A client was in the process of setting up a new central IT organization to support the wider group.
Centralizing IT activities can create significant operational benefits, but it also raises important transfer pricing questions. The role of the central organization needs to be clearly defined, including the activities it performs, the entities that benefit from those activities, and the way the related costs should be allocated and remunerated.
Quantera Global was asked to support the client in establishing a transfer pricing approach that reflected the new operating model and could be implemented in practice.
Quantera Global worked closely with the client to translate the new IT operating model into an appropriate transfer pricing framework.
Our support focused on understanding how the central IT organization would operate within the group and how its activities related to the different group entities.
This included:
Rather than approaching the transfer pricing analysis separately from the organizational change, the objective was to integrate transfer pricing considerations into the set-up of the new organization from the outset.
Setting up a central IT organization requires more than determining how costs are divided between group entities.
The transfer pricing model needs to reflect which activities are performed centrally, who benefits from those activities and how responsibilities are divided between the central organization and the individual group entities.
At the same time, the approach needs to be practical. A technically sound model that is too complex to operate can create significant administrative work and increase the risk of inconsistencies between the transfer pricing policy and the actual business. The key challenge was therefore to develop an approach that was both technically supportable and workable within the client’s new organizational structure.
Quantera Global supported the client in establishing a clear transfer pricing framework for the new central IT organization.
By addressing the transfer pricing implications as part of the organizational set-up, the client was able to create greater clarity around the role of the central IT function, manage the impact on relevant stakeholders, and create a sustainable model that can be easily maintained. The resulting framework provided a basis for consistently applying the transfer pricing model as the central IT organization became operational.
This project illustrates why transfer pricing should be considered early when multinational groups centralize business functions.
Changes to the operating model can also change intercompany relationships, responsibilities and financial flows. Addressing these implications only after a new organization has been implemented can make the transfer pricing model more difficult to align with business reality.
By integrating transfer pricing into the design process, companies can create an approach that is clearer, easier to implement and better aligned with how the organization actually operates. Furthermore, it can be supportive in the internal change management and creating clarity for relevant stakeholders.
Quantera Global supports multinational groups with the transfer pricing implications of changes to their operating models, including the centralization of IT and other support functions.
By combining transfer pricing expertise with a practical understanding of business operations, we help develop frameworks that are technically robust and workable in practice.
Let’s discuss how transfer pricing can support your organizational changes.
In this edition of the newsletter, you will find the most important national and global developments in tax law that are (closely) related to the transfer pricing world. Please feel free to contact us if you have any questions. Quantera Global news, developments, and blogs Quantera Global Specialties In the past month, we successfully completed several challenging and noteworthy projects, including: […]
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