Transfer pricing issues in US business restructurings
Enrique MacGregor, Alvarez & Marsal Taxand, LLC, Dallas
Business restructurings achieve economic benefits through a broad array of strategies. Cost savings and operational improvements are often key drivers. The primary mechanisms used to achieve the company’s goals involve the redeployment of functions, assets or risks. Therefore, a restructuring exercise may offer significant tax planning opportunities through transfer pricing. The most common type of restructuring strategies in which transfer pricing plays a major role include:
1. migrating valuable non-routine intangibles;
2. creating principal structures outside the US;
3. transforming a full-fledged manufacturer into a contract manufacturer;
4. transforming a full-fledged distributor into a limited-risk distributor; and
5. implementing cost-sharing arrangements for the development of intellectual property.
Tax authorities are particularly concerned about corporate activities that shift the tax base away from their jurisdictions through a transfer of profit drivers to other countries. This article reviews five key areas related to transfer pricing that should be carefully considered when planning a business restructuring.
l. US regs affecting intercompany transactions in business restructurings
In the US, specific tax regulations seek to curb the loss of taxable income through redeployment of functions. Transfer pricing regulations under Section 482 prevent the improper shifting of income to foreign corporations when the transfer occurs between entities that are under common ownership or control….
Enjoying this article? To continue reading you need to take out a FREE trial to the Transfer Pricing Library.
Already a subscriber? Sign in here
- SPECIAL REPORT: Germany’s Transfer Pricing Provisions: A Conflict with Internationally Agreed Principles?
- An Econometric Adjustment for Risk
- 2010 revision of the OECD guidelines: Is my business restructuring going to lead to an indemnification payment or exit charge?
- ANALYSIS: The Demise of the Arm’s-Length Principle? Or How to Make the Arm’s-Length Principle Workable
- Germany’s next step – revision of business relocation rules