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April 26, 2011

In an economic environment that has dramatically changed over the past few years, transfer pricing is gaining more and more importance not just as a necessary evil (i.e., compliance with local legislation), but also as a planning tool to optimise a group’s tax effectiveness, thereby improving shareholder return.

However, there is a plethora of considerations that a business must balance. Tax and transfer pricing are seldom the trigger for group strategy and planning. Advisors must accept that tax initiatives are usually secondary to the commercial, marketing and structuring strategy of the group. Many advisors can describe intricate and elaborate tax planning opportunities, but planning that is in harmony with commercial reality and group identity will have greater application.

Transfer pricing experts should have a better grasp of how a business works and suggest planning ideas that actually fit with business and commercial reality. How often do advisors actually emphasize the importance of performing functional analyses in order to understand the business when writing a transfer pricing report? It is time to demand that your advisors adhere to the same principle. The reality is that when you work in the industry, you learn how your business works and you end up interacting with all its different divisions, so chances are that if you try to sell transfer pricing or other tax work without understanding the business, you will lose your credibility as an advisor in front of the client.

Clients can choose to test advisors’ understanding of the business to obtain improved results. In-house tax teams at large multinationals are always involved in planning projects and are best placed to assess what will work and what will not for their organisation. In our experience, the best planning results are gained from the inclusion of a multitude of relevant skill sets. Advisors can assist here by making more efforts to understand how planning ideas affect the business as a whole.

The times when businesses did not have the skills, expertise and the numbers to do their tax and transfer pricing planning are long gone. Multinational groups hire highly skilled professionals who have the necessary expertise and know their business more effectively than many advisors. A combined approach is starting to wield impressive results – not just in planning, but also in dispute resolution. Note that an independent, unbiased opinion from an advisor will always be valuable (as long as there is actually an opinion and not a long list of caveats and provisos).

About Alvarez & Marsal Taxand
Alvarez & Marsal Taxand, an affiliate of Alvarez & Marsal (A&M), a leading global professional services firm, is an independent tax group made up of experienced tax professionals dedicated to providing customised tax advice to clients and investors across a broad range of industries. Its professionals extend A&M's commitment to offering clients a choice in advisors who are free from audit-based conflicts of interest, and bring an unyielding commitment to delivering responsive client service. A&M Taxand has offices in major metropolitan markets throughout the US, and serves the UK from its base in London.

Alvarez & Marsal Taxand is a founder of Taxand, the world’s largest independent tax organisation, which provides high quality, integrated tax advice worldwide. Taxand professionals, including almost 400 partners and more than 2,000 advisors in nearly 50 countries, grasp both the fine points of tax and the broader strategic implications, helping you mitigate risk, manage your tax burden and drive the performance of your business.

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This newsletter is not intended or written by Alvarez & Marsal Taxand UK LLP to be used, and cannot be used, by a client or any other person or entity for the purpose of avoiding tax penalties that may be imposed on any taxpayer. Readers should not consider this document to be a recommendation to undertake any tax position, nor consider the information contained therein to be complete, and should thoroughly evaluate their specific facts and circumstances and obtain the advice and assistance of qualified tax advisors.


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