Functional Analysis And Implications For Transfer Pricing Audits – Substance Over Form

Introduction

Base Erosion and Profit Shifting (BEPS) continues to be a challenge for the government of different countries, as the strategies employed by Multinational Enterprises (MNEs) to reduce taxes in a particular jurisdiction may not necessarily be non-compliant with enabling legislation. Often, the BEPS approach is to exploit the loopholes in the host country's local tax laws. The Organization for Economic Cooperation and Development (OECD) has however made efforts by suggesting options open to a tax system in a jurisdiction to amend and coordinate their local tax policies and laws to ensure that MNEs pay appropriate taxes on the profits they earn from their respective jurisdiction. The compendium of various suggestions is collectively known as OECD BEPS project.