Transfer Pricing

November 2025

Penalties for Non-Compliance: Lessons from Recent Global Transfer Pricing Cases

Introduction

In today’s increasingly complex international tax environment, transfer pricing (TP) has become one of the most scrutinized areas of corporate taxation. With tax authorities worldwide intensifying audits and strengthening regulatory frameworks, non-compliance with transfer pricing rules can result in substantial financial and reputational consequences. Recent global cases demonstrate how non-compliance, whether through inadequate documentation, mispricing intercompany transactions or failure to align with local regulations, can lead to significant penalties and protracted disputes. This article explores key lessons from these cases and highlights the growing importance of proactive compliance.

The Global Landscape of Transfer Pricing Penalties

Transfer pricing penalties vary across jurisdictions but generally fall into three main categories:

Administrative penalties for failing to submit or maintain adequate documentation.
Tax adjustments and interest on additional taxable income resulting from transfer pricing reassessments.
Severe financial penalties and reputational damage in cases involving intentional mispricing or negligence.

Countries such as the United States, India, Australia and members of the European Union have intensified their enforcement, often leveraging data from Country-by-Country Reporting (CbCR) and cross-border information exchange frameworks under the OECD’s Base Erosion and Profit Shifting (BEPS) initiative.

Common penalty triggers include:

Failure to maintain contemporaneous documentation
Inconsistent application of pricing methods
Misalignment between value creation and profit allocation
Understatement of intercompany income

Case Studies: Key Lessons from Around the World

a. The Coca-Cola Case (United States)

In one of the most notable TP disputes, the U.S. Tax Court ruled in favor of the IRS, resulting in an adjustment of over USD 3 billion related to the pricing of intangible assets transferred to foreign affiliates.
Lesson: Robust documentation and a consistent global policy are critical—especially for intangible-heavy businesses. Reliance on outdated agreements or inconsistent methodologies can be costly.

b. GlaxoSmithKline (UK)

GlaxoSmithKline (GSK) settled a long-standing dispute with the U.S. IRS for USD 3.4 billion, one of the largest in history. The case centered around the allocation of profits from the sale of drugs between the U.S. and the UK entities.
Lesson: Multinational groups must ensure that profit allocation aligns with value creation and functions performed, particularly for R&D-intensive industries.

c. Maruti Suzuki (India)

The Indian tax authorities adjusted the pricing of royalty payments made by Maruti Suzuki to its parent company in Japan, arguing that they were excessive relative to the value received.
Lesson: Benchmarking intercompany payments, such as royalties and management fees, with clear documentation on commercial justification is essential to withstand scrutiny.

d. Chevron Australia Holdings Pty Ltd (Australia)

Chevron’s intercompany loan arrangement led to a transfer pricing dispute over interest rates, culminating in a AUD 340 million penalty.
Lesson: Intercompany financing remains a high-risk area. Ensuring that loan terms, interest rates and conditions reflect arm’s length principles is critical.

The Common Threads Across Jurisdictions

A review of global cases highlights several recurring themes:

Documentation deficiencies are often the trigger for audits and penalties.
Lack of contemporaneous evidence weakens defense against adjustments.
Intangible asset pricing and intercompany financing are consistently high-risk areas.
Inconsistent global policies create vulnerabilities, especially under information-sharing agreements.

Proactive Steps to Ensure Compliance

To mitigate the risk of non-compliance penalties, multinational enterprises should adopt the following measures:

Maintain Comprehensive Documentation:
Ensure local files, master files and CbCR reports are prepared on time and in accordance with OECD and local requirements.
Review Intercompany Arrangements Regularly:
Periodically test intercompany pricing to confirm arm’s length outcomes and compliance with changing regulations.
Leverage Advance Pricing Agreements (APAs):
Bilateral or unilateral APAs can provide certainty and reduce the risk of future disputes.
Implement a Centralized TP Governance Framework:
Align global policies, ensure consistency in approach and establish internal review mechanisms.
Invest in Technology and Analytics:
Use digital tools to automate documentation and benchmarking processes, ensuring real-time data accuracy and traceability.

Conclusion

The recent wave of global transfer pricing cases demonstrates that non-compliance carries steep financial and reputational costs. In an era of heightened transparency under BEPS 2.0 and Pillar Two, MNEs can no longer afford reactive strategies.

By adopting robust documentation practices, aligning profits with value creation and leveraging proactive measures such as APAs, businesses can not only mitigate risk but also demonstrate their commitment to ethical and compliant global operations.

In transfer pricing, compliance is no longer optional, it’s a strategic imperative.