In this episode of Uncontrolled Opinions, hosts Mikhail and Silvana recap some of the highlights from the NABE 2025 Transfer Pricing Conference.  Mikhail and Silvana explore several of the most interesting panels, including:

·         Go Big or Go Home: Periodic Adjustments After the 2025 GLAM and Facebook

·         The Past, Present, and Future of the Comparable Profits Method (CPM)

·         CUT to the Chase: IP Valuation in Court and on the Ground 

(The links above are YouTube links with timestamps to the panels that are discussed in this episode)

For episode 13, we're getting personal! We're digging into why we started this podcast and the unplanned beginnings of our careers in transfer pricing. Get our "uncontrolled opinion" on why the TP world needs more open dialogue and less secrecy. It's time to pull back the curtain! 

In this episode of Uncontrolled Opinions, we welcome Clark Armitage a leading  international tax and transfer pricing lawyer to discuss about economic substance in the context of transfer pricing.  

We dive into the economic substance doctrine —its origins, why it was codified in Section 7701(o), and how it intersects with modern transfer pricing, BEPS initiatives, and risk management.  The conversation also covers current cases where the IRS has asserted the lack of economic substance in challenging taxpayers, litigation trends, and practical considerations for taxpayers structuring cross-border transactions.

In this episode, we refresh on Amount B / Simplified and Streamline Approach (SSA).  We cover what has happened since February 2024.

For a deeper dive, explore the resources below, including guidance, fact sheets, tools, and the full OECD report on Amount B:

• OECD Pillar One – Amount B
• OECD Consolidated Report on Amount B
• US Adoption of Amount B  (Notice 2025-04)
• US Executive Order on “Global Tax Deal”
• US Senate confirmation hearings for treasury secretary transcript
  
  

In this episode of Uncontrolled Opinions, hosts Mikhail and Silvana are joined by their colleague Martin Ibarguren, an experienced transfer pricing practitioner with deep expertise in intercompany (IC) financial transactions. Together, they dive into the foundational elements of transfer pricing and documenting intragroup loans. From determining whether a transaction is truly “debt” vs. “equity” to handling limited data for benchmark analyses, this discussion highlights the key factors and practical challenges that transfer pricing economists grapple with when establishing arm’s length interest rates for intercompany loans.

In this episode, Mikhail and Silvana dive into the 2024 European Court of Justice (ECJ) decision on Apple’s contested tax arrangements in Ireland. While the heart of the matter centers on “illegal state aid,” the conversation highlights key transfer pricing concepts such as the arm’s length principle, the role of cost sharing agreements, and the interplay between EU competition law, MNE corporate tax/TP structures and national tax policies. Mikhail and Silvana also reflect on how this case underscores crucial points for transfer pricing practitioners, from applying the separate entity approach to analyzing IP ownership and economic substance.

Key Discussion Points

1. Background and Timeline
 

• 1980s: Apple Inc. goes public (IPO) and sets up cost-sharing agreements with the Irish subsidiaries Apple Sales International (ASI), and Apple Operations Europe (AOE). The CSA between US and the Irish subsidiaries, allowed these entities to own rights on Apple’s IP outside the Americas.
• 1991 & 2007: Irish tax rulings granted to ASI and AOE. The main provisions of the tax rulings were: (i) operations through a branch structure: ASI, and AOE operated through Irish tax-resident branches; (ii) AOE and ASI had legal rights on the IP profit of all operations outside the Americas under a royalty free agreement; and (iii) the taxable profits of the Irish operating branches was computed based on a cost-plus markup remuneration.
• 2016: European Commission (EC) rules these tax rulings constitute illegal state aid, ordering recovery of €13 billion in back taxes from Apple, plus interest. EC argued that the tax rulings did not reflect the actual value generated by the Irish branches, in particular on the IP held by ASI and AOE.
• 2020: General Court of the EU sides with Apple and Ireland, nullifying the Commission’s decision.
• 2024: European Court of Justice (the “Supreme Court” of the EU) issues its judgment on the Commission’s appeal. The ECJ's decision reinstated EC's original finding, confirming that the tax advantages provided to Apple by Ireland were incompatible with EU State aid rules.  The ECJ focused on two aspects: the arm’s length principle, its correct interpretation under the EU state aid law; and selective advantage and reference framework.

2. Core of the Case: Illegal State Aid vs. Transfer Pricing

• State Aid Angle: The European Commission argued that Ireland’s rulings conferred a “selective advantage” to Apple. 
• Transfer Pricing Perspective: The central question revolved around how much profit is allocable to the Irish branch (taxed in Ireland on a cost-plus basis, per the rulings by Irish revenue) vs. the “HQ” portion of ASI/AOE (not taxed in Ireland). ASI / AOE HQ technically held the IP rights, and had no employees or physical presence in Ireland. The Irish branches had operational functions in Ireland and were responsible for Sales and Distribution in EMEA, and India.  EC stated that profits generated from Apple’s IP should be attributed to the Irish branches as they perform the actual activities, rather than to the non-Irish tax resident head offices. This would align with the arm’s length principle and reflect the value creation within Ireland. 

