Restructuring and Transfer Pricing implications

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As an entrepreneur, you are always on the hunt for additional business opportunities and/or ways to structure your business more (cost and/or time) efficiently. However, your economic decisions may have (significant) tax implications as well. This is even more important if your decisions have a cross-border impact, since then several tax authorities may have reason to challenge your position.

To avoid any potentially adverse tax implications resulting from your decisions, it is vital that the conceivable impact of your decisions be monitored both before and during the process to ensure that the best business structure is combined with the best tax structure. Additionally, because a business evolves over time, regular ‘sanity checks’ on its existing structure to ensure that it continues to fit the business activities while also providing the best tax benefits within applicable boundaries are of the essence.

In this respect, as a minimum you should discuss the following situations with your local advisors:

  • Setting up new business
  • Re)allocating functions/activities within the group
  • Changes in the top management level

Setting up new business

Deciding how to set up your new business activities depends largely on your plans/expectations for the upcoming years. There is no ‘one solution fits all’ answer. The new business can be started via an already existing entity, by creating a permanent establishment in the new jurisdiction, or by setting up a new foreign entity. Because every solution has its pros and cons, you must determine what structure is best for your business now and in the future.

(Re)allocation of functions/activities within the group

As business progresses, a need may arise for (re)allocation of functions/activities within your group. This will particularly come to light if you make a new investment or divestment, to help you realise optimal synergy effects from these decisions. Do you clearly understand the characterisation of your group entities/permanent establishments for Transfer Pricing purposes? If so, are you aware of the potential impact and the potential tax implications of the intended (re)allocation of functions/activities? Having such a clear understanding upfront lets you avoid unintended adverse tax consequences.

Changes in the top management level

Whereas changes in functions/activities are usually relatively easy to identify, there are other changes that are less obvious but may have a similar effect on your tax position. This can involve changes in the board of directors of your subsidiaries and/or the country managers of your permanent establishments. For Transfer Pricing, the actual situation leads to a determination of profit allocation and changes in the top management level which can impact the decision-making process and thus the characterisation of your group entities/permanent establishments. This is particularly the case when, due to changes in the top management level decision making power, shifts occur between entities and/or headquarters/permanent establishments. Are you aware of the current and future characterisation of your group entities/permanent establishments and the potential tax implications if these seem to differ from the current characterisation?

If you require more information on this topic, please request our flyer or contact our Transfer Pricing experts directly for details, free of charge.

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Patrick van Leeuwen Senior manager tax advisory T: +316 15 00 32 72