Transfer pricing refers to the pricing of transactions between related entities within multinational enterprises. It is a key aspect of international taxation, ensuring that profits are allocated appropriately across jurisdictions in accordance with the arm’s length principle. Adherence to transfer pricing regulations is essential to prevent tax disputes and avoid penalties.
To determine appropriate pricing, recognised methodologies and technical analysis, which are generally accepted by tax authoriteis around the world, are applied. Recognised methodologies include the Comparable Uncontrolled Price (CUP) method, Resale Price Method (RPM), Cost-Plus Method, Profit Split Method, and the Transactional Net Margin Method (TNMM). This approach seek to align intra-group transactions in accordance with the specific value chain of the multinational enterprise and market conditions.
Given the complexity of multinational structures and differing national tax regulations and intrepretations of the arm’s length principle, transfer pricing poses significant challenges. Mitigating these challenges, as a minimum, requires comprehensive documentation detailing policies, applied methodologies, and economic analyses that supports the transactions being in accordance with the arm’s length principle is fundamental to avoid lengthy tax audits and uncertainty. Other means of mitigation could be the use of safe harbours or early involvement of the compentent authorities (tax authorities) through an advance pricing arrangment (APA).
Recent regulatory trends emphasise increased transparency and measures to counter Base Erosion and Profit Shifting (BEPS) increasing the importance for coherence between transfer pricing polices, operational transfer pricing and audit readiness. Below we have summarised our experience.
- Transfer pricing structuring such as business model optimization, business restructurings, and post merger integrationss
- Implementation of sustainable day to day management of transfer pricing operations, establishing processes for efficient utilization of data and resources
- Preparation of value chain analysis
- Preparation of DEMPE analysis
- Determining prices on intra-group sale of goods and services including Intellectual Property Rights (IPR)
- Valuations related to cross-border intercompany asset transfers and business restructurings
- Transfer pricing compliance including preparation of master file, local files – both for Danish and foreign entities, and country-by-country reporting.
- Transfer pricing documentation gap analysis, comparing Danish requirements with those of other jurisdictions.
- Preparation of intercompany agreements, including global agreement programmes
- Implementation of intercompany agreements
- Preparation of transfer pricing due diligence reports
- Cross-functional collaboration projects where transfer pricing should be taken into consideration