Presentation on theme: "TRANSFER PRICING WORKSHOP, KUALA LUMPUR"— Presentation transcript:
1TRANSFER PRICING WORKSHOP, KUALA LUMPUR Prof. Daniel N. ErasmusAssisted by Prof. Anneline Venter CA(SA)and Sebastien Gonnet NERA Economic Consultants
2Index DAY 1 More notes at www.IITF.net Transfer Pricing References Glossary of transfer pricing termsSESSION 1: Introduction to Transfer Pricing: Oil & Gas IndustryOil & Gas Primer – Annexure AIntroduction – Transfer Pricing AbusesOil & Gas organogramIntercompany Process FlowsIntroduction – Placing Transfer Pricing into International PerspectiveCountry Specific Transfer Pricing RegulationsDTA’s listBIT’s listExchange of Information – OECD Exchange of Information Guidelines – Annexure B / OECD TIES’s list – Annexure CSESSION 2: Basic Principles of Transfer Pricing by Prof. A VenterPresentation in the context of oil & gas – Annexure DBureau van Dijk TP Catalyst demonstrationSESSION 3: A CASE STUDIES:(1) BRAND OILSESSION 4: DEVELOPING APPROPRIATE DOCUMENTATION IN TRANSFER PRICINGMore notes at
3Index DAY 2 More notes at www.IITF.net SESSION 1: Formalizing an effective record keeping & reporting processTheoryBureau van Dijk TP CatalystCASE STUDIES:(2) CUREMAKER(3) WIDGET WHOELSALESESSION 2: Adopting Transfer Pricing best practicesPresentation by NERA Economic Consultants – Annexure EIntellectual PropertyManagement feesSESSION 3: Pre-empting tax audits & Handling tax controversies in a proactive mannerSESSION 4: Gaining insight into different tax regulations on Transfer PricingCASE STUDY (4): Virtual Profile CompanyMore notes at
5Transfer Pricing References OECD Transfer Pricing GuidelinesUN Transfer Pricing GuidelinesGlobal Transfer Pricing Study EY 2010/11PwC Transfer Pricing ManualMore notes at
6Glossary of Transfer Pricing Terms TP = Transfer PricingCost plus methodCUP = Comparable uncontrolled pricingRPM = Resale price methodCPM = Comparable profits methodTNMM = Transactional net margin methodPLI = Profit level indicatorCCA = Cost contribution agreement
7Introduction to TP: the Oil & Gas Industry DAY 1Session 1Introduction to TP: the Oil & Gas IndustryMore notes at
8Oil & Gas PrimerRefer to “Transfer Pricing in the Oil & Gas Sector: A Primer” – Annexure AMore notes at
9Introduction – Transfer Pricing Abuses Through transfer pricing, a taxpayer seeks to minimize income and maximize deductible expenditures in high-tax jurisdictions and vice versa in low-tax jurisdictions. Transfer pricing mechanisms that affect revenue in the oil and gas sector are:The creative use of price hedging mechanisms involving transactions between related parties, causing great difficulty in assessing whether hedging instruments are used for transfer pricing purposes rather than to reduce risk;The provision by related parties of highly leveraged debt finance at above-market interest rates;Claiming excessive management fees, deductions for headquarter costs, or consultancy charges paid to related parties;The provision of capital goods and machinery in leasing arrangements at above-market costs charged by a related-party lessor;If the petroleum tax rate is above the standard tax rate, there may be an incentive to establish a domestic shell firm that will on-lend financing capital from related parties to the oil company giving rise to an interest deduction at a higher tax rate than is charged on the interest earnings in the shell company.Abusive transfer pricing can be very difficult to detect and prevent.SOURCE: Revenue from the Oil and Gas Sector: Issues and Country Experience, Emil M. Sunley, Thomas Baunsgaard and Dominique SimardMore notes at
10More notes at www.IITF.net HomeCountryTaxHavensUPSTREAMDevelopingCountriesMIDSTREAMDOWNSTREAMMore notes at
11More notes at www.IITF.net Intercompany Process FlowsLegalTaxAccountingTreasuryOperationsMore notes at
12Introduction – placing TP into international perspective Country Specific Regulations (see next slide)OECD and UN guidelines (http://www.IITF.net andInternational lawDouble Tax Treaties – “DTA’s” 1 & 2Bilateral Investment Treaties -Multilateral TreatiesConstitutional & administrative lawInformation Exchange – TIEA’s - attached Annexures B & CMore notes at
13Country comparisons Country TP Regs TP Docs? Tax Return Penalties ThailandYRecommendUp to 200%VietnamNTaiwanSingaporePakistanN Anti-AvMalaysiaUp to 300%IndonesiaY >Rp10mUp to 48%IndiaY >INR10mHong KongChina5% no docsCambodiaSouth Korea10%More notes at
14Basic principles of TP by Prof. A Venter DAY 1Session 2Basic principles of TP by Prof. A VenterMore notes at
15Basic Principles of TP Presentation by Prof. A Venter – Annexure D Basic principles in the context of the Oil & Gas IndustryA functional analysis QAMore notes at
16More notes at www.IITF.net HomeCountryTaxHavensUPSTREAMDevelopingCountriesMIDSTREAMDOWNSTREAMMore notes at
17PetroCo Drilling Asia Explore Indonesia Vietnam Thailand Ship Refine HomeCountry100%100%100%DrillingAsiaTaxHavensExploreIndonesiaVietnamThailandUPSTREAM100%ShipDevelopingCountriesMIDSTREAMRefineDOWNSTREAM
18TP Catalyst Bureau van Dijk - An introduction to TP Catalyst https://tpcatalyst.bvdep.com/201106/version /Login.serv?product=transferpricingIBFD Intro to Transfer PricingMore notes at
20Brand A Oil Brand A Oil Brand B Oil Domestic sales to retailers R&D, manufacturing, domestic salesUKBrand B OilBrand A OilK125 80KKDomestic sales to retailersDistributionBrand A Oil(Malaysia)Diagram explained:Widget Wholesale-USA (WW-USA), is a subsidiary of a foreign manufacturer.There are only 32 other Foreign Manufacturers of widgets and no domestic (US) manufacturersWW products are specifically designed for the US market , and are not sold anywhere else on the world, although WW also manufacture products specifically designed for its domestic marketWS-US does not participate in R & DWW owns the manufacturing intangibles, while WW-US developed and owns the marketing intangiblesWW-USA keeps inventory and resells to various independent retailersWW-USA also sells specially designed widget models to several independent distributors in California where the widget market is most intenseThe independent distributors also sells normal models and also sells to retailers.None of these firms are publicly tradedWW-USA are under audit over the price of imported goods shipped to it from its parent manufacturerThe transferred property in question are tangible property, to which intangibles may be attached108KMalaysiaResale under Brand B Oil132KResale under Brand A Oil
21BRAND OIL case studyhttps://dl.dropbox.com/u/ /Lectures/Transfer%20Pricing%20Training% % %20AM.movMore notes at
22What methods may be available here? CUP?Cost-plus?Resale minus?TNMM?Profit split?More notes at
23Comparable uncontrolled price Brand A Oil Corporation sells goods to Brand A Oil (Malaysia) for $ 100K.Potential comparables for this transaction are:Sales by Brand A Oil Corporation to domestic customers - $133K eachSales by Brand B Oil to Brand A Oil (Malaysia) - $80K each.How reliable are these comparables likely to be?
