Paul Sutton talks to Robin Hart – a Principal in Charles River Associates’ Transfer Pricing Practice, based in the San Francisco Bay Area – about the current status of Amount B. With an expected start date of 1 January 2025, and many important factors still unclear, it is a very significant challenge for many multinationals.

Paul and Robin’s discussion covers:

• A recap of what Amount B is intended to achieve, and progress so far
• A summary of the current situation
• What we know at this time, and some very significant questions that are still unanswered
• The incentives for some countries not to adopt Amount B, and some of the practical consequences that might result
• How multinationals should already be preparing
• Some of the challenges for multinationals in implementing Amount B
• Possible longer-term developments, including the Amount B approach being extended to other transaction types
• Key takeaways for MNEs who are affected by these issues.

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Paul Sutton talks to Mick Edmondson, who specialises in the project management of complex cross-border restructurings, including legal entity reduction / corporate rationalisation and digital transformation programs. They look at how to manage large-scale projects so that they deliver the intended results, the different methodologies that are appropriate in different situations, and some of the technology and tools that are available.

Paul and Mick’s discussion covers:

• The definition of a project, and what distinguishes this from ‘business as usual’
• The cost / benefit analysis of devoting time and resource to project management, as opposed to ‘just getting on with it’
• The crucial importance of bringing together all the key stakeholders at the start, and getting top-level buy-in
• A basic framework process that helps to avoid common pitfalls
• Some potential consequences of not completing each stage before moving on to the next
• The main project management methodologies, and when each is appropriate
• The key questions that a Head of Tax should address when considering starting a significant project
• Some of the technology tools that are available, and how to use them most effectively
• Key takeaways for people who are contemplating a large or complex project.

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Paul Sutton talks to Sam Barrett – Managing Director, Americas Operating Model Effectiveness, which is part of the International Tax practice at Ernst & Young LLP – about operating model effectiveness and global value chain projects. What are they, what do they try to achieve, and how can they be implemented successfully?

Paul and Sam’s discussion covers:

·       What operating model effectiveness aims to achieve, and how

·       The typical drivers behind operating model effectiveness and global value chain projects

·       How the tax and transfer pricing teams should be involved

·       The role of non-tax functions such as IT, HR and Legal

·       General principles and methodologies that can be applied

·       How to make sure that, after implementation, projects have actually achieved the intended results

·       The main challenges for multinational groups’ tax functions over the next year

·       Key takeaways for heads of tax and their advisers.

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Paul Sutton discusses the concept of Pareto optimality and its practical application in transfer pricing with Philippe Penelle, a Ph.D. economist with 25 years of TP experience.

Philippe specialises in the valuation of intellectual property and the pricing of contractual contingent and derivative provisions. He is a former leader of the Washington National Tax Transfer Pricing Office of a Big Four Accounting Firm, and a member of the board of the National Association for Business Economics Transfer Pricing Symposium held annually in Washington, DC.

Paul and Philippe discuss:

• What ‘Pareto optimal’ means in the context of controlled transactions
• The related concept of ‘moral hazard’, and how it featured in early OECD discussions regarding the BEPS project
• The implications for the four steps required when applying the arm’s length principle, including the role of agreements in substantiating Pareto optimality
• Examples of transaction types for which the concept of Pareto optimality can create great clarity
• Examples of how Philippe has used this concept to achieve better outcomes for his clients in transfer pricing challenges
• Key takeaways for heads of tax and transfer pricing practitioners when designing transfer pricing policies.

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Paul Sutton and Borys Ulanenko discuss the role of AI in benchmarking for transfer pricing, including the practical problems that AI can address, how AI can help TP professionals to demonstrate that their benchmark analyses are robust, and some common misconceptions around the use of AI.

Borys is the founder of ArmsLength.AI. This platform introduces AI solutions to complex tax challenges, streamlining data analysis and enhancing decision-making accuracy. Before ArmsLength.AI, he worked at Aibidia, focusing on digital solutions in the same field.

Paul and Borys discuss:

• The problems inherent in the benchmarking process

• The challenges that TP professionals face when creating benchmarking analyses

• The role of AI in addressing these issues

• Real-world examples of how AI can make benchmarking analyses that are more robust, and demonstrably so

• Examples of what ArmsLength.AI does for its clients, and its pricing models

• Common misconceptions around the use of AI, and what people should consider when assessing any AI tool on the market.

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Paul Sutton talks to Sue Bonney, an independent ESG adviser who works with senior people in some of the UK’s largest and most important organisations. In that role she helps business leaders to shape strategic responses to the responsible business agenda and ESG.

