100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Summary TP Models (EXAM SCHEMES) $4.27
Add to cart

Summary

Summary TP Models (EXAM SCHEMES)

 74 views  1 purchase
  • Course
  • Institution

Summary of 4 pages for the course transfer pricing and attribution of income at UM (TP Models)

Preview 1 out of 4  pages

  • May 18, 2020
  • 4
  • 2019/2020
  • Summary
avatar-seller
TRANSFER PRICING MODELS

 The way chosen by a MNC to distribute the functions, risks and assets across the value chain (or part
thereof) is often referred to as ‘transfer pricing model’ -> in other words, TP models refer to frequent
combinations of functions, assets and risks attributable to the parties to an intercompany transaction.
o Indeed, TP is relevant whenever a company involves a foreign associated enterprise in its
business activities. Also, MNC have different options to distribute the functions, risks and assets
used across the value chain.1
 Hence, TP will be relevant for the proper allocation of income across the value chain (in
light of the importance of the role played by each associated entity).
 Before outlying some frequent TP models, it is important to keep in mind that, as a general rule, the
value chain of MNC is composed by 3 pillars:
1) R&D
2) Manufacturing these pillars can then be organised in various ways depending on the respective
3) Distribution (i) functions, (ii) assets, (iii) risks used
 Also, (i) intercompany services, (ii) financial transactions, (iii) cost contribution arrangements
and (iv) centralisation of entrepreneur are common in practice.
 The most common types of TP models (covering different aspects of the value chain of a MNC) include:
1. R&D models
 There are 2 main TP R&D models depending on which party is considered the owner of the
intangible2:
1) Fully-fledged researcher
- A fully-fledged researcher both (i) performs routing R&D activities 3 and (ii) owns the
intangible resulting from the value adding R&D activities.
o Hence, the remuneration will be the sum of return of the R&D (routine)
activities and the return on intangibles
- If on the other hand, a company (i) performs the important functions; (ii) assumes the
relevant risks (iii) owns the intangible BUT does not carry out the routine R&D
activities (es because these are outsourced), such company (ie the principal) is
entitled to the return on intangible only and NOT on the return on the routine R&D
functions.
2) Contract R&D
- An entity carrying out R&D activities on behalf of another entity (ie on behalf of the
principal) will normally not own the intangible resulting from such activities.
o The contract R&D would then be a service provider and be remunerated on the
basis of the routine profit
 It is therefore possible to have a separation between the performance of the R&D
activities (which could be in high tax jurisdictions) and the taxation of the return
attributable to the intangible (which could be in low tax jurisdictions). This can be
achieved, where an IP company (the principal) outsources the R&D activities to a contract
R&D.


2. Manufacturing models
1
Amendments to the supply chain that involve the redistribution of functions, assets, risks between the members of
the group are referred to as -> business restructuring.
2
The ownership of the intangible results from the combination of performing functions and exercising control over
development, enhancement, maintenance, protection and exploitation functions, providing necessary funding and
other assets, as well as controlling and assuming various risks associated with the intangible.
3
Ie the R&D activities that do not provide value added to the MNC.

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller matteobarchi97. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $4.27. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

53068 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$4.27  1x  sold
  • (0)
Add to cart
Added