Be it through design or necessity, international structuring and the ability to ‘control’ the recognition of profits across a structure, underpins the effective tax rate applied to every multinational organization. Put simply, transfer pricing legislation seeks to remove that control, enabling competing tax authorities to get their fair share of tax.
Unsurprisingly, the potential for transfer pricing disputes is, for most businesses, their single largest tax risk. The investment management industry is no different, with perhaps the exception of tax risk embedded at the investment level.
Globally, tax authorities tend to adopt the transfer pricing guidelines developed by the Organization for Economic Co-operation and Development (OECD) into their local legislation allowing taxpayers, in theory, to apply a consistent pricing methodology across their business. Typically when submitting their tax return a taxpayer has by default declared that they have undertaken a transfer pricing analysis to determine an arm’s length rate, as set out in the OECD guidelines.
Most businesses will consider their transfer pricing position when they first launch and then perhaps when they open an office in a new jurisdiction, but technically the test is annually and documentation should be maintained to reflect this.
Duff & Phelps has a wealth of experience helping investment management clients to navigate the OECD guidelines to determine an arm’s length pricing methodology for their business. Our regulatory transfer pricing service lines can be broken down into four core components, these include: