KPMG report: Transfer pricing and ESG—public tax strategies and tax transparency

Role of transfer pricing in responsible tax practices

Role of transfer pricing in responsible tax practices

Over the last several years, multinational corporations (MNCs) have faced strong encouragement from governments and regional bodies (like the European Commission), nongovernmental organizations, and lobbyist organizations to embrace responsible governance as part of their environmental, social, and governance (ESG) journey. This area will continue to be a focus of internal stakeholders (for example, employees, managers, and owners) and external stakeholders (for example, governments, NGOs, and rating agencies).

As part of that focus, stakeholders are increasingly expressing an interest in understanding the MNC’s approach to tax and transfer pricing. An MNC can address these pressures by drafting a publicly available, groupwide tax policy that sets forth their approach toward key aspects of taxation, including their approach to transfer pricing. In the next few years, as stakeholders become more engaged on ESG and tax, five critical initial steps for tax departments are:

  • Work with their business to develop a tax strategy that aligns with their overall business strategy
  • Include their approach to transfer pricing in their tax strategy
  • Make their tax strategy publicly available
  • Create robust mechanisms to ensure compliance with their tax and transfer pricing policies
  • Consider if there are ways to proactively engage with tax authorities to show a commitment to a sustainable approach to tax

Read a March 2023 report* prepared by KPMG LLP that focuses on the role of transfer pricing in responsible tax practices and sets forth suggestions of what MNCs may need to be doing going forward in terms of tax transparency and transfer pricing.

*This article appears in Tax Notes International (27 March 2023) and is provided with permission.



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