Transfer Pricing Challenges Concerning Intra-Group Transfers of Intangibles as Part of Business Restructurings

Casper Foss Hansen & Casper Hammerskov

Student thesis: Master thesis


The work of OECD in relation to the BEPS project has increased the volume and complexity of the TPG, and thus the importance of competencies of multinational groups in applying the guidelines to transfer pricing challenges. This thesis analyzes transfer pricing challenges encountered by multinational groups when applying the updated TPG chapters 1 section D, 6 and 9 and the forthcoming update to TPG chapter 2 part 3 section C. This is done using the legal judicial method, secondary data and a self-developed case. The thesis finds that initiatives put forward by OECD, EU and SKAT have increased the transparency of multinational groups’ tax affairs. Furthermore, it finds that the allocation of profits between group companies depends on the degree to which they control economically significant risks. Whether a group company controls the assumption of risk, depends on whether the group company has competencies to make decisions about the risk and has the financial capacity to assume it. When accurately delineating controlled transactions including intangibles, it is important to acknowledge that compensation should be paid to group companies performing functions, using assets and assuming risk in relation to DEMPE, thereby compensating the economic owner rather than the legal owner of the intangible. If certain requirements are met, tax authorities can make an ex-post evaluation of the transfer price of an HTVI with the purpose of reducing information asymmetry between multinational groups and tax authorities. Moreover, the thesis finds that a multinational group should make use of the separate entity approach to ensure that the business restructuring including intangibles is at arm’s length from the perspective of each involved group company. The compensation for the business restructuring itself is a result of the transferred economic profit potential. The Discussion Drafts to the Transactional Profit Split Method provide indicators on whether the method can be appropriate. Yet, the method should not automatically be chosen based on the facts that one or more of the indicators provided in the guidelines are met. However, commentators argue that the guidelines still favor the use of the Transactional Profit Split Method, which can result in double taxation. Lastly, the thesis provides a self-developed case, in which functions performed, assets used and risks assumed in connection to an intangible are transferred from a Danish parent company to a foreign subsidiary. The foreign subsidiary compensates the Danish parent company for the transfer of an economic profit potential. However, SKAT makes an ex-post adjustment to the Danish parent company’s received compensation, due to significant mistakes made by the Parent company when valuing the intangible.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2018
Number of pages141