Transfer Pricing Services

Services and Capabilities

Transfer Pricing Services

Continued business globalization demands strategic transfer pricing.

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The current highly dynamic and unpredictable

business environment around the world presents

multinational companies with significant

challenges in planning and documenting their

intercompany pricing policies.

Transfer pricing issues have risen to the forefront of international

tax concerns as cross-border trade has expanded exponentially.

Following the lead of the United States and the Organisation for

Economic Co-operation and Development (OECD), tax authorities

worldwide have instituted regulations requiring multinational

companies (MNCs) to document intercompany transactions and

comply with the arm’s length standard. NERA’s transfer pricing

professionals assist clients in navigating the maze of global

regulations by providing independent and defensible economic

analyses to substantiate transfer pricing policies.

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NERA’s Transfer Pricing CapabilitiesNERA’s Transfer Pricing Practice helps clients minimize tax risk resulting

from transfer prices and optimize their global resources. Our transfer pricing

experts utilize market-based pricing techniques including value-chain and

industry structure analyses, benchmarking studies, and rigorous valuation

methodologies to design intercompany pricing policies grounded in sound

business strategy and well-established economic principles. The results are

transfer pricing solutions that meet both clients’ business objectives and

the arm’s length requirements imposed by national tax authorities. NERA’s

Transfer Pricing Practice focuses on four areas:

Pricing Strategy

Transfer pricing strategy and planning issues

often arise when multinational clients face

mergers and acquisitions, market pricing

evaluations, and organizational structuring and

incentive management issues. Our strategy work

focuses on developing sound transfer pricing

methods and associated transaction structures

that satisfy management objectives and

regulatory requirements.

Conflict Resolution

NERA’s conflict resolution capabilities build on our

staff’s established reputation as expert witnesses

and their ability to apply sound, creative economic

theory in the resolution of tax disputes. We have

substantial experience providing economic advice

through partnerships with leading law, tax, and

audit firms in tax planning matters, as well as

litigation and controversy support.

Collaboration with Taxing Authorities

NERA experts are particularly skilled at structuring

Advance Pricing Agreements (APAs) and Arbitration

NERA’s independence fosters objective analysis, able to withstand intense scrutiny.

Procedures from an economic perspective. We have

advised and negotiated numerous bilateral and

multilateral agreements involving the US, Japan,

Canada, Mexico, Australia, Germany, France, China,

and numerous other countries worldwide. NERA’s

independence and global reach are instrumental

in resolving complex issues that require close

collaboration with national tax authorities.

Global Risk Assessment

NERA’s global regulatory work focuses on helping

clients analyze and document their cross-border

intercompany transactions in accordance with

the tax regulations in the countries in which

they operate. Our experienced professionals

can benchmark your business against industry

comparables to assess the risks you face. Our

access to financial databases and our knowledge

of the transfer pricing compliance environment

make it possible, for example, to determine

whether the transfer prices, commissions,

royalties, or interest rates in a given transaction

are in line with the arm’s length standard and

country specific requirements.

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Advanced Pricing Agreements (APAs)

Arbitration Procedures

Competent Authority Filings

Contract Analysis

Contract Distribution Evaluations

Contract Manufacturing Evaluations

Cost Sharing Arrangements

Country Studies

Economic Benchmarking

Economic Impact Analysis

FIN 48 Services

Intellectual Property (IP) Valuation

Intercompany Service Fee Arrangements

Masterfile Arrangements

OECD Guidelines

Permanent Establishment (PE)

Risk Assessment

Royalty Rate Evaluations

Section 1.482 Compliance

Section 199 Deduction

Shared Service Centers

Supply Chain Management

Tax Planning Advisory Review Services

Tax Valuation

Transfer Pricing Documentation

Transfer Pricing Due Diligence

Transfer Pricing for Customs

Unspecified Methods

Value Chain Alignment

Variable Rate Royalties

Business and Intellectual Property Valuation

NERA’s Transfer Pricing Practice assists clients

in establishing fair and accurate valuations of

businesses and/or intellectual property associated

with business reorganizations, tax planning, or

mergers and acquisitions. As corporate restructuring

activities involving MNCs have increased in recent

years, business valuation issues have been brought

to the forefront of MNCs’ transfer pricing concerns.

Business valuation depends on financial forecasting

and analysis—but that is only the beginning.

Appropriate valuation analyses that are consistent

with the arm’s length principle require rigorous and

defensible application of entity-level or asset-level

valuation tools and techniques that recognize

underlying economic and market conditions.

