Assessing Financial Impact of Transfer Pricing Model on Employees Profit Incentives Plan

Together with experts from sister company Mercer, NERA economists assisted a French entity that is part of a multinational enterprise in the energy sector during the implementation of a new transfer pricing model. For some companies operating in France, employee profit sharing is mandatory. The French labor laws include a formula for its calculation. In the case at hand, the new operating model of the multinational enterprise was likely to have an impact on future employee profit sharing remuneration. NERA’s analyses included notably financial and economic modeling of the impact of the new transfer pricing policy on the employee profit-sharing remuneration, preparing communication and presenting the new operating and transfer pricing model to the French subsidiary management and employee representatives, and providing feedback based on experience of similar situations for industrial companies in Europe.

NERA economists prepared and provided a detailed presentation of the proposed structuring of transactions in the new operating model to the French entity’s employee representatives, the rationale for the change, and its expected benefits from a French subsidiary perspective. NERA then evaluated the consequences of the new transfer pricing policy on employee profit sharing based on different financial forecasts. More broadly, this project illustrates how the transfer pricing policy of a multinational enterprise may need to be managed not only in the perspective of discussions with tax authorities but also with regards to discussions with employee representatives of entities in France.