24Comparable uncontrolled price How reliable are the comparables?.Are the sales into the same level of the market? Brand A Oil’s sales in UK appear to be to end customers. The controlled transaction is to a sales/distribution company.Do they involve the same product as the controlled transaction? There appear to be marked differences between the products manufactured by Brand A Oil Corporation and by Brand B OilIt is unlikely that there is sufficient product or functional comparability to allow the comparable uncontrolled price method to be reliably used in this case.
25Cost plus methodThe accounts of the independent manufacturer show a 66.7% mark-up on direct costs.Does this provide a comparable that can apply to the manufacturing costs of Brand A Oil Corporation?Functional analysis:Brand A Oil owns 2 intangibles – brand and trade (R & D expenditure);Cost plus, which would involve testing Brand A Oil Corporation, is unlikely to be suitable unless the independent has similar intangibles of similar value;We do not know this;We also do not know the product mix in the sales of the independent manufacturer – we need to identify the mark-up it achieves on the sale of goods to Brand A Oil (Malaysia).
26Resale price methodThe gross margin earned by Brand A Oil Corporation on units purchased from the independent manufacturer is a potential comparable:We know that, on units sourced from Brand A Oil, Branded A (Malaysia) Ltd earns a gross profit of 24% (( )/132);We know that on units sourced from the independent manufacturer, the gross margin is 26% ((108-80)/108).A comparability analysis is necessary to establish whether this a sufficiently reliable comparable.
27Transactional net margin method Is TNMM available?We know that Brand A Oil (Malaysia) earns a net margin of 10%;However we do not know how this is split between the net margin earned on goods sourced from Brand A Oil Corporation and that earned on goods sourced from Brand B Oil;That is, we do not have transactional informationAlso ..We know the net margin earned by Brand A Oil Corporation and that earned by Brand B Oil;But , again, we do not have the information available at a transactional level;So TNMM is unlikely to be reliable in this case.
28Profit split methodA potential comparable would be the split of profit between the independent manufacturer and Brand A Oil (Malaysia) derived from the manufacture and sale of the units produced by the independent manufacturer and sold to Brand A Oil (Malaysia).If we used a profit split method, this would be compared to the split of profit between Brand A Oil and Brand A Oil (Malaysia), from the manufacture and sale of the units produced by Brand A Oil.However, we do not have the information to enable us to do this on a transactional basis. We have only whole-company information on net profit.Also, profit split is most appropriate where both of the parties to the transaction carry out non-benchmarkable functions. This would need to be tested.
29conclusionsThe tentative conclusion might be that the resale price method is available in this case.However, we would need to carry out a comparability analysis to determine whether this method, and the chosen comparable transaction, are sufficiently reliable.
30Comparability factors A comparability analysis focuses on five factors:Nature of productContractual termsFunctional analysis (including assets used and risks assumed)Economic conditionsBusiness strategy
31Comparability analysis You are asked to carry out a comparability analysis between the following transactions:a) purchases of units by Brand A Oil (Malaysia) from Brand A Oil (Malaysia), andb) purchases of units by Brand A Oil (Malaysia) from Brand B Oil.
32Comparability analysis Analysis shows that there is poor product comparability between the goods sourced by Brand A Oil (Malaysia) from Brand A Oil and Brand B OilBut there is good functional comparability between the functions carried out by Brand A Oil (Malaysia) in respect of goods sourced from Brand A Oil and Brand B Oil
33Comparability analysis In this case, we would probably consider that there is good functional comparability between:the functions performed by Brand A Oil (Malaysia) in respect of Brand A Oil sourced goods, andThe functions performed by Brand A Oil (Malaysia) in respect of Brand B Oil sourced goods.. and that the resale price method is likely to be sufficiently reliable and that no transfer pricing adjustment is necessary.
34Developing appropriate documentation in TP DAY 1Session 4Developing appropriate documentation in TPMore notes at
35Session 1: Developing appropriate documentation in TP (1) Examining TP documentation requirementsEnabling documentation to defend TP dataImplementing TP documentation to mitigate possible tax disputes
36Session 1: Developing appropriate documentation in TP (2) INTRODUCTION: insights to in-house TP Policy development Wolters Kluwer Developing TP PolicyIf a taxpayer can demonstrate that it has developed a sound transfer pricing policy in terms of which transfer prices are determined in accordance with the arm's length principle by documenting the policies and procedures for determining those prices, the Commissioner is more likely to conclude that its transfer pricing practices are acceptable and the risk of possible adjustments will be diminished.
37Session 1: Developing appropriate documentation in TP (3) On the other hand, preparing documentation is time-consuming and expensive. It will therefore not be expected of taxpayers to go to such lengths that the compliance costs related to the preparation of documentation are disproportionate to the nature, scope and complexity of the international agreements entered into by taxpayers with connected persons.
38Session 1: Developing appropriate documentation in TP (4) Documentation Guidelines: Chapter V OECD GuidelinesDetermined in accordance with “same prudent business management principles … evaluating a business decision of a similar level of complexity and importance”Commissioner expects retained documentation in accordance with this principleDemonstrate compliance with arm’s length principlesWill require some form of functional analysis and info gathering of relevant entitiesDetermine appropriate method then apply relevant data to determine arm’s length….Unfortunately, it is not possible to specify a comprehensive pre-defined set of documentation requirements that meet the requirements of all taxpayers, because appropriate documentation depends on each taxpayer's specific facts and circumstances. This Practice Note can, therefore, do no more than set out factors that should be considered by taxpayers in determining an appropriate level of documentation for their specific circumstances.
