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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
Tax Planning International Transfer Pricing
By Victoria Alonso Cantero
Transfer Prices Determined by Game Theory:
Application to the Banking Industry
Tax Planning International Transfer Pricing
By Dr. Alexander Voegele, Sébastien Gonnet,
Bastian Gottschling, and Hendrik Fügemann
PEs and Transfer Pricing: The Playing Field in
International Taxation Redefined
Tax Planning International Transfer Pricing
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
Tax Planning International Transfer Pricing
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
Tax Planning International Transfer Pricing
By Dr. Alexander Voegele
Transfer Prices Determined by Game
Theory: Underlyings
Tax Planning International Transfer Pricing
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.
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National Economic Research
Associates, Inc.
All rights reserved.
Printed in the USA.