Friday, June 3, 2011

BNA International Survey on Restructuring Shows How Transfer Pricing is Used to Impute Exit Charges

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Although most nations lack the necessary regulatory authority, they are nonetheless stretching the arm's-length concept under their transfer pricing regulations to impute related-party exit charges when multinational enterprises restructure operations to shift assets, risks, and functions to lower tax jurisdictions, a survey by BNA International's Transfer Pricing Forum shows.
 

Practitioners responding to the survey on restructuring said individual tax authorities worldwide are seeking to impute related-party compensation when a multinational enterprise converts a full-risk marketing distributor into a limited-risk distributor if a transfer of intangibles—such as marketing intangibles in the form of customer lists—occurs.

However, the authorities are finding much more difficult the question of whether the mere flight of functions, unaccompanied by a transfer of intangibles, ought to receive related-party compensation.

In the survey, transfer pricing practitioners from 30 countries were asked various questions about restructuring, including whether tax authorities impose an exit charge or other compensation for business conversion only when intangibles are transferred along with a flight of function, or whether a mere flight of function is sufficient to incur such a charge.

Most countries lack regulatory regimes to price the related-party transfers of functions and profit potential abroad, they said, with the notable exceptions being Germany and Australia. Germany's exit tax entered into effect Jan. 1, 2008, and Australia issued draft guidance on business restructurings June 2.

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