39Session 1: Developing appropriate documentation in TP (5) Commissioner expects process to be documented contemporaneously to justify why transfer prices are arm’s lengthCommissioner will rely on documents created in ordinary course of business and of setting a transfer price, addressing following issues:Identification of affected transactionsCopies of international agreementsDescription of nature & terms of all affected transactionsFunctional analysis and appraisal of comparatives of affected transactions…
40Session 1: Developing appropriate documentation in TP (6) Continued..Reason why choice of method considered most appropriateExplanation of the process used to select and apply the method used and why consistent with the arm’s length principleInformation relied upon at arriving at arm’s length:Commercial agreements with 3rd partiesFinancial informationBudgetsForecastsDetails of any special circumstances influencing pricing
41Session 1: Developing appropriate documentation in TP (7) At TP review Commissioner expects taxpayer to identify:Which goods/services most comparableIts major competitorsCompetitors considered most comparableMethodologies used & why appropriate for taxpayerWhere inadequate contemporaneous doc’s of arm’s length international dealings, between connected parties, difficult to convince Commissioner of arm’s lengthAvailability of information for comparative purposes:Data from Asia, Australia, UK, US, but assess impact of geographical differences and other factors on priceFor example, data may be available to indicate that the gross margin paid to distributors of a particular product in the United Kingdom is 20 per cent. This does not mean that 20 per cent will necessarily be an appropriate gross margin for South African distributors. There are a number of factors which may indicate an alternative gross margin to be more appropriate. For example:a)Consumer preferences may result in different retail prices for a product in the two countries. This raises the question of which party to the transaction should capture any premium in price.b)Higher transport costs may be associated with one of the markets. The relative gross margins may be affected by who bears this cost.c) The relative competitiveness of the distribution industries in South Africa and the United Kingdom may differ. This could result in lower gross margins being paid in the more competitive market.d) There may be differences in accounting standards that, if not adjusted for, could distort the relative margins of the parties being compared.
42Session 1: Developing appropriate documentation in TP (8) ConclusionTaxpayers establish transfer prices comply with the arm’s length principle and prepare documentation to evidence that complianceCommissioner likely to determine prima facie that the taxpayers’ transfer pricing practices represent a lower tax riskIn contrast, taxpayers who give inadequate consideration to their transfer pricing practices are likely to receive greater scrutiny from the Commissioner
43Session 1: Developing appropriate documentation in TP (9) A summary of the broad guidelines suggested:establish economic justification before the transaction is entered into;be satisfied that the consideration is an arm’s length consideration;prepare and retain contemporaneous documentation to support the above matters and the assessment of market conditions at the time when the pricing decisions were made;justify the choice of method; andestablish and consistently follow a systematic process for setting arm’s length international transfer prices.
45DAY 2Session 1 Formalising an effective record keeping and reporting processMore notes at
46SESSION 1: Formalising an effective record keeping and reporting process (1) Analysing organisation structure so as to have conducive methods of document development and storageStandardising means of collating information and documentation in a manner that will reduce costs and duplicationBacking up of documentation for efficient record recallConducting reviews of documentation and inter-company agreements to reduce exposures to tax penalties
47SESSION 1: Formalising an effective record keeping and reporting process (Functional Analysis) (2) The preparation of a functional analysis is an important tool that can assist in ensuring that an arm’s length consideration is determined in accordance with internationally accepted principlesA functional analysis can be performed with varying levels of detail and can serve a variety of purposes. The scope of the analysis will be determined by the nature, value and complexity of the matters covered by international dealings and the nature of the taxpayer’s business activities. These include the strategies that the enterprise pursues and the features of its products or services
48SESSION 1: Formalising an effective record keeping and reporting process (Functional Analysis) (3) Also, factors such as the pricing method that is used and availability of data will affect the extent to which the analysis can be conducted.By determining the relevant functions to be priced, the functional analysis can assist in the selection of a transfer pricing method. It can also assist in the analysis of the level of comparability present in controlled and uncontrolled dealings and in an assessment of the relative contribution of the parties when a profit-split method is used.
49SESSION 1: Formalising an effective record keeping and reporting process (Functional Analysis) (4) It is important, however, not to confuse the use of functional analysis with the determination of a transfer price. Functional analysis is not an alternative to searching for comparables. It is a means to establish what sort of comparables should be sought.Annexure B sets out a four-step practical approach for determining transfer prices. The discussion in that annexure further considers functional analysis in a practical context.
50SESSION 1: Formalising an effective record keeping and reporting process (Four step practical approach) (5)Step 1: Understand the cross-border dealings between connected parties in the context of the businessThe taxpayer and the Commissioner will have to understand the nature and extent of the dealings between the taxpayer and connected parties in the context of the taxpayer's business. It is important for a taxpayer to be able to explain:how the international connected-party dealings of the enterprise are undertaken;the purpose or object of the dealings;what the taxpayer obtains from its participation in the dealings (for example products, services or strategic relationships);the significance of the dealings to the taxpayer's overall business activities and to those of the multinational.At this stage of the process the taxpayer should, therefore, prepare some documentation that outlines these considerations. The insight developed in this process will assist in determining the extent of any functional analysis that might be necessary for an analysis of comparability in applying the arm's length principle.The taxpayer should also develop a preliminary functional analysis to consider the broad functions performed by the relevant members of the multinational. This will assist in determining an appropriate pricing method in step 2 of the process.The functional analysis should not be comprehensive at this stage. As will be discussed in step 3 of the process, the detail included in a functional analysis is affected by a taxpayer's choice of pricing method. At this stage, the aim of the functional analysis should be to determine which method (or methods) is/are likely to be appropriate to the taxpayer's circumstances. The nature of the information that will be required to apply that method should also be determined.Location of comparables: A taxpayer should also, at this stage, begin to assess potential sources of information on which to base its analysis. These comparables may be identified internally within the group (if a member of the multinational transacts with an independent external party), or by reference to transactions between independent external parties.If internal comparables can be located, it is likely that they will be more reliable than external comparables. This is because:they are more likely to "fit" the affiliated transaction as they occur within the context of the group's business;more information about the comparable situation should be readily available;one representative internal comparable may be sufficient to support a defence of the transaction under review, whereas a wider base of support may be required if external comparables are used.It should be noted, however, that internal transactions may not provide reliable comparables for determining an arm’s length price if they do not occur on normal arm's length terms. For example, internal transactions are unlikely to provide reliable comparables for determining an arm's length price if:they are not made in the ordinary course of business; orone of the principle purposes of the uncontrolled transaction is to establish an arm's length price to be used as a comparable for the controlled transaction.
