COVID-19: Transfer Pricing Adjustments for comparability for 2020 TNMM Analyses - und 23. Juni 2021 - Deloitte
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COVID-19: Transfer Pricing Adjustments for comparability for 2020 TNMM Analyses 22. und 23. Juni 2021
Ihre Referenten des heutigen Webcasts Henrik Handte Dr. Nael Al-Anaswah Partner Senior Manager Tax & Legal | Transfer Pricing Tax & Legal | Transfer Pricing München Düsseldorf Telefon: +49 89 29036 8553 Telefon: +49 211 8772 3002 E-Mail: hhandte@deloitte.de E-Mail: nalanaswah@deloitte.de Thomas Wengenroth Hauptsachgebietsleiter Großbetriebsprüfung | Finanzamt Wiesbaden II Wiesbaden Deloitte 2021 2
Contents COVID-19: Transfer Pricing Adjustments for comparability for 2020 TNMM Analyses • Covid-19 (“C-19”) Transfer Pricing Adjustments 4 • Adjustments to Tested Party Data 6 • Adjustments to Comparables 10 − Sales Decline comparability adjustment using historical data from expanded comparable set with “Data Pooling” − Adjustments based on “fixed” versus “variable costs” (operating leverage) • Econometric adjustments 21 − Regression Approaches − «Customized» regressions for particular set of comparables and industries Deloitte 2021 3
Covid-19 (“C-19”) Transfer Pricing Adjustments Adjusting transfer pricing policies in response to C-19 shock Difficult times, extraordinary measures • Unprecedented economic crisis following C-19 has had an instant impact on economic results, affecting the benchmark profitability ranges under the arm’s length standard • Need for adjustment of transfer pricing policies now, revisit APAs and intercompany contracts to cope with the impact of C-19 and navigate such challenging times • Any transfer pricing changes for 2020 cannot be supported by regular benchmarking as 2020 data will not be available until mid-2022 and historical data benchmarks would not be viable because previous years data do not readily reflect the crisis • Data and evidence-driven analyses consistent with the arm’s length standard would be needed to support any changes made to TP policies for 2020 Different approaches to construct benchmarks capturing C-19 impact Conventional data adjustments Econometric regression analysis Deloitte 2021 4 4
Covid-19 (“C-19”) Transfer Pricing Adjustments Conventional data adjustments Conventional data adjustments Adjust tested party data Adjust comparables’ data • Carve out C-19 impact on tested parties’ revenue and costs by isolating C-19 related costs. (1) Adjust comparables for sales decline differences with tested party Prepare pro-forma tested party financials for Modify the search/screening criteria to capture comparison to 2019 benchmarks historical financial data from periods of distress Exclude fixed/ excess capacity and closure/ restart costs not present in comparables’ financials Limited-risk entities may separately charge out excluded costs but without a markup Excluded costs may be further allocated based (2) Adjust comparables for cost structure (operating on contract clauses and on historical investment leverage) differences with tested party decision’ evidence Adjusting for fixed costs by analyzing the comparable companies’ costs (fixed vs variable) Deloitte 2021 5
Adjustments to Tested Party Data Exclusion of certain costs Deloitte 2021 6
Adjustments to Tested Party Data Pro-forma tested party financial data to isolate COVID-19 impact • Segregate COVID-19 specific costs : – Assess C-19 specific extraordinary costs (as well as extraordinary Routine entities C-19 subsidies), excess capacity costs resulting from activity reduction, or exclude the financial results of the months of Captive service closures or significant disruptions providers – Adjust transfer pricing impacted Sales or COGS items based on Unadjusted Adjusted uncontrolled market reaction (e.g., price concessions granted in 2020 2020 that industry) – Keep all other P&L items are arm’s length – Rely on client’s operational transfer pricing practices to track other unanticipated changes • As benchmarks, use the existing range (2019 and earlier years) as 0% reflecting “normal” operations without C-19 specific costs Existing range Consideration Make sure the same adjustments, if and when applicable, are applied to the comparables (which are from C-19 years) Deloitte 2021 7
