Transfer pricing: How to adjust actual profit when it is too high or too low?
Transfer pricing: How to adjust actual profit whe...
What actions have to be taken in 2012? What are the risks for your company?
As everyone prepares for the new Russian transfer pricing rules, it is apparent that a TP plan which only includes TP analysis and drafting TP documentation is not enough.
Often, the chosen profit level indicator (PLI) and the actual profit at year-end, can significantly differ from the target (arm’s length) PLI range identified during the benchmarking study (i.e. your company’s profit is too high or too low).
“Missing” the target profit range could result in negative consequences for your Russian company and related foreign counterparties, including:
- Profits tax and VAT risks from a TP audit (if the Russian tax authorities consider the company’s revenues as understated or the costs as overstated),
- Customs risks from adjustment of import prices (if the Russian customs authorities consider them overstated) and even a slowdown or blocking of the customs clearance of goods,
- Irrecoverable Russian VAT (resulting from some of the tools used to adjust profit to fit within the target PLI range),
- Tax risks for foreign counterparties (resulting from non-compliance with the TP rules or even APA of a foreign jurisdiction)
- Unavailability of correlative adjustments in case of additional tax assessments.
In these cases, there is a need to identify appropriate methods for adjusting actual 2012 profits which would:
- Bring the PLI into the target range under the chosen TP method,
- Reduce the collateral tax risks noted above,
- Be acceptable for the foreign counterparty from a tax and legal viewpoint,
- Be feasible for implementation before closing the 2012 financial year.
Is your actual profit outside the PLI range (is your profit too much or too low)? Please call us. We have solutions.
KPMG professionals will be glad to meet with you to discuss in detail possible solutions, tailored for your company.
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