51SESSION 1: Formalising an effective record keeping and reporting process (Four step practical approach) (6)Step 2: Select the pricing method or methodsIn terms of the OECD Guidelines, the choice and resultant application of a method or methods for calculating an arm's length price should be made and documented, having regard to:the degree of comparability between the uncontrolled transactions used for comparison and the controlled transactions of the taxpayer;the completeness and accuracy of the data relied on;the reliability of all assumptions;the sensitivity of any results to possible deficiencies in the data and assumptions.The application of these criteria will depend on the quality of the information available to the taxpayer. Thus, at this stage of the process, the taxpayer will need to make an assessment of the quality of the data it has available. This assessment should be made for the purpose of determining which pricing method (or methods) is likely to provide the greatest consistency with the factors mentioned above and result in the most reliable measure of the arm's length price required under section 31.To this end, the information obtained in step 1 can assist with the:determination of comparability, when traditional transaction methods are appropriate; and/ordetermination of comparability between enterprises, when pricing methods using profit comparisons are appropriate; and/orallocation of the consideration between the enterprises, when a profit split method is applicable.
52SESSION 1: Formalising an effective record keeping and reporting process (Four step practical approach) (7)Step 3: Application of the pricing method or methodsOnce a pricing method (or methods) has been chosen, the preliminary functional analysis prepared in step 1 can be extended to reflect that choice of method.If a pricing method involving external benchmarking with independent enterprises is being used, the functional analysis assists in determining the comparability of the multinational’s dealings with uncontrolled dealings of the independent parties. The main purpose of this is to establish the degree of comparability. It is, therefore, not necessary to value the functions, assets and risks of each of the enterprises separately. However, it is essential to ensure that, if there are differences in the significance of the functions, assets and risks to each of the businesses, these differences are taken into account.The functional analysis can be performed with varying levels of detail and can serve a variety of purposes. The analysis may be applied on a product, a divisional basis for individual transactions, or on all levels up to corporate group level. The scope of the analysis will be determined by the nature, value and complexity of the matters covered by international dealings. It will also be determined by the nature of the taxpayer's business activities, including the strategies that the enterprise pursues and the features of its products or services.
53SESSION 1: Formalising an effective record keeping and reporting process (Four step practical approach) (8)Step 4: Arriving at the arm's length amount and introducing processes to support the chosen methodThe taxpayer will be required to document and demonstrate how its data has been used in the application of its chosen pricing method to determine an arm's length amount.Adherence to the process up to this stage should result in a taxpayer having an objective, documented and considered review of the available material and possible choices for arriving at an arm's length outcome. However, the nature of the arm's length principle is such that there are a number of practical problems in its application. Transfer pricing will always require an element of judgment and taxpayers and the Commissioner need to bear this in mind in undertaking their transfer pricing analysis.It should also be noted that transfer pricing does not end with the initial analysis. Taxpayers will need to implement appropriate processes to:ensure the availability of data for subsequent review analyses; andallow for changes in the choice and application of a pricing method, to reflect changes in their circumstances or market conditions, or if the process followed does not result in a commercially realistic outcome.
54SESSION 1: Formalising an effective record keeping and reporting process (Steps in comparability - intangibles) (9)Pursuant to the recent modifications to the OECD Guidelines, the steps to be undertaken in connection with a comparability analysis are:Step 1: Determination of years to be coveredStep 2: Broad-based analysis of the taxpayer’s circumstances (e.g., industry, competition, economic factors)
55SESSION 1: Formalising effective record keeping and reporting process (Steps in comparability - intangibles) (10)Step 3: Understanding the controlled transaction(s) under examination, based in particular on a functional analysis, in order to choose the tested party (where needed), the most appropriate transfer pricing method to the circumstances of the case, the financial indicator that will be tested (in the case of a transactional profit method), and to identify the significant comparability factors that should be taken into accountStep 4: Review of existing internal comparables, if any
56SESSION 1: Formalising effective record keeping and reporting process (Steps in comparability - intangibles) (11)Step 5: Determination of available sources of information on external comparables, where such external comparables are needed taking into account their relative reliabilityStep 6: Selection of the most appropriate transfer pricing method and, depending on the method, determination of the relevant financial indicator (e.g. determination of the relevant net profit indicator in case of a transactional net margin method)
57SESSION 1: Formalising effective record keeping and reporting process (Steps in comparability - intangibles) (12)Step 7: Identification of potential comparables: determining the key characteristics to be met by any uncontrolled transaction in order to be regarded as potentially comparable, based on the relevant factors identified in Step 3 and in accordance with the comparability factorsStep 8: Determination of and making comparability adjustments where appropriateStep 9: Interpretation and use of data collected; determination of the arm’s length remution62 See OECD Guidelines ¶¶ 3.29 – 3.46.63 See id. at ¶ 3.46.64 Id. at ¶ 3.57.65 Id. at ¶ 3.75.
58SESSION 1: Formalising effective record keeping and reporting process (Steps in comparability - intangibles) (13)The updated Guidelines also address the selection and rejection of comparables in detail, & use of commercial databases. The key point articulated is that such searches must be “transparent, systematic, and verifiable.”The OECD Guidelines recognize that, in circumstances where a range of results includes a sizeable number of observations, statistical tools that take account of central tendency to narrow the range (e.g., the interquartile range) may help to enhance the reliability of the analysis.62 See OECD Guidelines ¶¶ 3.29 – 3.46.63 See id. at ¶ 3.46.64 Id. at ¶ 3.57.65 Id. at ¶ 3.75.
59SESSION 1: Formalising effective record keeping and reporting process (Steps in comparability - intangibles) (14)The OECD Guidelines recognize that multiple year data may improve reliability, particularly in cyclical industries.62 See OECD Guidelines ¶¶ 3.29 – 3.46.63 See id. at ¶ 3.46.64 Id. at ¶ 3.57.65 Id. at ¶ 3.75.