Paul and Sue discuss:

• Four ‘lenses’ through which to view ESG issues
• The right way to approach ESG in order to see tangible and useful results
• Her view on ESG scores, and in what respects they can be meaningful
• The relationship between ESG and the standards of tax governance which tax administrations such as the ATO require from corporates
• A specific example of a tax strategy statement published by a large corporate which Sue regards as well thought-out
• Key areas for action that Heads of Tax should consider
• What a ‘targeted intervention’ to help large corporates with their ESG might look like.

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The book, ‘Intercompany agreements for transfer pricing compliance: a practical guide’ was first published in March 2019. A revised edition will be published in September this year. Paul Sutton talks about the reasons for writing the original version, the cases and developments since then which have prompted the update, and how the new version will be different.

Paul explains:

• Who the book is for
• What it is trying to achieve
• How the transfer pricing world (and the role of intercompany agreements) has changed since 2019
• The cases and other developments which the new version will cover
• Other differences between the updated and original versions of the book.

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Paul Sutton talks to Filippo Miotto, Transfer Pricing Director at BDO Australia, about the transfer pricing aspects of intangibles, particularly in the light of the ATO’s recently updated draft Practical Compliance Guidelines.

Paul and Filippo discuss a range of issues around the draft Practical Compliance Guidelines (PCG) issued by the Australian Taxation Office, including:

• Why intangibles tend to attract attention from tax authorities
• The context for the new PCG, and the ATO’s approach
• The structure, content and aims of the PCG
• The self-assessment reporting process, and the situations in which this is mandatory
• Examples of the types of arrangements that are likely to attract more scrutiny
• What sorts of evidence taxpayers may need in order to support their TP arrangements
• How other tax authorities’ requirements may develop in the near future
• Australia’s new Multinational Tax Integrity regime
• Key takeaways for groups and their advisers.

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Paul Sutton talks to Spencer Ho from RoyaltyStat, which recently became part of Exactera. RoyaltyStat is an industry-leading online database of royalty rates extracted from license agreements and interactive transfer pricing analytics.

Paul and Spencer discuss a range of issues around intra-group franchising arrangements, including:

·      a high-level perspective on how franchises work as between unconnected third parties

·      the key documents involved

·      the key elements of the financial arrangements

·      what information is available for the benchmarking of intra-group franchise arrangements

·      what factors transfer pricing practitioners should consider, in addition to the headline royalty rates.

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Paul Sutton and Paul O’Regan discuss the contractual allocation of risk in transfer pricing. The discussion includes an explanation of why functional analysis alone is not sufficient to delineate transactions for transfer pricing purposes; examples of specific contractual clauses that can deal with risk, and how these relate to each other; and three other key factors which must be taken into account.

Paul Sutton gives a detailed overview of contractual allocation of risk in transfer pricing. The discussion looks at:

·      The definition of risk, for transfer pricing purposes

·      What the legal documentation is trying to achieve

·      The role of contracts in allocating risk

·      Examples of contractual clauses that deal with risk

·      The other factors that must be considered

·      The potentially serious consequences of getting it wrong

·      Common mismatches between TP documentation and agreements

·      Key takeaways for transfer pricing professionals.

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Paul Sutton looks at the German Finance Ministry’s June 2023 update to its Administrative Principles on Transfer Pricing. The new version confirms some fundamental points that multinationals and transfer pricing professionals need to be aware of. Perhaps the most important is a very clear and specific position regarding ex ante price setting, and the need for intercompany agreements to be implemented in advance, not after the event.

Germany’s 2023 update to its Administrative Principles on transfer pricing confirm that the key point in time for the application of the arm’s length principle is the date of conclusion of the relevant intercompany agreement, not the date on which the relevant transaction is performed.

This is a crucial distinction, and of course presupposes that appropriate intercompany agreements have been put in place on an ex ante or price setting basis. Although this approach is consistent with the OECD Transfer Pricing Guidelines, it reflects a much clearer and more specific expression of the concept of risk allocation, price setting and the ‘playing out’ of risks and contractually delineated transactions.

Clearly this has big implications for MNEs who are active in Germany, as it’s simply impractical to take one approach there and a completely different one in other territories. Paul Sutton looks at both the technical aspects and what it means in practice.

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Paul Sutton talks to Mark Supperstone, Managing Partner of the corporate restructuring specialists Resolve, about how an office-holder in a formal corporate restructuring process involving a UK entity would look at related party transactions in the period leading up to the restructuring. They also consider what implications this has for group structures, and what practical steps legal entity directors can take to protect their position and reduce the risk of personal liability.

Applying the arm’s length principle to intercompany transactions within a multinational group can sometimes appear to be a theoretical exercise. But if individual entities or the group as a whole experience financial distress, related party transactions are likely to be subject to scrutiny in a much more pointed way.

