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Finance Monthly speaks with Dan Peters, the Managing Partner of Valentiam Group – a firm focused on transfer pricing and valuation that spun out of Economics Partners in 2018. Dan has practiced transfer pricing and tax valuation for over 25 years, and previously led global practices at KPMG and Duff & Phelps.
Valentiam currently has 7 Partners and about 20 professionals in the company’s offices in New York, Dallas, Salt Lake City, Los Angeles, Seattle and West Palm Beach.

The firm serves clients from the middle-market to the largest and most complex multinational firms and focuses exclusively on transfer pricing and valuation matters, which are primarily for tax purposes – such as property tax valuation, valuation of legal entities within a related-party group structure, or valuing specific intangible assets.

All of the firm’s Partners are leaders in their specialties and Legal Media Group lists each of Valentiam’s transfer pricing Partners as ‘Leading US Transfer Pricing Advisers’.

Below, Dan tells us more about the work they do and the things that set them apart from other tax advisories.

 Tell us about the beginnings of Valentiam Group? What inspired the founding of the company?

Valentiam Group’s origins date back to when I started my own practice in 2009. We ultimately entered into a collaboration with Economics Partners in 2013. EP later sought and found a transaction to be acquired by Ryan and Company, which was finalised last year.

Everyone from my original team and several of the other Partners that have been with us for many years weren’t interested in that transaction, so we decided to establish an independent firm focusing on our specialties. So we tried to create Valentiam as a perfect platform for 2019, rather than 1919.

So we tried to create Valentiam as a perfect platform for 2019, rather than 1919.

What was the process of creating the new brand like? How did your clients react to the new brand?

Creating Valentiam in 2018 was a lot different than starting my own firm a decade ago. We used ‘crowdsourcing’ to help us choose a name, design a logo, and develop our website. It was astonishing to see how radically different and better that process can be when you use technology.

Our clients have been incredibly loyal to us. My experience in our industry is that clients are primarily focused on the quality of the adviser and the work product that they produce. None of that changed with us when we rebranded as Valentiam and the transition has been as smooth as we could have hoped it will be. In fact, our clients are as excited as we are about the new platform and what it means for them.

What are the company’s overall principles, beliefs and mission?

Our mantra is that the firm’s purpose is to support our advisers and clients. There are three actors in our business – the advisers, the firm, and the clients. We fundamentally believe that way too much of the value in other platforms is attributed to the firm.

The typical firm ends up bloated – with Senior Partners acting as administrators and the overhead part of the firm unnecessarily consuming resources that should be invested in serving clients in a better way or paid to the advisers. All this drives up costs and thus, prices for clients, and results in the actual advisers earning only a small fraction of what is billed to the clients. This is why our core principle is that our primary focus should be on serving clients and developing our team of advisers.

Our other mission is to be an independent provider of transfer pricing and valuation services, as we understand the synergies and complexities between them and we see the value in being independent.

Combined, these differentiators allow us to reward and grow our top performers’ careers, providing our clients with better advice and fairer billing rates.

What makes Valentiam Group a different platform for both clients and professionals that practice transfer pricing and valuation?

Our platform is optimal for both our clients and our professionals for three reasons. First, we are extremely low overhead. We have no Partners who are administrators – actually we don’t have administrators at all. I spend the great majority of my time advising clients. We either outsource administrative functions or leverage technology to perform the routine functions of a professional services firm.

Second, all of our professionals share in the success of the firm as our compensation model has more risk and reward than what the industry typically offers. That helps align the incentives of all of our professionals to be focused on serving the client.

Third, we have a much flatter structure than our competition – it’s really an ‘apprentice model’, where our young professionals work directly with Directors and Partners. Our staff/Partners ratio is roughly 1.5 to 1 - compared to leverage ratios of about 8 to 1 in big accounting firms.

Combined, these differentiators allow us to reward and grow our top performers’ careers, providing our clients with better advice and fairer billing rates. It also allows our Partners and younger professionals to work closely together in the trenches on client matters, which is satisfying for both sides.

How do you best help companies set their transfer prices and manage their transfer pricing risks?

Setting transfer prices is by definition subjective, and we sometimes say that we are only limited by our imagination in thinking of how third parties would transact with one another.

But in today’s world, the transfer pricing risks that our clients face – which obviously include tax risk, but also reputational risks and even the risk of disruptions to operations – as a result of inappropriate transfer pricing are so great that we have to be extremely careful to ensure that the advice we give to our clients is absolutely correct and defensible.

We can’t be certain that what was acceptable in the past will be so in the future. Our clients need to be sure that the economics of what we do are sensible. The best way we’ve found to do that is to ask: “Would both parties agree to this price or value?”. We make sure that our analysis holds up for both the buyer and the seller.

What makes your property tax advisory business unique?

Carl Hoemke, who leads that practice for us, has been an innovator in the property tax space throughout his career and has developed property tax compliance software that is market-leading. He focuses on valuing complex assets for the largest companies who have the highest property assessments.
Carl is planning to make us the key player in the complex property tax valuation area - we’re going to do some exciting things in the next 12 months!

Setting transfer prices is by definition subjective, and we sometimes say that we are only limited by our imagination in thinking of how third parties would transact with one another.

Why do you focus on valuation for tax purposes?

Tax Valuations require the practitioner to understand tax. We see tax valuation studies that are fundamentally wrong because the adviser didn’t understand the purpose of the transaction, or the risk profile of the entity within a larger group. Since we focus exclusively on tax matters, we believe we do this work better than other firms.

What are the synergies between transfer pricing and tax valuation?

It starts with the skillsets of the advisers. The training, databases, methodologies used – there are more similarities than differences in the skills required to perform a valuation study and a transfer pricing study.