60SESSION 1: Formalising effective record keeping and reporting process (Bureau van Dijk demonstration) (15)Bureau van Dijk DEMONSTRATIONCase Studies:CUREMAKERWIDGET WHOLESALE
61CASE STUDY 2: Feinschreiber Transfer Pricing Handbook (1) CUREMAKERTransfer Pricing Handbook, 2 Volume Set, editor Robert Feinschreiber (available in Amazon.com Kindle) Location 2409Context:The example in Feinschreiber is given in the context of finding and applying arm’s-length comparables under the Comparative Profits Method(CPM)The reason we want to use this example in the context of “developing appropriate documentation”, is because the application CPM is a good example where both taxpayers and Revenue Officials make use of short-cuts, in that they only choose the SIC (Standard Industrial Classification) code, and then use a database to find companies with the same SIC code to use as comparables. This short cut approach ignores whether the SIC classification is correct for the company or its comparables, functional analysis, risks, contract terms economic conditions; as well as the nature of the entity being tested.This short cut approach deviates most strongly from the TP regulations resulting in invalid approaches and results, and therefore insufficient and inappropriate documentation.So lets work through this example to demonstrate the type of comprehensive analysis that should form part of the TP documentation, instead of only stating the SIC code and the report of database comparables.Background:Curemaker is an integrated manufacturer and wholesaler of pharmaceutical products, and is registered in the USA.Curemaker developed sophisticated cancer technology. This patented product is widely sold throughout the world.Curemaker produces several products, and has integrated functions, such as manufacturing, marketing, distribution and researchMore notes at
62Exports final product to CM-US Independent wholesalers AP1Integrated functionsCM -USAP2IndependentContractorCost +15%Imports ingredientsExports final product to CM-USRoyalty5%Diagram explained:CM-US has established a foreign subsidiary in Europe: Curemaker Europe (CM-EU), in a small principality where no tax will be assessed for 25 years.CM-US has transferred intangibles (patent rights) to the subsidiary for a royalty payment of 5% to cover research and development costsCM-EU performs only manufacturing functions, and imports ingredients from the US; process them to final assembly(according to practices established by the parent, than resells final product back to the Parent, and to wholesalers in other European countriesCM-EU industrial plant is the most modern in the worldCM-US manufactures the same product in two who wholly owned assembly plants (no rights to intangibles), no charge for use of intangibles (produce several products)All functions are integrated and reported as such on tax returnCM-US also uses the services of an independent manufacturer, by contract. Independent contractor charges CM-US cost plus 15% for manufacturing services. Received ingredients from CM-US (no possession), resells final product to CM-US. Does no research, receives no special technology, pays no royalties.IRS: proposed this third-party contract as an comparable adjustable transactionCM-US under audit: price of transferred products and intangibles to CM-EUIn year under audit: CM-EU reported substantial profits, while CM-US showed smaller profit marginsCM-US has at least 10 major competitorsIndustry in EU has higher profit margins than the industry in US.CM-EUIndependent wholesalersManufacturing
63Diagram explained:CM-US has established a foreign subsidiary in Europe: Curemaker Europe (CM-EU), in a small principality where no tax will be assessed for 25 years;CM-US has transferred intangibles (patent rights) to the subsidiary for a royalty payment of 5% to cover research and development costs;CM-EU performs only manufacturing functions, and imports ingredients from the US; process them to final assembly (according to practices established by the parent) than resells final product back to the Parent, and to wholesalers in other European countries;CM-EU industrial plant is the most modern in the world;CM-US manufactures the same product in two wholly owned assembly plants (no rights to intangibles), no charge for use of intangibles (produce several products);All functions are integrated and reported as such on tax return;CM-US also uses the services of an independent manufacturer, by contract. Independent contractor charges CM-US cost plus 15% for manufacturing services. Received ingredients from CM-US (no possession), resells final product to CM-US. Does no research, receives no special technology, pays no royalties;IRS: proposed this third-party contract as an comparable adjustable transaction;CM-US under audit: price of transferred products and intangibles to CM-EU;In year under audit: CM-EU reported substantial profits, while CM-US showed smaller profit margins;CM-US has at least 10 major competitors;Industry in EU has higher profit margins than the industry in US.
64EXAMPLE 1: Feinschreiber Transfer Pricing Handbook (2) Classification:Identify the issue under investigation: income of US taxpayerCM-EU income comes under scrutiny: receives intangibles from US taxpayer and had higher profit margins than the ParentCM-EU classified as drug manufacturer (SIC #2833)
65EXAMPLE 1: Feinschreiber Transfer Pricing Handbook (3) Finding ComparablesCM-EU:Direct comparables: may possibly be CM-US assembly plants or independent contractor used CM-USIndirect comparables: possibly other large integrated drug companies or smaller contract manufacturersFunctions are closer to contract manufacturers, but incurs the costs and risks of operating in a foreign market place.Investigators will have to look at the number of alternatives to approach this research question n as to the direction of the comparability analysis
66EXAMPLE 1: Feinschreiber Transfer Pricing Handbook (4) Finding Comparables: Direct comparables (transaction based)Assembly plants of CM-US: various product lines and integrated functions, difficult to separate one product line for comparison.Independent contractor: differences:Patent rights: reduce COS with royalty paymentMarket risks: no contract guarantee, foreign market: difficult to quantifyAdvanced physical facilities: difficult to identify which operating expenses to add backEconomic function of CM-EU are very different to that of the Independent Manufacturer, in that itowns intangibles, incurs substantial market risk and owns sophisticated facilities.Transaction methods: greater product comparability needed, no other comparables, since it is a product under patent (unique)
67EXAMPLE 1: Feinschreiber Transfer Pricing Handbook (5) Finding Comparables: Indirect comparables (profit based)(public data needed)Integrated drug companies: owns intangibles and incurs risks like these companies, but do not have integrated functionsIndependent contract manufacturers: independent manufacturing, but not guaranteed by contract and owns intangibles.
