Law360 Quotes Patricia Lewis on Transfer Pricing Safe Harbors

Transfer pricing safe harbors could simplify revenue collection for African countries, but addressing the inherent potential for double taxation means that jurisdictions would have to agree on fixed margins for intercompany transactions, which isn't necessarily an easy feat.

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Patricia Lewis of Caplin & Drysdale in Washington, D.C., said that if possible, no safe harbor regime should be one-sided.

"That's the ideal, where you get multiple countries to agree to the same rules," she said. "Otherwise, you have the risk still of being audited on the other side if the safe harbor is considered too favorable to the safe harbor country."

For African countries where tax administrations have limited resources, Lewis said would it be worthwhile to consider a safe harbor regime for an entire industry. Even if the regime is less favorable to the African country, it would reduce the risk of double taxation, simplify administration and encourage companies to do businesses, she said.

There's also the possibility that the rate might stray from arm's-length, but she noted the concept is "in the eye of beholder" and different countries see it different ways.

"If it went to the edge of the range in African countries - within an arm's-length range, but not the in the middle of it - in order to reduce the risk of controversy, I could see that as being a reasonable thing for them to do," Lewis said.

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As another potential challenge, Lewis noted that bilateral safe harbors are difficult to come by, especially for countries with multiple trading partners because "the other side will not spend the time" to negotiate agreements.

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