Intercompany Financing: Engie State Aid Case and Perrigo’s Battle with the IRS
Harold McClure explores intercompany financing issues through the lens of a recent case before the EU General Court and an upcoming battle between Perrigo and the IRS.
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The EdgarStat Blog explores issues in transfer pricing and application of the transactional net margin method (TNMM or CPM in the US) and other enterprise profit-based methods. Blog writings reflect the position of the authors and are not the opinion of EdgarStat.
Read MoreIntercompany Financing: Engie State Aid Case and Perrigo’s Battle with the IRS
Challenges to Intercompany Loan Rates by French Tax Authority and IRS
International tax law firms are rightfully warning clients of audit risks with respect to intercompany financing in France. Taxpayers can mitigate risk by following new OECD guidance, providing sound economic analysis and avoiding overly aggressive positions on group vs. standalone credit ratings.
Cameco v. The Queen: Prologue and Round II Preview
In February 2021, the Supreme Court of Canada declined to hear the Canadian Revenue Agency's (CRA) appeal in its case against uranium multinational Cameco Corporation. However, this only marked the end of Round 1, as the courts only ruled on 8 of 14 years under review.
Transfer Pricing Issues for Israeli R&D Centers
The Israel Tax Authority is questioning whether costs plus markup models Israeli R&D affiliates are at arm's length. This could present issues for multinationals that have not been giving proper consideration to cost base, asset intensity and ownership of valuable intangibles in their benchmarking.
Tutorial: Reliability of Return on Assets as a Profit Indicator
Notwithstanding its acceptance in Coca Cola Co. v. Commissioner of the IRS, Return on Assets is a controversial profit indicator to use in transfer pricing. At the very least it must be subject to economic analysis to corroborate a relationship between operating profit and operating assets.
States Should Learn from Transfer Pricing History, but Focus on The Right Lessons
A recent article asserted that state tax authorities should use the Comparable Profits Method (CPM) with care in the evaluation of transfer pricing for tangible goods. However, some of the examples cited, including the recent Coca Cola case, in their piece are misplaced for reasons we will address.
Misapplication of the Resale Price Method: LATAM Petroleum Distributor
Selecting alleged comparable companies with different functions than the tested party is known to open Pandora's Box in transfer pricing controversy, and is often exacerbated by a failure to adjust for material differences between the tested party and the selected comparables.
Tutorial: Using Regression Analysis to Adjust Profit Indicators
Ad hoc adjustments are a risky endeavor in transfer pricing. Using regression analysis, we can test if asset intensity is relevant to explain the behavior of the operating profit markup or profit margin and calculate a reliable adjustment to the profit indicator.
Tutorial: Using Regression Analysis in TNMM Transfer Pricing
The prevalent use of quartiles to determine profit indicators often results in a wide (unreliable range) and ad hoc assets adjustments. These problems can be solved by using regression analysis, which produces more defensible statistical ranges of the profit indicator resistant to audit scrutiny.
Transfer Pricing Aspects of Taxing the Pharmaceutical Sector
Changes to tax laws are often seen as the primary solution to curb profit shifting. However, proper application of the arm's length principle alongside BEPS CbCR disclosures already offer powerful tools in this endeavor.
Comparability Issues Are a Slippery Slope in Transfer Pricing
Comparability is a key issue in transfer pricing that is often not fully appreciated. However, comparability issues are hardly uncommon in transfer pricing controversies and can create a trickle-down effect that leads to major taxation issues.