Baker Tilly Global Tax Solutions assisted one of its global clients in assessing the reasonableness of management charges to its overseas entities.
The existing Transfer Pricing policy remunerated the local entities on a cost-plus mark-up that had resulted in a disproportionate profit allocation with corresponding losses in the parent entity and a relatively high effective tax rate for the group.
In our efforts to determine the appropriate margins to be retained by the local entities, we had to fully understand the functions (i.e., key activities performed, assets owned and maintained, and the risk profiles) carried out by the parent entity and the local entities.
Our analysis included an assessment of the appropriate transfer pricing methodology to be adopted, and the strategy for the transfer pricing benchmarking search process moving forward with a view to reducing the effective tax rate for the group as a whole, to an appropriate level.