Both multinational companies and governments want to manage taxes in a
VANCOUVER, Jan. 26 /CNW/ - The global economic crisis is leaving both
multinational companies and governments around the world looking for ways to
maintain a reasonable tax base, with companies looking to minimize tax costs
and the governments wanting to defend their tax base. Indeed, according to
PricewaterhouseCoopers (PwC), it is in these times that transfer pricing
becomes a double-edged sword.
Transfer pricing is the practice of determining prices for cross-border
transactions between related entities of a multinational company. With the
global recession and reduced liquidity in the markets, multinational companies
in British Columbia should be reviewing their transfer pricing policies as one
way to help manage through the downturn and defend their approach to transfer
pricing in the event of an audit.
"Transfer pricing is particularly important during economic slowdowns
since the tax authorities worry that multinational entities may set transfer
prices on cross-border transactions in a way that reduces their taxable
profits," said Elisabeth Finch, a Transfer Pricing partner in PwC's Vancouver
Tax Services practice. "The slowdown in the US, which represents about 20% of
the global economy, is being felt around the world, and it is reasonable to
expect that tax authorities will step up regulatory enforcement and pursue
more transfer pricing audits of multinational companies in an effort to
maintain their tax revenues in a declining business environment."
Finch added: "British Columbia is home to many forestry, mining,
technology, life sciences and other companies who also have operations in the
United States and elsewhere. The current downturn is a great time for these
multinational companies to review and optimize their transfer pricing
positions, and plan for the eventual return to an improved economic climate.
Some transfer pricing practices, which may have been overlooked in better
economic times, could now come under scrutiny and settlement positions agreed
to previously by tax authorities may be revisited."
The upcoming federal budget will bring heightened awareness of corporate
taxes and the significant contribution they make to government revenues. And
yet, while recent tax reforms in Canada have produced real savings for many
companies, according to PwC's Total Tax Contribution survey, companies are
still subject to more than 200 possible taxing points-the number of tax
obligations a business would be required to fulfill if it were subject to all
taxes in all jurisdictions. "The tax landscape in Canada is complex, so it is
particularly important that companies consider the impact the downturn has on
their business and the costs and time it takes to comply with regulations,
especially in today's market," said Barry Macdonald, partner in PwC's Transfer
Pricing group in Vancouver
To help manage through the downturn, ensure regulatory compliance with
tax authorities, and take advantage of the opportunities that may arise in the
current downturn, Finch and Macdonald offer these tips on transfer pricing for
BC-based multinational companies:
- Keep a close eye on whether the economic downturn is affecting your
business differently in different countries.
- Review your company's compliance with the 'arm's length' pricing
rules, and adjust your policies, if necessary.
- Keep your ear to the ground-determine whether other businesses in
your industry are being tax audited.
- Ensure that your internal transfer pricing support documentation is
up-to-date and tax audit ready.
- If you need to shut down operations in one country, think carefully
about which part of your business should pick up the closure costs.
For more information on transfer pricing, visit
For more information on managing in a downturn, visit
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