It then extends to the issues we face – one can’t be a complete transfer pricing adviser without being able to value assets, and you can’t really do solid tax valuation studies without being expert in transfer pricing.

We believe that our approach to addressing these two services in a single practice gives us a competitive advantage in attracting young professionals to our practice and in providing our tax clients with the most expert service possible.


Luis Ugarelli is Managing Partner at Market Facilitators, an economic consulting facility with main offices in Lima, Peru. The company provides consulting services, advisory and economic studies for different sectors in key economic variables to foster competitiveness and development. Finance Monthly speaks to Luis about the Peruvian transfer pricing system.


Can you explain how the Peruvian transfer pricing system works? What type of documentation does a company have to prepare?

Arms’ length principles were incorporated in Peruvian Legislation in 2001. As the country is aspiring to join the OECD in the near future, Peru has been trying to follow OECD directives very closely. For instance, some of the BEPS actions have already been implemented. The size of the companies, measured by the level of sales (above US$3 million) plus the volume of controlled transactions (purchases plus sales above US$500 M), trigger the presentation of Local File. As of 2017, a condition to make deductible services received from related parties or tax heavens must pass the benefit test. Master Files apply for consolidated turnover of groups above US$27 million. CbC Reports would eventually reach around 10 Peruvian Multinational Groups only. BEPS reports in Peru are sworn informative declarations that may trigger voluntary or compulsory tax adjustments only when results prove to be detrimental for the treasury.


What are the potential penalties for companies if they fail to submit accurate information regarding transfer pricing? Is there an appeal process?

If company fails to present a Local File by due date each year (with the exception of this year, as taxpayers are expected to submit year 2016 in April 2018 and year 2017 in June 2018), fines for not complying are 0.6% of a company’s sales with a ceiling of US$32 thousand by report. The fines are the same if the filing is partial or inaccurate and applies to master files and CbC reports as well. There is a progressive fine reduction for voluntary filing as long as the taxpayer declares it before a transfer pricing audit is open. As conditions requested for the benefit test appear to be excessive, some companies are assuming that these expenses will be repaired on their income tax declaration. Resolutions as a result of transfer pricing audit may be appealed in three instances and may end up in the Tax Court.


What is the Peruvian Tax Authority’s current approach to transfer pricing? How often do they carry out audits?

Statute of limitations of tax obligations is five years. Although tax audits have not followed a particular pattern, some partial audits in transfer pricing have been carried out in the last three years, but have resulted in disputed items that may end up in the Tax Court. Since the government has observed a dramatic tax collection drop in the last five years, part of the blame goes to controlled transactions. Therefore, tax authorities are betting that the situation could be partially reversed with a closer attention and audits to transfer pricing matters. Parameters to define taxpayers under formal obligations have been raised and more revelation is asked, with the intention of focusing on a smaller number of taxpayers (a drop from 6,500 to 3,500) in material transactions with commodities and imports, particularly medicines, consumer goods, capital goods, grains; and in intra-group services and financial operations of all economic sectors.


How do you best help companies manage their transfer pricing issues and what services do you provide?

For Peruvian companies with significant transfer pricing operations, early advice and transfer pricing planning is by far the most effective approach for timely problem recognition and resolution – the sooner, the merrier, as I like to say. Companies do not need to act like they’re blindfolded regarding the market prices for specific material transactions they execute - for those purposes we do comprehensive benchmarking analysis of interest rates, royalties, rents, cost, etc. In some cases, an entire revamping of the controlled transactions is advisable, and this reshuffle can make wonders for the development of a streamlined operation and present a clear and transparent position before the tax authorities.


Contact details:



To hear about taxation in India, this month Finance Monthly reached out to Shipra Walia – Managing Partner at W S & Co. With her experience in Corporate Taxation & Advisory spanning over 12 years, Shipra is experienced in opining on international tax issues, valuations, ICDS, FATCA, interpretation of treaties, group reorganization options, transfer pricing issues, due diligence, inbound/outbound options and expat taxation. Her tax compliance work includes representation before the tax authorities, including settlement commission.


International organisations continue to spend more time and resources managing tax liabilities in both their local and overseas markets. What tax efficient structures are available in India to businesses with international interests?

There are many forms of incorporation in India as per which a person can enter into Indian market:

All of these structures have their different tax forms. Further, India has recently laid down rules and framework for the foreign tax credit adjustments as per which the person doing business in India or with India or Indian entity doing business in other parts of the world will be able to claim hassle free credit / setoff[1] of the taxes paid in other different countries.


Is the India’s tax regime more suited to particular types of business? If so what are they and what makes them suited to India?

India is already a hub for the Services Industry. Currently, with the focus of the Indian Government on the concept “Make in India” and with the various time-to-time relaxations provided in the Foreign Direct Investment norms, all businesses have a scope in India.


How do you help your clients mitigate their tax liability whilst remaining fully compliant with tax laws?

Planning from the initiation of the transaction is key. It is our foremost intention to keep our clients updated of the new events, news or any changes happening which helps them with planning their business strategy.


Can tax saving initiatives be kept up-to-date, especially in light of changing legislation? What happens if a current tax plan is no longer viable because of legislative changes?

Yes, any legislative change gives you enough time to act and adjust accordingly.

However, there may be times when certain changes are made without room for profitable amendments in the on-going initiatives. In such cases, we make sure to help clients with understanding the most profitable option or finding the best way possible.


If you could, what would you change about the tax legislation in India?

India’s tax legislation is 60 years old and in my opinion, there are numerous major issues which are either settled by the Apex court or are being amended. However, as India is pacing with the world’s economy, as well as the laws and legislations prescribed by various international authorities, thankfully, the legislation itself keeps on changing almost every year.




