It is essential to consider the assumptions and other motivations that underlie particular applications of valuation techniques. For sound accounting purposes, some valuation assumptions may sometimes reflect conservative assumptions and estimates of the value of assets reflected in a company’s balance sheet. This inherent conservatism can lead to definitions that are too narrow for transfer pricing purposes and valuation approaches that are not necessarily consistent with the arm’s length principle. Caution should therefore be exercised in accepting valuations performed for accounting purposes as necessarily reflecting arm’s length prices or values for transfer pricing purposes without a thorough examination of the underlying assumptions. In particular, valuations of intangibles contained in purchase price allocations performed for accounting purposes are not determinative for transfer pricing purposes and should be utilised in a transfer pricing analysis with caution and careful consideration of the underlying assumptions.
TPG2017 Chapter VI paragraph 6.155
Category: D. Determining arm's length conditions in cases involving intangibles, OECD Transfer Pricing Guidelines (2017), TPG2017 Chapter VI: Special Considerations for Intangibles | Tag: Discounted Cash Flow (DCF), Intangibles, Valuation, Valuation method, Valuation technique
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- TPG2022 Chapter VI paragraph 6.156It is not the intention of these Guidelines to set out a comprehensive summary of the valuation techniques utilised by valuation professionals. Similarly, it is not the intention of these Guidelines to endorse or reject one or more sets of valuation standards utilised...
- TPG2022 Chapter VI paragraph 6.162The following sections identify some of the specific concerns that should be taken into account in evaluating certain important assumptions underlying calculations in a valuation model based on discounted cash flows. These concerns are important in evaluating the reliability of the particular application...
- TPG2022 Chapter VI paragraph 6.157Valuation techniques that estimate the discounted value of projected future cash flows derived from the exploitation of the transferred intangible or intangibles can be particularly useful when properly applied. There are many variations of these valuation techniques. In general terms, such techniques measure...
- TPG2022 Chapter VI paragraph 6.161It may be relevant in assessing the reliability of a valuation model to consider the purposes for which the valuation was undertaken and to examine the assumptions and valuation parameters in different valuations undertaken by the taxpayer for non-tax purposes. It would be...
- TPG2022 Chapter VI paragraph 6.160Because of the importance of the underlying assumptions and valuation parameters, taxpayers and tax administrations making use of valuation techniques in determining arm’s length prices for transferred intangibles should explicitly set out each of the relevant assumptions made in creating the valuation model,...
- TPG2022 Chapter VI paragraph 6.30In some circumstances group synergies contribute to the level of income earned by an MNE group. Such group synergies can take many different forms including streamlined management, elimination of costly duplication of effort, integrated systems, purchasing or borrowing power, etc. Such features may...
- TPG2022 Chapter VI paragraph 6.163The reliability of a valuation of a transferred intangible using discounted cash flow valuation techniques is dependent on the accuracy of the projections of future cash flows or income on which the valuation is based. However, because the accuracy of financial projections is...
- TPG2022 Chapter VI paragraph 6.155It is essential to consider the assumptions and other motivations that underlie particular applications of valuation techniques. For sound accounting purposes, some valuation assumptions may sometimes reflect conservative assumptions and estimates of the value of assets reflected in a company’s balance sheet. This...
- OECD publishes Guidance on Pricing of Minerals6 November 2023 OECD published a transfer pricing framework on determining the price of minerals. The framework provide guidance for developing countries to accurately delineate the transaction and price mineral sales on an arm’s length basis. Specifically, it identifies the primary economic factors that...
- June 2019: IRS Transfer Pricing Examination Process – Risk AssessmentThe report on Transfer Pricing Examination Process (TPEP) provides a framework and guide for transfer pricing examinations. The guide will be updated regularly by the IRS based on feedback from examiners, taxpayers, practitioners and others. ...
Related Case Law
- Portugal vs “B Restructuring LDA”, February 2021, CAAD, Case No 255/2020-TB Restructuring LDA was a distributor within the E group. During FY 2014-2016 a number of manufacturing entities within the group terminated distribution agreements with B Restructuring LDA and subsequently entered into new Distribution Agreements, under similar terms, with another company of the...
- Portugal vs C… – Sociedade de Investimentos Imobiliários, S.A., November 2023, Tribunal Central Administrativo Sul, Case 541/02.5 BTLRSThe tax authorities had issued an assessment in which the value of shares transfered between related parties had been adjusted by application of the arm’s length principle. The assessment was appealed to the Administrative Court, which upheld the assessment. An appeal was then...
- Airbnb under examination by the Internal Revenue Service for 2013 and 2016Airbnb is under examination by the Internal Revenue Service for its income taxes in 2013 and 2016, according to the company’s December 2020 SEC filing. According to the filing a draft notice of adjustment from the IRS proposes that the company owes an...
- Tokyo District Court, judgment of November 24 2017In this case a Japanese company had entered into a series of controlled transactions with foreing group companies granting services and licences to use intangibles – know-how related to manufacturing and sales, training, and provided support by sending over technical experts. The company...