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Elena is the Director of Transfer Pricing and Valuation Services. She has over 20 years of transfer pricing, valuation, and general quantitative analysis experience, including 20 years with Mayer Brown. Elena has performed transfer pricing and valuation analyses for purposes of advance pricing agreements (APAs), tax planning, contemporaneous documentation, audit defense, and litigation for clients that range from some of the largest multinational enterprises in the world to privately-held companies in a wide range of industries that include heavy machinery manufacturing, software, oil & gas, automotive manufacturing, distribution, electronics, pharmaceuticals, consumer products, services, shipping, agricultural production, financial institutions and products, leisure travel, and Internet.

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In the U.S., transfer pricing benchmarking under the Comparable Profits Method (“CPM”) or Transactional Net Margin Method (“TNMM”) depends on the availability of public company financial data. In recent years, the decreasing number of U.S. listed and non-exchange traded companies has made this benchmarking more challenging, not only due to the smaller population from which the comparable can be selected: Many of the remaining listed and non-exchange traded companies are either large companies that own intangibles or small companies that often operate at a loss. This trend should prompt transfer pricing practitioners to consider new, creative approaches in selecting comparable companies for purposes of CPM/TNMM, and in appropriate cases, to re-consider transactional or other methods that do not rely on publicly available profitability data. Further, an APA might now be a prudent choice to obtain certainty, even if APAs had not been considered necessary or worthwhile from a cost-benefit perspective in the past to mitigate tax risk.

Continue Reading The Vanishing U.S. Comparable

Benchmarking—the process of screening, selecting, and analyzing comparable companies—is time consuming. Analysts can spend innumerable hours every year preparing transfer pricing documentation, with a substantial portion of that time dedicated to benchmarking. Even with improvements in the quality of databases (which offer a vast array of quantitative and qualitative data), the sets of potential comparables that analysts must sift through are often enormous.

With the applications of artificial intelligence (or “AI”) expanding by the day, it is time to start thinking about whether AI could automate parts of the benchmarking process.


Continue Reading Artificial Intelligence for Benchmarking: The Wave of the Future

In the context of a Cost Sharing Arrangement (“CSA”), Treas. Reg. §1.482-7(c)(1) defines a platform contribution (“PCT”) to be “any resource, capability, or right that a controlled participant has developed, maintained, or acquired externally to the intangible development activity (whether prior to or during the course of the CSA) that is reasonably anticipated to contribute to developing cost shared intangibles.” Treas. Reg. §1.482-7(g)(2)(viii) defines subsequent PCTs as those whose date occurs subsequent to the inception of the CSA. Treas. Reg. §1.482-7(g)(1) explains that “a value for the compensation obligation of each PCT Payor” has to be “consistent with the product of the combined pre-tax value to all controlled participants of the platform contribution that is the subject of the PCT and the PCT Payor’s RAB share.” Treas. Reg. §1.482-7(e)(1)(i) notes further that “RAB shares must be updated to account for changes in economic conditions, the business operations and practices of the participants, and the ongoing development of intangibles under the CSA.”

While requiring that the RAB shares be updated, the regulations provide little guidance as to how this is to be accomplished. In particular, the regulations do not specify whether the Payors’ obligations with regard to the prior PCT and the subsequent PCT should be calculated on a combined basis, or whether separate RAB shares, and separate PCT obligations, are appropriate. Whether a combined or separate RAB share will be more appropriate after any subsequent PCT will therefore depend on facts and circumstances of the specific PCTs contributed to the CSA over the life of the CSA.


Continue Reading Calculating RAB Shares Following Additional Platform Contributions