Guest Blog: Insights into Transfer Pricing and Cross-Border Transactions

By Lochlainn Coyne, Transfer Pricing Director CoE | Viatris 

I’m thrilled to contribute a guest blog for Taxback International. I’m Lochlainn Coyne, specialising in transfer pricing.

Fostering Collaboration

In the realm of transfer pricing, fostering collaboration within the tax team is paramount.

I aim to delineate the transfer pricing life cycle as I perceive it within the broader organisational landscape.

Your transfer pricing policy serves as your guiding light. It communicates to your tax team, finance department, auditors, and even tax authorities, the framework through which your organisation views its business and supply chain. Its purpose is to delineate functions, assets, and risks, assigning value to each.

Understanding which entities do what, where, and how much they contribute, along with the level of risk they assume, is pivotal.

Transfer Pricing Life Cycle

Essentially, higher risk or enhanced functionality commands greater remuneration.

However, while the policy provides a theoretical foundation, its real-world application is usually far from straight forward. We often work in abstractions and percentages, which fail to account for the complexities of real-world scenarios. Delays, disruptions, or unforeseen events can skew the envisioned percentages, making it challenging to translate policy into a tangible price.

As we progress through the life cycle, disputes may arise, highlighting the inherent ambiguity of transfer pricing. These disputes often boil down to subjective interpretations, where the most persuasive argument prevails. Negotiation is key and this should lead to a refinement of the  policy to reflect lessons learned from audits and disputes.

So, what’s the solution? Don’t fixate solely on transfer prices; they’re just a concept. Instead, focus on outcomes. Evaluate how your entities’ transactions are priced, ensuring alignment with desired returns. Whether employing standard costs or intricate models, the key is ensuring entities achieve their targeted returns despite fluctuations in operational realities.

Moving from theory to practice, consider a distributor in France. They may operate as a limited-risk entity, aiming for a 4% return on sales. Regardless of market fluctuations or unforeseen events, their profit target remains constant. Our role, within transfer pricing, is to compare actual outcomes with desired targets, identifying any gaps and rectifying them with an adjustment or true up/down.

When it comes to the interaction with VAT, things get trickier, especially for organisations with vast product portfolios. Proportionate allocation of transfer pricing adjustments based on entity relationships may suffice, but it’s imperative to ensure the outcomes are compliant with transfer pricing regulations and that you have a sufficient understanding to be able to explain why changes have been made, especially when facing scrutiny from tax authorities.

In conclusion, transfer pricing isn’t an exact science; it’s a process of continuous refinement.

So, challenge your team, ensure VAT compliance, and strive to be the most informed person in the room.

Ultimately, it’s about achieving fair and compliant outcomes in an ever-evolving regulatory landscape.

Stay Up to Date

To learn more from Lochlainn Coyne, follow him on LinkedIn here.

To ensure you remain informed about the latest VAT news, trends, and topics from around the globe, subscribe to our VAT Newsletter.

Each month, we deliver insightful updates straight to your inbox, helping you stay ahead of the curve.