Tax Risk Management Identified as Top Transfer Pricing Priority

Seventy-five percent of businesses identify tax risk management as their top transfer pricing priority, according to an EY report, In the spotlight: a new era of transparency.

Rising from 66% in 2013, the survey of 623 tax and finance executives across 36 countries reflects the striking impact of global calls for greater tax transparency on the boardroom agenda.

With initiatives such as the OECD’s Base Erosion and Profit Shifting (BEPS) project compelling businesses to share more information about their operations, businesses that are not prepared to meet new standards will come under increasing pressure to be proactive in disclosing transfer pricing activities.

The report finds, however, that 21% of businesses lack operational readiness to adapt to changing transfer pricing conditions and only 21% are fully compliant with global documentation rules.

“A new era of tax transparency is driving monumental change throughout modern tax functions, and businesses need to begin gathering essential data to build a clearer and more optimized long-term strategy for transfer pricing,” says Peter Griffin, EY Global Transfer Pricing Leader.

“Adapting to this new reality will be key to executing effective and compliant transfer pricing. With 73% of survey respondents still monitoring transfer pricing results on just a quarterly or annual basis, it is clear that a significant step change still needs to take shape.”

While 69% of respondents consider establishing a clear vision and strategy as the best approach to addressing operational issues relating to transfer pricing, only 35% describe their readiness to do so as “high.” And with many businesses still hindered by manual systems and processes, 49% identify lack of automation as the most difficult challenge in adapting the operating model.

Griffin says: “As governments increasingly move toward real-time reporting processes and the focus on transfer pricing intensifies, businesses need to evaluate the tools available to align their transfer pricing activities with IT reporting systems. Relying on periodic, ad hoc manual adjustments is no longer enough and could be costly both in terms of time and resources.”

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