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Transfer-Pricing Crackdown

Governments closely scrutinize company transactions.

By Dave Lindorff | Updated on May 02, 2011

As governments worldwide struggle with record deficits and declining tax revenues, the pressure to generate more taxes is leading to increased scrutiny of multinational firms’ transfer-pricing methods by the Internal Revenue Service and foreign tax authorities.The crackdown on transfer pricing—the pricing of goods or services one unit of a company provides to another unit—comes with hefty penalties, says Horacio Peña, senior economist at PricewaterhouseCoopers. Penalties can hit 40% in the United States and go as high as 100% in Mexico and the U.K., Peña says. Developing nations are also getting into the act, including China, India and Brazil.

Steven Fortier, a principal at KPMG, says transfer pricing has become a “hot-button issue,” with corporate tax experts trying to reduce the risk of double taxation. A big focus in both the U.S. and Canada is outbound royalties, according to KPMG.

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