[1] Subject to the conditions provided and Double Taxation Avoidance Agreement between countries

To hear about taxation in Cyprus, this month Finance Monthly reached out to Panicos G. Loizou, a Board Member at KPMG in Cyprus. After obtaining an Honors degree in Economics from the University of Salford, he trained with a big eight practice in Manchester and became a member of the English Institute of Chartered Accountants and subsequently a Fellow member. Panicos has also attended a crash management Course at Wharton School, University of Pennsylvania, Philadelphia. He is a member of the Institute of Taxation by examinations, and a member of STEP and was recently elected as a member of the Council of STEP, taking full responsibility in January.


What are currently the hottest topics being discussed in relation to tax in Cyprus?

The implementation of standards and regulations about exchange of information like CRS and Country by Country reporting, increased the taxpayers’ desire for a last time tax amnesty, aligned with many other jurisdictions. Instead, the Cyprus House of Representatives introduced new legislation which incorporates special arrangements for the settlement of overdue taxes. The legislation has induced a number of tax payers to come forward and declare income and assets not previously reported in their tax returns.


What amendments have been made to the tax regulation recently?

Apart from the aforementioned legislation referring to the settlement of overdue taxes, recent amendments include mainly provisions relating to transfer pricing, as well as amending the tax residency definitions for individuals and non-domiciled individuals. These amendments have already arose increased interest by wealthy individuals and families, who are taking necessary steps in order to comply with the provisions of the new legislation. In this way, they will become Cyprus tax residents and at the same time they would be registered with the Tax Authorities for the Non-Dom status.

It is important to pay attention for the revised definition, meaning that the foreign national who is physically present in Cyprus for more than 183 days within a calendar year, will be considered as a Cyprus tax resident and he/she will be subject to taxation in Cyprus on his/her worldwide income. The definition has been amended to also provide that, an individual who does not stay in any other country, for one or more periods exceeding in aggregate 183 days in the same tax year and is not tax resident in any other country for the same year, is deemed as a resident in the Republic in that tax year, if all of the following conditions are met: (i) the individual stays in the Republic for at least 60 days in the tax year, (ii) exercises any business in the Republic and/or is employed in the Republic and/or holds an office with a Cyprus tax resident person at any time during the tax year, and (iii) maintains (by owning or leasing) a permanent residence in the Republic.


Do you believe there is potential for further significant legislative development in the tax field in Cyprus?

Yes, indeed, as the Cyprus Government is already fostering the efforts to prepare the new legislation concerning the audiovisual industry. Just to be on the same line, the forms of audiovisual communication include television advertising, sponsorship, teleshopping, product placement, on-demand audiovisual media services and radio broadcasting, which aim the provision of programs in order to inform, entertain or educate the general public. Bound by certain criteria, there would be a number of tax incentives such as “Cash Rebate”, “Tax Credit”, tax reduction for infrastructure and equipment investments and VAT return over eligible expenditure. Moreover, special attention is given by the Authorities to the benefits in kind provisions.


In terms of tax structures, what are the advantages for foreign companies wanting to establish a business operation in Cyprus?

Corporate tax of Cyprus tax resident companies is currently imposed at the rate of 12,5% for each year of assessment on the taxable income, derived from sources both within and outside Cyprus. In arriving at the taxable income, deductions on such income and exemptions must be taken into account. All relevant expenses incurred wholly and exclusively for the production of that income are deductible expenses whereas dividends, capital gains or profit from the sale of shares and other securities constitute tax exempt income. Expenses that directly or indirectly relate to tax exempt income are not tax deductible.


What actions has Cyprus taken towards remaining competitive as a financial centre?

In the current fluent, economic and political environment, Cyprus takes all appropriate measures to remain competitive as a financial centre. That includes, considering the measures adopted by other competitive countries and undertaking measures in order to attract business and investments through the implementation of tax incentives.





Written by Philippe Neefs, KPMG Luxembourg Transfer Pricing Leader

Since 1 January 2015, Luxembourg’s transfer pricing regime has been based on article 56 of the Luxembourg Income Tax Law (LITL), which introduced the arm’s length principle into local Luxembourg law. In addition, the Luxembourg tax authorities could also refer to article 171 of the Abgabenordnung, modified by the Law of 19 December 2014, which essentially states that taxpayers should be able to provide transfer pricing documentation sustaining the arm’s length character of all intercompany transactions.

On 27 December 2016 article 56bis was introduced, together with the publication of a new transfer pricing circular for companies principally performing intra-group financing activities. This new article, applicable as from 1 January 2017, gives taxpayers and Luxembourg tax authorities more guidance on how to apply the arm’s length principle in the context of a wider value chain analysis. It focuses on the comparability analysis based on the OECD’s five comparability factors approach. The comparability factors to be taken into account are the following:

  1. Contractual terms of the transaction: the contractual terms should be found not only in the legal documentation, but should also be reflected in the accounting statements.
  2. Functional analysis: a wider value chain analysis, as well as the ability to control the risks, should be outlined.
  3. Characteristics of goods and services: differences in quality or availability of a product or a service should be considered.
  4. Economic circumstances: product life cycle, market size, and the extent of competition should be taken into consideration.
  5. Business strategies: risk diversification and innovation strategies that have a possible impact on transfer pricing should be examined.

The commercial rationale behind each intercompany transaction is also of outmost importance. If the commercial rationale is lacking, then a transaction could be disregarded. This has a critical impact as taxpayers must now be prepared to be able to document the commercial rationale as part of the transfer pricing documentation. Attention will need to be paid to pre-structuring documentation. Therefore a description of the Luxembourg value chain should take any no-tax reasons into account.

