The way tax administrations select transfer pricing cases for audit varies dramatically across the world. Learning their tactics is vital for taxpayers looking to avoid the scrutiny of revenue-hungry officials.
In a recent OECD report, “Dealing Effectively with the Challenges of Transfer Pricing”, various authorities were queried on how they select companies for transfer pricing audits. The methods range from computerized risk assessment models on the highly developed end of the spectrum to traditional audit based on regularity as opposed to risk assessment.
“The more sophisticated the approach to risk assessment and management, the easier it is to focus resources on the most material risks and the less likely it is that audits and enquiries will be unproductive and waste the resources of business and tax administrations alike,” said the report.
A focus on a risk based assessment model would place enhanced emphasis on areas where authorities deem profitable in terms of anticipated adjustments. The efforts are directed at improving audit efficiency and effective use of resources by the authorities. From a corporate point of view, those entities with balanced transfer pricing policies should benefit from this methodical approach.
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