The Proper Role of the Tax Department in an MNE's Intercompany Transaction Framework: The tax department typically houses a company's expertise in transfer pricing and is a major consumer of intercompany transaction details, but its responsibility for nonnative intercompany transaction functions can lead to significant risk and incremental income tax exposure.

AuthorGoldberg, Richard
PositionMultinational enterprises - Cover story

This article presents the challenges of collecting tax-related intercompany transaction information as well as common functional misalignments of intercompany-transaction-related responsibilities inside the multinational enterprise (MNE). It also identifies key intercompany transaction function subject matter expertise (SME) and aligns these SME units or individuals with specific intercompany transaction operations. This article furthermore explains the best ways to achieve this alignment. Finally, the author shares thoughts on how an MNE may justify an investment to better align intercompany-transaction-related responsibilities with core functional competencies to create a more effective and efficient intercompany transaction end to end.

Intercompany-Transaction-Related Challenges

When managing the corporate income tax expense, MNEs face an unprecedented challenge in collecting, analyzing, reporting, and disclosing detailed qualitative and quantitative intercompany transaction information. Robust intercompany transaction information is necessary for the corporate tax department to 1) effectively defend against transfer pricing (TP) adjustments by increasingly aggressive global tax authorities; 2) perform complex tax calculations called for by the 2017 Tax Cuts and Jobs Act, or TCJA (for example, BEAT, GILTI, FDII, etc.); 3) comply with extensive new or proposed substantive tax rules and related required documentation under various Organisation for Economic Co-operation and Development (OECD) base erosion and profit shifting (BEPS) initiatives; and 4) calculate and forecast income tax expenses, deferred tax account balances, and uncertain tax positions, among others.

Additionally, the TCJA's international tax reforms incorporating a participation exemption, combined with a reduced twenty-one percent U.S. income tax headline rate, heighten companies' exposure to permanent income tax differences for non-U.S.-initiated TP adjustments at the controlled foreign corporation level. As the owner of the consolidated income tax expense line, the corporate tax department is often the key stakeholder questioned if an adjustment to this line is necessary due to an ineffective intercompany transaction framework.

Common Misalignments of the Tax Department's Intercompany Transaction Responsibilities

MNEs have been challenged to develop existing intercompany transaction processes and controls to keep up with the dramatically expanding requirements described above and the dynamic business transformations that technology enables. At...

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