Change in Transfer Pricing policy
We have recently finalyzed a transfer pricing analysis for a client in the retail clothing industry. As a consequence of this analysis, the outcome was a drastic change in the transfer pricing policy.
13 Dec. '17
Recently, we have been asked by a clothing retailer to prepare the Master and Local Files for this company. Besides the Netherlands, this retailer is active in several European countries via either a local entity or a permanent establishment. For years onwards, this company had made substantial tax losses abroad, which was due to internal pricing of the transferred goods to the local retail shops.
Before preparing the full Master and Local Files we have made an analysis of the functions performed, risks assumed and assets deployed in the respective countries. As no legal documentation in relation to the internal transaction was in place and the company mainly acted via permanent establishments, the analysis needed to be made on the basis of interviews with key personnel to determine the day-to-day conducts, the managerial positions and the decision making in relation to strategy and risks. The outcome was that all the 'significant people functions' were in the Netherlands and not abroad. This lead to the outcome that most of the losses incurred abroad needed to be allocated to the Netherlands head office. This lead to a dramatic decrease of the Netherlands tax base and the possibility abroad to set off losses incurred from the past.