Adjustments to Tested Party Data (2) Potential adjustments for pro-forma tested party financials • Distributors experiencing significant sales declines − but not being able to reduce SG&A expenses proportionately ◦ Exclude portions of the SG&A that was not productive or redundant • Retailers shutting down stores due to public health restrictions or reduced demand − but still incurring rent, distribution network, and HQ costs ◦ Exclude all P&L items pertaining to the months of inactivity or significant disruption • Manufacturers shutting down or slowing manufacturing due to lack of demand or supply disruptions − but still incurring depreciation expenses, carrying and maintenance costs ◦ Exclude all P&L items pertaining to the months of inactivity or significant disruption ◦ Consider excess / unused capacity adjustments • Service providers shutting down or working at reduced capacity due to lack of demand − but still incurring facilities and staff costs ◦ Exclude costs during periods of inactivity ◦ Consider adjustments for underutilization below industry norms Deloitte 2021 8
Adjustments to Tested Party Data (3) Advantages and caveats Advantages Caveats • Isolates COVID-19 impact and test the • Requires in-depth analysis of the impact of COVID-19 “normalized” P&L on the tested party • Depending on the facts of the case may • Requires some subjective judgment calls help document 2020 for limited or full • Applicability of the same adjustments to comparables risk-bearing entities should be confirmed • May help document “transfer” of COVID- • Application should be consistent with results of FAR 19 related costs to the Principal in the case analysis of “limited risk” entities • Requires good rationale for documentation purposes • Simple, easy to apply approach • Preferable to convert these adjustments to adjustments to comparables’ financial data Deloitte 2021 9
Adjustments to Comparables Sales Decline comparability adjustment using historical data from expanded comparable set with “Data Pooling” Deloitte 2021 10
Data Pooling Revisit your comparable selection criteria • Re-evaluate your search strategy with one important change: Add COVID-19 impact as a comparability criteria 2020 • Capture data on comparables experiencing adverse events comparables – Expand to distressed companies # of comparables – Expand to similar industries with similar operating leverage as the tested party – Use more years of data to increase the comparables Regular data for analysis comparables • Analysis can be updated as more data becomes available # of years included Consideration Gather as much historical data reflecting circumstances similar to C-19 as possible Deloitte 2021 11
Data Pooling (2) Analyze the comparables’ data Years with significant revenue decline 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 • 2020 is a unique year Comparable A Comparable B • Very few companies would experience similar Comparable C trends over multiple years Comparable D Comparable E • Include only the years when the comparables Comparable F experienced significant revenue declines or cost Data Point Comparable Year increases 1 Comparable A 2008 2 Comparable A 2009 • Build your range using only data from the years 3 Comparable B 2014 4 Comparable C 2008 that are comparable to 2020 5 Comparable C 2016 6 Comparable D 2011 7 Comparable D 2012 8 Comparable E 2008 9 Comparable F 2009 10 Comparable F 2016 11 Comparable F 2017 Consideration Susceptibility to COVID-19 comparability is the paramount comparability criteria Deloitte 2021 12
Data Pooling (3) Optional – extrapolation of the data to cover three years for each comparable Identify 3-Year period with significant revenue decline 2007 • Instead of pooling data from individual years, 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 include 3-year periods (including the year or Comparable A years with sales declines) Comparable B Comparable C • May be more appropriate when 3-year average Comparable D data is allowed for the tested party as well Comparable E Comparable F Data Point Comparable Years 1 Comparable A 2007-9 2 Comparable B 2013-5 3 Comparable C 2007-9 4 Comparable C 2015-7 5 Comparable D 2011-3 6 Comparable E 2007-9 8 Comparable F 2015-7 Use of 3-year periods may make the analysis appear more “conventional” and more appropriate in Consideration jurisdictions that allow 3-year average results for the tested party Deloitte 2021 13
