A European-headquartered global automotive supplier, recognized as a world market leader in its core business areas, previously employed a traditional supplier transfer pricing model that allocated residual profit to the manufacturing units. This model was rejected by the tax authorities in the headquarters country for being misaligned with the OECD 2017 principles of profit apportionment based on relative contributions to value creation.

The client engaged NERA as a conceptual advisor to design a new transfer pricing model that would be implemented consistently on a global scale. The allocation of entrepreneurial profit within the value chain will be determined through a residual profit split analysis, utilizing capitalized costs as the key for residual profit allocation. NERA also conducted financial modeling during the pre-implementation phases and provided key support on all aspects of practical implementation.