To make sound forecasts, it is important to

understand the dynamics of the marketplace. This

is the hallmark of NERA’s approach—one that has

been successfully employed for clients interested

in acquiring an accurate measure of business or

intellectual property value.

Transfer Pricing Products and Services

NERA’s offerings in the transfer pricing arena include:

Advance Pricing Agreements and

Arbitration Procedures

The need for a well-conceived strategy and

multidisciplinary approach to transfer pricing

policies has been highlighted by recent changes

to the procedures adopted by tax authorities in

dealing with transfer pricing disputes. With the

advent of the APA procedure, a taxpayer can

negotiate with tax authorities an agreed transfer

pricing methodology that is binding for both the

taxpayer and the tax authorities for a specified

period—typically three to five years. An APA can

be unilateral, bilateral, or multilateral in nature,

depending on the number of tax jurisdictions

involved in the covered transactions and on which

tax authorities are parties to the agreement.

The procedure provides a cooperative and

non-adversarial framework, designed to enhance

compliance and to reduce the administrative

burden on the taxpayer and tax authorities alike.

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Cost Sharing Regulations

A number of recent developments have subjected

MNCs’ tax strategies involving intangible assets

and related restructurings to intense scrutiny.

These developments include a major reformulation

by the US Internal Revenue Service (IRS) of

the 1995 cost sharing regulations in January

2009; by the OECD of guidance related to cost

contribution arrangements in 1997 and to business

restructurings in 2009; and by the introduction in

Germany in 2005 of explicit measures related to

valuing transfers of functions or risks.

Cost sharing arrangements are based on the

concept that companies may cooperate and

share expenditures for research and development

(R&D) or other long-lived intangible assets. The

arrangements provide an alternative to licensing

or selling intangibles to related parties, as cost

sharing participants jointly own the resulting

technologies. These arrangements may eliminate

the need for intercompany licensing payments,

as participants share the costs of developing

the intangibles in accordance with each party’s

expected share of benefits.

Under cost sharing arrangements, the timing

and valuation of future benefit streams, as well

as costs, may need to be determined. When one

party partially develops the cost-shared technology

prior to the commencement of the arrangement,

the other party must purchase the rights to this

pre-existing technology through buy-in payments.

Determining arm’s length buy-in payments requires

an in-depth analysis of the contribution or benefits

from past experience, and other prior technology

on which the current R&D activities are based.

The new IRS cost sharing regulations, as well

as guidance on restructurings from the OECD,

To make sound forecasts, it is important to understand the dynamics of the marketplace.

An APA procedure generally consists of the

following steps:

• Determination of relevant facts and

circumstances concerning the taxpayer in the

relevant jurisdiction

• Development of an appropriate pricing

method acceptable to all parties

• Application of the methodology to determine

the arm’s length range of results

• Implementation of procedures, including

appropriate reporting and documentation

The European Arbitration Procedures adopted by

the European governments in August 2004 enforce

corresponding adjustments at the request of the

taxpayer. Since the adjustments apply only to taxes

and not to penalties or interest, it is imperative to

prepare the taxpayer’s case using sound economic

studies and in close cooperation with the tax

authorities of all countries involved.

An Arbitration Procedure generally consists of the

following steps:

• Announcement of the tax authorities’

intention to adjust transfer pricing at the end

of a tax audit

• Meeting with the relevant tax officials of all

countries involved

• Application for the procedure, including a

comprehensive study

• Mutual agreement procedures (maximum

two years)

• If no compromise is found: referral to an

international arbitration commission

• Final decision

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Germany, and other countries, are requiring

taxpayers to re-examine the valuations of these

transfers from the perspective of an independent

investor acquiring similar rights and the associated

income streams, including the benefits derived

from exploiting future technologies based wholly

A Global ApproachMNCs are often challenged to respond to rapidly changing economic,

regulatory, and competitive environments around the world. NERA’s Transfer

Pricing Practice draws upon the complementary capabilities and global

reach of its sister organizations through collaboration with our colleagues

throughout the Marsh & McLennan (MMC) network of companies.

NERA Offices

Our global team of more than 600 professionals operates in more than 20 offices across

North America, Europe, and Asia Pacific.

Los Angeles

Boston

AucklandWellington

Chicago

Melbourne

Sydney

TokyoShanghai

BeijingDenver

San Francisco Washington, DCPhiladelphiaNew York City

White Plains Madrid

GenevaParis

London

Brussels

TorontoIthaca

Frankfurt

Rome

or in part on the acquired technologies. NERA’s

experts assist clients in addressing the new

requirements of these regulatory pronouncements

and in adapting the valuations applied for existing

arrangements and restructuring transactions to

the new valuation paradigms.

