe their approach,” said one transfer pricing director. No company would go the record to say that it feared a visit from a TP audit team from the National Tax Service but they were nervous about being indentified.
There was a question about India. Some of our respondents put it at number one and others number ten so on the balance its placing at six in the chart reflects this dichotomy.
“I would nominate China for your number one position in a couple of years’ time,” said an adviser from a large international firm. “It has not had the trained resource until comparatively recently. But it is staffed up now and there are already straws in the wind that it will be ruthless in audits and give no ground in appeals.”
The year in tax has been characterised in Canada by a long-running mutual dislike between the tax profession on one hand and the finance minister on the other. This has extended through to the Canada Revenue Agency. But it is not only Canadian directors which find the CRA dogmatic and unhelpful. This was a view shared across the world.
The UK’s Revenue & Customs is often seen in the forefront of a more pragmatic and businesslike approach started in the middle rankings. As the survey progressed it dropped down the table as others appeared less positive and less constructive.
