Transfer Pricing: Risk Based Monitoring
Tax base erosion and profit shifting (otherwise known as BEPS) are two of the major causes of revenue loss for resource-rich countries. What steps can governments take to counter these strategies? Experts advise that risk-based monitoring can help governments identify and investigate companies who use such practices.
Three steps to counter transfer pricing risk (based on the toolkit for transfer pricing risk assessment)
Step 1: Prioritise cases for investigation- Choose companies in risk order, using factors like sales revenue, Earnings Before Tax, losses and tax paid.
Step 2: Assess risk- Map a company’s structure and transactions. Rank companies based on the risk of transfer mispricing against the value of party transactions.
Step 3: Audit- Compare transfer prices to arm’s length prices.