3. The Arm’s Length Principle & Separate Entity Approach

•  Ireland’s rules did not fully incorporate OECD guidelines at the time of the 1991 ruling
•  Despite this, ECJ’s final judgment emphasized the importance of the arm's length principle in identifying if a selective advantage existed and whether this setup distorted competition, which are key factors under EU State aid law. ECJ held that the separate entity/arm’s length principle remains the correct reference framework. 
• Examination of functions, assets, and risks at the branch level vs. the “HQ” level is essential (though tricky in this case, given minimal substance in the HQ segments).

4. Cost Sharing Arrangement (CSA) Considerations
 

• Established in 1980 for non-Americas markets, with ASI and AOE contributing to Apple’s R&D efforts.
• The arrangement effectively deferred US taxation until repatriation of those profits occurred after US Tax Cut and Jobs Act (TCJA).
• With regards to the CSA the EC argued that the CSA allowed Apple to avoid proper tax allocation of profits generated from the use of Apple’s IP. The lack of royalties or compensation led to the TP Setup deviating significantly from what independent companies would have agreed upon.

5. Ireland’s Position & Broader Policy Implications
 

• Ireland famously sided with Apple, appealing the European Commission’s 2016 order.
• Broader concerns around legal certainty—if a country’s own tax authority is overridden by an EU competition-based ruling.
• Potential shift of tax revenue from the US to the EU raises political and policy questions.

7. Key Takeaways for Transfer Pricing Practitioners

• Reaffirmation of Arm’s Length: The ECJ stressed the importance of the arm’s length principle, even pre-OECD integration in local law.
• Branch vs. HQ Allocation: Highlights challenges in allocating IP profits when limited substance is found at the HQ.
• Uncertain Landscape: EU state aid investigations can override domestic rulings, raising questions about consistency and legal certainty. 

Why This Case Matters

• Precedent Setting: The ECJ is the highest EU court, so its stance on state aid and the transfer pricing arm’s length principle carries significant weight.
• Implications for US Multinationals: This case underscores how strategies for deferring US tax can attract European scrutiny under state aid rules.
• Certainty vs. Competition Law: Taxpayers often value certainty via advance tax rulings or APAs, yet these can still be challenged under EU competition law.

Disclaimer

Uncontrolled Opinions is for information and educational purposes only. All views expressed are personal opinions of the hosts and are subject to change. None of the content should be construed as tax or legal advice.

In this episode of Uncontrolled Opinions, Mikhail and Silvana discuss the country risk premium adjustment when applying a Transactional Net Margin Method (TNMM). This discussion is particularly timely, given the recent emphasis on this adjustment in the OECD's Amount B guidance and its mandatory implementation in Brazil's transfer pricing regulations.

Key Discussion Points

OECD's Amount B Guidance

• Introduction to the Data Availability Mechanism (DAM) which provides for a country risk premiums adjustment
• Recognition that entities operating in higher-risk countries may warrant higher returns

Brazil's Transfer Pricing Regulations

• Mandatory application of country risk adjustments when using non-Brazilian comparables in TNMM analyses
• Challenges arising from Brazil's limited local dataset, necessitating broader geographic comparables

Theoretical and Practical Considerations

• Debate on the appropriateness of employing country risk adjustments to limited-risk entities
• Potential overlap with working capital adjustments and the need for empirical validation

Geographic Proximity vs Country Risk to Select Comparables

• Exploration of selecting comparables based on similar country risk profiles rather than geographic proximity
• Discussion of research by Thibaut Roques (TP Qube) and others on “Transfer pricing comparables: Preferring a close neighbor over a far-away peer?”  which provides an empirical analysis on the relationship between country risk and return.

In this episode of Uncontrolled Opinions, we explore the pros and cons of using public and private company data in the context of a TNMM or CPM analysis in transfer pricing.  We discuss practical aspects such as data availability, quality, reliability, the impact of size and operating leverage, and the importance of functional comparability in selecting comparable companies. 

We also cover practical considerations, from regulatory compliance challenges across jurisdictions to best practices for global benchmarks. 

Whether you're navigating data complexities or refining your benchmarking approach, this episode offers valuable insights for enhancing economic analysis in transfer pricing.

Key Points Covered

Data Availability and Regulatory Impact
 

• Public Companies: Public companies are generally required to disclose detailed financial information to meet investor transparency standards, making them a reliable primary source for benchmarking. 
• Private Companies: Reporting requirements for private companies vary across regions. For instance, UK regulations mandate private companies to disclose financials, whereas in the U.S., many private companies are not obligated to release financial information.

• Quality and Reliability of Data
   
  • Public Company Data:
     
    • Mikhail emphasizes the advantage of using public company data, highlighting the role of regulatory bodies like the Securities and Exchange Commission (“SEC”) in ensuring the integrity and transparency of financial reports..  Public companies also offer comprehensive details, such as annual reports and segmented financial data.
  • Private Company Data:
     
  • Silvana points out that private companies can provide better comparability in terms of size, especially when benchmarking smaller subsidiaries. However, data inconsistencies and potential biases stemming from ownership and management overlap can pose challenges 

• Size and Functional Comparability
   
  • Importance of Size: Public companies are typically larger, which may not be directly comparable to smaller subsidiaries. 
  • Operating Leverage: Mikhail discusses how company size affects profitability through operating leverage, with fixed costs impacting larger firms differently.
  • Functional Activities: Functional comparability is crucial, sometimes more so than size.

