RISK INDICATORS OF TRANSFER PRICING ACCORDING TO THE DOCUMENTS OF INTERNATIONAL ORGANIZATIONS AND WAYS OF THEIR FURTHER USE

The article discusses the issue of establishing a list of transfer pricing risk indicators and determining further ways to use them. The problem of defining and using indicators of transfer pricing risks is relevant and has only recently begun to be discussed by experts in the field of international taxation and in academia. In fact, this category was not study as a separate category of indicators of tax risks, but was only considered in general terms as one of the types of tax risks. The study identified documents from international organizations that consider transfer pricing risks as a separate category of tax risks, as well as an element of tax control over taxpayers’ compliance with transfer pricing rules. On the basis of these documents, which summarize the international practice of transfer pricing, an indicative list of transfer pricing risk indicators has been studied and formed and recommendations have been developed on how to further use it by the tax authorities of Ukraine. The definition in this article of an indicative list of transfer pricing risk indicators in accordance with the documents of international organizations is an important prerequisite for understanding further steps to improve the domestic transfer pricing tax control system as a risk-oriented system. The author to suggested to using this list in the future for development and / or creation: a national indicative list of transfer pricing risks indicators and a domestic system for classifying and assessing such risks; standardized processes for identifying and processing information about potential transfer pricing risks and their integration into standardized processes of the general system for processing tax risks in the State Tax Service of Ukraine; determination methods (guidelines) and training materials on this issue; processes for selecting taxpayers for audits and evaluating the results of transfer pricing audits, and the like.

INTERNATIONAL EXPERIENCE IN PROCESSING AND ASSESSMENT BY REGULATORY AUTHORITIES OF TRANSFER PRICING RISKS

The article analyzes and summarizes the international experience of regulatory authorities in dealing with transfer pricing risks as one of the basic elements of tax control over taxpayers’ compliance with transfer pricing rules. An efficient process for processing and assessing transfer pricing risks helps to ensure quality selection and increase the effectiveness of audits of controlled transactions, increase the efficiency of the use of limited resources, as well as greater tax certainty and reduce the number of unreasonable audits. As a result of the study: international experience was summarized and an indicative process of processing and assessing transfer pricing risks was determined; the main points of the general approach to the issue of transfer pricing risks, which are currently used in practice by the regulatory authorities of economically developed countries, have been identified; the principles of transfer pricing risk management were determined and the importance of carrying out transfer pricing risk assessment processes on an ongoing and systematic basis was indicated; the approaches to organizing the processing and risk assessment of transfer pricing proposed by the specialists of the OECD, JTPF and the UN are considered. Also, the author of the article proposed to supplement this process with a fifth post-assessment stage, which should include the following three steps (13-15): internal inspection and quality control of risk assessment processes based on the results of transfer pricing audits; improving the list of transfer pricing risk indicators and descriptions of their features and identification methods; training and professional development of specialists in the assessment of transfer pricing risks. In addition, attention was drawn to the need for proper documentation of the processing and risk assessment of transfer pricing. The article also concludes that the processes of processing and assessing transfer pricing risks should be integrated into the processes that are carried out within the framework of the functioning of the general risk management system of both the tax authority and any modern large enterprise (group of enterprises).

Pricing, Risk and Volatility in Subordinated Market Models

We consider several market models, where time is subordinated to a stochastic process. These models are based on various time changes in the Lévy processes driving asset returns, or on fractional extensions of the diffusion equation; they were introduced to capture complex phenomena such as volatility clustering or long memory. After recalling recent results on option pricing in subordinated market models, we establish several analytical formulas for market sensitivities and portfolio performance in this class of models, and discuss some useful approximations when options are not far from the money. We also provide some tools for volatility modelling and delta hedging, as well as comparisons with numerical Fourier techniques.

Geotechnical Baseline Reports – ground models you can just make up?

Geotechnical Baseline Reports (GBRs) are a purely commercial form of ground model, used to allocate ownership of unforeseen ground risk in a construction contract. They are used at tender to provide a common basis for pricing risk and they are used during construction to provide an efficient means of managing claims involving potentially unforeseen ground conditions. One of the ways in which GBRs are different from conventional ground models is that they do not necessarily have to present objective data-based truths about the ground. This possibility arises because clients have varying appetites and abilities to take on construction risk. GBRs can be difficult to write because they are focused on encounters with the ground during construction and these experiences are often indirect and significantly different to encounters in ground investigations. This construction knowledge and the commercial nature of GBRs mean a multi-disciplinary approach to writing GBRs is preferred. The profession best able to characterize the risk inherent in the ground is the engineering geologist through knowledge of ground models. GBR ground models can be considered to be a distinct commercial variant and development of the engineering ground models described in the IAEG's CS25 report on the subject.Thematic collection: This article is part of the Ground models in engineering geology and hydrogeology collection available at: https://www.lyellcollection.org/cc/Ground-models-in-engineering-geology-and-hydrogeology

R&D and the Rising Foreign Profitability of U.S. Multinational Corporations

ABSTRACT We investigate how R&D contributes to rising foreign profitability in U.S. multinational corporations through wage and tax incentives. Our results suggest that wage savings increase foreign profit margins derived from foreign R&D, while tax incentives increase foreign profit margins derived from domestic R&D. By exploring their relative importance, we find that wage savings are more important than tax incentives in explaining foreign profit margins when the wage discount substantially exceeds tax incentives, and vice versa. Cross-sectional tests show that firms respond more to foreign R&D wage savings when they have access to local human talent, but less as the cost of conducting foreign R&D increases. Firms respond less to tax incentives to shift income derived from domestic R&D as transfer pricing risk increases. Our evidence sheds light on the importance of R&D-related income shifting that potentially separates the location of economic activity from the location of income. JEL Classifications: H25; H26.