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Overview

The foundation of any good transfer pricing system is a robust design that takes full account of the commercial and operational framework of the business.

Our approach to design ensures that all relevant parameters are considered in the development of a transfer pricing model that works in tandem with your company’s accounting and legal framework and is supported by economic substance. The optimal design of a transfer pricing system will enable effective tax rate management as well as a significant reduction in the likelihood of an audit or tax authority scrutiny in the future.

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We can assist you to identify the risks and optimise the opportunities associated with the design or re-design of your transfer pricing system.

Quantera Global can work with you to evaluate your current transfer pricing system and explore potential improvements that can reduce risk and/or compliance costs, and mitigate overall effective tax rates. As part of this review, we can perform scenario analyses to test and maximise benefits derived from any proposed business restructuring. Our approach aims to optimise the transfer pricing system within the operational and cultural settings of the business, so the system aligns with the economic substance and commercial reality of the business.

If the decision is taken to restructure the business operations for greater efficiency, we work with you to identify the functions, assets and risks that can be moved and advise on the associated transfer pricing, tax and commercial considerations and impacts. For example, in any business restructuring, it is important that the intangible assets are identified and if necessary, accurately valued in order to evaluate potential exit charges, as well as to assess the required return from these assets going forward. We can assist to address, evaluate, cost and manage other tax issues, as appropriate, such as the deductibility of royalty payments, withholding tax, GST/VAT/customs duties and capital gains tax on the sale of any intangibles associated with the proposed restructure.

Our design approach ensures that all relevant factors are considered in developing the transfer pricing system and that the revised business model is consistent with the economic substance, commercial imperatives of your business and your accounting and legal framework. Optimising the design of your transfer pricing system helps to underpin strategies to reduce overall effective tax rates and also minimises tax and transfer pricing risks in the event of future tax authority scrutiny.

The final step in the transfer pricing system design process is the effective implementation of the revised transfer pricing system. In order to counter challenges from the relevant tax authorities, it is important not only to design a highly effective transfer pricing system, but to develop and maintain comprehensive and current transfer pricing documentation, implement legal agreements for all related party transactions, ensure the accounting and transfer pricing systems are aligned, and all appropriate internal processes and controls are in place to manage the governance aspects. This holistic and professional approach will assist in reducing the risks of adjustment arising from future transfer pricing reviews and audits around the world.

Benchmarking

Benchmarking is an integral part of any transfer pricing design (or documentation) process and is often the primary means of testing or evidencing compliance with the arm’s length principle.

Quantera Global has significant experience in performing benchmarking studies across a range of industries, transactions and geographies. Through our dealings with revenue authorities globally, we understand their expectations and have developed a best practice approach to benchmarking that meets the needs of all stakeholders.

By harnessing our extensive experience in performing benchmarking studies for multinational clients that satisfy the demands of local tax authorities, and our knowledge of the OECD Guidelines, we have developed leading processes and deliverables to meet our clients’ needs.

Through our Quantera Global offices we have access to industry standard databases, globally:

  • Bureau van Dijk’s Osiris database for global coverage of listed companies;
  • Bureau van Dijk’s Oriana database for Asia Pacific;
  • Bureau van Dijk’s Amadeus database for Europe;
  • Compustat database for North America;
  • Bloomberg terminal for financial transactions;
  • Company 360 database; and
  • Royaltystat for determining arm’s length royalty and license fee rates globally.

We are happy to discuss requests for high volume benchmarking studies, prepared in a consistent and timely manner and reflecting significant volume discounts. Contact us today for a quote on single or multiple benchmarking studies.

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Overview

Preparation of transfer pricing documentation is the only way for companies to evidence their compliance with the relevant transfer pricing rules.

At Quantera Global, we can assist you with all aspects of the preparation and maintenance of transfer pricing documentation, tailored to your company’s needs. Our best practice processes enable preparation of high-quality documentation, in a streamlined, timely and cost-efficient manner.

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Irrespective of whether preparation of documentation is mandatory or highly recommended, it is always the best evidence of a company’s compliance with the arm’s length principle and its statutory obligations. Meeting documentation requirements, minimises compliance penalties that may apply on any transfer pricing adjustment applied by the tax authorities.

This approach can be:

  • A transfer pricing policy paper;
  • Masterfile documentation;
  • Local country documentation reports.

Transfer pricing policy paper

It may not be appropriate to immediately prepare a full and detailed transfer pricing documentation package, to set or to confirm the arm’s length amount of a transaction.

For example, the quantum of the transaction may be small, or the country in question may not have compulsory documentation rules. In such cases, multinationals will still want to know that the transactions are arm’s length and can be defended if they are scrutinised in the future. They may also want to ensure the alignment of the accounting, legal and commercial framework with the transfer pricing model. In such situations, the most cost-effective solution may be a transfer pricing policy paper.

A transfer pricing policy paper can comprise:

  • High level company/functional analysis;
  • Selection of transfer pricing methodology for each type of transaction; and
  • Application of selected methodology.

A transfer pricing policy paper can be easily converted to full transfer pricing documentation at a later stage, without incurring the expense involved in preparing a full documentation report, upfront.

