Location Specific Advantages -- Case Studies

01 July 2011
By Sébastien Gonnet and Dr. Vladimir Starkov et al.

This article is the second in a series of three articles from BNA's Transfer Pricing International Journal focusing on the transfer pricing challenges involved with the concept of "location savings." The first article of the series, "Location Specific Advantages -- Principles," provided an analytical framework for the identification, quantification, and apportionment of location rents between affiliates located in "high-cost" and "low-cost" jurisdictions. This new article applies that framework in the context of manufacturing, services, and distribution. The authors provide practical examples to assess in which circumstances location advantages may arise in the operations of a taxpayer in various settings, and how these advantages should be treated from a transfer pricing perspective. The location specific advantages concept is notably relevant for multinational enterprises with operations in the BRICS countries (Brazil, Russia, India, China, and South Africa).
The third article of this series, to be published in September 2011, will focus on China and provide specific insights relevant to this country, notably by discussing in which circumstances location advantages arise in China, and how these should be treated from a transfer pricing perspective, as well as by providing some insight on the current views of the tax authorities (at a central and local level) on these issues.