The circular published on the same day as article 56bis clarifies the transfer pricing rules applicable to entities principally performing intra-group financing activities (Circulaire du directeur des contributions LIR n° 56/1-56bis/1 of 27 December 2016). The scope of the application of the circular remains the same as under the 2011 transfer pricing circulars previously applicable in Luxembourg. Notably, it applies to all entities realising intra-group financing transactions, while holding activities remain out of its scope. The definitions of “intra-group financing transactions” and “associated enterprises” remain unchanged.

In this new circular, strong emphasis is put on the analysis of the risks assumed by the companies. In that regard, different factors need to be taken into account such as the solvency of the borrower, the potential guarantees for specific financing transactions, the costs in relation to the financing transactions, and the actual value of the underlying assets.

The circular further provides that if a company has a similar functional profile to the entities regulated under EU Regulation n° 575/2013 that transposes the Basel Accords, and the company has an amount of equity complying with the solvency requirements under this regulation, then it is considered to have enough capital to support the risks assumed. Moreover, as a safe harbour, it is considered that such a company complies with the arm’s length principle if its remuneration corresponds to a return on equity equal to 10% after taxes. In practice, it is not expected that many Luxembourg companies will fall into this category due to the particular nature of the required functional profile.

All other companies should perform an analysis to determine the necessary capital at risk using the widely accepted methodologies in this area. These companies must have the financial capacity to assume such risks. The level of capital at risk should correspond to the functional profile under review, meaning that the required capital at risk should decrease when the risks borne become more limited. It must be noted that there is no reference anymore to the minimum required capital at risk of 1% of the financing volume (capped at €2 million) that could be derived from the application of the 2011 transfer pricing circulars.

Furthermore, the circular provides that in order to be able to control the risks (i.e. the decision-making capacity), the company performing the intra-group financing transaction should comply with the following substance requirements:

  1. The members of the board of directors, or the managers empowered to engage the entity in particular, must be residents of Luxembourg; the majority of the board members should also be Luxembourg resident or, if non-Luxembourg resident, should be taxable for at least 50% of their income (listed in the circular) in Luxembourg.
  2. The company should have qualified personnel to control the performed transactions. However, the company could outsource some functions that do not have a significant impact on the control of the risks. This latter item still under debate.
  3. The entity must not be considered a tax resident of a foreign jurisdiction.

The circular additionally provides for a measure of simplification, which a taxpayer can opt for should the following conditions be fulfilled:

  1. No transfer pricing study has been prepared.
  2. The intra-group debt receivables are financed by intra-group debt payables.
  3. The company fulfils the substance requirements (as outlined above).

It will be considered that these taxpayers comply with the arm’s length principle if their remuneration corresponds to a return on the financed assets of at least 2% after taxes. However, these cases will be subject to exchange of information.

The circular specifies that it remains possible to obtain an Advanced Pricing Agreement based on the facts and circumstances of each case if the conditions outlined in the circular are respected. It further stipulates that any Advanced Pricing Agreement issued before the entry into force of article 56bis LITL should not be binding by the Luxembourg tax authorities as from 1 January 2017 for the fiscal years following 2016.

Although it is not indicated, it can be interpreted that a Luxembourg entity carrying out an intra-group financing activity that does not have the so-called organisational and economic substance would be considered a conduit entity and that this information can be exchanged spontaneously with concerned jurisdictions. It can be anticipated that tax audits in source jurisdictions may be initiated and that the beneficial owner status of the Luxembourg entity may be questioned.

In light of these developments, previous Advanced Pricing Agreements and defensive transfer pricing documentation need to be reviewed and possibly updated.

Additionally, on 27 December 2016 the law on non-public country-by-country (CbC) reporting transposing the EU Directive 2016/881 of 25 May 2016 into domestic law was published. This measure reflects OECD/G20 BEPS Action 13. On 12 July 2017 the Luxembourg tax authorities acknowledged and explicitly referred to the OECD’s guidance on the implementation of the CbC reporting. Nevertheless, it is important to note that Luxembourg has not yet implemented any measures that would transpose the Master File and the Local File requirements under OECD/G20 BEPS Action 13. The author hopes that Luxembourg will transpose these measures into its domestic law in order to fully comply with the multi-tier transfer pricing documentation standard. This would further confirm Luxembourg’s commitment to the greater transparency that is required today.

Notably, CbC reporting requirements apply to multinational enterprise (MNE) groups whose total consolidated group revenue exceeds €750 million (or an amount in local currency approximately equivalent to €750 million) during the previous fiscal year.

As a result of this legislation, constituent Luxembourg entities must notify the Luxembourg tax authorities as to whether they are an ultimate parent entity, surrogate parent entity, or constituent entity. If the constituent entity is not the reporting entity that will be filing the group's 2016 CbC report, they must provide the identity and tax residence of the actual reporting entity to the tax authorities. MNE groups with a fiscal year-end in 2016 had to provide this notification by 31 March 2017 (instead of 31 December 2016, which was originally the deadline). This notification procedure is performed online on a specifically dedicated website of the Luxembourg tax authorities. Luxembourg's new law requires the first CbC reports to be filed for fiscal year 2016 within 12 months of the last day of the reporting fiscal year of the group (e.g. 31 December 2017 if the 2016 accounting year of the MNE group ends on 31 December 2016). Failure to do so may entail a fine of up to €250,000!

