Multinationals are challenged in the digital age, with sales and operations spanning multiple jurisdictions worldwide, resulting in a high level of complexity. Any company performing online transactions required to file Transfer Pricing Statements must develop appropriate strategies to reduce risks.
Prior to digitization, suppliers of goods and services were required to be physically present in the locations where they performed their transactions. Conversely, to be physically present is not necessary to have a global reach in a country through digital means. For example, through centralized warehouses serving various locations worldwide, modifying the supply chain.
This causes the risk to increase, given that tax authorities do not adequately capture all the gains derived from the digitization of companies in many countries. All these factors influence the process of creating value. Thus, companies must be continuously monitored to ensure compliance with their obligations.
The Organisation for Economic Co-operation and Development (OECD) is leading the implementation of the Base Erosion and Profit Shifting (BEPS) rules, creating a 15-point action plan. One of the most relevant actions in the plan is Item 1:
- Article 1 aims to ensure that companies operating in the digital economy are properly taxed in the jurisdictions where they generate profits, even if they are not physically present there.
Actions in Other Countries
Several countries have also introduced their own digital services taxes. In addition, there are concerns that this differentiated approach may cause problems, such as the possibility of double taxation.
The true fact shows that digital companies providing sales and services on a multinational scale must ensure that their Transfer Pricing strategies are continuously optimized and remain compliant with international and country-specific regulations. We are currently in a new and challenging phase for Transfer Pricing.