Our Services

As companies strive to improve financial performance, they face a marketplace that is increasingly competitive and global. In a demanding business environment, tax planning and profit objectives become a critical focus of management; in these situations, TPEC-Global provides advice to use transfer pricing and valuation strategies that moderate tax liabilities and utilize tax credits and net operating losses (“NOLs”) more efficiently.

TPEC-Global’s Economic Solutions:

  • Intangible Property (“IP”) Holding Company Structures are designed to transfer IP to an affiliated entity in a favorable tax jurisdiction.  This entity then licenses the intangible assets to other affiliates in the group, in an exchange for royalty payments (or license fees), thereby moving any “excess” (or economic) profit associated with the IP to the economical and legal owner of the IP.  These analyses provide the potential to moderate tax burdens, increase operational efficiencies, and manage cash flows among a company’s commonly controlled subsidiaries.
  • Cost-Sharing Arrangements generally eliminate the need to charge intercompany royalties (or license fees) since these agreements result in a common ownership of intangible assets.  This is the case when an entity participates in the common development of IP (or purchases a share of pre-existing IP, also referred to as a buy-in payment) as of the date of the buy-in, and contributes to future development costs of technology or marketing intangibles.
  • IP Valuations are necessary to calculate buy-in payments when a company transfers IP from one affiliate (within a controlled group of companies) to another.  The payments for IP must comply with the “arm’s-length” standard outlined under U.S. Internal Revenue Code (“IRC”) § 482, the OECD Transfer Pricing Guidelines (“OECD Guidelines”), or country-specific transfer pricing regimes.
  • Royalty Rate Determination and IP Licensing Analyses provide taxpayers with the ability to charge intercompany royalties (or license fees) in accordance with the “commensurate with income standard” under U.S. IRC § 482; which, generally would also be in conformance with the OECD Guidelines.  The royalty rates can be differentiated among related parties operating in different geographical regions, based on the “profit potential” achievable in local markets, and taking into consideration differences between comparable third-party licensing arrangements and related-party licenses.
  • Intercompany Loans, Financial Arrangements, and Management Services constitute the interest rate (or fees) that should be charged on (i) intercompany loans, (ii) factoring arrangements, and (ii) administrative service charges that may apply in these transactions.  Often multinational companies pass on their own consolidated “credit-rating” interest rates on loans to their subsidiaries; when a different interest rate (e.g., LIBOR, or a sub-prime rate) may be more appropriate at arm’s length, these can be used given the facts and circumstances of the financial position of the operating affiliate and the financial results of a subsidiary.
  • Guarantee Fee Analyses address the issue of parent companies (generally) extending a guarantee for the financing of a foreign subsidiary’s loan.  This type of activity reduces the default risk of the subsidiary and extends the economic burden of default onto the guarantor of the financing activity, which it should be compensated for at arm’s length.  A guarantee fee is generally computed as a percentage of the loan amount extended, which should be reimbursed to the guarantor at the origination date and situs of the loan.
  • Start-Up, Market Penetration, and Spin-Out Strategies contribute to a company’s successful entry into new markets or expansion of its existing market share.  A company may defensibly increase market development expenses or lower prices to affiliates when these strategies are properly documented contemporaneously with the implementation of the strategy, and its business rationale is sound. This is, for instance, an effective, arm’s-length and economics-based framework to utilize net-operating-losses (“NOLs”}.  Alternatively, it can be used to support a loss or to reduce profit levels for subsidiaries that enter (or expand) into new markets.
  • Mergers and Acquisitions (“M & A”) Due-Diligence Services enhance the quality of price or bid negotiations, reduce post-acquisition risk, and harmonize transfer pricing policies of the acquiring Firm with those of the acquired company.  During the due diligence process, understanding the potential transfer pricing tax liabilities of the acquisition target, or the transfer pricing objectives of an acquiring firm, can help to limit tax liability and allocate a purchase price to maximize tax benefits.

A proactive and prudent CFO, Tax Director, or Controller can minimize potential exposures to income re-allocations and avoid double taxation by complying with transfer pricing documentation requirements, as set forth by both U.S. and foreign tax authorities; TPEC-Global can add substantial value by assisting to prevent potential income reassessments, penalties, and interest charges on additional tax imposed.  In order to achieve these objectives, a company needs to satisfy three criteria: (i) establish arm’s-length transfer prices, (ii) maintain and update intercompany documentation, and (iii) provide these documents within a set time period (e.g., 30 days) when requested by a tax authority.

