Episode 6: the legal implementation of profit splits in transfer pricing
Paul Sutton and Paul O’Regan discuss the profit splits method. Of the five main TP approaches, it’s unique in that it looks at the relative contributions of more than one party, but is it really ‘a method for the brave’? We look at the kinds of scenarios in which this method is appropriate, the role that intercompany agreements play in implementing it, and some of the practical issues around ensuring that the ICAs provide legal certainty and reflect the operation of the group.
The profit splits method is the only one of the five commonly used TP approaches that considers the contributions of more than one party. In this episode, Paul Sutton explores some of the practical issues involved in legally implementing it:
The kinds of scenarios in which the profit splits method might be used
The role that intercompany agreements play in legally implementing it
How the ICAs are affected by the decision to base the approach on actual profits or anticipated profits
The key steps when creating ICAs to implement profit splits
Common errors when applying the profit split method.
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