Global Tax Reforms and Technological Challenges Amplify Transfer Pricing Complexities: EY Survey
Global tax reforms, technological inefficiencies, and economic volatility are creating significant pressure on businesses’ transfer pricing (TP) functions, according to the 2024 EY International Tax and Transfer Pricing Survey. This survey, conducted among 1,000 TP professionals across 47 jurisdictions, including 35 from Southeast Asia (SEA), reveals a growing concern over double taxation risks due to tax reforms.
The survey participants are indicating a phase of fluctuating effective tax rates, influenced by changing supply chains, tax reforms, and inflationary trends. Transfer pricing, which manages internal transactions such as cross-border subsidiary payments and intellectual property licensing, plays a crucial role in global organizations.
A majority of respondents (86% in SEA, 84% globally) perceive a moderate to significant risk of double taxation due to tax reforms, while 71% across both regions anticipate that global minimum taxes will impact their TP policies. This has led to an increased focus on obtaining certainty through advanced pricing agreements (APAs) with tax authorities.
In Southeast Asia, companies are increasingly seeking APAs for assured TP outcomes and engaging in mutual agreement procedures to mitigate double taxation risks. Tax departments are under pressure from the complexities of global tax reform, prompting a strategic shift towards proactive engagement with tax disputes.
External factors like inflation, rising interest rates, supply chain modifications, and commitments to environmental, social, and governance (ESG) goals are complicating decision-making for TP leaders. In SEA, a small fraction has adjusted their TP policies for ESG considerations, while a significant portion believes inflation and rising interest rates will impact their policies.
The role of technology is crucial in enhancing TP strategies, with a notable percentage in SEA citing suboptimal use of technology and data quality issues as primary challenges. Investing in advanced TP technology could significantly improve risk management and yield cost savings over time, according to survey respondents.
As companies navigate supply chain uncertainties and environmental goals, tax functions must realign their TP strategies accordingly. Establishing a standardized framework for tax and TP data is essential for adapting to these shifts and transitioning from compliance to operationalizing TP policies for enhanced resilience.
In conclusion, the pursuit of TP certainty through APAs is gaining traction among businesses to ensure value in a BEPS 2.0 environment. TP functions must evolve to achieve certainty by prioritizing dispute resolution mechanisms supported by standardized data. As tax audits become more detailed, companies need comprehensive policies and documentation to substantiate their TP practices to address economic and geopolitical shifts effectively.