Data Pooling (4) Example: North America Automotive Manufacturing Industry Analysis Benchmark Range Adjusted for Sales Decline 10% All 8% 10%+ decline • Uses 2000-19 data for 67 comparable companies, 6% 15%+ decline excluding extreme outliers 20%+ decline • The benchmark range progressively goes down as we 4% 25%+ decline limit the data to years with a greater-than 10%, 15%, 2% 20% and 25% sales decline 0% • Similar trends are observed in all large comparable company sets -2% • Pick the benchmark range that best approximates the -4% tested party’s sales decline -6% -8% -10% UPPER QUARTILE MEDIAN LOWER QUARTILE Deloitte 2021 14
Data Pooling (5) Advantages and caveats Advantages Caveats • Should be seen as conservative because there has been • Principle of using precise 3 latest year of data no crisis of such scale in the past 10 years. (according to most regulations) is not observed • Simple and transparent. • Not exact: revenue declines may not exactly match • Does not require additional statistical knowledge. tested party • Extra-ordinary by design thus provides good explanation • Revenue of comparables may decline for different to revert back to the normal analysis after C-19. reasons • The data obtained for analysis can be used for • It may be challenging to rule out the use of the supporting approaches such as regression same approach when there is revenue pickup in 2021, i.e. TA will insist on picking comparables with • Can potentially be used as adjustments to a regular positive growth rates and no losses benchmarking range Deloitte 2021 15
Adjustments to Comparables Adjustments based on “fixed” versus “variable costs” (operating leverage) Deloitte 2021 16
Operating leverage Concept • Operating leverage (underlying cost structures) determines the magnitude of profit loss in response to an unexpected revenue decline or growth • For a normal year, with relatively steady sales growth, operating leverage Revenue Losses differences may not be as important and is not usually considered as a critical selection criteria • For 2020 analysis, operating leverage differences will be quite significant: even when the comparables experience the same level of revenue decline as Variable Cost Fixed Cost the tested party, the impact on their profit level indicators (PLIs) may not be as significant Tested Party • If tested party has HIGHER operating leverage, for the same revenue decline, tested party will experience a greater decline in profitability than the comparables Revenue Losses • Adjust comparables data “as if” they have the same operating leverage as the tested party • Can be used with 2019 data, or 2020 data, or be combined with sales Variable Cost Fixed Cost decline comparability approaches Comparable Company Deloitte 2021 17
Operating Leverage Adjustment -- Example 1 ENTITIES OPERATING IN • Calculate correlation between revenues and various cost groups, being COGS (Material costs), SG&A, and D&A FURNITURE INDUSTRY - Correlation with EXAMPLE OF NCP Sales INTERQUARTILE RANGE FOR COGS 0.9 2014-2018 8,00% SG&A 0.8 7,21% D&A 0.5 6,00% 5,37% 4,47% 4,00% • Set D&A correlation coefficient as the „anchor” – assume these costs are most fixed 2,00% 0,91% • Estimate the portion of fixed costs in each category based on the correlation to revenue and the anchor, for example: 0,00% -0,04% (1 − )/(1 − & ). -2,00% -2,83% • Estimate the fixed portion of costs for each year and each comparable observation -4,00% LOWER QUARTILE MEDIAN UPPER QUARTILE • Estimate the non-fixed portion of costs for each year and comparable observation Unadjusted NCP results Adjusted V method • When sales decline, variable costs follow but fixed costs stay unchanged • Recalculate the adjusted P&L for each comparable for each year Deloitte 2021 18
