Question 1

Transfer Pricing Advisory Services – Intercompany Loan

Accepted Answer

Transfer Pricing Advisory Services

As a global team of financial transactions specialists, we provide practical, defensible solutions in the context of relevant regulation, guidance and case law.

Our experts have deep experience in analyzing and pricing related-part loans, guarantees and cash pools.

We focus on optimization of capital structures in a tax-efficient manner. Where needed, we partner with tax and treasury departments to build effective pricing models and solutions.

Kroll transfer pricing specialists also partner with corporate finance and valuation experts to provide a breadth of expertise for valuing complex financial instruments using industry-leading methodologies.

Transfer Pricing Challenge

A corporate client wanted to put in place a $1.2 billion five-year floating-rate intercompany loan from its U.S.-based parent company to a subsidiary in the UK. The stated purpose of the loan was to help fund working capital.

The U.S. subsidiary has not been rated by public agencies (e.g., S&P) on a standalone basis.; the group has a public issuer rating of “BBB+.” Potentially relevant issues include the ability of the UK subsidiary to take on the debt, arm’s length interest rate and possible implicit parental support.

Key Outcomes

Kroll conducted a debt capacity analysis of the UK borrower, evaluating various metrics on leverage, interest coverage, etc., as well as cash flow projections.

The “synthetic” standalone credit ratings for the UK subsidiary were determined using Moody’s credit rating tools.

The interest rate was benchmarked using comparable bond data, with reliable conversion to floating rate spreads using interest rate swaps.

Rating agency guidance applied to support conclusion of minimal if any implicit support from the parent company (so that the UK borrower can be evaluated on a standalone basis).

Question 2

Operational Transfer Pricing Services – Annual Transfer Pricing Adjustments

Accepted Answer

Operational Transfer Pricing Services

Working as an extension of your finance, tax and/or transfer pricing teams, we provide expertise and insights focused on strengthening internal strategic review, developing implementation strategies and assisting in direct execution of transfer pricing adjustments.

The customized, scalable operational tools we provide for clients eliminate “black box” views and increase usability and transparency. Collaboration with our internal valuation, diligence and corporate finance colleagues allows us to “speak the language” with finance, tax and accounting to ensure optimal operational outcomes.

Transfer Pricing Challenge

Our client, a global life sciences company, records billions of dollars of transfer pricing adjustments annually under different transfer pricing models. The client was challenged with the complexities of the required data segmentation and modeling.

Key Outcomes

Kroll built the transfer pricing adjustment model and helped calculate proposed transfer pricing agreement at the legal entity level, with hundreds of adjustments made on a quarterly basis and led the data gathering, segmentation and modeling effort in this critical phase of the implementation of the group’s tax-planning strategies.

We interfaced and consulted directly with various key stakeholders in finance, treasury and tax regarding which adjustments might be made from a strategic perspective.

We helped support the arm’s-length nature of the adjustments in various local tax audits and the global audit of company’s consolidated statutory accounts.

Question 3

Valuation Services – IP Migration

Accepted Answer

Valuation Services

We provide a full range of valuation services, including intangible property, functions and other interests, while integrating seamlessly with Kroll’s industry-leading Valuation Advisory practice to provide robust, consistent and defensible analyses, compliant for tax purposes.

We adopt a truly independent approach to valuation services that means clear pragmatic advice and unconflicted collaboration with the advisory teams that you choose.

Transfer Pricing Challenge

Our client, a global technology company, acquired a business from a non-U.S. headquartered company that required multiple tax valuations to integrate the acquired assets and functions into its existing structure.

Key Outcomes

Supported the intercompany migration of the acquiree’s assets to align intellectual property (IP) ownership with the acquirer’s tax strategy.

Developed a tax valuation model that reconciled with the overall purchase price acquisition model to determine the value at the legal entity and/or IP asset level.

Reviewed the existing transfer pricing structures of the target and acquirer in detail for due diligence purposes.

Question 4

Controversy and Expert Witness Services – IRS Audit

Accepted Answer

Controversy and Expert Witness Services

We provide deep technical expertise in economics, finance and valuation to assist companies, attorneys and authorities in resolving matters throughout the transfer pricing controversy lifecycle, serving either as independent consultants and/or as testifying experts.

We are subject matter and industry experts in transfer pricing, valuation, corporate finance, forensic accounting and regulatory matters, with the flexibility to adapt the type and level of services to meet demands in addition to being independent, objective and conflict-of-interest free.

Transfer Pricing Challenge

Our client, a leading life sciences company, was subject to a significant proposed tax adjustment in connection with an IRS audit of a centralized U.S.-inbound distribution hub, with hundreds of millions of dollars of intercompany transactions at stake.

Key Outcomes

Built a complex transfer pricing model that controlled several financial parameters and helped the client efficiently calculate a range of settlement outcomes and evaluate which settlement terms to pursue in negotiations with the IRS.

Consulted on/participated with client’s senior tax leadership and provided advice in direct negotiations with the IRS field auditors.

This resulted in a favorable settlement of the audit and material tax savings for the client, and it also led tax position certainty for future years related to the issue.

Question 5

Global Compliance Services – Local Report Compliance

Accepted Answer

Global Compliance Services

We offer a high-quality, consistent and cost-effective approach to global transfer pricing documentation through development of a practical, coherent global strategy and by leveraging our worldwide team for unparalleled knowledge.

We provide a globally coordinated approach involving one central strategic advisor, regional leadership management and local on-the-ground expertise. This structure, along with incorporating technology-enabled processes that improve the reliability and consistency of documentation and reporting, helps ensure transparency across the transacting parties.

Transfer Pricing Challenge

Our client, a leading provider of materials processing technology, introduced a transfer pricing model and documentation template at the company’s head office and required assistance converting this into compliant reports for each APAC jurisdiction.

Key Outcomes

Utilizing our local country’s expertise, we leveraged client templates to produce transfer pricing reports in full compliance with local regulations and, importantly, in line with local tax office expectations.

Kroll performed specific tailored benchmarking analyses to address local nuances to manage risk more effectively in certain locations, based on a risk assessment.

We allowed the client to manage its transfer pricing risk in the APAC region in a cost-effective manner while better leveraging the effort made by the head office.

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