According to the OECD’s TP Guidelines, analyzing the contractual allocation of risk in intracompany agreements (ICAs) is the second step for pricing risk, after you’ve identified which risks are relevant.
Comparables aren’t comparable unless the risk allocation is at least similar.
This makes complete sense. In our day-to-day lives, we all instinctively factor in the contractual allocation of risk. Otherwise, retailers wouldn’t offer product guarantees, and the insurance market wouldn’t exist.
The converse of this is that a misunderstanding of contractual risk allocation is likely to lead to a high risk of mispricing, no matter how sophisticated the economic analysis.
To put it another way, a Transfer Pricing professional who doesn’t understand the basics of contractual risk allocation is a bit like a surgeon who doesn't read the patient's notes before operating.
To help avoid MNEs avoid this kind of hit-or-miss outcome, we’re holding a live workshop specifically for TP professionals, to talk through the legal implementation of transaction types involving local sales entities.
The workshop will be held this Wednesday 14th July at 9am Central Time / 10am Eastern Time / 3pm BST / 4pm CET.
We’ll use mini case studies to go through the following issues (time permitting):
- The main options for the legal structuring of local sales entities
- Typical contractual ‘levers’ to give effect to different risk allocations
- Ownership of marketing intangibles
- Pricing clauses for targeting operating margins
If you’d like to join the conversation, you'll be very welcome. You can register for the webinar here.