Transfer Pricing Service for

1.    Introduction

The determination of the arm’s length price (“ALP”) for services exchanged between related entities within MNEs - as per the appropriate Transfer Pricing (“TP”) method - is crucial in the global business landscape as it affects profit allocation, tax liabilities, financial reporting, and performance evaluation. A fair and TP-compliant service promotes transparency and minimizes tax disputes.

2.    Types of services and their characteristics

A.    Low value-added services (“LVAS”)

• Routine, support, or administrative services
• Lower Complexity
• Minimal Risk
• No creation or enhancement of intangibles

B.    High value-added services (“HVAS”)

• R&D, product design, or technical services
• Higher complexity
• Higher risk
• Higher levels of expertise, specialized skills and intangibles

3.    Key relevant factors for TP

• Functions performed
• Assumption of risks
• Contribution of intangibles
• Contractual terms
• Economic conditions
• Unique expertise and specialized skills

4.    Challenges in determining ALP

• Lack of comparable data
• Consistency across jurisdictions
• Difficulty in quantifying benefits
• Allocation of costs and risks
• Evaluation of economical circumstances
• Complexity of value contribution

5.    Impact of not determining ALP

• Tax disputes and penalties;
• Unfair profit allocation
• Inconsistent financial reporting
• Double taxation
• Impaired decision-making
• Reputational damage
• Legal and financial risk
• Limited comparability for future transactions

6.    How can Crowe help?

• Conducting a detailed functional analysis to assess the roles, responsibilities, risks, assets used, and value contributions of each entity involved in providing the services and ensuring the appropriate computation of the ALP.
• Assist in maintaining accurate documentation and implementation of TP policies to mitigate TP adjustments and consequential tax impacts.