Arcotia Hatsidimitris - International Tax Dialogue

102 – ANNEX D
• Group members who have acquired, created or enhanced an asset that is used by other group
members, perhaps by incurring expenditure on research and development leading to the
creation or enhancement of intellectual property.
• Companies with innovative business structures.
• Significant group reorganisations involving business transfers overseas.
• Transactions with tax havens or shelters.
• Companies in a commercial relationship with a related party where non-tax factors provide
incentive for manipulation (regulatory requirements involving customs valuations, antidumping
duties, currency exchange or price controls, or cash flow incentives within a group
affecting where profit is reported or how dividends are financed).
• Loss making companies in commercial relationship with a lower marginal rate taxpayer
where the loss is as a result of payments to that entity.
In addition, risks arise where transfer pricing policies and methodologies are not up to date and
do not or no longer accurately reflect the operation and management of the business.
How risk assessment is undertaken
Country basis
• The statutory tax rates of the countries in which the group operates are examined, in order to
determine whether there is any identifiable incentive for moving profits around the group.
Transactions with tax havens are by nature higher risk and are selected for detailed
examination.
• The effective tax rate (ETR) in each country is calculated and compared with the standard
rates present in each country. If the ETR is significantly different from the standard tax rate,
this is examined in further detail and variances explained.
• Countries in which the tax authority is known to be aggressive in respect of transfer pricing
or where OECD methodologies are not followed are highlighted for more detailed review.
Business basis
• The business model commonly employed by the group is examined. This includes analysis
of the key function providers, asset holders and risk takers of the group.
• In addition, the share price strategy of the group is monitored. For example, is there an
incentive to move profits to the shareholder (dividend paying) entity (e.g. Australian
imputation credit rules)?
• Local profit margin is analysed in reference to that company’s activities within the group.
• Local profit margin is compared with the group profit margin, to identify whether this rate is
in line with the group as a whole.
DEALING EFFECTIVELY WITH THE CHALLENGES OF TRANSFER PRICING © OECD 2012