A report from EY has shown a rise in the percentage of companies that say tax risk management is their top transfer pricing priority – from two-thirds in 2013, to three-quarters in 2016.

“A new era of tax transparency is driving monumental change throughout modern tax functions, and businesses need to begin gathering essential data to build a clearer and more optimized long-term strategy for transfer pricing,” said EY's Peter Griffin.

Businesses will be under increasing pressures to comply

According to EY, the survey's results reflect the “striking impact of global calls for greater tax transparency on the boardroom agenda”, referring to initiatives such as the OECD’s Base Erosion and Profit Shifting (BEPS) project, which will urge businesses to share more information about their operations. Businesses that aren't prepared to meet the new standards will find themselves under increasing pressure to be proactive in disclosing transfer pricing activities – but the report shows that 21 per cent of firms are not ready to adapt to changing transfer pricing conditions. However, another 21 per cent are fully compliant with global documentation rules.

Griffin added: “Adapting to this new reality will be key to executing effective and compliant transfer pricing. With 73 per cent of survey respondents still monitoring transfer pricing results on just a quarterly or annual basis, it is clear that a significant step change still needs to take shape.”

Automation holding back businesses

The survey also found that:

• 69 per cent of businesses said that establishing a clear vision and strategy is the best approach to addressing operational issues relating to transfer pricing;
• 35 per cent said they have a 'high' level of readiness to address operational issues relating to transfer pricing;
• 49 per cent said a lack of automation is the most difficult challenge in adapting the operating model.

The research surveyed 623 tax and finance executives in 36 countries.