68EXAMPLE 1: Feinschreiber Transfer Pricing Handbook (6) Method usedCPM: more than one type of transaction, with no direct comparables as to similar transactionsIntangibles transferred with effect on profitabilityProfit methods reflects reasonablenessTransaction method used to ascertain appropriate royalty rate
69EXAMPLE 1: Feinschreiber Transfer Pricing Handbook (7) Arm’s length rangeProfit Level Indicator (PLI) range: high-end of large companies’ PLI’s and low end on contract manufacturer’s PLI’s.Adjust royalty rate to an arm’s length rate, by doing market research, scrutinizing third party contracts and independent transaction. This indicated that a proper rate should be increased to 25%
70EXAMPLE 1: Feinschreiber Transfer Pricing Handbook (8) PLI’s usedGross profit to operating expensesOperating income on salesReturn on operating assets: good indicator for manufacturers, but assets may vary quite extensively. Good PLI for CM-EU which owns intangibles and state of the art plant and equipment with one product for allocation purposes. Not so good for parent with various product lines, and previous investment in assets.Document PLI from public data obtained, as well as the method of obtaining this data
71EXAMPLE 1: Feinschreiber Transfer Pricing Handbook (9) Return on assetsRoyalty changed from 5 % to 25%
73CASE STUDY 3: Feinschreiber Transfer Pricing Handbook (1) Widget WholesaleTransfer Pricing Handbook, 2 Volume Set, editor Robert Feinschreiber (available in Amazon.com Kindle) 11.3 WIDGET WHOLESALE (Kindle Location 2550). Kindle Edition.Background:Widget Wholesale-USA (WW-USA), is a subsidiary of a foreign manufacturer, and is engaged in importing, marketing and distribution of widgetsWidgets are highly sophisticated motorized robots for use in home. The widgets, being new technology evolve dramatically from year to year in terms of features – a three year old widget would be considered obsolete.The selling price for a widget is between $ to $15000WW-USA imports the final product, and does no manufacturing or servicing, only distribution.The market exhibits substantial brand name loyalty, making marketing innovative competitive and very costlyThe widget market is characterized by substantial entry barriers. To enter the market enormous costs would have to be incurred to develop and maintain the product, to distribute and to win over customers from other established brands.WW-USA had a 15% market share, and is the third largest distributor of widgets in the USIt has been in business for 20 year and never reported a profit.More notes at
74Independent distributors FM1ManufacturingWWFM2FM3Imports widgetsfrom WWIndependent distributorsCAWW-USDistributionDiagram explained:Widget Wholesale-USA (WW-USA), is a subsidiary of a foreign manufacturer.There are only 32 other Foreign Manufacturers of widgets and no domestic (US) manufacturersWW products are specifically designed for the US market , and are not sold anywhere else on the world, although WW also manufacture products specifically designed for its domestic marketWS-US does not participate in R & DWW owns the manufacturing intangibles, while WW-US developed and owns the marketing intangiblesWW-USA keeps inventory and resells to various independent retailersWW-USA also sells specially designed widget models to several independent distributors in California where the widget market is most intenseThe independent distributors also sells normal models and also sells to retailers.None of these firms are publicly tradedWW-USA are under audit over the price of imported goods shipped to it from its parent manufacturerThe transferred property in question are tangible property, to which intangibles may be attachedOther RetailersRetailersCA
75Diagram explained:Widget Wholesale-USA (WW-USA), is a subsidiary of a foreign manufacturer;There are only 32 other Foreign Manufacturers of widgets and no domestic (US) manufacturers;WW products are specifically designed for the US market, and are not sold anywhere else on the world, although WW also manufacture products specifically designed for its domestic market;WS-US does not participate in R & D;WW owns the manufacturing intangibles, while WW-US developed and owns the marketing intangibles;WW-USA keeps inventory and resells to various independent retailers;WW-USA also sells specially designed widget models to several independent distributors in California where the widget market is most intense;The independent distributors also sells normal models and also sells to retailers;None of these firms are publicly traded;WW-USA are under audit over the price of imported goods shipped to it from its parent manufacturer;The transferred property in question is tangible property, to which intangibles may be attached.
76EXAMPLE 2: Feinschreiber Transfer Pricing Handbook (2) Classification:Identify the issue under investigation: income of US taxpayerPayments made to foreign parent for purchased goods will be investigatedThe question is whether an independent company would be willing to pay the same prices for the goods, as WW-US is paying the foreign parentBusiness classification: WW-US is a pure importer/distributor
77EXAMPLE 2: Feinschreiber Transfer Pricing Handbook (3) Classification (continued)Import consideration: in order to earn a profit importers need to limit costs and expenses, such as purchase price of goods; shipping and transport, import duties, storage , advertising and selling expensesImport contract: when dealing with independent manufacturer, the importer will negotiate a contract covering various issuesWholesale Relationship: wholesaler imports large quantities and makes profit from high turnover of products. Usually has a large marketing investment.Issues covered in contract:Product designQuality controlPackagingDeliveryHow to handle rejectsGrievance proceduresExclusivity of salesMethod of payment etc
78EXAMPLE 2: Feinschreiber Transfer Pricing Handbook (4) Finding ComparablesNo independent importers of widgetsNumerous importers of other durable goods with publicly available informationWidgets do not have separate SIC codeWholesale trade categoryComparables: distributors of consumer durables with motorised and electronic technology, used in the home (perceived product similarity)100 companies over 5 yearsMethod used by Dr. Charles Berry in the case E.I Dupont de Nemours v The Unites States
79EXAMPLE 2: Feinschreiber Transfer Pricing Handbook (5) Method usedWW-USA needs to be adjusted to reflect arm’s length purchase price for goods importedLogic: distributors would not buy at prices it could not sell profitably.Only possible comparable for the transaction: resale of independent California Distributors, adjusted for differences for conditions of sale, models, market level, services provided etc.The Resale Price Method (RPM) can then be used to determine an arm’s lengthy price.CPM: reflects the effectiveness of applying the arm’s length price
80EXAMPLE 2: Feinschreiber Transfer Pricing Handbook (6) PLI’s usedGross profit to operating expensesOperating income on salesReturn on operating assetsDocument PLI from public data obtained, as well as the method of obtaining this data
81EXAMPLE 2: Feinschreiber Transfer Pricing Handbook (7) Gross profit on operating expenses reflecting adjustment of purchase price
83CUREMAKER & WIDGET WHOLESALE case studies https://dl.dropbox.com/u/ /Lectures/Transfer%20Pricing%20Examples%202% %202.46%20PM.movMore notes at
84Adopting transfer pricing best practices DAY 2Session 2Adopting transfer pricing best practicesMore notes at
85SESSION 2: Adopting transfer pricing best practices for streamlined and efficient tax activities NERA Economic Consulting - Case Study – Sebastian Gonnet and a colleague.Presentation - ANNEXURE EMore notes at
86Intangibles – VI OECD GUIDELINES p 191 More notes at
87Starting point: legal and financial information (but…) Intangibles can be protected or notExamples: patent / know-howThey can be on the balance sheet or notExamples: acquired / created and capitalised / created and expensedThey can be remunerated or used free of charge by other group companies (often in good faith)Where they are not protected and not on the balance sheet, identification and determination of ownership can be difficult
88Identify intangibles, thorough functional analysis It is not sufficient to rely on the balance sheetIt is not sufficient either to rely on the P&L accounts (in case the taxpayer omits to charge some valuable intangibles used by related parties):Risk assessment forms which are filed with tax returns in some countries often prove insufficient in this respect
89Identify intangibles: thorough functional analysis InterviewsHistorical background of the companyFinancial information released for investors (e.g. IPOs)
90Where intangibles are used in controlled transactions: take into account In the functional analysis (functions performed taking account of assets used and risks assumed):In the selecting of transfer pricing methodsComparable controlled priceOne-sided methods: cost plus, resale price, TNMM;
91Where intangibles are used in controlled transactions: take into account “Two-sided” methods: profit split e.g. if both parties use unique, valuable intangibles):In the selection of the “tested party” for a one- sided method: the less complex party to the transaction Comparable controlled priceIn the selection of uncontrolled transactions that can be used as comparables (comparable means: no material difference or differences can be adjusted in a reasonably accurate manner
92How to determine ownership: Economic vs. Legal ownershipCentralized vs. Distributed ownership
93Ownership: legal vs. economic Legal ownership for registered intangibles (e.g. registered patent, trademark, copyright)Economic ownership: who is entitled to the economic benefits?For transfer pricing purposes, a party that bears the costs and risks of developing an intangible should be entitled to a corresponding beneficial interest, even if it is not the legal owner of the intangible.
