Case study: How to turn an aggressive audit into an opportunity Schedule a call

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    Case study: How to turn an aggressive audit into an opportunity

    As Albert Einstein once said, “in the midst of every crisis, lies great opportunity”.

    Most CFOs and tax directors see a tax audit only as a big risk that eats up capacity, causes stress and creates uncertainty. However, tax audits often also have imbedded opportunities that are often overlooked. In most tax audits where we have provided support, we were able to assist clients in such a way that we could identify and materialise these opportunities.
    In the following, we will zoom in on one of these experiences.

    One of our clients experienced significant business growth in recent years, has a complex business, and had different transfer pricing models between different business units. Simplification was therefore already a management concern. Because of the complexity and for various underlying reasons, a local tax authority proposed a very material adjustment. This prompted the board and the finance and tax department to take a deep dive into its overall policy and transfer pricing model.
    We were asked to provide support in resolving the tax audit while working towards a sustainable solution for the future.

    Through a desktop review and interviews, we were able to understand the business models. We found enough similarities between the business models to create a consistent transfer pricing model for the multiple business units.

    In addition, we analysed the different financials and combined them with our vision on the business, the transfer pricing model for the future and historical elements. This combination provided us with the appropriate argumentation to convince the tax authorities that the corrected entity obtained sufficient results.

    This review also opened the eyes for management and made them realise that the designed transfer pricing system would reduce the effective tax rate and, equally important, reduce risks in the various jurisdictions. This TP system also fitted well with the new business strategy.

    We then supported the company in the implementation of this transfer pricing policy including the operational processes, agreements, and transfer pricing documentation. In addition, we were able to conclude an Advance Pricing Agreement (APA) with the local tax authority and the company moved from a difficult relationship with the tax authority to a cooperative one. The APA included all possible intercompany transactions and all the related transfer pricing methods, including a profit split.

    We are proud to have achieved this result as a team with the Board and the finance and tax department.

    Is your company facing similar challenges? Please contact us for a free consultation or sparring session of one hour to discuss potential transfer pricing risks or opportunities that are currently on your plate.