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Multinational corporations fear that global tax reform will lead to double taxation

BUSINESSMultinational corporations fear that global tax reform will lead to double taxation

Companies surveyed by EY predict that we are entering a period of significant tax changes driven by factors such as global tax reform, technological changes, and inflation. From the international study in the field of Taxes and Transfer Prices (The 2024 EY International Tax and Transfer Pricing Survey), it appears that 84% of respondents identify a risk of double taxation, and 71% believe that global minimum taxes will affect transfer pricing policies in their companies. Meanwhile, three in four experts (75%) stated that a major challenge is the more efficient use of technology. According to 73% of respondents, investing in more advanced operational solutions in the field of transfer pricing would bring an improvement in risk management.

Transfer pricing is a key area of the tax function that oversees intra-group transactions of multinational corporations. International tax law reform significantly impacts the challenges companies face in this area. The vast majority of EY study respondents (84%) state that they are facing significant or moderate risk of double taxation resulting from the OECD project to change global tax regulations (BEPS). Meanwhile, 71% believe that global minimum taxes – linked to the aforementioned regulation change project – will have a significant or moderate impact on their company’s transfer pricing policies.

BEPS increases interest in Advance Pricing Agreements (APA)

The OECD proposal introduces a new international minimum tax rate of at least 15% for multinational corporations to prevent tax base erosion through profit shifting to so-called tax havens. The project will only cover large capital groups with consolidated revenues of at least 750 million euros.

According to EY’s research, more and more companies are turning to prior pricing agreements to negotiate the terms of intra-group transactions with the tax administration. Sixty-one percent of respondents believe bilateral APAs will be very useful, while the percentage was 59% for multilateral agreements. Interestingly, in 2021 this was believed by 34% and 30% of respondents respectively, meaning an increase over two years of about 30 percentage points. Additionally, 59% of company representatives believe that unilateral APAs will be very useful in managing transfer pricing disputes over the next three years, which is almost double (29%) compared to 2021.

Growing impact of external factors

A cascading array of regulatory and economic conditions affect business decisions made by companies and complicate the tasks of leaders responsible for transfer pricing strategy. Seventy-seven percent of them believe inflation will have a significant or moderate impact on transfer pricing policy over the next three years, while 51% state that higher interest rates have affected medium- and long-term intercompany debt pricing.

The obligation to achieve ESG goals also impacts transfer pricing policies. For 28% of respondents, this meant the need to change it to accommodate new requirements. Meanwhile, 42% of experts admitted that their organization has moved production from one jurisdiction to another over the past three years due to geopolitical issues. Six out of ten firms (62%) anticipate that changes in supply chains will have a moderate or significant impact on their transfer pricing policies over the next three years.

Time for new technologies

In a new reality, where the risk of double taxation has sharply increased, experts dealing with transfer prices must increasingly rely on technologies that will support them in traditional operations. Seventy-five percent of respondents noted inefficient use of technology as their first or second biggest challenge, while 67% struggled with poor data quality. Furthermore, 73% of company representatives state that investing in more advanced operational technology in the field of transfer pricing would bring a moderate or significant improvement in risk management. The vast majority of respondents (88%) believe that technology supporting the area of transfer pricing will generate significant savings at the company level over the next three years.

About the survey:
The EY International Study in the field of Taxes and Transfer Prices was conducted between September and October 2023. The survey included 1000 senior executives from large companies in 47 jurisdictions and 19 industries, who were asked about issues related to international taxes and transfer prices.

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