TPEC-Global’s Compliance Expertise:

  •  IRC §§ 482 and 6662, the OECD Transfer Pricing Guidelines, and ASC 740-10 (uncertain tax positions; previously, FIN 48) Guidance comprise specific parameters in order to adhere to the arm’s-length assessment of intercompany transactions and comply with tax-reporting requirements.  This service provides guidance for complying with these rules, outlines (in summary form) what the up-to-date regulatory parameters are, and confers onto corporate professionals the necessary knowledge to maneuver through domestic and international transfer pricing paradigms.
  • Transfer Pricing Probability Scorecard (“TPPS©”) is a proprietary TPEC-Global analytical model that ascertains the extent to which intercompany transfer pricing policies adhere to arm’s-length principles.  TPPS© is used to identify potential transfer pricing opportunities (or exposures) that a company may want to address in order to comply with the IRC §§ 482 and 6662 regulations, OECD Guidelines, and ASC 740-10 considerations; it provides preliminary data to address audit and tax positions on the extent to which a company is exposed to certain risks upon a potential IRS audit, or how it should adjust transfer prices to meet the arm’s-length standard, in the United States or internationally.
  • Transfer Pricing Documentation Studies evaluate the extent to which transfer prices are consistent with the arm’s-length standard (as required under IRC §§ 482 and 6662, as well as the OECD Guidelines.  The scope of a transfer pricing documentation study is tailored to address the specific needs of a company relative to the complexity and magnitude of the transactions, number of affiliated members, and geographical regions involved.
  • Advance Pricing Agreements (“APAs”) can be used as an effective tool to negotiate a company-specific arrangement with:  (i) domestic and foreign tax authorities in order to reduce uncertainty and risk, (ii) provide more assurance against potential income re-allocations, and (iii) manage tax-authority audits.  APAs can be entered into on a unilateral, bilateral, or multilateral basis.
  • Intercompany Policy and Implementation Guide­lines are created to assist a company in applying and monitoring its intercompany transfer pricing strategies.  The objective of utilizing these documents and resources is to standardize and harmonize company-wide global transfer pricing policies, align and synchronize these with management performance evaluations, and provide additional support in the event of an audit.  Creating this consistent framework enhances the credibility of performance measures and instills a sense of equity with respect to how intercompany transactions occur.
  • Intercompany Agreements provide a consistent paradigm to formalize intercompany transfer pricing policies.  These documents also present a “form” over “substance” argument upon a potential audit.  This will become increasingly important under IRC § 1.482-9 (i.e., the Intercompany Services section of the U.S. Code), and is already necessary for a number of tax authorities in countries that may give more credence to intercompany transactions that follow the “letter” of agreements, as opposed to leaving it to the discretion of taxpayers to set transfer prices for management services.  Intercompany agreements include technology, trademark, cost-sharing, market expansion, services, and loan agreements, among others.

U.S. and international tax authorities are increasingly challenging intercompany pricing structures.  TPEC-Global’s transfer pricing professionals are specialists with respect to current court decisions, audit processes and strategies, including recent settlement practices in various industries and countries.  Active support from TPEC-Global can strengthen your company’s position to resolve transfer pricing disputes.

TPEC-Global’s Audit Defense Engagements Encompass:

  • Tax Authority Response to Information Document Requests (“IDRs”) including (i) developing economic analyses to defend arm’s-length pricing strategies, (ii) evaluating and critiquing transfer pricing methodologies and adjustments proposed by tax authorities, (iii) recommending sound audit defense approaches, and (iv) providing responses to IDRs issued by the IRS or foreign tax authorities.
  • Dispute Resolutions and Negotiations generally involve face-to-face interactions (or depositions) with a tax authority to assist in rebutting proposed reassess­ments of income by a tax authority, and preparing companies for litigation, APAs, audit settlements, or Competent Authority proceedings.
  • Litigation Support and Testimony providing litigation testimony, depositions, and strategic consulting advice, as well as producing submission reports, advocacy position papers, affidavits, and expert-witness testimony.
  • Competent Authority Submissions, with respect to preparing and filing taxes, require documents to resolve potential double taxation disputes.

As a consequence of the continuing evolution of transfer pricing rules around the world, TPEC-Global provides your company’s professionals with guidance on country-specific transfer pricing and valuation issues, documentation requirements, and potential penalty risks both domestically and internationally.

