E&Y sees more aggression on transfer pricing

Ernst & Young sees tranfer pricing aggression

Tax authorities around the world are becoming more aggressive on transfer pricing issues, according to experts in Ernst & Young offices around the world.

A study shows that E&Y staff are seeing a ‘dramatic’ increase in the documentation demanded by governments and a greater willingness to impose high penalties more frequently when companies get their transfer pricing calculations wrong.

Transfer pricing relates to calculating the tax due when goods or assets are transferred between companies in the same group.

Authorities fear companies under price the assets as a means of drastically reducing their tax liabilities.

John Hobster, global accounts leader for transfer pricing at Ernst & Young, said: “Amid the challenges of a global economic downturn, many governments are sharpening their focus on compliance, enforcement and legislative approaches. While TP regulations were once confined to a handful of industrialized countries, they have since spread rapidly. As governments search for tax revenues to offset growing budget deficits, multinationals will have to be prepared for more TP investigations.”

E&Y said it expects more litigation in the future as tax authorities attempt to maximise revenues during the recession.