94Ownership: legal vs. economic Reasons for taxpayers to segregate legal and beneficial ownership:Handle all intangible registrations centrallyCost Contribution Arrangement (CCA) where economic ownership is shared but legal ownership cannot be under multiple names (para OECD TP Guidelines)Taxpayer must provide sufficient documentation.
95Ownership: legal vs. economic The OECD TP Guidelines recognise the difference between legal and economic ownership, and provide specific comments in this respect in relation to marketing intangibles (marketing activities performed by a party that does not own the trademark).
96Ownership: legal vs. economic In the treaty context, useful (although different) notion of beneficial ownershipFor the purposes of determining treaty benefits, a conduit company cannot normally be regarded as the beneficial owner if, though the formal owner, it has, as a practical matter, very narrow powers which render it, in relation to the income concerned, a mere fiduciary or administrator acting on account of the interested parties.
97Ownership:centralised vs. distributed Centralised ownershipSingle company in the group owns the intangibles, both beneficially and legally.License agreements with other group entitiesneed to determine arm´s length priceOpportunity for tax planning97
98Ownership: centralised vs. distributed Distributed ownershipA number of companies (operating companies) would share ownership of intangibles on a pre- determined basis (e.g. geographic territory or product application)It always involves shared beneficial ownershipUsually take the form of CCALess tax driven
99conclusionMultinational enterprises have the freedom to fund and organise the development of intangible property, subject to:the legal form of the arrangement to be consistent with the substance of the transaction, andthe arrangements, viewed in their totality, to be arm’s length (see in particular whether consistent with functional analysis and whether achieves an arm’s length allocation of risks)Legal and economic ownership are increasingly disconnected from the location where R&D is performed. The location of legal and economic ownership of intangibles developed have huge transfer pricing consequences. This is a policy issue for fiscal attractiveness.
100conclusionDecision where to locate R&D activities is generally based mainly on non-tax factors (e.g. skilled personnel), although tax factors (specific tax breaks for R&D activities) might help.
101Locating IP ownership: tax factors to consider Depreciation, amortisation of developed or acquired intangibleDeduction of license feesTreaty networkWithholding tax on inbound (and outbound) royaltiesTax rate on benefits from exploitation (business profits or royalties)Repatriation of earnings to shareholdersFuture disposal of intangibles (exit scenarios)Others (VAT, registration duties…)
102INTRA-GROUP SERVICES – VII OECD GUIDELINES p 205 More notes at
103Session 3 DAY 2 More notes at www.IITF.net Pre-empting tax audits & Handling tax controversies in a proactive mannerMore notes at
104What is tax admin administration? Core activities of a Tax Administration are centered around the implementation and enforcement of tax legislation and tax regulations.
105Voluntary complianceThe objective of Tax administrations is to achieve the highest possible level of voluntary compliance with the laws, at minimal cost.Why “voluntary” compliance?- Tax administrations cannot enforce compliance from each & every taxpayer; they don’t have the resources.- Governments will not provide more resources, which are both costly and intrusive.- Voluntary compliance is the cheapest & most efficient means of administering a tax system.
106Barriers to achieving Voluntary compliance Taxpayers’ ignorance of the law: I did not know! You did not tell me what I needed to do!
107Barriers to achieving Voluntary compliance Tax laws are often complex – I made an error!
108Barriers to achieving Voluntary compliance Tax laws & rules may put a high compliance burden on taxpayers- Its too costly / difficult to comply!
109Barriers to achieving Voluntary compliance There are many barriers to achieving voluntary compliance (…continued)Some taxpayers have poor/ no records –They don’t know how to keep good records or can’t be bothered.
110Barriers to achieving Voluntary compliance There are many barriers to achieving voluntary compliance (…continued)Some citizens and business are not prepared to comply- They deliberately don’t comply & are prepared to take a risk of being caught.
111Taxpayer servicesEffective taxpayer services help achieve voluntary compliance by:- Improving taxpayers’ understanding of the law- Making it easier and less costly to comply- Informing taxpayers on what they need to do toproperly comply- Discouraging taxpayers from non-compliance
112Classification of determinants of tax compliance Political perspective (fiscal policy)Tax system (complexity, tax rates, etc)Social psychological perspectiveMental (social) representationsTax knowledge and mental conceptsAttitudes: beliefs and evaluationsNorms:Personal normsSocial norms and identitySocietal norms
113Classification of determinants of tax compliance (…CONTINUED) Mental (social) representations (2)Perceived opportunity to evadeFairness perceptions:Distributive fairnessProcedural fairnessRetributive fairnessMotivation to complyMotivational posturesTax morale
114Classification of determinants of tax compliance (…CONTINUED) Decision making perspectiveRational decision makingAudit probability, fines, tax rate and incomePsychological aspects of decision makingSequence of audits: learning processesHeuristics, biases, framesWithholding phenomenaSelf-employment (paying out of pocket)Interaction between tax authorities and taxpayers(Cops against robbers versus service for clients perspective)
115INTERACTION WITH TAXPAYERS: THE CRUCIAL VARIABLE THAT DETERMINES TAX CLIMATE Tax authorities who perceive taxpayers as robbers rather then as clients are likely to establish a command and control climate with taxpayers engaging in escaping the authorities by taking extensive (rational) decisions. Tax behaviour depends on audit probability and finesTax authorities who perceive taxpayers as clients and governments committed to responsive regulation are likely to establish a climate of cooperation and trust. Voluntary compliance depends on the taxpayers’ social representations of taxation.
