Transfer pricing perspectives: Winds of Change - PwC

From the time notification of an audit isreceived, it will also be important for theglobal or regional tax/transfer pricingteam to demonstrate their strong supportfor management of the local entity48 Transfer Pricing Perspectives. October 2011Support local managementFrom the time notification of an audit isreceived, it will also be important for theglobal or regional tax/transfer pricing teamto demonstrate their strong support formanagement of the local entity, who willactually be meeting with the examinationteam on a day-to-day basis. This supportgenerally comes in two parts:• Ensuring local management that theglobal and/or regional tax/transferpricing team is available at all times toprovide information, answer questions,or assist with the audit in any otherway that may be required duringthe audit process. Invariably, whilelocal management are often quitecomfortable negotiating with the taxauthorities in relation to income tax,withholding tax, or sales tax issues, theyare often less confident about discussingtransfer pricing issues, an area aboutwhich they may feel less knowledgeable.Consequently, the knowledge thatglobal and/or regional tax/transferpricing teams are ready, willing, andable to help at any time can greatlysmooth the management of transferpricing queries from the examinationteam as they arise during the course ofthe audit.• Providing local management withguidance about the transfer pricingissues that are likely to arise during theaudit process (often based on experiencewith audits in other jurisdictions) andhow questions about those issues shouldbe answered. The issues raised willdiffer among taxpayers, but typicallycover: unusual profit/loss results;transfer pricing policies outside ofwhat is typically seen in the industry;management services charges; businessrestructuring transactions; treatmentof intangibles; and problems arisingfrom implementation of stated transferpricing policies.Although it is expected that discussionsof this kind with local management willbe held regularly as part of the generaldevelopment and implementation oftransfer pricing policies within an MNC,it is helpful to reiterate these pointsagain once the start of an audit has beennotified by the examination team. This isparticularly the case in countries where thepenalties for tax or transfer pricing noncompliancemay have adverse consequenceson business operations, such as loss ofcustomer confidence or reputation in themarketplace, or regulatory implications.Developing and maintaining a strongrelationship with local management willensure that transfer pricing questionsraised by the examination team, includingrequests for information that are likelyto lead to transfer pricing questions, arebrought to the attention of the global orregional tax/transfer pricing team as earlyas possible. It should also ensure that thereare no inaccurate explanations of transferpricing policies to the examination team,which will be difficult to correct at a laterstage in the audit process.