INTM467060 - Establishing the arm's length price: gathering your own evidence - OECD methodologies, business structures and tax minimisation strategies

A group has the opportunity to organise its constituent parts in ways that independent enterprises would be unlikely to adopt. Sometimes, tax may be a motive for this organisation. You should always review all of the facts to decide if the terms and structures adopted are those which an independent would adopt.

These structures may remove any form of incentive for a UK company. It is rare for an independent entity to be rewarded solely by reference to its costs so that if the company reduces its costs, its only reward is reduced profits.

Review carefully the transfer pricing methodology being adopted by the group. Does this produce a profit structure that allows for growth and rewards incentives? It might be that some business structures are not found in the commercial world although you should discuss this approach with Business International before advancing any argument. In other cases, while the business structure might be found in the real world, it would not be rewarded at arm’s length in the way being proposed.

Review the facts with the following two concerns in mind:

• Is the structure one which you would see at arm’s length?
• Can the methodology adopted by the group be priced to give the type of reward you would see at arm’s length?

For a more detailed look at such tax minimisation structures, arguments to use to counter these structures and suitable OECD methodologies to use when considering the arm's length price, see the chapter on tax-planning structures from INTM465000 onwards.