Transfer pricing practices of transnational corporations in PATA countries

The tax authorities of Australia, Canada, Japan and the United States formed the Pacific Association of Tax Administrators (PATA) in 1980 to combat income shifting, improve cross-border information flows, and develop conciliatory relationships among themselves. One of their specific concerns was to identify and stop the improper transfer pricing used by transnational corporations (TNCs) to facilitate income shifting and obfuscation of financial data.The purpose of this study is to determine: (1) what PATA membership means for TNCs, and (2) whether or not transfer pricing audits have increased due to information sharing or decreased due to PATA's various transfer pricing guides. A survey of tax executives in Australian, Canadian, Japanese, and U.S. TNCs was undertaken to determine the answers to these questions, and to develop policy and procedure recommendations for both the TNCs and their respective tax authorities. Unexpected findings emerged about the relationship between transfer pricing behaviors and audit frequency, and between audit risk and advance pricing agreement status.