New wave of transfer pricing audits
The new 2021 transfer pricing (TP) audit wave has been launched this week.
Below, some ‘Must-Knows’ relating to TP audits:
- The TP audit selection process often occurs via a software platform.
Some typical red flags are business restructurings, IP transfers, missing TP documentation, steady cash pool positions, volatile sales or operating margins or material amount of losses carried forward.
- The TP audit squad has been substantially strengthened during previous years and also provides technical support if TP issues are detected during standard corporate tax audits.
- The TP audit procedure typically lasts between 6 to 18 months and starts with a “standard” audit questionnaire.
- The pre-filing audit (virtual) meeting is highly advisable as it allows to limit the scope of the questionnaire by targeting certain questions. It has to be requested within 10 days.
- Since tax year 2019, the ‘cash for tax-audit measure’ aims at refusing the use of tax attributes against tax & TP adjustments if a tax penalty of minimum 10% is imposed. Hence, even companies with tax losses could face direct cash out.
In order to avoid a long-lasting procedure as well as adjustments that could potentially lead to double taxation, it is of utmost importance to clearly outline the strategy to be adopted at the very beginning of the audit process. Note that in case a TP audit leads to double taxation, a mutual agreement procedure (‘MAP’) should be considered.
Generally speaking, it is recommended to have an accurate and updated TP documentation available justifying that the TP policies are at arm’s length.
Do not hesitate to call upon our team to assist you in this process.