The Academy of Tax Law would like to congratulate the head of our academics, Dr Daniel N. Erasmus, and his team for another successful transfer pricing tax appeal before the Tax Board in Tanzania.
These successes are a testament to our approach in teaching our international taxation and transfer pricing courses.
This process has also been successfully implemented in many multinationals through students that have attended our various courses.
Dr Daniel N. Erasmus says:
Dr Daniel N. Erasmus says:
“Our approach in preparing for and arguing TP trials has proven to be successful again.
In assessing tax exposure to TP risks, we offer a retainer program where I will participate in tax steering committee meetings for MNE’s and add a number of free hours to assist in any revenue authority disputes that may emerge.The advantage of the tax risk steering committee under an “attorney/client privilege umbrella” allows MNEs to focus on current and emerging tax risks, and determine the most effective way to manage the exposure down. The tax team in these meetings will be myself, with the CFO, head of tax and the outside audit firm tax partner attending to the MNEs tax issues. This gives an opportunity to guide the MNE with the input of the ket experts and drivers in the process.
I quote highlights from a recent TP article below that I totally agree with.
Raising the Red Flags in TP:
1. High-value transactions and significant inter-company transactions:If your transactions are high value, either standalone or in the context of your business, you are a likely audit target. It is crucial that evidence of arm’s length pricing is compiled.
2. Intangibles and Intellectual property (IP): All intangibles should be properly identified and adequately documented to avoid unnecessary and burdensome questions from the tax authorities. Furthermore, you need to ensure you are not inadvertently developing economic IP in jurisdictions, other than you may intend.
3. TP inconsistency and misalignment of legal agreements: Making sure that TP reports, financial data, tax returns, and legal agreements are aligned with TP policies that are appropriately implemented, is a basic TP must. In practice, however, this is a common problem. Reconciliation of data is key, and mismatching data and fact patterns are an easy red flag for any tax authorities.
4. TP models not supported by an appropriate level of substance:Significant people functions and substance, are increasingly being challenged, particularly in low tax jurisdictions. Ensure economic substance has been considered in both your TP model, narrative, and practice in your business.
5. High-interest rates/quantum of related-party debt: One of the OECD’s BEPS recommendations is that tax relief on debt should be restricted. This could cause significant increases in tax liabilities, especially for highly geared businesses. Interest rates and (often forgotten) guarantees also need to comply with TP rules and be properly supported.
6. Lack of annual TP documentation (Master file / Local file), benchmarking, and supporting evidence: TP documentation is required to support the pricing of related party transactions. Without TP documentation (including benchmarking studies), it is close to impossible to discharge the taxpayer’s burden of proof. TP Documentation, that doesn’t explain your business and commercial practices, is potentially as bad as none.
7. Procurement structures are being increasingly challenged:Procurement hubs (or centralised hubs of any nature) can be highly value-adding for Groups, but appropriate structure and TP models are key to reaping the true value from the supply chain.
8. Limited-risk entity structures: Even though limited-risk entities generally earn a low stable guaranteed return, COVID might have had unintended impacts on profitability. Proving you are indeed Limited Risk, has just gotten more complicated if suddenly you are experiencing reduced or volatile profitability.
9. Business Restructuring: Whether you are dealing with a M&A, debt restructuring, change in supply chain, disposal, or change in the functional/risk profile of a Group entity, a restructuring should automatically trigger a TP review. This often-overlooked chapter of the OECD Guidelines is getting more attention, as tax authorities catch up before businesses. “
If you would like to pursue the “tax risk steering committee” process in your MNE, please contact: Daniel.n.erasmus@me.com
The courses that use the approach above are:
International Taxation (click link to see all options)
- Postgraduate Certificate in International Taxation
- Postgraduate Diploma in International Taxation
- Masters in International Taxation
Transfer Pricing (click link to see all options)
- Postgraduate Certificate in Transfer Pricing
- Postgraduate Diploma in Transfer Pricing
- Masters in International Transfer Pricing