Assistance in creating and managing a company’s in-house transfer pricing and valuation functions, with respect to providing guidance for the credentials of personnel, database recommendations, as well as financial modeling and maintenance of documentation requirements, are essential to optimize a Company’s transfer pricing regime and imperative to develop a robust transfer pricing and valuation structure.

  • Transfer Pricing Team Building, Recruiting, and Management comprises the cumulative experience of TPEC-Global’s professionals, in how to assemble a balanced composition of transfer pricing professionals, customized to a company’s organizational needs.  Based on market experience interacting with internal transfer pricing teams, and how these internal teams operate with external consultants, TPEC-Global provides advice as to who to recruit at appropriate levels, how to build synergies, and how to manage these teams for optimal efficiency.
  • Transfer Pricing Processes, Policies, Software Assistance, and Developments encompasses advice on how to build infrastructure around a team of in-house transfer pricing professionals, in order to provide them with the appropriate database and software tools to conduct, maintain, and monitor intercompany transactions independently.
  • Periodic Transfer Pricing Compliance, Risk Assessment, and Management is perhaps one of the most import functions with respect to optimizing a company’s transfer pricing regime:  use transfer pricing principles proactively – it is one of the most important international (and domestic) tax tools at a company’s disposal – and is generally underutilized.  An evaluation of functions, risks, and management procedures will enhance the optimization of a company’s transfer pricing structure in order to capitalize on tax opportunities and minimize risks.

Companies use financial benchmarking to enhance profits and improve their competitive advantage in the global marketplace.  TPEC-Global’sprofessionals identify, develop, and evaluate key financial indicators across various competitive industries.

Benchmarking statistics provide management with value-added information to determine and analyze financial advantages and disadvantages relative to competitors.  These assessments provide your company with critical tools to implement “best-practice” methodologies and prioritize management initiatives.

TPEC-Global’s benchmarking resources comprise state-of-the art U.S. and global financial databases that contain over 20 years of fundamental, financial, economic, and market information for over 100,000 public companies.  Using proprietary benchmarking models, adjustment methodologies, Monte-Carlo analyses, real-options simulation software, and comparative analytical tools, TPEC-Global can evaluate tailored financial data to address company-specific needs, as well as market-based challenges.

TPEC-Global’s Financial Benchmarking Comprises:

  • Competitor Analyses assess where to allocate corporate capital in order to address “best practices” within an organization, which can emulate (and improve upon) how companies excel relative to competitors.  These type of analyses evaluate a number of financial, operating, and profitability ratios, in order to give management insight into differentials that a company can capitalize on within a corporation.
  • Financial Ratio and Profitability Evaluations cover all relevant areas of a company’s financial performance and provides indicators of profitability, efficiency, arm’s-length returns, and business solvency. These types of analyses offer valuable insight for business executives and managers to improve business processes, deliver improved economic results (i.e., earnings per share), and support intercompany pricing and valuation issues.
  • Capital Structure Analyses provide statistics to support thin-capitalization positions, and are applied in conjunction with other transfer pricing services, to develop comprehensive profit repatriation strategies.
  • Effective Tax Rate Analyses derive critical parameters to benchmark international, federal, and state (or provincial) income tax liabilities to assist in managing the tax function, as well as identifying tax areas that may benefit from planning opportunities.

United States

The regulations under IRC § 482 give the Internal Revenue Service (“IRS”) authority to allocate income or deductions between related entities.  The IRS can do this if it determines that such allocations are necessary to prevent evasion of taxes or to clearly reflect the income of such related parties.  The regulations require that the standard against which any transaction between related parties will be judged is the arm’s-length standard – as defined by the price agreed upon between a willing buyer and seller, under no compulsion to transact.

Documentation Requirements
The IRS has developed extensive transfer pricing documentation requirements, which state that the documents necessary to support the arm’s-length nature of intercompany prices should be prepared contemporaneously with filing of a company’s tax return, in order to avoid a potential imposition of penalties.  The required documentation is divided into two categories:  10 principal documents and background documents.

Treas. Reg. § 1.6662(d)(2)(iii)(B)(1)-(10) – Principal Documentation Requirements: Under the principles of the best method rule in § 1.482-1(c),…a taxpayer must provide the principal documents to the IRS within 30 days of an IDR request.

