Global Manufacturer of Machinery

The Situation

A global machinery industry OEM requested assistance in connection with an ongoing IRS audit of its transfer pricing between its US subsidiary and headquarters operations in Asia.

NERA's Role

After conducting a thorough review of the company's value chain serving its North American business, including an examination of the functions and risks undertaken by the affiliated entities serving this business and their relative contributions of tangible and intangible property, NERA's economists advised the company to adopt a residual profit split method approach to determining and testing arm's length profits in each jurisdiction.

The Result

With NERA's assistance, the company developed and implemented a transfer pricing model (TPM), which included adaptation of financial reporting systems to provide real-time indications of compliance with the TPM on a budget basis over the course of the fiscal year and valuation procedures to determine intercompany royalties and pricing margins.