Transfer Pricing and Business Restructurings

1. Introduction

There are many reasons why companies decide to restructure their business such as strategic business reasons, legal reasons, or also tax reasons. In many cases, these reorganizations have implications for the company‘s taxation, e.g. if it is associated with a reallocation of income within the group. During the process, the business model, the value chain, and the decision-making process may be modified. This often results in the necessity to change the TP model as functions, risks, and assets may be transferred between entities. This chapter focuses on the TP challenges that may arise in the aftermath of a restructuring that are explicitly linked to the restructuring itself.

Post-restructuring, there are several topics that are regularly subject to detailed investigations in tax audits. Broadly speaking, the tax authorities will investigate whether the situation is at arm’s length and if the necessary and appropriate compensation payments in the restructuring process have been made. While tax audits usually look at restructurings from the post-restructuring perspective, it should be stated that all three phases have to be seen together, since they are connected to e...