84% of insider trading professionals say they face a risk of double taxation due to global tax reforms 75% cite disparate systems and inefficient use of technology as a key challenge Increased risks fuel the quest for greater certainty in insider trading
Global tax reform, inefficient use of technology and economic uncertainty are putting significant pressure on businesses' intra-group transaction capabilities, according to EY's recent 2024 EY International Tax and Transfer Pricing Survey. strong>
Intercompany transactions are a critical tax function for organizations around the world, overseeing transactions between related companies, including cross-border payments between subsidiaries, real estate leases and intellectual property (IP) licenses.
The businesses surveyed believe we are entering a period of volatility in the effective tax rate due to factors such as shifting supply chains, global tax reform and inflation.
The global survey, which captured the views of 1,000 professionals in 47 countries, finds that 84% of respondents expect to face a “moderate” or “significant” risk of double taxation as a result of global tax reform, while 71% say that global minimum taxes they will have “moderate” or “important” impact on their intra-party transaction policies. At the same time, the demand for greater certainty in the pricing of intergroup transactions has doubled.
External factors affecting intragroup trading strategies
The plethora of external pressures affecting broader business decisions complicates the roles of peer-to-peer pricers. 77% of survey participants reported that inflation will have a “moderate” or “significant” impact on intercompany trading policy over the next three years, while 51% believe that higher interest rates have affected the pricing of intercompany debt in the medium to long term.
Changes in supply chains and organizations' commitments to social, environmental and governance (ESG) goals add further challenges. 28% have already changed their intercompany trading policy to take ESG policy into account, while 42% reported that their organizations have moved production from one country to another in the past three years due to geopolitical issues. More than six in ten (62%) expect changes in supply chains to have a “moderate” or “significant” impact on their business-to-business policy over the next three years as well.
Embracing Emerging Technologies to Drive Strategic Value
75% of respondents listed inefficient use of technology as one of the top two challenges they face, while 67% cited “poor data quality”. Notably, 73% of respondents believe that investing in more sophisticated operational intranet technology would lead to a “moderate” or “significant” improvement in risk management, while 88% expect internet technology to save their organization money in the future three years.
Elevated risks fuel the quest for certainty in intraparty transactions
The research highlights a significant increase in the number of companies turning to advance pricing agreements (APAs), which allow businesses to negotiate the terms of their intercompany transactions with the tax authorities for many years before filing of tax returns, to ensure greater certainty about their intra-group transaction positions and to create greater value in the post-Convention on Base Erosion and Profit Shifting (BEPS) 2.0 environment. 61% and 59% of respondents, respectively, estimate that bilateral and multilateral APAs will be “very useful”, compared to 34% and 30%, respectively, in 2021. Furthermore, 59% of respondents report that unilateral APAs will be “very useful” in managing tax disputes related to intra-group transactions over the next three years, more than double the 29% who gave the same answer in 2021.
Ultimately, intra-party transaction policies are supported by business facts and data. In today's landscape of regulatory and tax change, tax and insider trading professionals will also need to take a more active role in working with the organization's management team to gain greater certainty about insider trading issues and respond in a timely manner to economic and geopolitical disturbances.
Petros Krasaris, Partner, International Tax and Transfer Pricing Services, of EY Cyprus in relevant statements said:
“Tax reforms underway globally, and in particular Pillar 2 of BEPS, lead to new and highly complex tax reporting requirements for businesses and increase the risk of double taxation. At the same time, inflation, high interest rates and supply chain disruptions are creating additional challenges for intraday trading professionals, forcing them to seek greater certainty and predictability. To deal with this new environment, companies need to adopt a proactive approach and adopt emerging technologies, especially artificial intelligence, in order to standardize and effectively leverage their data to ensure seamless resolution of tax disputes.”
For his part, Charalambos Palaontas, Partner, International Tax and Transfer Pricing Services, of EY Cyprus added:
“At a time when certainty and predictability in face-to-face transactions has rightly become a key objective for businesses, controlling and effectively using data is a critical tool at their disposal. However, poor data quality is one of the biggest challenges face-to-face trading professionals face. The vast amounts of data at our disposal are often fragmented, inaccurate or incomplete. Technology, and artificial intelligence in particular, allows companies to collect, analyze, standardize and present data to ensure greater certainty in their transactions.”