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Transfer Pricing Trends in Emerging Economics
Shikha GuptaSeptember 24, 2005
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Global TP Rules Enforcement
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2005
Taiwan
Peru
Peru
Germany
Germany
Germany
Hungary
Hungary
Hungary
Denmark
Denmark
Denmark
Columbia
Columbia
Columbia
Columbia
Venezuela
Venezuela
Venezuela
Venezuela
Portugal
Portugal
Portugal
Portugal
Russia
Russia
Russia
Russia
Japan
Japan
Japan
Japan
Japan
Poland
Poland
Poland
Poland
Poland
India
India
India
India
India
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Italy
Italy
Italy
Italy
Italy
Italy
Belgium
Belgium
Belgium
Belgium
Belgium
Belgium
Belgium
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Canada
Canada
Canada
Canada
Canada
Canada
Canada
UK
UK
UK
UK
UK
UK
UK
China
China
China
China
China
China
China
China
Slovakia
Slovakia
Slovakia
Slovakia
Slovakia
Slovakia
Slovakia
Slovakia
Slovakia
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Korea
Korea
Korea
Korea
Korea
Korea
Korea
Korea
Korea
Korea
France
France
France
France
France
France
France
France
France
France
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
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Economic Scenario Is Changing

• Foreign investment now led by stronger market
  fundamentals
• Sustained reformsRobust growth rates
• Consumer boomHuge market opportunities
• Low cost baseSourcing destination
• Skilled labormanufacturing excellence
• Intellectual brain powerOutsourced services
• Tax incentives to attract foreign investment
  relegated
• Governments leveraging growing economy for
  resource mobilization

Greater source based taxation is anticipated
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Which Way Will Emerging Markets Go?
Global
Future

• MoUs on substantive issueseffective competent
  authority relief
• Pragmatic implementation of bi/multi-lateral
  APAs

Regional Block

• Harmonization of tax regimes including transfer
  pricing
• Share information and experience on collective
  themes such as location savings, intangibles

Nationalist

• New legislationsteep learning curve
• Strong local focus..Selective adoption of OECD/
  international practices
• Stringent enforcement through aggressive audits

Now
Co-operation
Learning
Convergence
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Emerging Issues And Practices

• Growth in Business Process Outsourcing (BPO)
  activities
• Assertion of PE theorye.g. BPO enterprise could
  potentially constitute dependent agent or fixed
  base PE
• Emerging OECD rules on attribution of profits
  will likely find favour
• Emerging markets are manufacturing hubs
• Assertion that profits arising from cost savings
  need to be taxed
• Tax authorities likely to seek allocation of
  location savingsgreater economic activity to
  enhance competitive power

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Emerging Issues And Practices

• Locally generated intangibles and growth in
  knowledge economy
• Compensation where value of intangibles enhanced
  by the local enterprise
• Valuation of intangibles and tighten IP
  protection to guard legal ownership
• Gradual phase out of special tax incentives
• MNEs could restructure supply chain to allocate
  risks to other tax preferred environments
• Tax authorities likely to challenge business
  purpose in case local profits are
  reducedconversion issues

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End of Slide Show