Tax control and transfer pricing: why international groups are on the front line
Tax control of transfer prices
Transfer pricing is now one of the main tax control levers for governments. International groups are particularly exposed because their intra-group transactions can generate significant tax adjustments.
The complexity of international structures, combined with increased cooperation between States, makes transfer pricing management a major strategic issue for multinationals.
Accompaniment by a tax lawyer specializing in international tax control and litigation is essential to secure operations and defend the company's interests.
What is a transfer price?
A transfer price is the price charged for transactions between entities of the same multinational group, such as:
- Sale of goods or services between subsidiaries;
- Intra-group loans;
- Transfer of intellectual property, royalties and licences.
These prices must respect the principle of arm's length (the principal length), i.e. comparable to those practised between independent undertakings.
Any deviation may result in a tax adjustment, particularly where profits are artificially transferred to low-tax jurisdictions.
Why international groups are on the front line
Increased surveillance of tax administrations
- Administrations now have specialized services to check transfer pricing.
- Automatic exchange of tax information between countries allows for the rapid detection of inconsistencies or anomalies.
High financial amounts
- Intra-group transactions often involve tens or hundreds of millions of euros, creating a significant risk in case of recovery.
- Penalties and interest may reach amounts comparable to the principal adjustment.
Complexity of structures
- Multinationals with several subsidiaries, holding companies, operating companies and financial subsidiaries.
- Determine the correct price depending on the country, the function of the entity and the risk incurred is very technical.
Risk of international litigation
- Companies may find themselves in dispute with several administrations simultaneously, including transactions involving several jurisdictions.
- Transfer pricing litigation is one of the most costly and lengthy for multinationals.
Common examples of adjustments
- Increase in the profits of a low-tax subsidiary to bring the IS due to the main court.
- Reassessment of intra-group services to adjust the taxable basis.
- Documentation challenges: lack or lack of evidence on the method of calculation adopted.
The strategic role of the international tax lawyer
Prevention
- Analysis and audit of transfer pricing prior to any transaction or reporting.
- Implementation of transfer pricing policies consistent with international standards.
Defence during control
- Exclusive representation before the tax administration.
- Negotiation to reduce or cancel adjustments.
- Preparation of legal arguments and technical documentation.
International tax litigation
- Defence in cross-border disputes.
- Representation before administrative courts.
- Protection of the group's financial and reputational interests.
Good practices to limit risk
- Document all intra-group transactions: contracts, comparables, economic analyses.
- Review transfer pricing policies regularly to monitor tax developments and jurisprudence.
- Engage the tax lawyer as soon as a tax check is opened to ensure a proactive legal strategy.
- Train internal teams to avoid errors and inconsistencies in reporting.
Tie with the Cabinet
Tax control over transfer pricing has become a major strategic issue for international groups. The complexity of transactions, the increase in cooperation between tax administrations and the financial importance of transactions make them the front line for reorganizations and litigation.
Only specialized legal intervention can secure operations, reduce risks and effectively defend the interests of the group.
The international tax lawyer then becomes an indispensable player in anticipating, negotiating and, if necessary, challenging a tax adjustment.