Office holders in formal insolvency proceedings may be under a statutory duty to investigate the conduct of legal entity directors in the months and years leading up to the insolvency, and directors may be exposed to personal liability or disqualification if they are unable to account for their decisions.

Paul Sutton and Mark Supperstone discuss this scenario from the perspective of UK entities in financial distress, and consider key questions such as:

• The key legal duties of an administrator in a formal administration process

• The first steps which an administrator would be likely to take on taking office

• The statutory duty on officeholders to investigate the conduct of directors

• How an administrator or liquidator would be likely to view transactions between the company in liquidation, and other members of the group

• Key duties of legal entity directors, and the circumstances in which they may become personally liable

• The practical steps which legal entity directors can take to minimise their exposure to personal liability

• The importance of addressing a potential situation before it develops, and getting informal advice at an early stage.

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Paul Sutton and Paul O’Regan discuss LCN Legal’s 5-step process for creating and implementing ICAs. This has been developed over many years, and is designed to ensure that in a tax audit, the group's ICAs will support its TP position.

Paul Sutton explains the firm’s 5-step process for creating and implementing effective ICAs. In the course of explaining each stage in detail, he highlights the importance of:

• Ensuring that ICAs have legal substance, and integrating the legal considerations from the outset

• Understanding the precise nature of the key transactions, and establishing the ‘legal anchor points’

• Working effectively with the wider team of TP professionals

• Drafting that is brief and clear, using plain language

• Identifying and taking on board the needs of other stakeholders

• Localising agreements to reflect the needs of different countries and entities

• Ensuring that directors have all the information they need to carry out their responsibilities

• Creating – and maintaining – a central online archive of agreements.

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Paul Sutton and Paul O’Regan discuss the profit splits method. Of the five main TP approaches, it’s unique in that it looks at the relative contributions of more than one party, but is it really ‘a method for the brave’? We look at the kinds of scenarios in which this method is appropriate, the role that intercompany agreements play in implementing it, and some of the practical issues around ensuring that the ICAs provide legal certainty and reflect the operation of the group.

·      The kinds of scenarios in which the profit splits method might be used

·      The role that intercompany agreements play in legally implementing it

·      How the ICAs are affected by the decision to base the approach on actual profits or anticipated profits

·      The key steps when creating ICAs to implement profit splits

·      Common errors when applying the profit split method.

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Intercompany agreements can have seemingly small defects which can cause serious problems. Our ICA Healthcheck is designed to be a quick and easy way to spot these, as Paul Sutton explains in this episode of The LCN Legal Podcast.

Discrepancies between a group’s intercompany agreements and the transactions as described in its TP documents are an ‘easy win’ for tax authorities when seeking to raise challenges. And more fundamentally, transfer pricing positions will lack substance, because the legal and commercial reality of the relevant transactions will not be as claimed.

In this episode we look at some of the main issues for consideration in this area, including:

• Why groups need to healthcheck their ICAs
• What an effective ICA should achieve
• The consequences of getting it wrong (or just not quite right)
• What a typical healthcheck involves
• The areas that are particularly complex, challenging, or likely to reveal problems in ICAs
• The problems that we most often find.

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An in-depth discussion by Paul Sutton and Melbourne-based tax disputes specialist Andy Bubb. They look at three cases that are currently ongoing in Australia: Pepsi, Singtel and Mylan. For each case, they:

·      Review the current progress of the litigation

·      Analyse the specific issues in question

·      Identify key learning points for transfer pricing professionals.

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An in-depth discussion with Akshay Kenkre, a transfer pricing and cross-border tax specialist based in Mumbai. As India is not a member of the OECD, and has not formally adopted the OECD TP Guidelines, its TP laws and procedures are very different. In this podcast we discuss a number of those differences, including:

• India's approach to benchmarking
• The requirement for a chartered accountant to certify the nature and arm's length value of relevant transactions
• The 10-day notice period for groups to respond to demands for documents.

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• How the case changes things, and how it doesn’t
• How the Upper Tribunal’s position differed from the previous First-tier Tribunal judgment
• The most important implications for MNEs and their transfer pricing advisers.

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Target Margin is a frequently used transfer pricing model, and one which particularly lends itself to limited risk distribution arrangements. LCN co-founder Paul Sutton discusses the implications in detail.

·      When Target Margin arrangements are most likely to be suitable

·      The two main options when drafting the pricing clause of the ICA, and how to choose which one to use

·      The importance of looking at the transaction from both a TP perspective and a legal one, and then reconciling the two

·      Common mistakes, and how to avoid them

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