Transfer Pricing for Financial Services Sector

Transcription

1 Transfer Pricing for Financial Services Sector 19 September The current TP landscape 2

2 The current TP landscape - FS perspective Until now, low level of tax audit activities - however significant volume and amount at stake Tax authorities move to transactional focus Increased focus on corporate governance - increasing need for transparency TP can be used as a tool to create transparency and practical reporting system for banks and financial institutions OECD Part II & III leads the way Most tax jurisdictions have formal transfer pricing documentation, increasing need for transparency - this transparency may work against taxpayers if not properly managed Increased reporting obligations also increases the visibility of third party data (i.e Loan Pricing Connector) and hence argument that no reliable data exists may no longer be relevant Risk management and FIN 48 processes TP is not simply risk focus often the planning angle gets overlooked 3 Common TP challenges 4

3 Common TP challenges - FS perspective Highly complex cross border trading activities involving multiple locations (origination, management and ongoing risk management can be located in different locations) Dynamic industry and heavy reporting obligations means taxpayers are often playing catch up when designing their transfer pricing policy that is consistent with their business model Deregulation in this industry erodes boundaries between traditional banking, investment banking and insurance industry Lack of guidance and experience from tax authorities resulting in misalignment of approaches between taxing authorities risk of double taxation Limited access and availability of third party comparables results in reliance on anedoctal evidence creating risks for taxpayers 5 Common TP challenges - FS perspective Enhance technology allows financial institutions to manage high volumes of cross border transactions Improved technology facilitate sharing of functions Multiple levels of involvement (more than one profit centres) Misalignment between various books (i.e. statutory, tax, regulatory, US GAAP/IFRS and management books) KERT* analysis requires transparency within organisational structure - information disperse throughout organisation resulting in costly exercise Limited resource and buy-in internally to support transfer pricing exercise * Key entrepreneurial risk-taking functions 6

4 Feedback from Leading Banks 7 Feedback from Leading Banks Views from Europe Most believe that KERT is important however the common difficulty relates to the allocation of KERT between more than one location and the appropriate profit split between the functions Use of broadly defined transfer pricing policy and refrain from using the masterfile approach otherwise significant challenges in playing catch up Common practice for BUs to obtain tax and transfer pricing sign off based on risk does that create missed opportunities BUs do not have the relevant TP expertise and sometimes poor communication between BUs and tax group resulting in lack of consistencies of treatment Overall sign off policy required based on risk defined thresholds (stick vs carrot approach) 8

5 Panel discussion 9 Conclusion 10

6 Some Practical Recommendations Increase transaparency and internal communications between key stakeholders no other way around this ensure TP risks is part of the overall tax sign off Conduct feasibility analysis, prioritise risks (or opportunities) and obtain buy in and support from key stakeholders beware of jurisdictional differences Seek independent verification and benchmark where available Use broadly defined transfer pricing policy and modular approach minimising discrepancies between accounting, legal, tax and economic principles Overall sign off policy required based on risk defined thresholds (stick vs carrot approach) Create internal awareness of TP risks and opportunities - what better time to start than now when the focus on corporate governance is significant 11 Questions & Answers 12