As a conclusion, the above mentioned measures are welcome on the Luxembourg market, as they provide additional guidance on the application of the arm’s length principle. The new article 56bis LITL can be seen as a transposition of OECD/G20 Base Erosion and Profit Shifting (“BEPS”) Actions 8-10. These developments mirror international and European ones, putting Luxembourg on a level playing field. The author, however, anticipates an increase in tax audits and would advise the preparation of agile transfer pricing documentation. In this respect, readers must ask themselves the following questions with respect to their Luxembourg investment structures:


Kunj Vaidya has been recently given the responsibility for Price Waterhouse & Co.’s transfer pricing practice. Prior to taking over this mantle, he had been involved in setting up and establishing transfer pricing practices in Chennai and Sri Lanka, where PWC is  now established as a market leader.

Kunj has practiced transfer pricing in the USA, Australia and India. Since relocating back to India in early 2010, his primary focus has been to help clients plan well in advance and thereafter, provide certainty using various dispute resolution mechanisms. A large part of his role as the national leader will include ideating new solutions and strategies for their clients including significant use of technology, to deliver value to clients. Here Kunj tells Finance Monthly more about his new role and sheds some light on transfer pricing in India.


What is your take on Indian transfer pricing compliance? How are you advising clients on approaching this?

Traditionally, transfer pricing compliance was aimed at providing specific and largely one-sided pieces of information along with certification of reported numbers.

In October 2015, three-layered transfer pricing documentation requirements have been recommended, as part of the final reports on Base Erosion and Profit Shifting (BEPS) initiative of the OECD and G-20 countries. Most countries, including India, have adopted these requirements.

Global corporations are now required to document and present information regarding the ownership and operational structures, key transaction flows and pricing policies within the group. This documentation necessitates a holistic view to be considered by corporations, requiring involvement of their business teams.

Corporations need to consider transfer pricing while taking strategic decisions, and not as a post facto compliance exercise.


How have transfer pricing audits evolved in India?

In the last 15 years or so, the audit focus has matured from routine issues, such as requirement of high mark-ups for services and disallowances of royalties/ service charges to also complex issues like re-characterisation of transactions, valuation of intangibles, location savings, compensation for advertisement, marketing and brand promotion spends, etc.

In early 2016, the procedure for selecting cases for audits was overhauled to focus on cases with high potential of transfer pricing risk.

We are experiencing a different undertone in TP audit approach across the country. Taking guidance from the BEPS Reports, the audit approach is increasingly leaning towards understanding the business of taxpayers – including meeting with business teams. Another area is active exchange of information with overseas tax authorities.


How should the audit approach evolve from here on?

We believe that audits should happen in a more cooperative and amicable manner.

With the introduction of three-layered documentation, the ‘big picture’ of a corporation will be available to tax authorities, It is hoped that selected parts of this documentation are not used against taxpayers without appreciating the entirety of surrounding facts and circumstances.

In our ongoing recommendations to the Government, we have recommended audits to be conducted in a block of say 2-3 years to consider business life-cycles, this would provide a larger picture of the business to the authorities and would also reduce audit efforts for taxpayers.


How have outcomes been for taxpayers at higher levels in appeals?

First level appellate forums are from within the tax administration, and success rate for taxpayers at these levels has been rather low.

The second level appellate authority - the Tribunal is outside of the tax administration. Tribunal rulings have been rather rational and success rate for taxpayers across the country has been relatively very high.


How do you help companies manage transfer pricing issues and what strategies do you implement in the tax risk analysis to assist your clients effectively?

With the ever increasing focus of tax authorities globally on transfer pricing, companies need to plan transfer pricing approaches upfront, We have helped several companies in setting up transfer pricing policies to meet their business objectives, at the same time prepare them adequately from possible challenges in future.

In cases where we foresee potential risks, we believe that transparency is the best strategy. Our advice to clients has been to disclose pertinent facts and discuss relevant issues upfront with tax authorities. This is where I believe the Indian APA program has also been very helpful!


Has the Government taken any initiatives to ease transfer pricing burden on corporations? How satisfied are you with these efforts?

The Government is acutely aware of the challenging transfer pricing scenario in India, and how it has been impeding foreign investment into the country. The Government has been consciously bringing global best practices to India.

One key measure which has received resounding success in India is the APA program. The feedback from the taxpayer community for the program has been extremely positive (including Bilateral agreements with Japan, UK, US).

India also introduced safe harbour rules a few years back, but the program has had little success. However, I understand that the safe harbour rules are being revisited and rules with a more rational outlook may be issued sometime soon!


What changes do you see in the importance companies attach to transfer pricing?

We have witnessed a sea change here – from being seen as a compliance burden, increasingly, transfer pricing issues have even caught the attention of the CXO suites. In fact, corporations are increasingly realising that transfer pricing is also a reputation and governance issue for them.


What role does technology play in transfer pricing and how feasible is this for corporations to adopt?

Technology will increasingly play an important role in transfer pricing. Corporations will need to be able to use technology to build and manage frameworks to ensure that transfer pricing policies are followed, ensure compliance with terms and critical assumptions agreed in an APA, identify red flags or exceptions, and to report key indicators to the management and other stakeholders.

Use of technology in transfer pricing in the above areas could be fairly new but corporations will need to find a way to integrate technology and transfer pricing,

Another way of looking at technology is how it will play a role in the value chain of companies including those operating in traditional businesses.


As a national leader in transfer pricing - how are you developing new strategies and ways to help your clients?

Our endeavour is to help clients look around the corner and prepare them for what is to come!

In recent times, our key focus areas have been the following:


What do you see as potential innovative solutions by the Government for some of the transfer pricing issues corporations are facing?

The Government is keen to improve ease of doing business in India, and give a push to some of its pet programs such as ‘Make in India’.

