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July 8, 2021
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June 15, 2021
Sector: Manufacturing & Automotive
Value Chain Analysis
By Nipun Arora, Kreston Ardent CAtrust PAC, Singapore
Post BEPS (Base Erosion and Profit Shifting), Transfer Pricing Documentation requires analysis of the global value chain and identification of value drivers. Para 1.51 of the 2017 OECD Guidelines states that it is important to understand how value is generated by the group as a whole and the contribution that the related parties make to that value creation.
In line with the BEPS objective, the Singapore IRAS also endorses the principle that profits should be taxed where the real economic activities generating the profits are performed and where value is created.
Value chain analysis involves a thorough understanding of the functions, risks, and assets of the group as a whole and evaluating how they are in alignment with the value drivers. This analysis would assist in the attribution of profits to the respective group entities.
Case Study
Evaluation of functions, risks, and assets
Some pertinent questions to consider:
Conclusion
Tax authorities around the world are evaluating transfer pricing outcomes based on value creation analysis. Realignment of taxing rights with the economic substance is the key message from the BEPS actions. Therefore, the taxpayers must prepare robust documentation along with underlying evidence to substantiate the substance alongside form.
June 10, 2021