Navigating Transfer Pricing Scrutiny: Insights from Aibidia's Report

Aibidia, a technology provider specializing in transfer pricing (TP), has raised concerns about the ramifications of overlooking pillar two, labeling it a significant issue and a warning signal for companies. The company's warning comes in light of a recent report indicating that more than half of multinational enterprises have faced heightened scrutiny from tax authorities regarding transfer pricing matters. This revelation stems from research conducted by Aibidia, encompassing input from over 100 professionals including in-house tax leaders, advisory experts, academics, regulators, and other TP specialists.

The survey, which predominantly attracted responses from in-house tax and transfer pricing leaders (65%), representing companies with diverse revenue brackets, highlights a prevalent trend of increased scrutiny. While the majority of respondents were based in Europe (90%), a smaller percentage hailed from the Americas (7%) and Asia (3%). The findings underscore a widespread experience of transfer pricing scrutiny across multinational enterprises, with 36% reporting a "moderate" increase and 17% indicating a "significant increase."

Brigitte Baumgartner Garcia, a TP professional and co-head of Aibidia's compliance product, attributes the surge in scrutiny to governments' heightened vigilance amidst a backdrop of economic downturns exacerbated by events such as the conflict in Ukraine. Notably, larger companies are more likely to bear the brunt of intensified audits, reflecting the broader economic landscape's impact on regulatory actions.

Further analysis reveals that a minority of companies (7%) are allocating substantial resources, exceeding 500 hours annually, and 2% are investing over $2 million in audit responses. Additionally, the report underscores a proactive approach among companies, with over two-thirds (67%) preparing local files for all required countries and entities. This proactive stance aligns with the growing trend of mandatory submissions, underpinned by the threat of financial penalties for non-compliance.

Pia Honkala, co-head of Aibidia's operational TP product, stresses the strategic significance of compliance, asserting that while it may be perceived as a cost internally, it holds the potential to bolster a company's strategic financial planning by enhancing risk awareness and decision-making.

Turning to the OECD's pillar two project, which seeks to establish a global minimum tax rate for large multinational corporations, the report suggests widespread anticipation of substantial adjustments or overhauls among surveyed multinationals. Garcia warns that overlooking pillar two represents a critical issue and a red flag for companies, urging proactive engagement with the impending regulatory changes.

Moreover, the report sheds light on advisory firms' diverse approaches to supporting clients in navigating pillar two requirements, ranging from targeted advice to comprehensive compliance services. This nuanced response reflects the evolving regulatory landscape and the imperative for companies to adapt their TP strategies accordingly.

By fLEXI tEAM