Recently Quantera Global co-hosted a breakfast meeting in London on Transfer Pricing Risk Management and Governance. The high level of attendance at the event proved the relevance of the topic and we were happy to share our insights and thoughts about the recent changes and possible actions that should be considered by inhouse professionals.
Corporate stakeholders are increasingly asking for a tax risk management structure. A recent example is the legal requirement in the UK for multinational enterprises (MNEs) that meet a certain threshold to make their tax policy known to the public.
It has to be expected that in (post) BEPS times tax authorities are becoming increasingly interested in the international tax and transfer pricing policies applied by an MNE. Local tax authorities obtain much of their auditing information from transfer pricing documentation, such as country by country reports. The flip side is that tax authorities will need to plan these audits carefully given the available limited auditing resources.
Tax authorities are therefore highly interested in the existence and quality of the tax risk management system of an MNE and try to build on this by basing the actual tax audit on what is already controlled and documented by an MNE. Furthermore, MNEs that lack tax and transfer pricing controls are likely to be flagged as high risk and face increased scrutiny.
In view of the above, the presence and testing of a tax control framework should be top of mind in every boardroom of every MNE. However, a majority of the boards are still not – or not in a structural way – involved in tax and transfer pricing risk management and are leaving this burden to the finance and tax function. The question is how this involvement of the board will evolve, given the material increase of investigations by tax authorities and attention from the media and other stakeholders.
The topic of tax and transfer pricing risk management as a part of good governance should be on the agenda of the tax function. Moreover, the new pressures from the changing tax landscape create the need for the board to take an active interest in this as well.
There is a number of ways in which MNEs can tackle tax governance. We want to share some references which we feel are a useful starting point when thinking about the tax governance function.
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