Unlocking Value And Mitigating Risk In M&A From A Transfer Pricing Perspective

When considering the potential tax risks and opportunities arising from a cross-border or multi-jurisdictional M&A transaction, it is crucial to consider transfer pricing early in the process.

Most countries have transfer pricing laws requiring transactions between group companies to be priced on an arm's length basis to prevent erosion of the tax base. An assessment of whether a related party transaction is arm's length requires consideration of what pricing an independent entity would adopt in the same or similar circumstances. Where tax authorities find that a group company is not conducting transactions with related parties at arm's length, they may adjust revenues or expenses, resulting in increased profit attribution and additional corporate tax.