Masterfile approach

A Masterfile is a centralised documentation package (usually prepared from either a global or regional perspective) that addresses all or part of the related party transactions conducted by a multinational in that region. The Masterfile is maintained centrally and can be used both to defend the company’s positions in all relevant countries and to create the base of local country reports, as required. The Masterfile is a key component of BEPS Action 13 in relation to transfer pricing documentation.

Developing a Masterfile, allows the company to centrally control its transfer pricing positions across the region and provides a process to create local-country documentation that is:

  • Consistent – all local-country reports are based on the same core information in the Masterfile;
  • Efficient – the local documentation can be tailored and prepared very promptly on request from a tax authority, thereby reducing the need for local documentation files to be prepared in advance of a request; and
  • Cost effective – the standardised sections of the report do not need to be recreated in each jurisdiction.

Quantera Global has considerable experience in preparing, maintaining and helping companies maximise the leverage that can be obtained by multinationals from the Masterfile documentation approach.

Local country documentation

Certain jurisdictions have specific, mandatory transfer pricing documentation requirements that must be adhered to annually, while for others documentation is only highly recommended to effectively shift the burden of proof, as well as to potentially provide penalty protection in the case of an audit. BEPS implementation will further increase the demand for ‘local files’ in coming years.

At Quantera Global, we have extensive experience in preparing local country documentation reports to satisfy the expectations of tax authorities throughout Asia, Europe and the Americas.

This experience enables us to prepare high-quality, local country documentation reports in a streamlined, timely and cost-efficient manner. It also enables us to provide value-for-money solutions where documentation is required for multiple countries and to avoid the inefficiencies and duplicative costs that can arise from undertaking multi-jurisdiction projects.

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Overview

The last pillar of our support is defence and may include defining the risk management strategy, supporting local transfer pricing audits, and concluding APAs and MAPs.

Regardless of the rigour and care in design of the transfer pricing system for a multinational company, from time to time there will be scrutiny in the form of investigations or audits from tax authorities. This trend is increasing in a number of jurisdictions as pressure mounts on Governments to seek new sources of revenue for their national budgets due to the continuing economic crisis. As part of a good risk mitigation strategy, many multinationals consider entering into an Advanced Pricing Agreement (APA) to provide certainty in transfer pricing matters for a defined future period.

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Transfer Pricing audits

The Quantera Global team has many years of experience in supporting our clients in managing transfer pricing audits and negotiating the best outcome with the local tax authorities.

Working closely with our strategic partners, we are able to ensure that the appropriate on-the-ground support is provided, together with our strategic management of the audit and communication with our clients, throughout.

Determining transfer pricing risk management strategy

Those responsible for determining the tax position of a multinational, have the challenging task of staying abreast of the myriad of transfer pricing rules in each jurisdiction in which they operate, assessing and managing the risks and prioritising documentation needs regionally or globally, within budget constraints.

Through conducting a prioritised risk assessment, Quantera Global is able to support clients in understanding material risks, determining the most appropriate risk management strategy and assist in its proper implementation, both centrally and locally. Such a strategy will be fully aligned with global Base Erosion and Profit Shifting (“BEPS”) developments and the greater transparency of tax positions that will result from Country by Country (“CbC”) reporting and streamlined information exchange between tax authorities.

Advanced Pricing Agreements (APAs)

APAs are becoming a preferred instrument to manage the transfer pricing risks of multinationals and bring certainty to the pricing of material transactions.

Tax authorities globally have become increasingly more sophisticated and recognise the advantage that APAs provide to their governments, in terms of certainty of tax revenues. Active APA regimes are now in place in many countries, with more being introduced. Multinationals also have an increased desire for certainty in their tax affairs, and for proactively managing their global transfer pricing risks.

Although we believe that APAs are not the best solution for all taxpayers and for all countries, a decision as to whether to seek an APA for material transactions should always be part of a best practice risk strategy.

In our experience, there are many cases where an APA proves to be an effective risk management tool, providing certainty and ensuring that limited resources of multinationals are not unnecessarily tied up dealing with multiple transfer pricing audits. Sometimes APAs may be combined with MAPs (see below) to solve transfer pricing exposures of past and future years.

The Quantera Global team has considerable experience assisting clients in the decision as to whether to obtain APAs as well as the negotiation of them. This includes unilateral, bilateral and multilateral APAs.

Mutual Agreement Procedures (MAP)

MAP refers to the process of international dispute resolution based on bilateral or multilateral treaties between countries.

It involves dealing with the competent authorities of two or more jurisdictions in order to resolve a double taxation dispute, typically resulting from a transfer pricing adjustment in respect of past years. As more Double Tax Agreements (DTAs) are introduced globally, MAP procedures are becoming more common. Although in practice the success rate of MAP procedures is high, the MAP instrument is not uniformly understood or utilised by many companies. Managing a MAP successfully requires a sound understanding of both the interaction between countries and the ability to influence the procedure in a constructive manner.

Quantera Global professionals, in some cases in their capacity as former competent authority officials involved in negotiations, have first-hand experience in dealing with MAPs (as well as bilateral and multilateral APAs). We are therefore able to assist and guide clients through the international dispute resolution processes. This includes guidance regarding the early strategic decisions to select the most appropriate tools and the effective execution of all phases to the most appropriate solution to eliminate double taxation. In some cases, MAP and APA instruments may be combined to establish the most effective allocation of resources, time and costs over a substantial period of time.