Value Chain Analysis (“VCA”) has become a burning topic for discussion. It is of high importance, companies to understand how to conduct a Value chain analysis in order to support their transactions and define the value creation processes. Conducting a VCA analysis plays a vital role on supporting TP documentation, negotiation, communication to the board and other stakeholders.
We are all aware that in a qualitative analysis, four (4) different techniques are used. These techniques are: Pie charts, Porter’s style visualization, Process contribution analysis/Balanced score cards and Canvas. After a qualitative method, there is the need of a quantitative VCA.
A quantitative analysis allocates a portion of EBIT on a responsibility profile (i.e. investment, profit, revenue or cost centre) and the relevant carve-out method. Each entity from a multinational enterprise (“MNE”) is allocated a portion of EBIT based on the relevant allocation keys. Quantitative VCA is presented as a corroborative method for transactional transfer pricing.
In order to make this analysis more objective there are three (3) anchors that need to be followed:
In this regard, an industry-wide analysis needs to be performed in order to enhance the robustness of the outcome. This process adds an extra layer of objectivity to the quantification.
Thus, a combined qualitative and quantitative VCA constitutes an important tool, which can provide a holistic economic view on the activities of the MNE group and further, analyse and align the operating model.
With this objective in mind, we invite you to an informative webinar where we will discuss the following:
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