The Government may consider some solutions such as joint customs and transfer pricing audits for imports; joint audits by different Governments and their agreement on pricing; audits for a block of years together; settlement options for transfer pricing disputes etc. Another area, which is beginning to find acceptance in EU is the use of arbitration to resolve transfer pricing and international tax disputes!

One of the thrust areas of the BEPS initiative is effective dispute resolution. The Government should consider providing bilateral transfer pricing dispute resolution window to residents of all tax treaty partners, rather than only few countries currently.


What do you see as the future of transfer pricing?

Going forward, Governments will increasingly use technology for transfer pricing risk assessments and risk management. We have also started seeing increasing cooperation and exchange of information between Governments. There will be increased emphasis and reliance on value chain analysis and insistence on use of profit split methods, as more global information becomes readily available.

The future of transfer pricing lies somewhere in being proactive, better relationships, more transparency and cooperation between Government and taxpayers.

Ian Borley heads up KPMG’s Leicester and Nottingham offices as East Midlands Senior Partner and he’s also head of the firm’s Enterprise practice in the Midlands. By day, he’s an audit partner and leads several of KPMG’s client relationships with a wide variety of companies across the region. He qualified as a Chartered Accountant in 1989, having joined from Leicester Polytechnic - now De Montfort University, and he has worked in the Midlands for most of his career.


KPMG has a worldwide presence as one of the Big Four professional services firms, and its network of member firms provide Audit, Tax and Advisory services. In the UK, the firm has over 600 partners and over 13,000 outstanding professionals who work together to deliver value to clients across its 22 offices.


As a professional whose extensive experience covers a number of sectors – from accounting advisory and risk consulting, to tax planning and transfer pricing – how has the financial services industry evolved in the past two decades?

The two big changes over the last twenty years have been technology and regulation. Technology continues to change the way our industry works, and this is certainly a positive. The use of data analytics, for example, makes professional services more efficient because it’s now much easier to make sense of huge amounts of client data and we can even test the whole population, rather than just samples. IT also means that we can quickly get to the relevant reference material online. Developments like these enable us to be more forward-looking for our clients, and gone are the days of using pencils, calculators and huge sheets of paper to do forecasts, or looking up tax legislation in weighty tomes.

The second major change is regulation, particularly for accountancy and audit. Compared to how it was over a decade ago, the way financial services are regulated and supervised has been completely reformed. In many ways, this is in response to some of the high profile business failures of the past and, as a result, there are numerous restrictions now in place. Although this can be frustrating sometimes, it’s definitely a good thing for our clients, their shareholders and for confidence in capital markets generally.


What are the biggest challenges that UK businesses are facing in 2017? In your opinion, what lies on the horizon for them in the near future?

While most people are probably bored of talking about Brexit, I don’t think the Sterling devaluation that resulted from the UK’s vote to leave the EU has fully come through yet. A lot of manufacturing businesses, for instance, will have had stock in warehouses or in transit that they bought at higher exchange rates earlier in 2016. They may also have hedged, but not many will have hedged into 2017. As a result, raw material inflation is starting to come through, and this will probably ring true for other industries too, so a lot will depend on companies’ ability to pass rising costs onto customers. On top of that, many businesses are wrestling with labour inflation, and things like the Apprenticeship Levy, National Living Wage and Stakeholder Pensions will all start to hit around the same time. The cumulative effect of so much happening in a short space of time could be quite severe for companies that have a big workforce.

Above all, the biggest challenge for many businesses is unpredictability. As well as Brexit, our clients are trying to predict what will happen to oil prices, trade relations with the US in a post-Trump era, and continuing political turmoil in parts of the Middle East. Nevertheless, many management teams are still investing in capital expenditure and making senior recruitment decisions, and we’re seeing that the M&A market is still very busy. This is, in part, a response to the continued resilience of the UK economy and is also encouraged by the availability of relatively cheap finance. However, it may also be that people have stopped trying to predict the unpredictable.


Why do companies need to keep pace with technology? How would you say technological change is playing its part in driving change in the services KPMG offers?

 In virtually all of our clients’ sectors, there’s some disruptor or new technology that stirs up the mix in terms of production techniques, routes to market, supply chain or customer experience. As a result, traditional business models are being challenged and people are increasingly looking all over the World to find ways to do business more efficiently.

The tailored customer experience piece is also having a massive impact, not just on consumers but for B2B businesses as well, so being able to stay ahead of the curve is really important. Indeed, this impacts on our own sector and we are continually re-evaluating what we do at KPMG, and how we do it.


You joined KPMG over 30 years ago - what were your goals in driving change within the company?

Having been a partner for 20 of those 30 years, my goals were, and still are, to offer the best possible service to our clients. To do this we need to be a firm of talented, knowledgeable and trusted advisors, and a lot of my career has been about building and developing teams with these attributes. It’s also about keeping up with the fast moving world and how we adapt to meet different client demands, while providing services in an efficient way.

The work environment has changed massively since I first started working at the firm. It was a completely different world back then. Flexible working and the benefits our people have is really important, and we’ve come a long way with diversity and inclusion, but I don’t think any organisation has completely cracked it yet. It’s not for want of trying but it certainly looks a lot better than it did in 1985.


What has the impact of your role been as a head of KPMG’s East Midlands practice to date?

 When I took over as Senior Partner for the East Midlands, we were in a position where many of the older and more experienced partners were either at or near retirement. So we had to bring new partners and directors through, and I’m delighted that most of them are home-grown. I’m pleased that we’ve invested in the team and looked after our clients, and we’re still on that journey as I’d like to build the capability of the team even more.


What goals are you currently working towards at KPMG in the East Midlands?

