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Identify the business context
Based on the Transfer Pricing Process the relevant questions, which relate to the value chain of your company, would include:
- What is creating the value in your industry?
- Who are the players in your industry?
- How does your company perform against your "peer group" of competitors?
- How much return on sales, cost and investment is your company making over the last 3 to 5 financial years?
- To which activities, roles and responsibilities within your company - such as R&D, investment and other management decisions, manufacturing, sales & marketing - would you allocate your result?
- Is this allocation in line with your actual allocation based on the transfer pricing system applied?
Design & Implementation Issues
The Transfer Pricing Process allows you for example to resolve the following design and implementation issues:
- Who plays the ‘market maker’ in the value chain of your company?
- What was the role and relative contribution of the central management team negotiating the purchasing contracts with all suppliers?
- How would a basic design of a compensation model allocate the revenue and cost amongst each of the group companies involved?
- How would you translate the role and responsibilities of a department or business unit into a compensation method aligned for both managerial and tax purposes?
- What implementation steps do you need to take to avoid that the transfer pricing design is jeopardized by other issues - such as the operational and IT infrastructure, value added tax, custom duties, variety of administrative systems - and vice versa?
- Provide transfer pricing inputs to inter-company agreements
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