Transfer Pricing in the IT Sector

09 June 2022
Niraja Srinivasan, et al.

NERA Economic Consulting Director Dr. Niraja Srinivasan, Dell Technologies Lead of Global Transfer Pricing Planning & Operations Katarina Petovska, DLA Piper Senior Economist Tatiana Amba, and EY Director & Transfer Pricing Lead Srini Lalapet published a chapter in Fundamentals of Transfer Pricing: Industries, Regions, New Technologies, and Other Topics titled “Transfer Pricing in the IT Sector.” The authors discuss the rate of innovation and growth in the IT industry and how those mirror changes in transfer pricing strategies. Considering the importance of the IT industry, tax authorities worldwide have taken a significant interest in how IT companies operate, how they generate revenues, and how profits are taxed in their respective jurisdictions.

Understanding how value is created in IT helps address critical transfer pricing questions. Value creation in the IT sphere is unique. There is a plethora of IT industry business models that vary from company to company, so it is difficult to create a “one-size-fits-all” transfer pricing approach. Comprehending the value of data and how it is used to generate revenue can inform transfer pricing analysis of IT business models. In conjunction, there is a necessity to pry open the relative contribution of individual legal entities using a standard functional and risk analysis.