Canadian companies more focused on critical tax risk management: EY survey
OTTAWA--As tax controversies continue to make headlines around the world, a new EY survey finds risk management is the top transfer pricing priority for 76 percent of Canadian companies.
That beats out the global trend, which shows 66 percent of companies identified risk management as their highest transfer pricing priority. That figure more than doubled from 32 percent in 2010.
"Companies that get the right transfer pricing and tax policies in place up front stand to win over the long term in this tough and controversial environment," explains John Oatway, EY partner and Canadian Transfer Pricing Leader. "The emphasis we're now seeing on risk management is reassuring - but it's only a step in the right direction. Every day, the business world becomes more global and interconnected. Transfer pricing is a major factor in that reality, and planning ahead directly affects the bottom line."
EY's 2013 Global Transfer Pricing Survey: Navigating the choppy waters of international tax found Canadian respondents were also more likely than their global counterparts to have had their transfer pricing policy examined by tax authorities in any country since 2009 (100 percent of Canadian respondents compared to 82 percent of global respondents).
Oatway says it's encouraging to see that more than half of Canadian respondents (52 percent ) are monitoring financial results quarterly to ensure compliance with transfer pricing policies, compared to only 38 percent of their global counterparts.
"There's no question that transfer pricing rules are vast and always evolving. Proactively getting the right processes in place to monitor compliance is the only way to avoid costly double taxation and controversy that can take a company off course," he notes.
To that end, key building blocks of an effective transfer pricing policy should include:
1.Knowing and documenting how the business and the industry operates
2.Identifying all material intercompany transactions
3.Determining how arm's length parties price similar transactions in the marketplace
4.Putting written intercompany agreements in place that memorialize the terms and conditions of the transactions
5.Instituting systems to effect the intercompany transactions in the agreed manner
6.Monitoring to ensure transactions are recorded according to the policy and intercompany agreements
7.Documenting and testing results annually to ensure they are arm's length, and making adjustments where necessary
8.Utilizing bilateral advanced pricing arrangements to obtain certainty where asymmetric transfer pricing policies exist
About the Transfer Pricing Survey
EY's biennial transfer pricing survey has been an industry benchmark chronicling taxpayers' views on this essential function of cross-border commerce for nearly 20 years. Transfer pricing refers to rates charged by entities within the same multinational corporation and can affect where profit is taxed.
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.