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Our transfer pricing policy recommendations

are grounded in sound business strategy and

well-established economic principles.

Transfer Pricing in Troubled Times

Tax Management Transfer Pricing Report

By Nobuo Mori, Nihan Mert-Beydilli, and

Dr. Graham Poole

The New Temporary Cost Sharing Regulations:

What Needs to be Done?

By Harlow N. Higinbotham, Stuart L. Harshbarger,

and Wolf Witt

Cost Sharing Agreements May Allow Multinational

Companies to Reap the Benefits of Intangible

Asset Investment

TPWeek.com

By Nobuo Mori, Vladimir Starkov, and Yuko Saito

Promulgation of the Implementation Measures

for Special Tax Adjustments (Provisional)

By Yasunobu Suzuki and Charles Fu

Special Case: Charging Royalties to Newly

Acquired Businesses

By Dr. Harlow Higinbotham, Dr. Stuart Harshbarger,

and Wolf Witt

Transfer Pricing in France

Tax Planning International Transfer Pricing

By Sébastien Gonnet with Julien Monsenego

of Dechert LLP

Why Transfer Pricing Matters in Asset Management

International Tax Review Intellectual Property

By Dr. Emmanuel Llinares, Takefumi Suzuki, and

Sylvain Gilibert

How the OECD will Impact IP and Transfer Pricing

International Tax Review Intellectual Property

By Dr. Graham Poole and Dr. Emmanuel Llinares

Documentation Requirements in Spain


By Victoria Alonso Cantero

Transfer Prices Determined by Game Theory:

Application to the Banking Industry


By Dr. Alexander Voegele, Sébastien Gonnet,

Bastian Gottschling, and Hendrik Fügemann

PEs and Transfer Pricing: The Playing Field in

International Taxation Redefined


By Pim Fris, Dr. Emmanuel Llinares, and

Sébastien Gonnet

Organisation et financement de la recherche

et développement dans un contexte intra-groupe

(R&D Organization and Financing in an Intra-

Group Context)

Bulletin Crédit Impôt Recherche

By Dr. Emmanuel Llinares and Sébastien Gonnet

Transfer Prices Determined by Game Theory:

Application to IP


By Dr. Alexander Voegele, Sébastien Gonnet, and

Bastian Gottschling

PublicationsProminent trade and industry publications often capture NERA’s intellectual leadership across a broad range of

topics. Presented below are selected examples of our latest thinking in the field of transfer pricing. To view all

publicly available NERA publications, visit www.nera.com/eLibrary.asp.

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New German Legislation: Relocation of Functions


By Dr. Alexander Voegele

Transfer Prices Determined by Game

Theory: Underlyings


By Dr. Alexander Voegele, Sébastien Gonnet,

and Bastian Gottschling

Focus on Profit Split Method

BNA International’s Transfer Pricing Manual

By Dr. Alexander Voegele

Economic Analysis for Transfer Pricing: Attribution

of Excess Profits and Intangible Asset Valuation

By Nobuo Mori, Yasunobu Suzuki, Takefumi Suzuki,

Makoto Ikeya, and Kei Maeda

A Market-Based Approach for Tangible Property

Transfer Pricing

BNA Tax Management

By Dr. Richard Rozek

Project ProfilesEuropean-Based Global Conglomerate

In response to an IRS audit, NERA economists

assisted a major European manufacturing

conglomerate and its legal counsel in documenting

and supporting the arm’s length nature of its

transfer pricing policies. NERA combined fact-based

analysis and innovative financial modeling to enable

the client to reach a favorable settlement with

the tax authorities. Upon resolution of the audit,

NERA continued to assist the client with global

documentation studies, minimizing future audit risk

and transfer pricing penalty exposure.

Global Electronics Manufacturer

NERA economists advised a global electronics

MNC on several rounds of bilateral APAs. NERA

developed transfer pricing policies and assisted

the client in implementing appropriate arm’s

length pricing methods. Economic and analytic

methodologies were developed to address

marketing intangibles, functional and capital

intensity, and business risk comparability issues.

