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A hedge fund with global operations received transfer pricing inquiries from the UK tax authorities about the remuneration received by UK entities that provide research and investment management services to the main fund manager.
NERA economists prepared a comprehensive value chain analysis of the taxpayer's business. This analysis highlighted the importance of seed capital and intangible assets to the client's business. Data published by MERCER (a sister company of NERA Economic Consulting) and other third party data providers were used to establish arm's length ranges for different classes of assets under management and for the calculation of overall weighted averages. Adjustments were made to account for total assets under management using regression analysis.
The taxpayer was able to demonstrate, to the satisfaction of the UK tax authorities, that the remuneration received by the UK service entities was consistent with the arm's length outcome.