What are the main transfer pricing challenges and opportunities for MNEs operating in Asia?

2 Economic integration

Another factor that affects transfer pricing in Asia is the increasing economic integration and cooperation among Asian countries. The Regional Comprehensive Economic Partnership (RCEP) is a trade agreement that covers 15 countries in Asia-Pacific, including China, Japan, South Korea, Australia, and New Zealand. The RCEP aims to lower tariffs, facilitate trade, and harmonize standards and regulations among its members. The RCEP may create new opportunities for MNEs to expand their markets, optimize their supply chains, and access preferential tax treatments in the region. However, it may also pose some challenges for transfer pricing, such as the risk of double taxation or double non-taxation, the need to align transfer pricing policies with the RCEP rules, and the potential for increased scrutiny and disputes from the tax authorities.

3 Industry dynamics

A third factor that influences transfer pricing in Asia is the industry dynamics and trends that shape the business models and value chains of MNEs. Some of the industries that are prominent and growing in Asia are technology, e-commerce, pharmaceuticals, and renewable energy. These industries often involve intangible assets, such as patents, trademarks, software, and know-how, which are difficult to value and allocate for transfer pricing purposes. Moreover, these industries often rely on digital platforms, online services, and data-driven activities, which create new challenges for determining the source and location of income and profits. MNEs need to adopt robust and flexible transfer pricing methods and strategies that reflect the realities and risks of their industries and capture the value of their intangible assets and digital operations.

4 Risk management

A fourth factor that impacts transfer pricing in Asia is the risk management and mitigation strategies that MNEs adopt to deal with the uncertainties and volatility in the region. Different regions in Asia are exposed to various political, economic, social, and environmental risks, such as trade wars, currency fluctuations, civil unrest, and natural disasters. These risks can affect the profitability, cash flow, and operations of MNEs and their related parties. MNEs need to consider how these risks affect their transfer pricing arrangements and outcomes and whether they need to adjust or revise their transfer pricing policies and transactions. MNEs also need to monitor and assess the impact of these risks on their transfer pricing positions and documentation and communicate with the relevant tax authorities and stakeholders.

6 Planning and optimization

A sixth factor that influences transfer pricing in Asia is the planning and optimization opportunities that MNEs can pursue to enhance their tax efficiency and competitiveness in the region. Planning and optimization involve designing and implementing transfer pricing policies and transactions that align with the business objectives, strategies, and operations of the MNEs and that comply with the applicable tax laws and regulations. Planning and optimization can help MNEs to reduce their tax liabilities, avoid double taxation or non-taxation, exploit tax incentives or exemptions, and manage their effective tax rates. MNEs need to conduct a comprehensive and holistic analysis of their transfer pricing positions and options in Asia and balance the potential benefits and costs of planning and optimization activities.