Transfer Pricing Challenges in 2020 Concerning Business Restructuring with Intra-company Transfer of Intangible Assets during COVID-19

My Huyen Thi Tran & Tobias Volck Hybholt

Student thesis: Master thesis


The main purpose of this thesis is to examine which transfer pricing difficulties a Danish parent company in a multinational enterprise faces when determining an arm’s length price during a restructuring involving transfer of intangibles. The thesis includes which COVID-19 impacts the Danish parent company should have extra focus on, and how the OECD Transfer Pricing Guidelines from 2017 can be improved to provide better guidance for MNEs. To clarify the difficulties a Danish parent company in a multinational enterprise faces, the thesis analyses the OECD Transfer Pricing Guidelines published in 2017. Specifically, the thesis analyses chapter 1, 6 and 9 in TPG, as these chapters give guidance in setting an arm’s length price, how to remunerate group companies, how to value intangibles and perform business restructurings. The thesis concludes with a self-constructed case with a Danish parent company as principal company, which transfers DEMPE-functions, intangibles and risks to a French subsidiary during a business restructuring. COVID-19 affects the valuation of intangibles because of the effect on the future cash flow.
To ensure an arm’s length price, the MNEs should make a comparability analysis, to identify a comparable transaction between independent parties. When the restructuring includes intangibles, the MNE should remunerate the group companies based on their contributions to the DEMPE-functions. In the thesis 4 of the biggest MNEs in Denmark, KIRKBI, Mærsk, Danske Bank, and Novo Nordisk is analysed to illustrate which intangibles they own, and how the COVID-19 pandemic is affecting the price of the intangibles.
When a MNE is performing a restructuring involving intangibles, the group company which is transferring the intangibles should be compensated with an arm’s length price for the loss of future earnings. The knowledge obtained through chapter 1, 6 and 9 in TPG is used in the self-constructed case to point out where TPG can be and elaborated and improved. As the Danish principal company is transferring the DEMPE-functions, intangibles and risks to the French subsidiary, the French subsidiary becomes the new principal company in the centralized structure. The French principal company is receiving the residual profit after remunerating the group subsidiaries for their routine transactions. The Danish group company should be compensated at arm’s length, for losing its future cash flow. The tax authorities will expect that the COVID-19 impact is included in the TP documentation of the controlled transaction. OECD could to their advantage elaborate the chapters 1, 6 and 9 to include a more in depth guidance, on how a pandemic should be handled TP-wise.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2020
Number of pages128