Director Philip de Homont’s article “Transfer Pricing: A Framework for Implementing Transactional Profit Split Arrangements” was recently published in Tax Journal. Using examples related to the transactional profit split method, Mr. de Homont provides tax professionals with a suggested framework for considering the allocation of risks in transfer pricing. This framework allows for structuring and documenting arrangements in advance of intercompany agreements by providing steps to follow when considering the design and implementation of intercompany arrangements intended to use the transactional profit split method.

The essential objective of the framework is for the taxpayer to be able to respond to inquiries from tax authorities quickly and confidently and to demonstrate that its transfer pricing policies reflect the economic fundamentals, legal substance of relevant transactions, and operational reality. By having an appropriate agreement, the taxpayer will be able to produce after-the-event transfer pricing documentation that complies with guidance issued by national tax administrations.