In a post-BEPS environment, the concept of value chain analysis has become pivotal. OECD has introduced the value chain analysis as a key basis for setting and documenting transfer prices in accordance with the arm’s-length standard.
CORIT Advisory is working intensively with the application of different tools for conducting value chain analyses in the – often complex – value chains of multinationals. Specifically, we believe that multinationals, due to BEPS and in general, need to re-assess their approach to transfer pricing and related documentation. Much of today’s transfer pricing documentation materials are heavy on text. However, in some cases, they do not succeed fully in communicating to tax authorities the underlying processes and specific actions and decisions from where value is created.This is partially due to the limited use of current tools and software solutions that can assist in illustrating and visualising the value chain, including where key decisions are made. Examples are business process diagrams and flow charts as a critical supplement (or substitution) to regular text that often on a stand-alone basis is incomplete for communicating with global tax authorities.
Our approach seeks to enhance understanding of the MNE value chain, creating benefit for both in-house tax and TP specialists managing tax risks, as well as the subsequent compliance exercise for explaining the value chain to global tax authorities.
For some MNEs, this can seem as the perfect way for exposing material weaknesses in their transfer pricing approach. However, to us it is a way of ensuring that a multinationals’ own understanding of its value chain for transfer pricing purposes as well as subsequent discussion with tax authorities (based on documentation provided) can depart from an objective and detailed presentation of the value chain.
We believe that going forward multinationals will benefit much from a transfer pricing approach based on transparency and substance. Our solutions for value chain analysis is meant as a step in that direction, ensuring that the transfer pricing exercise in the future – whether involving tax authorities or not – can be based on a clear and detailed fact patterns about the value chain.