Global tax advisors are being increasingly called upon by large corporates to advise on transfer pricing as tax authorities around the world clamp down on perceived abuses, finds a new report today from Source Global Research.
In 2018, advice on transfer pricing was the fastest growing area of tax advice in the global tax advisory market – and it’s now heading swiftly towards being a US$10bn sub-market in its own right by the end of 2019, as it grew 9.3% to US$9.2bn in 2018, and it’s projected to grow by 9% in 2019. In comparison, the Source Global Research report, The Global Tax Advisory Market in 2019 also revealed that the global tax advisory market (incl. transfer pricing advice) grew more slowly – at 6.5% to US$34.4bn in 2018.
Transfer pricing remains an area of growing focus for tax authorities around the world including HMRC. In fact, HMRC reported this year that its investigations into aggressive use of transfer pricing and related errors has seen a tenfold increase in HMRC fines imposed on multinational businesses in three years – imposing £413,437 in fines in 2018/19, compared to just £45,600 in 2015/16.
It was also reported earlier this year that the ride-hailing app, Uber was being investigated by the tax authorities of eight countries for its approach to transfer pricing. Large tech companies have been under particular scrutiny in Europe for the process, with Amazon receiving a £222m fine from the European Commission in 2017 for using a Luxembourg subsidiary for illegal tax benefits.
Susan Pitter, EY Global Deputy Vice Chair, Tax, who was interviewed for the Source Global Research report, said:
“I worry about controversy for our clients. Less so in the US, and more so in APAC and Europe. Clients face a level of controversy that is unprecedented, especially in the area of transfer pricing. We're in a situation now where we used to have measures taken to prevent double taxation, but now the mood is that governments don't seem to mind that happening as long as they're getting their fair share.”
Zoë Stumpf, Head of Market Trends at Source Global Research, added:
“Transfer pricing has become particularly high-profile for clients as tax authorities around the world focus more closely on this topic in an attempt to deal with perceived abuses; clients are increasingly looking to third parties to help them develop the right approach and avoid harsh penalties.”
Expenditure on tax advice set to riseThe Source Global Research report also found that three quarters of large organisations (76%) expect to increase their expenditure on external tax support, with the priority areas being transfer pricing, indirect tax, and general administration and compliance.
The Source report says that these priorities reflect the fact that the use of external support is as polarised here as it is in other parts of the professional services sector, with firms expected to provide both low-cost services (such as compliance), alongside much higher-value ones like transfer pricing and M&A work.
Other key findings from the report include:
- Tax firms are seeing expanding volumes of business round the world, though less mature markets in Asia-Pacific, Africa, and the Middle East are seeing the biggest growth.
- From a firm perspective, Big Four dominance continues (these firms carry out 67% of global tax work), with this group benefiting from a vast global network. While there is some concern about the threat posed by technology firms, their encroachment has not yet had a big impact on the competitive landscape.
- Almost two-thirds of clients think that a significant amount of the work currently done by their in-house tax teams will be automated in the next 5-10 years.
- The global tax advisory market is expected to grow healthily to the end of 2020, though fears of an economic downturn in the US are likely to pressure budgets and impact some elements of discretionary spend, leading to a slight slowing of the growth trajectory, with an expected market increase of around 6% through to the end of 2020.
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