Transfer Pricing Aspects Related to Intangibles and Business Restructuring

Jonas Linde Larsen & Emil Brogaard

Student thesis: Master thesis

Abstract

The globalization, the increase in the number of multinational entities and cross-border transactions has led to an enlarged focus on transfer pricing. The difference between value creation and taxation leads to an annual worldwide tax loss on up to 10 %, which is equivalent to 240 billion dollars. Due to the great loss of tax payments the OECD introduced the BEPS action plan to prevent opportunities for Base Erosion and Profit Shifting and avoid double taxation. In addition the OECD issued a new guidance on the aspects of intangibles and a draft on business restructurings to secure accordance with the BEPS action plan.
This master thesis examines the transfer pricing guidance and issues of intangibles and business restructurings in a Danish and international context.
In a controlled transaction it is important to act as independent entities in a comparable situation. In the updated guidance the OECD focuses on the actual conduct of the parties rather than the contractual terms in delineating the controlled transaction. In the transfer pricing analysis it is also important to delineate which party controls the functions, uses the assets and assumes the risks. To assume a risk an entity would need the financial capacity to bear the consequences if the risk materialises.
In determining whether or not to be part of a transaction the realistic alternatives of the entities would need to be considered. An independent entity will only take part in a transaction if it is not left worse off than their next best option.
The OECD has introduced DEMPE as important functions in relation to intangibles. The performance and control of these functions are essential in determining which entity affect the value creation and therefore will generate a return. Some intangibles are difficult to value at the time of the transaction due to high uncertainty. In such situations the tax authorities may use the actual return as presumptive evidence in determining the price of the controlled transaction.
The case study shows how the guidance on intangibles and business restructurings are used in a practical manner.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2017
Number of pages119