Why Choose KBKG as Your Transfer Pricing Partner
Transfer pricing (TP) is widely considered the most contentious tax issue for multinational companies. KBKG is positioned to deliver practical transfer pricing insights with personalized service. Our relationships with multinationals, CPAs, and other professional service providers enable our clients to optimize cash flow, reduce global effective tax rates, and manage audit risks consistent with global operations.
Why Think About Transfer Pricing? More than Just a Compliance Issue
Over 100 countries have laws in place to force companies to pay their ‘fair share’ of tax, and companies with international operations face a dilemma in satisfying the requirements of multiple tax authorities. While audits can take years to resolve, tax authorities understand that transfer pricing audits are a high return on investment.
Transfer pricing audits can lead to significant tax payments, interest, penalties, and double tax. In addition, the fact-intensive nature of transfer pricing requires significant management time and resources just to resolve auditor questions. Yes, transfer pricing auditors do want to understand the entire company value chain, including meetings with employees across the organization, domestic and international.
Did you know transfer pricing affects both global effective tax rates and cash flow? Transfer pricing certainly affects how much profit is generated by a country and therefore a company’s overall tax bill. However, transfer pricing also impacts where cash is generated by country. An international subsidiary incurring losses, for example, may not have enough cash to invest in hiring a new sales and marketing team or building a manufacturing facility. These situations hurt in at least two ways: the company (1) is likely overpaying tax in one jurisdiction and (2) needs to provide a subsidiary equity infusion to realize investment plans.
What To Look for in a Transfer Pricing Specialist?
1. Time-Tested Strategies – Yes, Been There, Done That
With 25 years of US and international experience, KBKG clients work with professionals that understand how the IRS and overseas tax authorities audit transfer pricing issues. This allows our team to anticipate tax authority strategies and prepare deliverables accordingly. Would a five-year analysis work help defend all open tax years during an audit? Would a limited-scope benchmarking study work better than a full documentation report in this situation?
Our time-tested strategies place our clients in the best position possible, regardless of the situation, with multiple tax authorities.
2. Let’s Talk Cashflow First – then Compliance
Since the transfer prices of goods, services, royalties, and loans all impact where cash is generated within an organization, a singular focus on compliance often leads to inefficient solutions. Companies do have some flexibility when managing transfer pricing, so a one-size-fits-all approach may lead to companies making suboptimal choices when balancing the needs of the business. A cost-plus ten percent profit benchmark for services may not be the right answer in all cases.
3. Yes, Address Both Sides of the Border
When two tax authorities audit the same transaction, the governments have polar opposite incentives. A tax adjustment from government “A” leads to less tax revenue for government “B” – effectively a zero-sum game. Fortunately, governments do apply transfer pricing principles that are largely consistent worldwide.
Not all advisors prepare reports to meet the tax authority requirements of both sides of the border. KBKG approaches each transfer pricing project with a focus on addressing risks from multiple tax authorities. A report solely prepared for the IRS can cause problems from a Canadian perspective without proper consideration of Canadian transfer pricing rules.
While the arm’s-length principle is the fundamental principle governing transfer pricing regulations, there are important nuances when balancing regulatory requirements. Would an Indian tax auditor be more concerned about a $1 million cross-border charge than the IRS?
4. Works Well with Others – Especially CPAs!
Transfer pricing issues do not exist in a vacuum, and any transfer pricing deliverable needs to be consistent with wider tax and accounting considerations. International Tax, Tax Net Operating Losses, and state and local tax issues are just a few factors for consideration. KBKG has been a valued tax specialty partner to accounting firms since 1999, and transfer pricing services are no different. In fact, KBKG’s transfer pricing group practice is one of the only providers generating the most revenue through partnerships with CPA firms, both in the US and globally.
5. Have a Question? What’s the most practical answer?
KBKG has the experience and availability to answer specific questions in a practical manner.
Need a Refresher on Transfer Pricing?
What is the arm’s length principle?
The arm’s length principle is the fundamental concept in transfer pricing. According to the arm’s length principle, the prices of related-party transactions should be comparable to those that would be agreed upon between unrelated parties under similar circumstances. In other words, the transfer price should not be affected by the relationship between related companies.
Which countries enforce the arm’s-length principle?
Over 100 countries worldwide enforce transfer pricing regulations, including all of the largest economies.