Most Read Contributor in South Africa, September 2016
The realities of the business environment in which multinational
groups operate today consist of a shrinking domestic market and an
ongoing pressure to reduce costs. In addition, multinational groups
are also faced with the different expectations of different
stakeholders and the increased disclosure requirements of financial
data. It seems that many multinational groups may have risk
management structures in place, but often lack proper control
Transfer pricing governance needs to be based on the strategic
goals and aims of transfer pricing, and multinational groups must
consider how to manage their transfer pricing risks and processes
to achieve the these goals. It is important to identify individuals
within a multinational group who understand transfer pricing and
ensure that there is constant communication between these
At the same time, the management of multinational groups needs
to handle the expectations of various stakeholders such as
shareholders, banks, tax authorities, auditors and the general
public. While shareholders expect a high net profit, public society
and tax authorities expect companies to pay their fair share of
taxes, while banks also expect proper transparency and auditors
expect reasonable tax assurance.
Multinational groups need to understand that contemporaneous
documentation is an essential requirement for transfer pricing
compliance, that centralised business structures and the use of
hybrid entities are being looked at intensely by all tax
authorities and that audit trails have to be maintained at the time
of preparing the transfer pricing policy.
Multinational groups need to increase the efficiency of their
transfer pricing compliance and manage their risks by evaluating
their existing transfer pricing processes, determine the best
practices required and develop an action plan to bridge any gaps.
Better transparency will affect the tax planning of employees and
improve communications with all stakeholders.
Multinational groups also need to ensure that their supply chain
does not result in Base Erosion and Profit Shifting (BEPS). This
may require the preparation of a detailed transfer pricing policy.
In striving for transparency, it is important to control both the
channel of communication as well as the level of information
shared, supported by a corporate governance model.
To avoid pitfalls with its transfer pricing position,
multinational groups need to assess whether their transfer pricing
policies and practices are:
founded on sound economic principles
and supported by a detailed analysis of the specific facts and
ensure that related party
transactions are taxed in accordance with functions and risks
undertaken by the various parties
flexible enough to be amended when
new transactions arise or corrective actions need to be taken
appropriate, given the functions
performed, the risks assumed and the assets employed
reviewed on a regular basis to ensure
the appropriateness of the pricing policies and practices, taking
into account recent changes in the business
supported by legal agreements to
allow for the proper management of both operational and tax
Multinational groups should undertake a transfer pricing risk
management assessment to review their specific business
circumstances, evaluate their transfer pricing risk exposure and to
mitigate and manage those risks, both for previous years of
assessment as well as for future years of assessment.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The expansion of the West African regional market to foreign investors, and the search for emerging markets has led to a continuous increase in business mobility and cross border investments with Nigeria.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
The major objective of the waiver is to promote voluntary compliance and consequently generate revenue for government which otherwise, could have been lost.
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