Operating Leverage (OL) Adjustment – Example 1 Benchmark Range Adjusted for Sales Decline and 10% Operating Leverage • For the tested party, using historical data, estimate OL elasticity (i.e., 2017-19 sales elasticity of total costs) 8% • For example, if 1% decline in revenue is matched by only 0.8% 10%+ decline decline in total costs, 15%+ decline 6% = 80% 20%+ decline • Comparable A has 2017-19 average operating margin of 5% 25%+ decline 4% • If tested party experiences 10% sales decline in 2020, we can predict Comparable A will experience the same sales decline and only an 8% in total costs, resulting in a predicted operating margin of approx. 3% 2% • Graph shows the application to the automotive manufacturing set 0% • Predicted OM is given by this formula (1 − )(1 − 80% × %) = 1 − -2% (1 − %) -4% -6% UPPER QUARTILE MEDIAN LOWER QUARTILE Deloitte 2021 19
Operating Leverage Advantages and caveats Advantages Caveats • Relative simplicity • Less precise than econometric modeling • Speed of application • Possibility of application of the full version • Allows to adjust comparables data to depends on availability of detailed cost control for differences in operational data for comparables leverage that influence the impact that • May set a precedent – past and future COVID-19 has on profitability of years may require the same adjustment businesses • Should be applied with caution as this • Well grounded in economic theory type of adjustment is likely to trigger • Simplified version may be applied without questions from the tax authorities detailed cost data Deloitte 2021 20
Econometric adjustments Deloitte 2021 21
Econometric adjustments Regression Approaches shock Goal: Estimate the impact of C-19 on profit level indicators (“PLIs” such as operating margin, cost plus, etc.) Approach: Use historical annual data for the comparable companies and historic data to compose a regression to estimate the changes to the range based on predicted micro or macro economic data for the tested party Why this Approach? Non-econometric approaches may be rejected by the tax authorities. For instance using the comparables data from earlier years (of economic decline) may be objected by the tax authorities who focus on ‘contemporaneous’ data. However the comparable results are only available with a considerable lag in most regions and this allows us to predict what will happen to these comps in real time Expected results: Depending on the industry and the group of the comparable companies, break-even or lower level of profitability can be defended Sensitivity Analysis: The results should be checked for robustness by applying a portfolio of statistical tests and use different specifications to obtain the best possible fit Deloitte 2021 22 5
Econometric adjustments Regression approaches Customized approach - regression is Macroeconomic approach customized/developed based for particular comparable sets • Easier to use • Independent Manufacturing • More specific (own comparables set) comparables used and thus may be preferred • Industry-agnostic • Cost: Time consuming to develop • Less specific to own comparable set • Requires sufficiently big comparable • May reflect industry-wide variations set and download of additional only historical data • Requires econometric knowledge or Deloitte 2021 need to be fully outsourced 23 23
«Customized» regressions for particular set of comparables and industries Deloitte 2021 24
Introduction Customized regressions were developed based on the certain comparable set. They are hence specific to the region as well as precise function and industry. Customized regression explain and help to predict the change in PLI based on: • Comparables’ specific statistics (e.g. a change in turnover is used most frequently). • External indices (macroeconomic) • Combination of the above All regressions have been tested for robustness based on a number of statistical tests Deloitte 2021 25
