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2016 has seen some major political changes for example Brexit and the US presidential election. Brexit brings challenges for business and uncertainty and that means that transfer pricing is also uncertain. To some extent, if businesses change the operations or their strategies, they will want to think about their transfer pricing and whether that also needs to change.
Following on from Brexit, the US election in the autumn was another major political change. The key change following the election is likely to be that corporate tax rates in the US will be reduced significantly, potentially down to as low as 15 per cent. This would be a major change from where we are currently and would likely attract investment and operations of multinational businesses into the US. There would be transfer pricing implications flowing from any such movement.
In addition the US has seemed to be on the verge of introducing a tax holiday for multinationals who want to repatriate profits to the US, which also could involve many millions of pounds. This would have an impact from a transfer pricing perspective in that those companies would need to check that their restructuring and their transactions comply with new transfer pricing rules under the BEPS initiative.
Brexit and the US presidential election result signals both compliance challenges but also opportunities for business. The challenge comes from the fact that businesses may need to change their structures or strategies and therefore update their transfer pricing policies accordingly. The opportunity comes from the fact that both countries (the US and the UK) have signalled that they will reduce their corporate tax rates. Transfer pricing can be used as a means of taking advantage of a tax rate reduction in order to manage a business's effective tax rate and tax costs. Businesses should be looking at both of those aspects: the compliance side but also the opportunity afforded by the corporate tax rate reductions in both countries.