• Practical Considerations for Benchmarking
   
  • Sample Composition: A well-balanced mix of public and private companies can create a more robust benchmarking analysis. 
  • Regulatory Compliance: Benchmarking across multiple jurisdictions involves navigating diverse regulatory requirements, from independence standards to control parameters. Designing a compliant search strategy across different countries can be complex but is essential for robust benchmarking. 

• Best Practices for Global Benchmarks
   
  • Purpose-Driven Approach: Clearly defining the purpose of the benchmarking—whether for documentation, planning, or compliance— can guide the methodology effectively.
  • Multiple Data Sources: Combining different commercial databases may be necessary to gather sufficient public and private data.
  • Flexibility: Be prepared to adjust criteria based on jurisdictional preferences and data availability.

In this episode, Silvana and Mikhail explore how local country-specific rules impact the use of the Transactional Net Margin Method (TNMM) in transfer pricing. They discuss how different regulations affect the selection of comparables and the calculation of the arm’s length range, using examples from Greece, Malaysia, Italy, and Brazil.

The episode highlights the importance of creating rigorous and defensible global/regional TNMM benchmarks incorporating local country-specific requirements. 

 Takeaways

• Different countries have specific regulations and practices that impact how TNMM Benchmarking analyses should be conducted..
• Common differences in local country regulations and practices include Independence criteria, Data availability rules, definition of arm’s length ranges, and Preference for local comparables.
• Cookie-cutter approaches typically do not work in addressing local rules. Each jurisdiction requires careful consideration and analysis to comply with local rules.
• Understanding local country requirements can save time and avoid disputes during transfer pricing audits.

Is there a role for AI in transfer pricing?

We believe the simple answer to this question is – yes – but with a few qualifiers.   In this conversation, we dive into what is AI, Generative AI and how next-word prediction can and may be used in a transfer pricing context.

While we are generally optimistic, we also discuss the pitfalls of AI, including hallucinations, and why outsourcing judgment in evaluating comparables could be a slippery slope. We do not believe AIs have agency (yet) and advocate for human oversight in deploying and leveraging AI-based automation tools.  

In this episode of Uncontrolled Opinions, hosts Mikhail and Silvana recap some of the highlights from the  NABE 2024 Transfer Pricing Conference.  Mikhail and Silvana explore several of the most interesting panels, including:

·         Geographic Market Adjustments in CPMs/TNMMs: Amount B and Beyond

·         AI will make DEMPE irrelevant

·         Business Acquisitions: Reconciling Transfer Pricing and Financial Reporting for Intangibles in the Context of Purchase Price Allocations

·         Risky Business: The State of the Risk Control Framework

·         The Importance of Intercompany Agreements to Transfer Pricing Economists

·         The GLAMorous World of Implicit Support in Financial Transaction Transfer Pricing

·         Realistic Alternatives: When, Why, and Whose?

(The links above are YouTube links with timestamps to the panels that are discussed in this episode)

What is “Control”?  Nope we are not talking about Janet Jackson’s song.  The raison d’etre in TP is pricing of “Controlled Transactions”. So, what is control?  

In this episode of Uncontrolled Opinions, hosts Silvana and Mikhail dive into the definition of  “control”  in the context of transfer pricing. We discuss the differences between “Control” and “Related Parties”. We also highlight different definitions and ownership thresholds for what constitutes control and/or related party.  We also examine the practical implications of these divergent definitions on transfer pricing benchmarking. 

01:08 Defining control in TP

01:51 Difference between “Control” and “Related Parties”

06:16 Regulatory definitions and how they can differ across countries.

11:15 Practical challenges in TP benchmarking

14:32 Opportunity for harmonizing definitions 

23:23 Practical implications and future outlook

Arm's Length Range: 

In this episode, Mikhail and Silvana dive into the intricacies of the arm's length range, the interquartile range, and various statistical methods used in transfer pricing. They discuss the importance of these concepts in their day-to-day practice and how the arm’s length range and statistical screening can help enhance reliability in a transfer pricing analysis.

In this Podcast, Silvana and Mikhail discuss the developments surrounding OECD Amount B guidance as it stands in March 2024.  We explore the scope and criteria of Amount B, emphasizing its focus on tangible goods and excluding digital goods and services. We review the three-step pricing matrix and the industry groupings within the draft. We review the current articulation of the “risk adjustments” proposed in the Amount B paper and discuss its merits.

00:00 Initial Reactions to the Latest Amount B Draft

02:59 The Promise of Simplified Guidance and Its Limitations

03:39 Tracing the Origins: BEPS, Digitalization, and Tax Challenges

10:23 Diving into the Details: Scoping Criteria and Practical Implications

18:15 Analyzing the Pricing Matrix and Industry Groupings

21:52 Addressing Qualifying Jurisdictions and Risk Adjustments

30:03 Concluding Thoughts on Streamlining Transfer Pricing Processes