Transfer Pricing Study Should Not Be Your First Step

Wade Styons

Many accounting firms, especially the “Big 4”, have been recommending multi-country transfer pricing reports to reduce tax risk from Base Erosion and Profit Shifting (“BEPS”) laws which most, OECD (Organization for Economic Co-operation and Development), G-20 and emerging countries are implementing. While this is absolutely correct, it is only half so. The multi-country transfer pricing study is not a starting point, nor a complete defense; it is one part of the process – documentation.

We recommend an approach that is different in several ways. Most importantly, you should not pave over goat paths, but build highways to your destination. In other words, do not simply document a cumbersome and inefficient process. Instead, it is important to design a process that is both tax compliant and will achieve your business goals. Then, the process can be documented with a transfer pricing report.

First, when approaching transfer pricing, we recommend working with management to address the use of intangible property in your business. Second, analyze whether you can align risk and the use of intangible property more strategically to get a better tax answer. For example, by lowering withholding taxes and allowing for cash to flow closer to the shareholders with the minimum income and indirect tax. Third, draft intercompany contracts to support the alignment of intangible property, risks and functions. Fourth, implement an accounting and finance process in your ERP (Enterprise Resource Planning) and accounting systems to invoice and handle transfer pricing transactions. Once the process has been in place for several months, it is important for management to evaluate and confirm that the transfer pricing policy is working properly. After this process, you should compile the supporting transfer pricing documentation and validation of full compliance.

BILTgroup has the necessary experience to handle transfer pricing matters efficiently by developing a customized client plan, which will include creating the transfer pricing plan, intercompany agreement and all necessary policies. Utilizing an attorney will provide you with the comfort of high confidentiality standards with the use of attorney-client privilege and work product doctrine protections, which function to protect emails, memos and work product. In many jurisdictions, the very limited work product privilege for accountants has been continually eroded by court decisions. Furthermore, when properly established under a Kovel arrangement, confidential legal protections may be extended to consulting services performed by a non-lawyer third party specialist, such as an accountant or an economist.

Our law firm is focused on the practice of international law and tax. Our attorneys continually monitor developments and trends to provide the highest level of service to our clients. We can help your team design, implement and document a transfer pricing plan that is efficient and easy to replicate as your company expands into new markets. If you are curious to see how a new approach to transfer pricing may help your company or have any questions, please contact us at 919-615-3767 or email wstyons@BILTgroup.net.