Martin Bonner
Martin Bonner
Partner, AREA Bollenberger, Austria

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Certified tax advisor and dedicated tax expert with a focus on and experience in multinational group tax, transfer pricing, VAT and tax technology. Background in business, law and IT and keen to combine those fields.

The role of ICAP in transfer pricing

February 19, 2024

Experts are highlighting how the International Compliance Assurance Programme (ICAP), facilitated by the Organisation for Economic Co-operation and Development (OECD), can add value to multinational enterprises (MNEs) that are seeking to align their transfer pricing strategies with global tax administrations.

In a recent article in the International Tax Review, Martin Bonner, transfer pricing expert at Area Bollenberger and member of the Kreston Global network, sheds light on the significance of the ICAP’s role in transfer pricing.

ICAP’s role in tax compliance

ICAP represents a voluntary, multilateral framework designed to enhance early engagement, transparency, and mutual understanding between multinational enterprises (MNEs) and tax authorities, particularly regarding transfer pricing.

Understanding ICAP’s impact on transfer pricing

The programme’s value, highlighted by Martin Bonner and other experts, lies in its capacity to encourage proactive dialogue between businesses and tax administrations. It enables a coordinated assessment of tax risks, allowing companies to confidently demonstrate their compliance with tax regulations. This proactive engagement aims to preemptively resolve potential disputes, enabling MNEs to present well-substantiated transactions and foster a mutual understanding of transfer pricing methodologies.

Challenges for MNEs

MNEs encounter challenges in aligning with the diverse expectations of tax authorities across jurisdictions. ICAP aids in facilitating a multilateral dialogue to harmonise transfer pricing methodologies and practices.

OECD statistics on transfer pricing resolutions

Despite its advantages, challenges such as the selective nature of participation, the programme’s non-binding outcomes, and the capacity limitations of tax authorities suggest that ICAP’s effectiveness may be limited. The Organisation for Economic Co-operation and Development (OECD) reported that a third of MNEs participating in ICAP resolved transfer pricing issues without the need for audits or mutual agreement procedures.

The significance of ICAP in international taxation

Martin Bonner emphasises ICAP’s role in providing assurance and a mechanism for risk assessment to participating MNEs. Nonetheless, the absence of legal certainty, in contrast to Advanced Pricing Agreements (APAs), warrants careful consideration by companies.

As the global tax landscape evolves, the importance of ICAP in fostering constructive dialogue and understanding between MNEs and tax administrations is clear. The programme offers a route towards more transparent and harmonious transfer pricing practices, within its limitations and the strategic approaches of participating companies.

The future of ICAP

While ICAP has had successes, with 20 cases completed and more underway, the limited capacity of tax authorities and the programme’s voluntary nature raise concerns. Tax experts, including Martin Bonner, acknowledge ICAP’s potential in enabling MNEs to proactively demonstrate compliance and resolve disputes, yet they also highlight its limitations.

For more advice on the ICAP’s impact on transfer pricing, please get in touch.