We have a strong market share in the region but there are hundreds of businesses that we don’t work with in the East Midlands that we could really add value to. So it’s all about being proactive and sharing ideas with them about how we can help them, and this comes back to investing and growing the team, while we develop relationships with prospective clients.


Can you tell us about your involvement in the business community?

One of the great things about KPMG is that the firm is very supportive of people giving back to the community, which is one of our core values. Over the last few years, I’ve held non-executive director positions at the National Space Centre and King Richard III Visitor Centre in Leicester, and the National Forest. For a number of years, I was chairman of Leicestershire Voice and I also sit on the CBI’s East Midlands Regional Council. I really enjoy being able to contribute something to the wider business community through these forums but it’s also been a fantastic experience for me personally, enabling me to meet some very talented people and learn new things along the way.


What is the role and importance of the SME business community in the UK?

SMEs are the cornerstone of the UK economy, and you only need to look at the statistics* to see why. There were 5.4 million SMEs in the UK in 2016, employing over 16.5 million people, accounting for 47% of the £3.8 billion turnover from private sector UK businesses.

They’re particularly good at being able to respond quickly to changes in the market and their decision-making lines are generally short. While SME businesses are almost always very impressive at what they do, they also have their own challenges. Take management bandwidth as an example; smaller teams can really be stretched when unusual situations occur, such as an acquisition or entry into a new market - they need to respond but they may not always have enough people on board, or people with the relevant experience and skills. That’s why it’s so important at times like these to have a good professional advisor on hand to help.

In the past, SMEs have also faced challenges with access to finance and they’re no stranger to the skills shortage. In comparison to their larger business neighbours, who perhaps have the back office capacity to recruit and train new talent, SMEs don’t often have the time to do so. Despite this, the SME community continues to thrive and is crucial to the success of our economy.

* Business population estimates for the UK and regions 2016 from the Department for Business, Energy & Industrial Strategy



Over the next few pages, Finance Monthly speaks with one of Australia's leading tax lawyers - Dr Niv Tadmore, who introduces us to the Australian transfer pricing system.

What are the most important features of the new transfer pricing provisions in Australia?

Australia's new transfer pricing rules have some important differences to the OECD Guidelines.

In the past, the question was more focused on pricing the transaction, whereas now the question would be what are we pricing - the transaction that actually took place, or a notional transaction?  In other words, the first question is moving towards "what is the counterfactual"?

However, transfer pricing in Australia is now expected to move towards restructuring and recharacterisations.

What makes the Australian Taxation Office (ATO) likely to review a taxpayer’s affairs? Are there any particular risk factors to be aware of?

The ATO generally reviews almost all large transactions. If the transaction is large, but simple and routine, then the level of scrutiny may be light. The more complex the transaction and the less comparables there are, the higher the likelihood of intense scrutiny is. Among the risk factors that one needs to be aware of are:

What can be done to reinforce a taxpayer’s transfer pricing position in anticipation of an ATO review?

First of all - strengthening traditional transfer pricing documentation. In order to achieve this, the focus should not be only on the economic analysis, but also on the factual assumptions, which require substantiation by way of admissible evidence. It is important to remember that the ATO challenges the factual assumptions in the taxpayer’s transfer pricing documentation. Very importantly, the taxpayer bears the onus of proof. The economic analysis may be undermined if the assumption cannot be proven as a matter of fact by the taxpayer.


Another vital step in the process is considering the counterfactual from the beginning. There are two questions that the taxpayer should ask (and be able to prove, using evidence to support their assertions): “What other option would be available to achieve a commercial outcome?” and “Why are those options less favourable to the Australian entity than the transaction that actually took place?”


What is the ATO focus in transfer pricing disputes? How has this changed over time?

The ATO traditionally focused on pricing and tended to accept assertions made by taxpayers. In contrast, today the ATO does not accept assertions – it challenges them. It also looks at counterfactuals and takes a global perspective, focusing on the global value economic value creation chain, beyond Australia.

Do you have any particular tips for taxpayers to bear in mind when being reviewed by the ATO?

Timing and resourcing tips:

-Transfer pricing reviews by the ATO are often lengthy. As a rough guide, they may take a year and a half to two and a half years;

-Taxpayers will normally have resource constraints and should use their resources efficiently and wisely throughout the period. Taxpayers should bear in mind that the information gathering process that takes place at the beginning of the process could be quite resource intensive.


Relationship tips:

Process tips:


What is your approach to resolving transfer pricing disputes with the ATO?

Relationship approach:

-Remember that the ATO’s approach and philosophy may be different to that of other revenue authorities;

-One of the key drivers in a review context will be constructive engagement with the ATO;

-Engagement is based on a voluntary framework, rather than a formal and legalistic framework imposed by the ATO;

- A formal framework is not only much more costly and onerous, but it is also likely to lead to less favourable outcomes and potentially litigation in open court.

Timing approach:

Settlement approach:

-Settlement discussions should occur on a without prejudice basis;

-The guiding principle for both sides will be what the ATO calls the ‘litigation risk test:

-Very recently, the ATO created a new function, called Independent Assurance of Settlements. This is a review of settlements on which the ATO has already agreed conducted by retired judges:

How do you see the Australian transfer pricing landscape developing in the future?

Like in other countries, transfer pricing will be an area with increasing revenue office focus because the law is new and there's large amounts of money at stake.

The ATO has significantly boosted its internal resources by recruitment in this particular area and we are certainly seeing a growth in terms of the scope, intensity and comprehensiveness of ATO reviews.

We think the ATO will be more and more willing to use its reconstruction powers and will take a stricter approach to penalties.