C-19 Transfer Pricing Adjustments Use of regressions What is a regression A regression analysis is a statistical tool intended to estimate the relationship between a dependent variable (‘outcome variable’) and one or more independent variables (also called ‘predictors’ or ‘regressors’). Once a stable relationship has been identified between the independent and dependent variables, it is possible to predict the outcome of the dependent variable given a certain change in one or more independent variable Several regression models exist, such as linear, multiple linear and non-linear regressions models. For instance, a linear regression model estimates the relationship between the dependent and independent variables by computing a linear function which minimizes the sum of the squares of the differences between the observed values of the variables and those which have been predicted by the model (regression line). This linear function has the following form: This linear function has the following form: 1 1 2 2 Where; is the dependent variable (for which a prediction for 2020 is sought); Where: 1 , 2 …, are the independent variables (explanatory variables) Where; which help to predict the dependent variable ; 1 , 2 …, are the coefficients of the independent variables, which indicate the direction and the size of the relationship between the latter and the dependent variable; is the constant term (intercept) Deloitte 2021 26 26
Panel Data Analysis Application for a set of Wholesale distributors in the chemical industry Specifications OLS Regression vs. Panel Data Analysis • Dataset includes 472 data pairs (if there are no frictions) • Our dataset combines (1) cross-sectional and (2) time-series containing growth and change in profitability data, i.e. we look at data from different comparables over a 59 comparables with 8 observations (2008-2016) each certain observation period • Such data is called panel data • Panel data analysis using a fixed effects model • There are special methods of analyzing panel data • A standard OLS Regression pools all data pairs and treats them Regression Results as independent; the regression results are likely to be inefficient • Negative constant: a=-0,0025 • More likely: each cross-section has its own specifics If growth=0, the profitability decreases c.p. by 0,25%points One should control for these • Positive coefficient: b=0,0205 • Two popular models for analyzing panel data are If growth=1, the profitability increases c.p. by 2,05%points 1. The random effects model; and Consistent with economic theory 2. The fixed effects model. P-value close to zero, validates statistical significance • Effect captures the cross-sections specifics Can either be random at each observation point or fixed for • Power: R2=0,2092 the whole oberservation period Model has explanatory power, to an for our purposes Regression results will be more efficient sufficient extent Deloitte 2021 27
Adjustment Calculation Methodology and Implementation Methodology First Results Unadjusted: 3-years IQ-range T-2, T-1, T Three growth scenarios (SG): -10%, -30%, -50%. Profitability Lower Quartile Median Upper Quartile The procedure is identical for each of those. Benchmark 1,19 % 2,40 % 4,33 % Predicted: IQ-range T+1 only 1. Calculate the 3-years IQ-range for T-2, T-1, T using weighted Profitability Lower Quartile Median Upper Quartile averages Growth -10% 0,73 % 1,88 % 4,72 % 2. Adjust the sales for each comparable, i.e. calculate sales for T+1 Growth -30% 0,32 % 1,47 % 4,31 % (S_T+1) Growth -50% -0,09 % 1,06 % 3,91 % 3. Predict the profitability for T+1 for each comparable (OM_T+1) using the results from the regression OM_T+1 = OM_T + a + b*SG 4. Calculate the predicted IQ-range for T+1 5. Use S_T+1 and OM_T+1 to calculate the adjusted 3-years IQ- range for T-1, T, T+1, again using weighted averages Deloitte 2021 28
Transfer Pricing Excellence – Digital Deloitte TP Summit Future of Work 22. / 23. Juni 2021
Ihre Referenten des heutigen Webcasts Markus Kircher Andreas Liebig Partner Head of Tax Tax & Legal | Transfer Pricing Tax Department | Corporate Division Frankfurt am Main OLYMPUS EUROPA SE & CO. KG Hamburg Telefon: +49 69 75695 7011 E-Mail: mkircher@deloitte.de Telefon: +49 40 237 734 126 E-Mail: andreas.liebig@olympus.com Carolin Reichel Oliver Liche Senior Manager Director Tax & Legal | Transfer Pricing Tax & Legal | Transfer Pricing Frankfurt am Main Berlin Telefon: +49 69 75695 7299 Telefon: +49 30 254 685 355 E-Mail: careichel@deloitte.de E-Mail: oliche@deloitte.de Deloitte 2021 2
