Developments over the past year have done much to awaken public concern about the loss of tax revenue from companies' transfer pricing practices, with hearings in the U.S. Senate and in U.K. Parliament detailing how major multinationals take advantage of the existing rules to shift profits to low-tax jurisdictions. At the same time, recent discussion drafts from the Organization for Economic Cooperation and Development and work by the United Nations to create its own set of transfer pricing guidance reveal the growing influence of China and India—countries that consider themselves shortchanged by the OECD's traditional arm's-length approach—on global tax policy.
Meanwhile, stung by a major loss in a court case, Australia has revamped its transfer pricing rules to allow it to protect its tax base while adhering to OECD guidelines.
In the United States, officials have told taxpayers to expect any effort to address base erosion to occur within the context of international tax reform. President Obama's “Framework for Business Tax Reform” set out in early 2012 calls for a minimum tax on income earned by subsidiaries of U.S. companies operating abroad, as well as reductions in incentives to shift income by taxing excess profits associated with intangibles migration.
Whether or not such items of broad reform will materialize in 2013, U.S. multinational corporations can expect some changes over the next year to occur within the current regime. These include new regulations under Section 367(d) aimed at shutting down transactions that allow tax-free repatriation of earnings from foreign corporations, clearer guidance on procedures for seeking advance pricing agreements and competent authority relief, and speedier APA completions.
Those interested in further discussion of these and other transfer pricing issues are invited to attend the Bloomberg BNA-Baker & McKenzie Global Transfer Pricing Conference in Paris March 11-12. To register, visit http://www.bna.com/global-transfer-conference/.
Managing Editor, Transfer Pricing Report
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