Whilst there is a growing trend to increase the use of Advance Pricing Agreements (APAs) and the ATO has been encouraging their use, the ATO is becoming more selective regarding which taxpayers may be admitted to the process and more rigorous when reviewing APA applications.  There may be scope for growing disputes between the ATO and other revenue offices when bilateral APAs are negotiated, or where disputes involving the Mutual Agreement Procedure provisions in treaties arise.  Australia is one of 20 countries committed to mandatory binding arbitration under the Base Erosion and Profit Shifting (BEPS) project.

The ATO has also said it would look to run some test cases in order to test the boundaries of the law.  Identifying test cases it wants to run forms part of the ATO review process.

We see that transfer pricing is becoming a more important agenda item, not only within internal tax teams, but also at the level of senior management of the company.

An effective risk management system around transfer pricing may not prevent an audit by the ATO, but may make the audit process less onerous, with much higher likelihood of a positive outcome.

Food for thought

Do you have a mantra or motto you live by when it comes to helping your clients?

My key principle is that you have to put yourself in the client's shoes and look at the issue from their broader perspective.This means never considering the narrow legal issue in a vacuum, but looking at the broader issues that affect the company, such as the relationship with the ATO, governance and certainty and above all, the broader commercial context of the dispute.

What would be your top 3 tips on ‘going the extra step’?

What does a typical day in the office look like for you?

I like to start each day with a run. Once I'm in the office, my day involves:

It is a dynamic practice and no two days are the same.

Career highlights


[Contact details]


Aware of the coverage of transfer pricing in the media in recent years, Finance Monthly interviews Ruth Steedman, Managing Director at FTI Consulting, who has specialised in transfer pricing for over 20 years. Ruth works with multinationals to determine and implement transfer pricing solutions.  At FTI Consulting, Ruth leads a team of over 10 dedicated transfer pricing advisors, working alongside tax, economics, strategic communications and corporate finance professionals.


We have heard a lot about BEPS in a transfer pricing (“TP”) context. What do finance managers need to be aware of in relation to BEPS and TP guidance?

As part of the BEPS project, the OECD has introduced extensive new guidance for TP and international tax – much of this is already reflected in UK law. In particular, there is a focus on understanding where risks are controlled and borne within groups and remunerating group companies accordingly. Another key theme is the requirement to have sufficient economic substance, for which there is a parallel with the UK’s Diverted Profits Tax that was introduced in 2015.

Economic substance is not a clearly defined term - it perhaps suffices to say that it is no longer sufficient for risk to be borne on paper. Rather, the reality of decision making and control needs to align with intercompany contractual arrangements.

In addition, there are specific recommendations resulting from the BEPS project (under Action 4) that will impact multinational companies with intercompany borrowing. Also, companies having activity overseas should be aware of the changes to the definition of permanent establishment (“PE”) under Action 7. And, of course, there is the introduction of country-by-country (“CbC “) reporting, which is a huge development.


What is the significance of CbC reporting?

CbC reporting requires multinational groups with consolidated revenue of Euros 750 million or more to report various financial information (including revenue, profit, headcount, tax paid) on a country-by-country basis to tax authorities. In the UK this requirement is already effective for financial years starting on or after 1 January 2016.

An electronic exchange will be set up to allow tax authorities in different countries to easily exchange CbC reports, thereby potentially making the CbC data for a multinational available to the tax authority in every country where it operates. Qualifying companies are grappling with assembling the necessary information and considering how that information may be interpreted by tax authorities. Significantly, there is wide expectation that the introduction of CbC reporting will lead to an increase in TP audits around the world, which typically take a lot of time and resources to manage.

Multinationals with revenue below Euros 750 million should not be complacent as the threshold for CbC reporting is expected to come down. Smaller groups that are required to prepare transfer pricing documentation for UK purposes should consider whether to prepare TP documentation in the Master File/Local File format prescribed by the OECD.


Could you tell us more about BEPs Action 4 and what is happening in the UK?

The UK will adopt the OECD’s recommendations under Action 4 with effect from 1 April 2017 to cap the amount of relief for net interest expense. Specifically, a fixed ratio rule will be introduced limiting the tax deductions available for net interest expense to 30% of UK earnings (EBITDA). A consultation is in progress which will determine the detail of the new rules and there remains huge uncertainty for business in relation to the impact of these changes. Undoubtedly, the ETR of a lot of companies will be affected and we are already seeing moves by a number of groups to undertake a wholesale transfer pricing/supply chain restructuring.


As a thought leader in this segment, how are you keeping abreast of technical developments and interpreting new requirements?

The team at FTI Consulting has contributed to the OECD’s public consultation on new TP guidance and recently spoke at the OECD on the attribution of profit to PEs and proposed guidance for the application of the Profit Split method. As well as drawing on former HMRC experience and supply chain specialists within the team, we also have a team of experienced economists and valuation experts with whom we develop economic analyses to satisfy the increasingly complex requirements of the OECD.


Given all the recent changes in TP, what practical recommendations do you have for companies?

Our advice is in two parts: now is the time to undertake a substance and risk review and assess alignment of TP policies with the new OECD guidance for TP. Secondly, we recommend companies prepare their CbC report and Master File/Local Files as soon as possible and ensure that there is consistency between the various reports.


Is there anything else you would like to add?

We are clearly moving to an environment of greater transparency in relation to tax and TP. There are moves in the European Parliament to make the publication of CbC reports compulsory and in the UK large companies are now required to publish a tax strategy online. As of mid-September, the UK Treasury has the power to pass new regulations to require the inclusion of a company’s CbC report in their published tax strategy. It remains to be seen whether the UK Treasury enforces these powers, but in the interim companies are advised to prepare their CbC report and tax strategy.



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