Agenda Future of Work 01 Hintergrund 4 02 Stakeholder 5 03 Matrixorganisation 7 Deloitte 2021 3
Future of Work - Hintergrund Entwicklung Mitarbeitermobilität Business International Traveller Virtual Flexpat Short Transfer Roles term Domestic Commuter Long Relocation term Globalist International Remote Rotator Hire Workers 1990er 2000er 2010er 2020er Einsatzformen im Unternehmen Entsendung / Dienstleistungen Matrixorganisation Virtuelle „Entsendungen“ Unternehmensebene – KSt/TP Unternehmensebene - Lohnsteuer Arbeitnehmerebene • Identifikation der Transaktion • Welche Auswirkungen ergeben sich für die • In welchem Staat ist der Mitarbeiter ansässig/ ändert • Begründung und Gewinnaufteilung von Betriebsstätten Gehaltsabrechnungen des Mitarbeiters? sich die Ansässigkeit? • Ort der Geschäftsleitung • Welche Pflichten ergeben sich für den Arbeitgeber? • Welche Pflichten ergeben sich für den Arbeitnehmer? • Matrixorganisationen • Exit Tax Themen • Zuordnung von Wertschöpfungsbeiträgen (DEMPE) Deloitte 2021 4
Future of Work - Stakeholder Betrachtungsperspektiven Business Projekte und deren Umsetzung Tax HR Unternehmenssteuerliche Steuerliche, Aspekte der jeweiligen sozialversicherungsrechtliche Transaktion und unter der und arbeitsrechtliche Aspekte Berücksichtigung der des Mitarbeiters Sichtweise der beteiligten Fiski Geschäftsführung Rahmensetzung für Compliance und Risikoneigung Legal Accounting / Controlling Profitabilität und Compliance mit rechtlichen Zahlenwerk Vorgaben sowohl in Bezug auf das Unternehmen als auch in Bezug auf den Mitarbeiter Deloitte 2021 5
Future of Work - Stakeholder Interaktion und Motivation Tax Geschäftsführung Accounting / Controlling Stakeholder: Business Interaktion und Motivation Chancen Risiken HR • Flexiblerer Einsatz von Arbeitskraft • Ertragssteuerliche Risken ermöglicht das Lösen komplexer • Unklare Zuordnung von Probleme (z.B. Crowdsourcing) Wertschöpfungsbeiträgen • Geringere Kosten für Routinearbeiten • Dokumentationsaufwand und für Zugriff auf globale Expertise • Intransparente Strukturen und Legal • Optimierung global effective tax rate administrativer Aufwand • Direktere Kommunikation und Fokus auf Arbeitsinhalt • Vereinbarkeit von Familie und Beruf Deloitte 2021 6
Future of Work - Matrixorganisation Projektexpertise Abbildung der Wertschöpfungsbeitragskette 1. Sachverhalt ermitteln 2. Charakterisieren 3. Analyse durchführen 4. Implementieren Risiken analysieren Struktur und evaluieren Prozesse und Wertschöpfungs- Örtliche und zeitliche beiträge untersuchen Koordinaten der (einschließlich beteiligten Mitarbeiter Betriebsstätte planen Kompetenzverteilung berücksichtigen im Team) Verrechnungspreis festigen Funktionsverlagerung dokumentieren IP Zuordnung/DEMPE Einbezug anderer SL Tax Global Employer Services Legal USt / Zoll BS Analyse Mitarbeiterbesteuerung Verträge Lieferketten Deloitte 2021 7
Transfer Pricing Excellence – Digital Deloitte TP Summit Digitale Geschäftsmodelle 23. Juni 2021
Digitale Transformation: Einfluss auf Verrechnungspreise 1. Neubeurteilung der 2. Identifizierung neuer immaterieller Werte Wertschöpfungskette 3. Analyse TP-System für neue Wertschöpfungskette inkl. IP in Hinblick auf Akzeptanz 5. Implementierung neues TP-System 4. Anpassung TP-System Deloitte 2021 2
Fall 1: Webshop (Verdrängung bestehender Absatzkanäle) Status Quo Plan Webshop Vertriebsgesellschaft Kunde Land 1 Kunde Land 1 Land 1 Webshop Zentraler Webshop Vertriebsgesellschaft Kunde Land 2 Vertriebsgesellschaft Kunde Land 2 Land 2 Land 1 Webshop Vertriebsgesellschaft Kunde Land 3 Kunde Land 3 Land 3 Deloitte 2021 3
Fall 2: Lokaler Vertrieb vs. lokaler Marketingdienstleister (Rolle der lokalen Einheit) Local Billing Central Billing mit lokaler Marketingeinheit Software / APP Software / APP Entwicklung Land 1 Entwicklung Land 1 Software / App Software / App incl. invoice License Fee Marketing-Service Lokale Lokale Product Price Vertriebsgesellschaft Kunde Land 2 Marketinggesellschaft Kunde Land 2 Land 2 Land 2 Deloitte 2021 4
Fall 3: Datennutzung (Vergütung für Daten) Zahlung für Service Zahlungs- Kunde abwickler Landesgesellschaft Löst Kauf aus Server z. B. AWS / MS Service Nutzerdaten Version 2.0 Market Insights Bugs und BI Team Verbesserungen Entwickler Zentral Zentral Marketing Dash-Boards Zentral Deloitte 2021 5
