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By Steven C. Wrappe

Steven C. Wrappe is a principal in the Economic and Valuation Services practice of KPMG LLP, serving as the national leader and deputy head of global transfer pricing dispute resolution.  He is based in the firm's Washington, D.C., office.

The author explores how changes driven by the global effort to combat base erosion and profit shifting affect companies' decisions to hire in-house staff for transfer pricing as well as the need for greater coordination between in-house and outside experts.

Tax personnel at multinational companies around the world have been closely following developments in the Organization for Economic Cooperation and Development's Action Plan on Base Erosion and Profit Shifting (BEPS), on which final recommendations were issued Oct. 5. 1 Transfer pricing, in particular, has been a primary focus of the BEPS project, substantially increasing the transfer pricing compliance and defense requirements of companies. Indeed, even before BEPS, companies had been adjusting to a growing number of countries that actively enforce transfer pricing rules and a swelling inventory of tax disputes between treaty countries. BEPS is just the latest development that adds to transfer pricing compliance and defense requirements.

Companies have been preparing for an increase in transfer pricing compliance and defense requirements since the project began in 2013. In many organizations, in-house tax personnel are exercising centralized decision-making authority over transfer pricing determinations and are performing more of the routine compliance functions. Even on major outsourced projects, in-house tax personnel are taking a more active role when working with outside advisers.

Companies may, in light of the above, hire additional in-house staff to reduce costs and maintain control of global transfer pricing determinations. Even with increased in-house capability, companies may continue to employ outside transfer pricing service providers to assist with new or difficult issues, to represent them in transfer pricing controversy and provide in-house personnel with updates and training on global rules. With the increased compliance and defense requirements resulting from BEPS, companies should give fresh consideration to coordinating between in-house staffing and outside transfer pricing professionals.

Deciding to Outsource 

When the final penalty regulations under Internal Revenue Code Section 6662 became effective in 1996, a number of factors influenced company decisions whether to outsource transfer pricing compliance or perform that compliance in-house. They included:

  • the availability of experienced professionals in transfer pricing compliance and controversy;
  • the relative cost of outsourced transfer pricing documentation;
  • control over and consistency of the company's global transfer pricing determinations; and
  • the availability of training and updates on global transfer pricing rules.         

Initially, many of these factors encouraged the outsourcing of transfer pricing documentation to professional firms. Few experienced transfer pricing professionals were available for hiring, because, as a general matter, prior to 1996, transfer pricing enforcement was limited. A lack of standardized reports and processes made the relative cost of in-house documentation higher, because professional firms could spread the cost of developing templates and processes over multiple clients while in-house teams could not. Centralized control and consistency of transfer pricing determinations generally was not considered important because few governments actually enforced transfer pricing rules. Finally, training and updates on current global rules updates were available through professional firms, but in few other places. For all of these reasons, many companies initially chose to outsource transfer pricing compliance.

In the decade after 1996, some of the factors that encouraged outsourcing were eroded. Employees at companies, the Internal Revenue Service and professional firms gained experience with transfer pricing compliance, making it easier for companies to find and hire experienced transfer pricing personnel. Although the cost of individual outsourced transfer pricing studies may have decreased due to standardization of reports and processes, the overall cost of global transfer pricing compliance had continued to rise as more countries began requiring or at least encouraging companies to prepare transfer pricing documentation. Centralized control and consistency of transfer pricing determinations also became more important due to the increase in global transfer pricing enforcement. Transfer pricing training and global transfer pricing reference materials also became generally more available. Overall, the ability of companies to develop in-house transfer pricing expertise improved and in-house documentation became more cost-effective than outsourced documentation.....

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP. The information contained herein is of a general nature and based on authorities that are subject to change.  Applicability of the information to specific situations should be determined through consultation with a company's tax adviser.

1 See the related article in this issue, which also contains links to the documents.


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