  1. An overview of the taxpayer’s business, including an analysis of the economic and legal factors that affect the pricing of its property or services.
  2. A description of the taxpayer’s organizational structure (including an organization chart) covering all related parties engaged in transactions potentially relevant under section 482, including foreign affiliates whose transactions directly or indirectly affect the pricing of property or services in the United States.
  3. Any documentation explicitly required by the regulations under section 482.
  4. A description of the method selected and an explanation of why that method was selected.
  5. A description of the alternative methods that were considered and an explanation of why they were not selected.
  6. A description of the controlled transactions (including the terms of sale) and any internal data used to analyze those transactions.  For example, if a profit split method is applied, the documentation must include a schedule providing the total income, costs, and assets (with adjustments for different accounting practices and currencies) for each controlled taxpayer participating in the relevant business activity and detailing the allocations of such items to that activity.
  7. A description of the comparables that were used, how comparability was evaluated, and what (if any) adjustments were made.
  8. An explanation of the economic analysis and projections relied upon in developing the method. For example, if a profit split method is applied, the taxpayer must provide an explanation of the analysis undertaken to determine how the profits would be split.
  9. A description or summary of any relevant data that the taxpayer obtains after the end of the tax year and before filing a tax return, which would help determine if a taxpayer selected and applied a specified method in a reasonable manner.
  10. A general index of the principal and background documents and a description of the recordkeeping system used for cataloging and accessing those documents.

Treas. Reg. § 1.6662(d)(2)(iii)(C) – Background Documents: …need not be provided to the IRS in response to a request for principal documents. If the IRS subsequently requests background documents, a taxpayer must provide that documentation to the IRS within 30 days of the request.

The assumptions, conclusions, and positions contained in principal documents ordinarily will be based on, and supported by, additional background documents.  Documents that support the principal documentation may include the documentation listed in § 1.6038A – 3(c) that are not otherwise described in paragraph (d)(2)(iii)(B) of this section.

Treas. Reg. § 1.6662(e) and (h) – Transfer Pricing Penalties:

The regulations under IRC § 6662 outline the penalties levied on “additional tax owed” to the IRS, due to a reassessment of income resulting from a transfer pricing adjustment. Other countries (e.g., Canada) may levy a penalty on the “actual income reassessment” (as opposed to on the additional tax owed), whether additional tax is owed to the Canada Revenue Agency or not.

20 percent “substantial valuation misstatement” penalty applies if the:

  • Adjustment is 200 percent or more, or 50 percent or less, than the amount reported; or
  • Net positive adjustment is greater than the lesser of $5 million or 10 percent of gross receipts.

40 percent “gross valuation misstatement penalty” applies if the:

  • Adjustment is 400 percent or more, or 25 percent or less, than the amount reported; or
  • Net positive adjustment is greater than the lesser of $20 million or 20 percent of gross receipts.

A company may prevent an imposition of U.S. transfer pricing penalties, if it can demonstrate that it has made reasonable efforts to comply with the IRC §§ 482 and 6662 regulations.

Organization for Economic Cooperation and Development (Update to new “OECD” Draft Guidelines)

The OECD is an international policy organization that provides guidance for its member countries in their individual and joint efforts to expand trade and cross-border investment among themselves and the rest of the world.  It has issued a series of transfer pricing guidelines (“OECD Guidelines”) over many years, as well as other materials of significance to international taxpayers and tax administrators.  Its decisions and pronouncements are advisory and instructive, not mandatory; thus it cannot dictate policy to its members.

Numerous tax authorities around the world adhere to the advice provided in the OECD Guidelines, which differs in a few respects with the regulations under IRC § 482.  Transfer pricing evaluations should consequently address both sides of intercompany transactions under these respective transfer pricing regimes, as well as individual country adherence to these rules.  Most importantly, however, is to know the transfer pricing parameters where your Company conducts intercompany transactions, to optimize its economic return.

European Union

The European Union has developed separate transfer pricing documentation (“EU TPD”) requirements, which overlap to some extent with those outlined under the OECD Guidelines and IRC § 6662, but have two components:  (i) Master File, and (ii) Country-Specific File.  This construct is intended to rationalize the documentation burden for taxpayers in that the Master File would be accepted by any tax authority within the EU, while the Country-Specific File would provide incremental data that may be required by transfer pricing legislation particular to a certain country.  The lists below provides the content of the EU TPD guidance.

