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Transfer pricing for a Group undergone a restructuring - Case Study
Sector:
Technology
Annual turnover:
Over US$40 million
Client challenge:
- Restructuring
- Prolonged operating losses
Grant Thornton services:
Reviewing existing TP policies and provide recommendations on alternative TP policies
Geographies served:
Asia Pacific, Europe, USA, Latin America, Middle East, and Africa
One of the largest international providers of technology solutions for the global hospitality industry needed to justify their Transfer Pricing (“TP”) policies after the acquisition
Client challenge
Prolonged operating losses and restructuring
Despite being in a booming industry, our Client incurred multiple years of operating losses with significant related party transactions.
Following an acquisition by an international technology firm in USA, the volume and complexity of cross-country recharges relating to intercompany loans, intangibles and intra-group services also increased.
As a result, the above gave rise to a need for the Group to review the relevance of their existing TP policies and refine the same to better fit today’s TP compliance landscape.
The Grant Thornton solution
We provided recommendations in Phase 1, including:
- Reclassification of intra-group services into more specific categories so that the arm’s length prices can be determined at a more precise manner
- Charging related parties for services they received
- Applying the direct charging mechanism where possible
- Identifying pass-through costs and eliminating recharges when no specific service can be identified
High-level reviews of the recommended TP policies were also conducted from a direct tax and indirect tax perspective in the five highest revenue generating jurisdictions.
In Phase 2 of the project, new TP policies were documented, and arm’s length prices were determined via benchmarking analyses.
The Outcome
The Group was able to establish precise arm’s length pricing arrangements for their individual transactions enabling the individual members to have a more robust transfer pricing defense in their respective jurisdiction.