116IMPROVEMENT OF COMPLAINCE Simple and understandable legislationTransparent and clear proceduresFast efficient processesLow compliance costsTreatment of the taxpayer as a clientTaxpayer service (assistance, information)Visible supervision and fraud detectionUse of third party information (banks etc.)Enforcement communication
117PUBLIC CONFIDENCE Rights and obligations of the taxpayers Clear guidance in dealing with the Tax AdministrationEthical standards and rules of conductConfidentiality of informationProfessional staffFeedback from stakeholdersPerformance measurement
118TAXPAYER RIGHTS AND OBLIGATIONS Explanation and protection of rightsExplanation why information is askedDisclosure of information only on legal basisProfessional serviceRepresentationPayment of only the correct amount of Tax
119Emergence of taxpayers’ rights Increasing acknowledgment that taxpayers have rights, as well as obligations.Examples of (basic) rights:- to be informed, heard, and assisted;- to pay no more than the correct amount of tax due;- to appeal decisions of the tax body; and- to have certainty, privacy, and confidentialityExamples of (advanced) “rights”- Services are comprehensive, easily accessible, low cost to taxpayer, & timely.
120taxpayers’ rights Basic rights may be stated in countries legislation Many tax administrations set out taxpayers’ rights in formal charters/ statements that are made public.Charters reflect tax administrations’ vision for service delivery (e.g. services are comprehensive, accessible, fair, & timely).Many tax administrations set service performance standards with time-bound objectives that are made public
121SESSION 3: Pre-empting tax audits (1) Eliminating possible issues that could prompt an auditDetermining the appropriate documentation needed to address an auditPreparing defence to tax audit for and responding to tax authorities’ transfer pricing auditsIdentifying possible impacts from the proposed transfer pricing legislation amendments that could lead to an auditReview E&Y Global TP survey 2010/11
122SESSION 3: Pre-empting tax audits (2) Eliminating possible issues that could prompt an auditKeep TP policies up-to-dateDon’t deviate from policies without amendingControl Exchange of Information via tax authoritiesBeware of other country TP auditsRevisit offshore center intermediary SubCo’sWhere is the sensitive information kept?
123SESSION 3: Pre-empting tax audits (3) Determining the appropriate documentation needed to address an auditWhere is the sensitive information kept?TP policy document – updated?What documents must you bring in from other jurisdictions?Association clause in DTAMutual Assistance clause in DTAExchange Information clause in DTA
124SESSION 3: Pre-empting tax audits (4) Preparing defense to tax audit for and responding to tax authorities’ transfer pricing auditsPresentation on preparing for tax audits – An emerging market perspective
125SESSION 3: Handling tax controversies in a proactive manner (1) Structuring your company to be able to address potential controversiesExamining Intangible Property, Intragroup Services, Cost Contribution Arrangements, and Thin Capitalisation policiesConsidering Mutual Agreement Procedures (MAPs) and Advance Pricing Agreements (APAs) to reduce your tax riskOvercoming potential penalties and costly litigation arising from transfer pricing adjustmentsEnforcing a defensible model to safeguard against tax audits and disputes
126SESSION 3: Handling tax controversies in a proactive manner (2) Structuring your company to be able to address potential controversiesTax Intelligence Book7 Habitual Tax Mistakes made by CompaniesThe summary book
127SESSION 3: Handling tax controversies in a proactive manner (3) Considering the following to reduce your tax risk:Mutual Agreement Procedures (MAPs) – very slow and outside control of taxpayerAdvance Pricing Agreements (APAs) – not relevant in AfricaGATT, GATS, State Responsibility and other sundry proceduresOther - such as monitoring ATAF
128SESSION 3: Handling tax controversies in a proactive manner (4) Overcoming potential penalties and costly litigation arising from transfer pricing adjustmentsUp-to-date TP policy documentsContemporaneous with tax returnsControl audits & exchange of informationLetters of findingsOpinions to mitigate interest & penalties
129SESSION 3: Handling tax controversies in a proactive manner (5) Enforcing a defensible model to safeguard against tax audits and disputesTax teamRegular tax risk meetingsRegular communication intra-groupRemember FEDEX info survey model
130Gaining insight into different tax regulations on TP DAY 2Session 4Gaining insight into different tax regulations on TPMore notes at
131SESSION 5: Gaining insight into different tax regulations Categorising groups of similar taxation lawsAssessing these different tax regulations group by groupHighlighting documentation requirements in various regionsExploring best practices to address transfer pricing operationsMore notes at
132Country comparisons Country TP Regs TP Docs? Tax Return Penalties ThailandYRecommendUp to 200%VietnamNTaiwanSingaporePakistanN Anti-AvMalaysiaUp to 300%IndonesiaY >Rp10mUp to 48%IndiaY >INR10mHong KongChina5% no docsCambodiaSouth Korea10%More notes at
133Country SummariesREFER to various country summaries download atMore notes at
140Evaluation of methods CUP: Cost Plus: Resale Price Method: Branded product, not comparable to VIC brandCost Plus:Manufacturing intangible present, cannot compare to manufacturing intangible of VIC brand (no info available for VIC)Resale Price Method:VPC (M) sells to wholesalers, while Cayman Third Party sells to end-user
141Evaluation of methods TNMM: Profit Split: all that is left Would be difficult to find companies that are similar to RSA entity: R&D, Manufacturing, on-line selling, integrated company, owning a very unique brandTNMM would not be appropriateProfit Split: all that is leftUsed by taxpayerBased on cost contribution: development, manufacturing and distribution (good objectively verifiable basis)Parent: manufacturing and R&D: $2 500Sub: distribution cost: $500Total cost: $3 000Profit split: Parent: 83% (2500/3000); Sub: 17% (500/3000)
142CONCLUSION Contact Details: Prof D N Erasmus +1 561 568 7115 More notes at