The OECD’s new emphasis on aligning profits with value creation through the conclusion of the BEPS Action Plan has resulted in an ever-growing number of companies facing the challenge of preparing documentation that includes detailed value chain analyses and justifies transfer pricing (TP) policies.
New disclosure requirements coupled with tax authorities’ increased scrutiny on economic basis means value chain analysis will be vital for companies when planning and defending TP policies in the future. While identifying and defining value chains has not historically been of such importance, this article offers taxpayers and TP professionals a five-step process for conducting value chain analyses, spanning from gathering and organizing necessary information to ultimately defining the value chain(s) that underpin the operations of multinational enterprise (MNE) groups.
The five steps for value chain analysis include:
- Collect the raw data and information;
- Identify entities and process functions;
- Connect the entities and functions;
- Value the links in the chain; and
- Create a diagram for documentation.
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Bennett Thrasher’s Transfer Pricing practice offers comprehensive services, including strategic transfer pricing planning, transfer pricing documentation and compliance, controversy management and negotiation of advance pricing agreements. To learn more about these services, please contact Ben Miller by calling 770.396.2200.