Transfer Pricing

Transfer pricing is a term used to describe all aspects of intragroup pricing arrangements, including transfers of intellectual property, tangible property, services, and loans and other financing transactions. Complex inter-company transactions across borders have grown rapidly and are increasingly seen as a way to manage a group's tax charge. At the same time, tax authorities from each country are imposing stricter penalties, new documentation requirements, increased information exchange and greater audit / inspection activity. Awareness and compliance is essential.

The challenge

In the current economic environment tax authorities are increasingly feeling the pressure of tax payers’ losses and artificial profit-shifting on their tax collections.

In recent years, there have been a number of international transfer pricing regulations enacted to address this problem. In general, the aim of this legislation is to ensure that a company’s income fairly matches expenditures so that performance in every part of the business can be properly measured and rewarded, as they would be in third-party transactions. This is known as the arm’s length principle.

The Luxembourg tax authorities will increasingly need to be mindful of the adverse impact that the current financial meltdown will have on the tax base. They are likely to become increasingly concerned that the inter-company transactions of multinational companies (MNCs) are consistent with the arm’s length principle. Luxembourg is a major financial center and the tax authorities are familiar with most aspects of intra-group financing arrangements.

Beyond ensuring compliance with local and global transfer pricing requirements, setting up an efficient transfer pricing policy can still nevertheless be a strong tax saving tool.

PricewaterhouseCoopers solutions

PricewaterhouseCoopers can assist you in dealing with and resolving your transfer pricing challenges, either in general or specific to the financial services, banking and fund management sectors, with these solutions:

  • A high-level diagnostic of a group’s transfer pricing policies
  • Transfer pricing documentation and planning
  • A detailed functional and risk analysis of selected transactions and/ or entities
  • Benchmarking analysis
  • Local, EU and global documentation sets (in line with the PwC Global Core DocumentationTM approach)
  • Negotiation of up-front advance tax agreements (i.e. unilateral APAs)
  • Value Chain TransformationTM
  • Valuation exercises of tangible and intangible assets
  • Analysis of tax efficient intellectual property rights exploitation schemes and principal structures
  • Management of international projects, possibly in support of client resources