Professional Documents
Culture Documents
Nerijus Nedzinskas
26 October 2005
*connectedthinking
Content
1. Background
2. Legislation
3. Transfer pricing methods
4. Transfer pricing documentation
5. Main issues of transfer pricing
6. PwC services
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Background (1)
Globalization
3
Background (2)
Arm’s length principle:
4
Legislation (1)
• The Law on Profit Tax (Art. 40):
6
Legislation (3)
Tax Return Disclosure:
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Transfer Pricing Methods (1)
When choosing the best transfer pricing method, the
available methods should be considered in the
following order:
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Transfer pricing documentation (2)
The compulsory elements of transfer pricing
documentation:
• Information about the parties involved in the transaction;
• Information about intercompany transactions:
– Characteristics of the subject of transaction;
– Functional analysis;
– Terms and conditions of the transaction;
– Economic circumstances of the transaction;
– Business strategy.
• Information about transfer pricing method used;
• Other information that reveals the important circumstances of transfer pricing.
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Transfer pricing documentation (3)
Based on international experience, we structure the
documentation as follows:
1. Industry analysis: analyses of market trends, critical success
factors;
2. Company analysis: business overview and financial results of
the parties involved in the transaction, description of their business
strategy;
3. Functional analysis: description of functions performed, risk
assumed and assets engaged by related parties;
4. Description of intercompany transactions: characteristics of
the subject of transaction, analysis of costs borne by related parties;
determination of benefits derived from intercompany transactions;
5. Economic analysis: description of the pricing methodology,
selection of transfer pricing method, benchmarking study, financial
analysis.
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Main issues (1)
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Main issues (2)
Accessibility of information:
• Public available information is limited;
• Some information may be not reliable;
• The access to the commercial data bases is fairly expensive;
• Third parties often are not willing to reveal the information.
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Main issues (3)
Comparability of transactions:
Application of arm’s length principle involves a comparison of the terms
and conditions in a controlled transaction between related parties with the
terms and conditions in transactions between independent parties.
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Main issues (4)
Management services:
• Service agreements lack information on service specification,
costs arising in the parent company and calculation of the
charge (fee) for service rendered.
• The costs of parent company (“shareholder’s costs”) are
transferred to its subsidiaries.
• Duplication of services.
• Mark-up is too high or not added at all.
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Main issues (5)
Transfers of intangibles:
• There is generally not an active market for intangibles.
• Transactions involving intangibles often include other assets
and liabilities, disguising the value of the subject of intangible.
• Transaction prices are often not disclosed.
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Main issues (6)
The main issue – the Lithuanian Tax
Authorities have not yet started
reviewing intercompany transactions
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PwC services
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Contacts
• Kristina Kriščiūnaitė-Bartusevičienė
Head of Tax Services
Tel. (8-5) 239 23 65 kristina.bartuseviciene@lt.pwc.com
• Nerijus Nedzinskas
Senior Consultant
Tel. (8-5) 239 23 50
nerijus.nedzinskas@lt.pwc.com
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