Fall 4: Globales Entwickler-Team (Zuordnung DEMPE-Funktion und Gewinnallokation) Status Quo Kündigung CTO, Neuer CTO in Barcelona Entwickler-Team mit Entwickler-Team mit 50 MA in Barcelona 50 MA in Barcelona in lokaler Einheit und in lokaler Einheit Entwicklungs-Service Entwicklungs-Service CTO 1 Entwickler Kapstadt Finanzierung und IP- 1 Entwickler Kapstadt mit deutschem mit deutschem Finanzierung und IP- Strategy inkl. CIO und Arbeitsvertrag Arbeitsvertrag Strategy inkl. CIO CTO in Deutschland Entwickler-Team mit Entwicklungs-Service Entwickler-Team mit Entwicklungs-Service 200 MA in Mumbai in 200 MA in Mumbai in lokaler Einheit lokaler Einheit Deloitte 2021 6
Ansprechpartner für Rückfragen Silke Lappé Dr. Björn Heidecke Partner Director Tax & Legal | Transfer Pricing Tax & Legal | Transfer Pricing München Telefon: +49 89 29036 8016 Telefon: +49 40 32080 4953 E-Mail: SLappe@deloitte.de E-Mail: bheidecke@deloitte.de Deloitte 2021 7
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Transfer Pricing Excellence – Digital Deloitte TP Summit Change Management aus dem Blickwinkel der Verrechnungspreise 22. und 23. Juni 2021
Ihre Referenten des heutigen Webcasts Silke Lappe Tobias Schanz Partner Director Tax & Legal | Transfer Pricing Tax & Legal | Transfer Pricing München Düsseldorf Telefon: 49-89-290368016 Telefon: +49 211 87722060 E-Mail: slappe@deloitte.de E-Mail: tschanz@deloitte.de Deloitte 2021 2
Agenda 22. Juni 2021 Change Management und Konzernstrategie Uhrzeit Thema Referenten 15:30 – 16:00 Uhr Einführung und Initalvortrag Jobst Wilmanns, Deloitte 16:00 – 16:30 Uhr Wechselwirkung von makroökonomischen Entwicklungen und Steuern Prof. Dr. Michael Overesch, Universität zu Köln Stephan Habisch, Deloitte 16:30 – 17:00 Uhr Financial Reportingsysteme, Steeringmodel und Transfer Pricing Rolf Epstein, Deloitte 17:00 – 17:15 Uhr Coffee Break 17:15 – 17:45 Uhr Einfluss von Steuern auf die Konzernstrategie Thomas Spitzenpfeil, Schenk Process Holding GmbH Hans-Jörg Bergler, Merz Pharma GmbH & Co. KGaA CFO –Panel I – Einfluss von Verrechnungspreise auf die Konzernstrategie Jana Schönfeld, Hettich Holding GmbH & Co. oHG sowie Umstrukturierungsmaßnahmen Thomas Spitzenpfeil, Schenk Process Holding GmbH 17:45 – 18:30 Uhr Prof. Dr. Michael Overesch, Universität zu Köln Moderation: Jobst Wilmanns 18:30 – 18:45 Uhr Zusammenfassung und Ausblick Jobst Wilmanns, Deloitte Deloitte 2021 3
Agenda 23. Juni 2021 Change Management und Operationalisierung Uhrzeit Thema Referenten 15:00 – 15:05 Uhr Einführung Dr. Richard Schmidtke, Deloitte Alistair Pepper, Policy Advisor, Centre of Tax Policy International development of the transfer pricing regulatory framework 15:05 – 15:45 Uhr and Administration, OECD - Expert Talk - Ralf Heussner, Deloitte Panel II Umsetzung der Rechtsentwicklung in den Konzernen – Chancen und Risiken – FinVerw/ Konzerne Immaterielle Werte – DEMPE-Analyse 15:45 – 16:45 Uhr Methodenwahl Verwaltungsgrundsätze 2020 Streitvermeidung vs. Streitbeilegung Moderation: Dr. Richard Schmidtke 16:45– 17:00 Uhr Coffee Break 17:00 – 17:45 Uhr Breakout I 17:45 – 17:50 Uhr Virtueller Raumwechsel 17:50 – 18:35 Uhr Breakout II Deloitte 2021 4
Agenda I. Globale Supply Chain Trends II. Verrechnungspreisanalyse III. Fall 1: Zentraler Entrepreneur mit starken lokalen Auslandsmärkten IV. Fall 2: Performance Fee V. Wrap up Deloitte 2021 5
Globale Supply Chain Trends Erwartungen an die Lieferkette: Breitere und widerstandsfähigere Supply Chains Lieferketten werden proaktiv statt reaktiv, indem sie die Koordination erhöhen, sich auf eine integrierte Geschäftsplanung konzentrieren und letztlich die Kosten senken. Diese Neuerfindung besteht aus offenen und miteinander verbundenen Systemen von Knotenpunkten, die eine erhöhte Agilität und Widerstandsfähigkeit ermöglichen. Global Lieferketten sind lokal und global Effizient Kostenreduzierung und Schnelligkeit bei der Markteinführung stehen ganz oben auf der betrieblichen Prioritätenliste Flexibel Dynamische Lösungen sind erforderlich, um auf eine einzigartige, sich ändernde Nachfrage (z. B. aufgestaute Nachfrage und Peitscheneffekt) und Lieferkettenrisiken zu reagieren Kundenspezifisch Märkte durch maßgeschneiderte Supply-Chain-Lösungen definieren und bedienen Sichtbar Bedeutung der Bereitstellung von Echtzeit-Transparenz über die gesamte Lieferkette Digital Technologie und Daten als Treiber der integrierten Geschäftsplanung (IBP) Deloitte 2021 6