EU TPD – ¶ 1.4 Master File

4.2.(a)  A general description of the business and business strategy, including changes in the business strategy compared to the previous year.

4.2.(b)  A general description of the multinational enterprise (“MNE”) group’s organizational, legal, and operational structure (including an organizational chart, a list of group members, and a description of the participation of the parent company in the subsidiaries).

4.2.(c)  The general identification of the associated enterprises engaged in controlled transactions involving enterprises in the EU.

4.2.(d)  A general description of the controlled transactions involving associated enterprises in the EU (i.e., a general description) of:

  • Flows of transactions (tangible and intangible assets, services, financial),
  • Invoice flows, and
  • Amounts of transaction flows.

4.2.(e)  A general description of functions performed, risks assumed, and a description of changes in functions and risks compared to the previous tax year (e.g., change from a fully fledged distributor to a commissionaire).

4.2.(f)  The ownership of intangibles (patents, trademarks, brand names, know-how, etc.) and royalties paid or received.

4.2.(g)  The MNE group’s intercompany transfer pricing policy or description of the group’s transfer pricing system that explains the arm’s-length nature of the company’s transfer prices.

4.2.(h)  A list of cost contribution agreements, Advance Pricing Agreements, and rulings covering transfer pricing aspects as far as group members in the EU are affected.

4.2.(i)  An undertaking by each domestic taxpayer to provide supplementary information upon request and within a reasonable time frame in accordance with national rules.

EU TPD – ¶ 1.5 Country-Specific Documentation

5.2(a)  A detailed description of the business and business strategy, including changes in the business strategy compared to the previous tax year.

5.2.(b)  Information (i.e., description and explanation), on country-specific controlled transactions, including:

  • Flows of transactions (tangible and intangible assets, services, and financial),
  • Invoice flows, and
  • Amounts of transaction flows.

5.2.(c)  A comparability analysis, i.e.:

  • Characteristics of property and services,
  • Functional analysis, (functions performed, assets used, and risks assumed),
  • Contractual terms,
  • Economic circumstances, and
  • Specific business strategies.

5.2.(d)  An explanation of the selection and application of the transfer pricing method(s) (i.e., why a specific transfer pricing method was selected and how it was applied).

5.2.(e)  Relevant information on internal and/or external comparables, if available.

5.2.(f)  A description of the implementation and application of the group’s intercompany transfer pricing policy.

Corporations: The Agenda of Chief Financial Officers (“CFOs”)– Transfer Pricing and Valuation

According to surveys of CFOs, the impact of transfer pricing and valuation is among the most complex, litigious, and potentially opportunistic (or damaging) tax and profit issues facing their companies. CFOs and Tax Directors have increasing audit risks associated with implementing strategies for multinational (and domestic) companies’ sourcing, production, distribution, and financial arrangement goals.

At the same time, these complexities provide substantial opportunities to optimize profits, increase cash flows, and manage taxes; transfer pricing also pose significant challenges for corporate risk management and operational performance evaluations. The goal of TPEC-Global is to assist companies in navigating through the maze of international transfer pricing rules and assist in managing the impact that transfer pricing and valuation policies have on companies.

Transfer prices on intercompany transactions are having an increasingly high effect on reported profits in different tax jurisdictions; consequently, intercompany prices among affiliated entities are a growing concern for tax authorities. To defend respective tax bases and the IP developed by one (or more) related parties within a country’s borders, tax authorities around the world have become aggressive in tax policy enforcement.

Most tax authorities require that intercompany prices between related parties be conducted at “arm’s length,” and a number of countries require that documentation be prepared contemporaneously with the filing of companies’ tax returns. Multinational (as well as domestic) companies that conduct intercompany transactions across different tax jurisdictions, and have not complied with documentation requirements, may be exposed to double taxation and significant penalties if a tax authority reassesses income to its jurisdiction or disallows deductions as a result of a transfer pricing adjustment.

TPEC-Global’s network includes experienced transfer pricing professionals including economists, international tax professionals, lawyers, and financial analysts; a network that operates in numerous countries, and provides companies with state-of-the-art advice, client service, and support.

Companies that proactively pursue to capitalize on the benefit of tax differentials across geographical borders and seek to improve operational efficiencies, can benefit from TPEC-Global’s services, which provide the analytical solutions to achieve these objectives in a supportable fashion, across international transfer pricing regimes.