A Swiss multinational corporation (MNC) underwent significant transfer pricing (TP) adjustments during a tax audit in Germany. Mutual Agreement Procedure (MAP) procedures were initiated between Germany and five other European countries. Initial feedback from the German Federal Tax Office indicated that, due to cross-country interrelations, resolving the dispute within a reasonable timeframe was nearly impossible, and the costs of dispute resolution would be disproportionately high compared to the amount at stake.

NERA was engaged by the Swiss MNC as a secondary advisor to help resolve the dispute. By applying the Shapley value concept, an industrial economics approach to transfer pricing, NERA demonstrated that even if one accepted the factual evaluation provided by the tax authorities as a starting point for an adjustment, their assessment was not economically reasonable.

In trilateral discussions involving the client, local tax authorities, and the Federal Tax Office, we facilitated a compromise between the client and the tax authorities, allowing for the settlement of the controversy post-tax audit without resorting to MAP. The income adjustments accepted by the client were minor, and the compromise also addressed the follow-up tax audit period.