Transfer Pricing

Question 1

Burden of Proof

Answer 1

Taxpayer must provide proof that the transfer prices have been set at arm’s length

Question 2

Non Compliance of Burden of proof may lead to… (3)

Answer 2

Double Taxation, Hefty penalties, damage of reputation

Question 3

Involve CF T or Business TP When… (3)

Answer 3

1) TP policy of an intracompany transaction is set for the first time
2) Change in price policy or circumstances of transaction
3) Case of doubt

Question 4

TP Methods used within Siemens (2)

Answer 4

Comparable uncontrolled Price method (CUP)
Transactional Net Margin method (TNMM)

Question 5

CUP - general setup

Answer 5

Comparison of prices, external transaction. Difficult to implement: Brand/Quality/Quantity/Payment terms

Question 6

Transactional Net Margin Method (TNMM)

Answer 6

Calc: Operating Profit / Base (costs/sales) = PLI
PLI=Profit Level indicator
Comparison of Siemens vs. Comparable company

Question 7

FRAA Basis for all TP analysis

Answer 7

Focus: Functions performed, Risks borne, Assets used

Question 8

Four most important aspects derived from the FRAA

Answer 8

1) Selection of most appropriate transfer pricing method (CUP or TNMM)
2) Selection of the tested party when needed (always RU)
3) Selection of the comparable (transaction or companies)
4) Proper characterization of tested party (manufacturer, distributor, license…)

Question 9

Benchmark analysis (economic analysis)

Answer 9

• Comparable companies are limited to those who present public financial data - data availability
• Companies must be independent
• Geographical limitation, ideally same as tested party
• No ownership of non-routine IPs

Question 10

Testing results (economic analysis) - two most common indicators

Answer 10

1) Operating Margin (Profit/Sales)
2) Net Cost plus markup (Profit / Costs)

Question 11

IQ Range - Definition

Answer 11

Interquartile Range of a benchmark. Mandated by most tax legislations. Only the interquartile can be considered at arms length, eliminating extreme results

Question 12

TP Report includes…

Answer 12

1) Global and local industry analysis
2) FRAA for each intercompany transaction
3) Economic analysis for each type of transaction

Question 13

TP Documentation - SieDoc (Siemens Documentation), Purposes (5)

Answer 13

1) Penalty protection
2) Assure global consistency while complying with local regulations
3) Maintain worldwide sustainable documentation
4) Provide easy and flexible framework for documentation
5) Reduce internal and external costs for documentation