Oil, gas companies see transfer pricing as key tax issue: survey
New York (Platts)--24Mar2011/1135 am EDT/1535 GMT
The vast majority of oil and gas industry finance executives have ranked
transfer prices as among the most important tax issues for their companies, a
survey by tax consultancy Ernst & Young has found, according to a report
The profile of transfer pricing issues has risen as governments face
significant deficits, which focus attention on "raising revenues through
taxation, with transfer pricing being a key instrument," according to the
The consultancy said that 95% of the executives polled as part of its
2010 Global Transfer Pricing Survey ranked transfer pricing--the pricing of
goods, intangibles, financial instruments and services transferred within an
organization--as very important or fairly important. And 67% said transfer
pricing was the most important tax issue they are dealing with, followed by
tax minimization and double taxation, according to the report.
By a high percentage, 84%, the executives also said that transfer pricing
audits were fairly likely or very likely.
The Ernst & Young survey included "independent interviews of 58
high-level (CFO to controller) energy executives," it said.
It noted that the countries found most likely to audit transfer pricing
for the oil and gas industry are Australia, Brazil, Canada, China, Germany,
India, Indonesia, Malaysia, Norway, Singapore, Thailand, the US and the UK.
While oil indexes via third-party pricing services provide the
documentation and transparency that diminishes controversies surrounding
transfer pricing issues, "it's the more difficult-to-measure items like
services, financing and intangibles that tax authorities are scrutinizing,"
according to the report.
It added that, in response to such increased scrutiny, "oil and gas
companies are putting more effort into documentation and approaching it with a
mindset that compliance documentation will eventually end up in the hands of
Companies also are increasingly using so-called advanced pricing
agreements, which allows them to "lock in a methodology, pricing structure and
results for a set number of years between two or more taxing authorities. This
helps to resolve or prevent disputes for the specified period. In these
agreements, the concerned tax authority agrees not to seek a transfer pricing
adjustment for a covered transaction," said the report.
--Robert DiNardo, firstname.lastname@example.org