Questro professionals have significant TP project experience across many industries.
During the last 12 months we have worked extensively within the "Real Estate" and "Commercial & Industrial" industry segments, which are highlighted directly below. Further TP specific industry insights are highlighted in the Matrix below. If your company does not belong to any of the listed industries, please contact us to learn how we can assist you and our specific experience in your industry.
Investment in real estate often involves a number of investments, structured in a somewhat similar fashion. Real estate investment therefore lends itself to designing and implementing group wide transfer pricing policies for interest rates, finance companies, holding companies, profit-participating loans etc. at an early stage of making investments. The transfer pricing issues to be addressed typically include:
|Investment advisory services|
|Setting interest rates on subordinated loans, including quantification of the subordination risk premium|
|Setting fixed and variable interest rates on profit-participating loans|
|Defining margins for holding companies and finance companies|
|Cost allocations for centralised support activities|
|Fair market valuation for inter-company transfers of real estate|
Risk premiums for subordination require special consideration. The general approach of credit rating agencies of adjusting subordinated debt down by one notch for investment grade and two notches for junk grades from the senior rating might underprice subordination risks. The approach developed by Questro International combines bond market data, commercial real estate loan data, and industry data to calculate the subordination margin (in basis points) over senior debt. Depending on the facts and circumstances of the inter-company loan, subordination risk margins range from 95 bps to 400 bps.
Margins for holding and finance companies should typically address the market and FOREX risks involved, the amount of funding provided or the amount of investment made.
Once a real estate investment structure is established, the ongoing management of the structure will often involve a significant number of transfer pricing related documents due to the large number of legal entities involved. Questro International provides a software solution - TP Controller - that can manage all transfer pricing documents, valuation reports, as well as keeping track of renewal of inter-company agreements for structures involving up to 2000 legal entities.
Companies operating in the commercial and industrial space (i.e. business to business sales of semi-finished raw materials, components, machinery, technology, or technical services) form a large sub-set of Questro International’s client base.
Such companies undertake a wide variety of transfer pricing projects, however, in recent years we have seen a focus on transfer pricing projects that seek to create innovative internal transfer pricing models that create the right management incentives within the business. Historically, transfer pricing projects in this industry were often driven by short-term tax planning priorities and such models created asset allocation distortions over time. In reverting to a more neutral transfer pricing models based on transparent external market pricing, companies are able to eliminate inherent subsidies and penalties in their TP models (often compensated for later by a series of complex discount or rebate policies). This can result in significant cost savings and in some cases, the new TP model has even helped to drive third-party sales, given increased "end to end" pricing visibility across the supply chain.
In Europe, an excess supply capacity coupled with unprecedented weakness in demand has resulted in large and sustained losses amongst certain auto manufacturers in recent years. The traditional transfer pricing question of how to allocate income has in some cases been inverted into a problem of how to share losses. Margins at routine "in-country" distributors are often wafer-thin, and yet have still been challenged by certain tax authorities despite the large losses at the manufacturing entities.
The consumer goods industry enjoys a strong cocktail of the ingredients for fertile transfer pricing development, i.e. strong and well recognised brands, a focus on ever more efficient manufacturing models, and the need for a robust sales model. In fact, it is no coincidence that many of the large consumer goods companies were at the forefront of implementing Centralised Entrepreneurial Companies or Centralised Supply Chain Companies. At Questro International, we feel the peak time for implementing these models has probably passed and growing awareness of tax as a corporate social responsibility issue means we are seeing more "control", "maintain", "defend" and "adjust" type projects amongst companies that currently run these models. The importance of a close coordination with both Customs and VAT experts in any consumer goods related projects is, for us, a key requirement.
As Energy and Mining companies continue to expand globally, transfer pricing is one of most significant tax issues they face. Questro International has seen a significant increase in such companies hiring large teams of in-house transfer pricing professionals since it is one of the key areas where a corporate tax function of a multinational company can help support corporate business objectives by undertaking tax planning.
Recent developments in the global regulatory environment have created additional transfer pricing complexity in several areas with a particular tax audit focus on Services Arrangement and Cost Sharing. In addition, the environmental risks and associated guarantees of doing business are increasingly focused upon by corporates.
The life sciences industry has long been at the leading edge of transfer pricing, both in terms of developing new approaches to transfer pricing and being routinely targeted by tax authorities. New interpretations of and changes to tax statutes and regulations sometimes affect life sciences companies disproportionately. In recent years, we have seen increased M&A activities and post-acquisition transfer pricing integration work as patents expire and slower new product development makes organic growth more challenging in combination with ongoing price pressure as public budgets for health care come under pressure. For tax departments, this creates new challenges in coordinating purchase price allocation studies with transfer pricing models. Tax authorities often challenge co-development, co-promotion, and other alliance arrangements, and may attribute inappropriate income amounts to relatively routine activities. The heavy audit focus in recent years on "marketing intangibles" creates transfer pricing issues for both established and emerging life sciences companies. With the added overlay of cost efficiencies, pressure to improve research and development pipelines, streamline manufacturing, distribution, marketing and sales, and outsource many functions to low cost jurisdictions, the focus on transfer pricing work is significant. Questro International works with a number of Pharmaceutical, Biotech, and Medical Technology companies in the Life Science area.
Structures set up by private equity often involve a large number of legal entities in multiple countries. It is therefore critical to address transfer pricing issues in the area of financing, credit risks, FOREX risks and integration of transfer pricing systems where groups are merged in order to create synergy effects. Also, it is critical to balance the taxable income to be allocated under the arm’s length principle to operating companies against the required return on investment by investors. Where a large number of legal entities are involved, Questro International can provide software solutions that can manage transfer pricing documents, valuation reports, as well as keeping track of renewal of intercompany agreements for structures involving up to 500 legal entities.
The fast pace of business for technology companies creates both risks and opportunities. Inappropriate transfer pricing policies can expose the business to serious risks, which give rise to more than just the payment of additional taxes and may harm the brand. Most companies face transfer pricing issues arising from intellectual property rights. Questro International has worked with a number of technology companies and can provide a structured approach to managing transfer pricing models for such fast moving industries.