Transfer Pricing Study - Local File
Transfer prices are a financial-economic measurement that allows the transfer values of goods and / or services between companies belonging to economic groups to be located within the context of market value.
The tax authorities of all countries consider that transfer pricing studies are tool for preventing profits from being transferred to territorial jurisdictions with lower or no tax rate, which is why an affidavit is presented annually in all countries containing information on these trabsactions, under a comparability system of prices and cross-section costs based on the OECD guidelines.
In application of BEPS Action 13, adopted by the majority of the tax authorities, the Local Report is incorporated into each legislation, which prescribes preparation of the Transfer Pricing Study where each transaction between the Related Parties is analyzed in a segmented way.
Our Firm has extensive experience, in addition to a multidisciplinary team and first-class technology, which guarantees a high-performance final product and that duly supports the annual tax return to be presented to the Tax Authorities.
Local Report content
- Data regarding relevant operations with related parties
- Functional analysis
- Selection and application of methods
- Information on comparables used
- Comparability analysis
Action 13 of the BEPS has also incorporated a new Report, mandatory in the jurisdictions that are under this regulation called the Master File that collects standardized information at the level of the business group, including the nature of its global operations, its transfer pricing policies and the distribution of its benefits and economic activities worldwide, in order to allow tax administrations to assess whether there is a significant transfer pricing risk.
In accordance with the OECD (Organization for Economic Cooperation and Development) Transfer Pricing Guidelines, the master file is intended to provide a high-level overview in order to locate the transfer pricing practices of the multinational group in its global economic, legal, financial and fiscal context.
We provide support for compliance with the information that the Master Report must present. Master file contains relevant data that can be grouped into five categories:
- Master File Information
- Organizational structure of the multinational group (MNG)
- Intangibles of the MNG
- Financial and tax positions of the entities of the MNG
- Intra-group financial activities
- MNG business description
Country by Country Report
In accordance with the Transfer Pricing Guidelines of the OECD (Organization for Economic Cooperation and Development) through Action 13 of the BEPS (Base Erosion And Profit Shifting) the Country by Country Report is prescribed which requires the set of tax information at the level of each jurisdiction regarding the worldwide distribution of benefits and taxes paid, as well as certain indicators of the location of economic activities in the tax jurisdictions in which the multinational group operates. The CbCR requires mentioning all the entities that make up the group, as well as the nature of the main economic activities carried out by each of them.
We provide support for the presentation of the CbCR, which will be useful when evaluating the transfer pricing risk globally.
Country by Country Report Information
- Financial data of the multinational group by tax jurisdiction: Income, earnings, earnings before tax, declared capital etc.
- Main economic activities of the member entities of the multinational group.
Intragroup Services - Benefit Test
According to the OECD Guidelines, to speak of an intragroup service, it is necessary that there is an economic or commercial interest for the entity that receives this service and that the fact of receiving said benefit means a benefit in its commercial position.
In this sense, it is important to indicate that the transfer pricing regulations of some countries have incorporated the “Benefit Test”, in which companies are obliged to provide the documentation and information requested by the Tax Administration, as conditions necessary for the deduction of the cost or expense resulting from the provision of intragroup services.
The “Benefit Test” will be fulfilled when the service provided provides economic or commercial value for the recipient of the service, improving or maintaining its commercial position. In this way, the taxpayer must document and provide information that demonstrates the effective provision of the service, its nature and its real need, the costs and expenses incurred by the service provider, as well as the reasonable criteria for assigning said costs and expenses.
We provide the service of review and evaluation of all operations of “intragroup service” in order to be prepared for the fulfillment of the Test of Benefit (TB), additional requirement for the deductibility of costs and expenses from this type of operations.
To be tested
Effective provision of the service
Nature of the service provided
Financial, technological, scientific, mining, commercial etc.
Real need for the service
Impact of the service in improving the operability of the service receiver
The service may produce a potential advantage (medium or long term in the recipient’s utility)
Costs and expenses incurred by the service provider
Identification of expenses.
Markup identification (margin).
Valuation of Companies, Shares and Intangibles
The value of a company or business is determined by the resources it is capable of developing and generating. For this, it is necessary to analyze the multiple scenarios in which it can unfold as the consequences and probabilities of each one of them. Identifying the most appropriate valuation methodology is the first step to start the process, which mostly depends on the characteristics of the company, the capacity to generate flows and the information available.
In the case of active companies in operation and with an adequate generation of cashflows, the Discounted Cash Flow (CDF) method is considered to be the most widely accepted.
Another widely used method is the Comparable Multiples, which is based on financial and functional information from independent companies selected as comparable. Indicators with sales, EBIT, EBITDA, market capitalization, company value, among others, are used to apply this methodology.
- Analysis of the target company.
- Selection of the most suitable valuation method or methods.
- Development of valuation models.
- Applications of the results in the objective company.
- Selection of a valuation range.
We provide technical advice regarding the planning of operations with related parties and / or tax havens. The result of this analysis includes the design of the transfer prices that are best adapted under decentralized structures, seeking the effectiveness of the organization, optimizing the valuation of these operations, complying with the arm’s length principle and avoiding contingencies with the Tax Administration.
Our purpose is to maximize the results of any organization using the most appropriate transfer pricing methodology.
Analyze the structure and value chain of the business or businesses;
Analyze the corresponding fiscal, economic and legal framework in which they operate.
Design a coherent transfer pricing strategy that complies with local regulations as well as international guidelines applicable to operations with related parties and / or tax havens.
Design a coherent transfer pricing strategy that complies with the interests of the different interest groups – stakeholders (shareholders, suppliers, clients, investors, among others).
Implement transfer pricing policies, through adequate instruction and active participation of stakeholders. Embed the transfer pricing plan to the organizational environment.
Advice during Transfer Price Audits
In the event of of inspection by Tax Administration, we have the capacity to assist by identifying optimal and effective alternatives. As the only registered transfer pricing court expert in Serbia, we have extensive experience accompanying our clients in the attention of authority reviews to satisfactorily resolve the dispute.