According to the report, the economic recovery for IP companies resulted in a decrease in the volatility of ETRs across the sectors as corporate earnings increased, although individual sector performance remained uneven. For example, during 2011, not one of the 46 chemical companies included in the study reported a loss in their audited financial statements.
“Volatility in the ETR among global IP companies moderated in 2011, as the recovery continued to take hold. This resulted in a rise in the ETR across multiple sectors,” says Michael W. Burak, U.S. and global industrial products tax leader for PwC. “We are beginning to see increased levels of investment spending as companies refocus on strengthening their products and competitive positions, earning tax incentives that provide a favorable impact to the ETR compared to the statutory rate. Furthermore, as emerging markets develop and companies increasingly expand into these territories, we expect more companies to benefit from the lower tax rates within developing countries.”
This year's edition of the report includes a special section focused on transfer pricing, a critical area of focus for IP companies, in part because of their expansion into emerging markets and the fact that, despite economic recovery, there is a continuing strong need for tax revenues by the relevant government authorities. The special report examines the impact of globalization, supply chain management, and merger and acquisition activity on transfer pricing considerations.
“Since IP companies are expanding into emerging markets, they must develop robust and defensible transfer pricing structures and policies. They must also deal with the growing number of jurisdictions that have adopted rigorous transfer pricing policies that, at times, rely upon inconsistent intercompany transfer pricing laws and standards,” continued PwC’s Burak. “Multinationals must also respond to more aggressive enforcement by tax authorities, a consequence of the attempt by many countries to prevent perceived abuses by taxpayers and a desire for increased revenues to reduce deficits. We are seeing these developments take place both in developed and emerging countries.”
A breakdown of PwC’s tax benchmarking analysis for the 324 IP companies in the study follows:
For a copy of Assessing Tax, PwC’s tax rate benchmarking study for industrial products and services companies, please visit: www.pwc.com/us/industrialproducts .