Best Practices in Transfer Pricing Risk Management

Keith Brockman

EMEA Tax Director

Mars ETBC

Agenda

• Transfer Pricing (TP) Risks / Awareness

• TP Risk Management Strategies

• TP Risk Governance Framework

TP: Consistency / Controversy

Transparency / Information Exchange

• Multilateral Convention on Mutual Administrative

Assistance in Tax Matters

• 64 countries have signed the Convention as of 5 May

2014

TP Risks / Awareness: GAAR

• Anti-Avoidance Rules:

– Specific (SAAR) + Targeted (TAAR) + General (GAAR)

• Subjective & inconsistent

• Unilateral measures re: treaty interpretation

• Country implementation prior to OECD BEPS proposals

TP Risks / Awareness: GAAR

• Burden of proof: Taxpayer and / or tax authorities

• Treaty override of domestic GAAR rules

• Alternative dispute mechanisms?

GAAR: EU Parent-Subsidiary Directive

• Domestic law implementation

• Financial mismatches (PPL, hybrids, etc)

• GAAR:

– Artificial arrangements: gain improper tax advantages, and

defeats object, spirit and purpose of tax provisions

• Compliance with Directive by 31 Dec 2014

GAAR: EU Parent-Subsidiary Directive

• Determination of artificiality (one or more):

– Legal characterization, vs. substance, of individual steps

– Does not reflect economic reality

– Arrangement is not ordinarily used in reasonable business conduct

– Arrangement has offsetting or cancelling elements

– Transactions are circular in nature

– Arrangement results in a significant tax benefit which is not reflected in the business risks undertaken by the taxpayer

GAAR: Opportunities

• Tax governance framework: Significant transactions

– Materiality, internal governance approvals,

documented process

• Additional business purpose memorandum points

• Document alternative positions considered

• External advice, including opinions re: GAAR

International Audits: Challenges

• “Co-operative compliance” relationships

– Voluntary,

– No standardization

– Benefits? (Low risk rating (UK) vs. no significant benefit)

– Resource limitations

– Memorandums of Understanding

– Appeal & Arbitration avenues

• Longer periods of appeal (MAP, APAs, etc.)

• OECD / UN: Assistance to other countries

• Increased controversies / Double taxation

• Transfer pricing training / Development

International Audits: Opportunities

• Advisors: Global coordination / company knowledge

• Legal counsel: Internal / external coordination

• Proactive co-operative compliance relationships

• Regional / HQ coordination for key tax risks & TP issues

• APA’s: prior and future years

Perception: Country Tax Reporting

Challenges:

• Efficient & timely data collection

• Various proposals / comments & perspectives

• Technical basis vs. perception

• Confidentiality of information provided

Opportunities:

• Tell a story: supplemental reporting options

• Non-tax country contributions

• Review current disclosures in public domain

• Develop framework for internal discussion with scenario planning

Avoiding Double Taxation

Challenges:

• Time-consuming process for all parties

• Tax treaty mechanisms & domestic law

• Compensating adjustments: mutuality

• Increased informal / formal appeals globally

Opportunities:

• Co-operative compliance relationships

• Fast track appeals, advance / informal rulings

• Parallel appeals: domestic / bilateral / multilateral

• APAs, MAP, EU Arbitration Convention

Transfer Pricing Documentation

Challenges:

• Different requirements for multiple jurisdictions

• OECD principles + domestic overlay

• Complexities / cost for annual updates

Opportunities:

• Low risk assessment = simpler reporting

• Co-operative compliance opportunities

• Risk-based assessment approach

• Balance resources: compliance / strategic inputs

Transfer Pricing Governance

Challenges:

• Complexity of legislation and business structures

• Subjectivity of legislation and implementation

Opportunities:

• Global consistency in response to audit inquiries

• Centralized governance structure and policies

• Risk assessment process for new transactions

• Global TP risk assessment on a recurring basis

• Develop objective criteria & principles

• PE: Do’s & Don’ts List / tools for risk areas

Opportunities

• Global Tax Risk Policy

• Team Collaboration

• Negotiation Planning

• Partnering with the Business: Sit at the Table

• Taxpayer / Tax Administration Mutuality

• Proactive Audit Defense Strategies

Global Tax Risk Management Policy

• Reputational risk

• Board of Directors risk management

• Monitoring process

• Tax risk scenario planning

• Tax risk workshops

• Recurring assessment process

• Internal management alignment with overall strategies

Team Collaboration

• Country / Regional / HQ team collaboration

– Global disclosures

– Issue consistency

– Legislative developments: country impact / global assessment

– Combine country expertise with global tax risk knowledge

• Tax Team Organization: different roles for changing times?

– Tax Risk function

– Exchange of tax information by tax administrations

– Issue coordination

– Unilateral / Bilateral / Multilateral approach for audit defense

Strategic Negotiation Planning

• Negotiation training for tax audit engagement / appeals

• Proactive audit defense strategies for flexibility

• Alignment with external advisors

• Tax counsel coordination

Partnering with the Business

• Have a seat at the table: GAAR/strategies/risks

• Global mobility: PE awareness, coordination

• Business development: steering committee

• Key tax contacts for the business

• Tax newsletter: develop awareness and alignment

Taxpayer / Tax Administration Mutuality

• Risk assessment discussions

• Ways of Working

– Issue development

– Agreed upon procedures

– Draft data requests, timing of responses

– Non-relevant information / public disclosures

– Appeal procedures, minimize double taxation

Proactive Audit Defense Strategies

• Pre-audit planning: transactions, documentation

• Who will meet with the auditors: issue knowledge

• Transfer pricing issue coordination

• Review appeal strategies: local / rest of world

• Post-audit critique: develop learnings

Best Practices Blog

Keith Brockman

strbestpractices@gmail.com

@taxsafari

www.strategizingtaxrisks.com