Practical Solutions for Intercompany Pricing

NERA’s softbook Practical Solutions for Intercompany Pricing provides

an in-depth analysis of the issues confronting MNCs as they operate in

the increasingly global business arena and are subject to competing tax

jurisdictions and regulatory bodies. The book draws on over 40 years of

experience advising clients in numerous industries on a variety of issues,

and offers a unique perspective on the challenges that MNCs face as they

assess, deploy, and reallocate the sourcing, production, and distribution

activities across internal business units. Access this publication on our

website: www.nera.com/practicalsolutions.asp.

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Major Asian Automotive OEM

Working with a major Asian automotive OEM for

over a decade, NERA economists developed and

implemented transfer pricing policies on a global

scale. Taking advantage of their international

resource base, NERA economists helped the client

to obtain multilateral APA and related transfer

pricing documentation protection. In addition,

NERA designed and helped implement appropriate

arm’s length pricing mechanisms for operations in

North America, Europe, Asia, and Australia.

NERA’s services to this client have included the

development of sophisticated financial models

designed not only to demonstrate compliance with

national regulations for tax filing purposes, but also

to plan appropriate transfer pricing in advance. This

process allowed the firm to determine intercompany

prices throughout the budgeting process consistent

with arm’s length principles and take into account

the nature of the company’s manufacturing and

distribution operations and its specific assets, risks,

and intercompany contractual relations.

Multinational Consumer Products Company

NERA economists advised a multinational luxury

consumer products conglomerate on a range of

issues, including global transfer pricing policies,

tax planning, design of tax-efficient corporate

restructuring models, and other corporate strategy

matters. Casework included peer benchmarking

studies and global transfer pricing solutions, which

were largely driven by the valuation of unique

intangibles and complex business entities using the

discounted cash flow method and market-based

valuation techniques.

US Pharmaceutical Corporation

NERA economists completed a tax compliance and

planning project for a US pharmaceutical company

according to US and Canadian transfer pricing

regulations. The project required detailed analysis

of drug R&D, testing, FDA approval, and economic

life-cycles from patent protection through

generic market competition. NERA calculated

the brand residual valuation upon entry into the

generic marketplace with accompanying decay

rates and steady state values, and analyzed the

company’s business model in conjunction with the

marketplace for over-the-counter pharmaceuticals

to advise the client on optimal valuations for name

brand purchases.

UK Investment Management Group

Documentation Study

NERA was retained by a global investment fund

management group to establish the arm’s length

remuneration payable to a UK entity for providing

investment management services. The first stage

of the analysis was to derive an arm’s length range

for flat and total fees payable to the UK entity.

NERA then combined market data from various

sources, including its proprietary database of N-SAR

filings, to determine a formula for splitting out

performance fees from the total compensation that

the UK entity should expect to receive. Regression

analyses were used to adjust for the scale of

assets under management. Further adjustments

were made to accommodate differences in fund

objectives and geographical scope.

Major Multinational Pharmaceutical Firm

NERA economists designed a transfer pricing

methodology for a pharmaceutical firm, developed

arm’s length pricing ranges consistent with

domestic and international guidelines, and provided

valuations for efficient licensing, cost sharing, and

other transfer pricing arrangements.

Multinational Industrial Company

To assist a large industrial company with its qualified

cost sharing arrangements for intellectual property

(IP) development, NERA economists were asked

to determine the fair market value (FMV) of the

buy-in payments associated with contributed IP.

Further assistance was also provided to clarify and

validate the methodologies and policies used to

calculate the cost and benefit shares to demonstrate

compliance with the cost sharing regulations. NERA

was able to help the company establish an annual

update process to review participatory shares and to

calculate the FMV of IP contributions.

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About NERANERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to

applying economic, finance, and quantitative principles to complex business and legal

challenges. For nearly half a century, NERA’s economists have been creating strategies,

studies, reports, expert testimony, and policy recommendations for government authorities

and the world’s leading law firms and corporations. We bring academic rigor, objectivity,

and real world industry experience to bear on issues arising from competition, regulation,

public policy, strategy, finance, and litigation.

NERA’s clients value our ability to apply and communicate state-of-the-art approaches

clearly and convincingly, our commitment to deliver unbiased findings, and our reputation

for quality and independence. Our clients rely on the integrity and skills of our unparalleled

team of economists and other experts backed by the resources and reliability of one of the

world’s largest economic consultancies. With its main office in New York City, NERA serves

clients from over 20 offices across North America, Europe, and Asia Pacific.

Visit www.nera.com to learn

more about our practice areas

and global offices.

© Copyright 2009

National Economic Research

Associates, Inc.

All rights reserved.

Printed in the USA.

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Transfer Pricing Services