Businesses fear global tax reform will lead to double taxation, according to new EY survey

• 84% of transfer pricing professionals say they risk double taxation due to global tax reforms 
• 75% cite disparate systems and ineffective use of technology as a key challenge
• Heightened risks spur drive for transfer pricing certainty

Global tax reform, ineffective use of technology and economic uncertainty are putting significant strain on business’ transfer pricing (TP) capabilities, according to the 2024 EY International Tax and Transfer Pricing Survey. 

Transfer pricing is a critical tax function for organizations around the world, that oversees internal corporate transactions including cross-border payments between subsidiaries, property leases and intellectual property (IP) licenses.

Responding businesses expect that we are now entering a period of effective tax rate instability, driven by factors including shifting supply chains, global tax reform and inflation.

The global survey of 1,000 transfer pricing professionals and stakeholders, in 47 jurisdictions, finds that 84% of respondents face a “moderate” or “significant” risk of double taxation as a result of global tax reform and 71% say that global minimum taxes will have a “moderate” or “significant” impact on their transfer pricing policies. Demand for advanced certainty on TP positions doubles.

Tracee Fultz, EY Global Transfer Pricing Leader, says:

“The complexities around implementing global tax reform continues to take its toll on tax departments. With the heightened risk of double taxation, getting certainty is at a premium. This requires a fundamental pivot from tax planning to building as much certainty as possible into transfer pricing positions, which means being as proactive as possible in dealing with anticipated and current controversies.”

External factors impacting TP strategies

The cascade of outside pressures impacting broader business decisions are complicating TP leaders’ roles. Of those surveyed, 77% say inflation will have a “moderate” or “significant” impact on their transfer pricing policy over the next three years, while 51% say higher interest rates have impacted their medium and long-term intercompany debt pricing.

Changes in supply chains and commitments to environmental, social and governance (ESG) objectives add further challenges. Twenty-eight percent have already changed their transfer pricing policy to account for ESG policy, while 42% say their organizations have relocated production from one jurisdiction to another in the last three years because of geopolitical issues. More than six in ten (62%) anticipate changes to supply chains having a “moderate” or “significant” impact on their TP policy in the coming three years as well.

Fultz says: “As organizations adjust their operational strategies to deal with supply chain risk and meet their climate ambitions, tax departments will also need to adjust transfer pricing approach to align with evolving business goals. A clear roadmap for standardizing tax and transfer pricing data is needed so that it can be efficiently accessed and analyzed to help businesses better react to these challenges.”

Embracing emerging technologies to drive strategic value 

Seventy-five percent of respondents say that ineffective use of technology was their first or second biggest challenge, while 67% ranked “poor data quality” as their first or second biggest challenge. Interestingly, 73% say that investing in more sophisticated operational transfer pricing technology would result in “moderate” or “significant” improvement in risk management, and 88% cite they expect TP technology to save their organization money over the next three years.

Marna Ricker, EY Global Vice Chair – Tax, says:

“Companies now face many new and extremely complex tax reporting requirements globally and more on the horizon. Many of these requirements include taxation at source as a transaction occurs. 

“New and emerging technologies including GenAI, robotic automation and quantum computing will be key in helping tax professionals meet these demands. Yet, currently, many are in the very early stages of learning how to use and deploy such technologies. It’s important that organizations prioritize tax in their data and technology transformation roadmap to help ensure their teams are equipped to deal with these challenges.” 

Heightened risks spur drive for transfer pricing certainty

The survey shows a dramatic increase in companies turning to advance pricing agreements (APAs), which allow businesses to negotiate the terms of their intercompany transactions with tax administrators for multiple years before filing tax returns, to create greater certainty around their TP positions and more value in a Base Erosion and Profit Shifting (BEPS) 2.0 world: 61% and 59% say bilateral and multilateral APAs, respectively, will be “very useful,” up from 34% and 30%, respectively, in 2021. In addition, 59% of respondents say unilateral APAs will be “very useful” to managing TP-related controversy over the next three years, more than double the 29% of respondents in 2021.

Fultz says: “It’s time that transfer pricing functions break with their traditional linear path in which they first plan, implement and, ultimately, defend positions. They should focus instead on the best strategy to achieve certainty. This includes having dispute resolution plans supported by automation and standard data.” 

Ultimately, TP policies are supported by business facts and data. The current landscape of regulatory and tax changes mean tax and transfer pricing professionals will also need to adopt a more proactive role in partnering with the C-suite to gain more certainty around transfer pricing matters and respond early to economic and geopolitical disturbances.

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About the survey

The 2024 EY International Tax and Transfer Pricing Survey was conducted between September and October 2023. The double-blind study queried 1,000 executives at large companies in 47 jurisdictions and across 19 industries about a variety of international tax and TP issues. The EY organization was not identified as the sponsor of the survey.