Governments line up transfer pricing tax crackdown


21 Sep 2009

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Cross-border controls on transfer pricing are coming under increased levels of scrutiny as governments target them as an easy source of tax revenues, according to KPMG.

Businesses with operations in China, Vietnam and Greece face vastly expanded checks on pricing, while most Western economies are tightening up their own cross-border audit programmes, reported the firm's Global Transfer Pricing Services practice.

Authorities are keen to target tax discrepancies around transfer pricing. It is the costing of assets or services transferred within an organisation, which differs from arms-length pricing - the transfer of services across borders between unrelated companies.

Many of Europe’s largest economies have introduced a raft of new measures, the survey found, including new documentation requirements, increased use of transaction-based methodologies and stricter valuations of intellectual property and business opportunities.

The most active region was Asia-Pacific, with India, Australia, China, the Republic of Korea and Japan all noting increases in audit activity, with Singapore expected to follow suit, all bolstering their tax regimes to match Western levels of scrutiny. Similarly, Eastern Europe is seeking to capitalise on the number of firms launching in the region hoping to take advantage of lower costs.

Companies operating in the US are increasingly turning to advance pricing agreements (APAs), an agreement made in advance between the taxpayer and the authorities on the prices of a transaction, in the hope of predicting future tax revenues more stably.

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