“Documentation is not a guarantee for a successful audit,” said Gary Thomas, a partner of White & Case in Tokyo, who chaired the transfer pricing panel, “but it is essential to help you convince the authorities that your approach is appropriate.”
Lim Lee Ching, Asia Pacific tax director of Sony, said her company had a two-part approach to documentation which was based on understanding the functions, risks and assets of the business, and profit-level indicators and benchmarking.
The panel, which also included Chai Sui Fun, assistant commissioner, tax policy & international tax division, of the Inland Revenue Authority of Singapore (IRAS), and Peter Taylor, area tax manager for DuPont, also discussed topics such as controversy, enforcement, restructuring and advance pricing agreements before finishing up with a debate on the future of transfer pricing in Asia.
Chai encouraged any taxpayers thinking about restructuring their business in Singapore to come and talk to IRAS about the tax aspects of the arrangements.
“We are a friendly jurisdiction. You can involve us in the process,” she said. “I encourage you to sit down with the beneficiary jurisdiction. It’s free!".
Lim said the increase in audits now were being driven by tax collection.
“Audits in jurisdictions such as India are almost unavoidable,” she said. “You probably don’t have much choice but to litigate (if you’re unhappy with the result of an audit). In Malaysia you get a long list of questions and interviews with key people.”
Thomas urged taxpayers to take an interest in the progress of mutual agreement procedure (MAP) negotiations between the competent authorities of different jurisdictions.
“Sometimes MAP is left to competent authorities,” he said. “Taxpayers should be proactive.”
And Taylor raised the prospect of jurisdictions such as China following the lead of the Internal Revenue Service in requiring the disclosure of uncertain tax positions.
Taylor added there was a core question in transfer pricing.
“Whatever the state of the economy,” he said. “the arm’s-length principle has to be applied. The question is how to apply it.”