Transfer Pricing for Services Ensuring Fair and Compliant Transactions

Transfer Pricing Service for

Ensuring fair and compliant transactions

Transfer Pricing for Services Ensuring Fair and Compliant Transactions

1.    Introduction

The determination of the arm’s length price (“ALP”) for services exchanged between related entities within MNEs - as per the appropriate Transfer Pricing (“TP”) method - is crucial in the global business landscape as it affects profit allocation, tax liabilities, financial reporting, and performance evaluation. A fair and TP-compliant service promotes transparency and minimizes tax disputes.

2.    Types of services and their characteristics

A.    Low value-added services (“LVAS”)

  • Routine, support, or administrative services
  • Lower Complexity
  • Minimal Risk
  • No creation or enhancement of intangibles

B.    High value-added services (“HVAS”)

  • R&D, product design, or technical services
  • Higher complexity
  • Higher risk
  • Higher levels of expertise, specialized skills and intangibles

3.    Key relevant factors for TP

  • Functions performed
  • Assumption of risks
  • Contribution of intangibles
  • Contractual terms
  • Economic conditions
  • Unique expertise and specialized skills

4.    Challenges in determining ALP

  • Lack of comparable data
  • Consistency across jurisdictions
  • Difficulty in quantifying benefits
  • Allocation of costs and risks
  • Evaluation of economical circumstances
  • Complexity of value contribution

5.    Impact of not determining ALP

  • Tax disputes and penalties;
  • Unfair profit allocation
  • Inconsistent financial reporting
  • Double taxation
  • Impaired decision-making
  • Reputational damage
  • Legal and financial risk
  • Limited comparability for future transactions

6.    How can Crowe help?

  • Conducting a detailed functional analysis to assess the roles, responsibilities, risks, assets used, and value contributions of each entity involved in providing the services and ensuring the appropriate computation of the ALP.
  • Assist in maintaining accurate documentation and implementation of TP policies to mitigate TP adjustments and consequential tax impacts.

Contact Us

Markus Susilo
Markus Susilo
Partner- Payroll and Indirect Tax
Alessandro Valente
Alessandro Valente
Director - International Tax Service & Transfer Pricing