Globale Supply Chain Trends Treiber für die Veränderung von Liefer – und Wertschöpfungsketten Supply Chain Trends Neue Geschäftsmodelle IP Management - Digitale Transformation M&A-Aktivität Geopolitisch Kunden Breitere und orientiert widerstandsfähigere Lieferketten Nachhaltigkeit Antriebskräfte Deloitte 2021 7
Verrechnungspreisanalyse Value Chain Alignment: Nutzen und Vorteile Wesentliche Treiber Entwicklung Risikobewertung von Ergänzende Restrukturierungen Digitalisierung Future of Work Controversy Geschäftsmodelle TP-Modellen Methoden • Anwendung • Physische • Geschäftsumwand- • Auswirkung der • Steigende Anzahl • Identifikation von • Fokus auf Bewegung von lungen als Digitalisierung auf von Mitarbeitern, Gewinnhebeln verschiedener Significant People Menschen führt zu Reaktion auf sich Lieferketten, die remote arbei- Methoden zur Functions • Sensitivitätsanaly- Unterstützung des Substanzerosion ändernde Schaffung von ten sen • Objektivierung bestehenden TP • Zunehmende Branchen/ Wirt- neuem geistigen • PE-Implikationen Wertschöpfung schaftsfaktoren Eigentum, • Entwicklung Modells Herausforder- und Gewinnauf- Informationsstra- und Bewertung Veränderungen in • PE-Verteidigung ungen im • Brexit- teilung tegie mit Blick auf • Dokumentation Zusammenhang Implikationen der Art und Weise/ Ort der Wert- zukünftige mit Prinzipal- • M&A-Aktivitäten Veränderungen strukturen schöpfung und Integration von kritischen • System-Updates Faktoren des TP (SAP4HANA) Modells. bieten Gelegen- heit, das TP-Modell zu überdenken Deloitte 2021 8
Globale Supply Chain Trends Auswirkungen auf die Verrechnungspreisanalyse Neubewertung der 1 Wertschöpfungskette Wie hat sich die End-to- end Wertschöpfungs- kette geändert (z.B. durch digitale Trans- formation) Zuordnung neuer Kern- Lorem ipsum Identifizierung neuer immate- 2 Werttreiber zur rieller Werte Wertschöpfungskette 3 Identifizierung neuer immaterieller Werte Zuordnung des aktuellen DEMPE & Risikoanalyse und zukünftigen GAP-Analyse: Mapping Mitarbeiter-Footprints zu von TP Ergebnissen und Untersuchung, wie Risiken umverteilt werden und wie Daten Werttreibern. neuer Wertschöpfung erfasst, entwickelt, analysiert und verwertet werden. Identifizierung von Inkon- sistenzen zwischen neuer Wertschöpfung und aktuellen Verrechnungspreis- ergebnissen. 4 Design / Anpassung Implementierung des 5 bestehender TP-Operationsmodells Verrechnungspreismodelle Verträge Entwurf von Verrechnungspreis- richtlinien Sicherstellung, dass die Finanzsysteme und - prozesse die neuen Verrechnungspreis- richtlinien unterstützen Ausarbeitung der TP- Dokumentation zur Unterstützung neuer TP- Richtlinien Deloitte 2021 9
Fall 1 Zentraler Entrepreneur mit starken lokalen Auslandsmärkten Struktur des Geschäftsmodells: Herausforderungen: • HQ als Entrepreneur in DE • Vertriebsgesellschaften erzielen hohe Gewinnmargen • Business ist F&E intensiv • Lizenzsätze im Rahmen üblicher Bandbreiten genügen nicht die Margen • IP Technologie in DE hinreichend abzuschmelzen • IP-Lizenzierung an Vertriebsgesellschaften, Service-Verrechnung von HQ- Dienstleistungen • Produktionsgesellschaften in DE, Middle East und Spanien • Vergütung der Produktionsgesellschaften über C+ • Vertriebsgesellschaften umfangreiche Funktionsprofile Lösungsansätze: • Vereinheitlichung über einen Cost Plus – Ansatz durch Warenverkauf über das HQ Ware (C+) Ware • HQ wird für IP und zentralen Dienstleistungen durch einen einheitlichen (Marktpreis) Kostenaufschlag auf Warenverrechnungspreise vergütet • Vertriebsgesellschaften behalten die Möglichkeit Übergewinne zu erzielen Produktion HQ Vertrieb Endkunde • Abbildung im IT-System zu überprüfen • Steuerungslogik zu diskutieren Produkttechnologie-Lizenz HQ-Services Deloitte 2021 10
Fall 2 Zentraler Entrepreneur mit dezentraler Produktion Performance Fee Modell (Beispiel) Herausforderungen: • Komplexe Supply Chains • Erbringung wichtiger strategischer Leistungen und Ausübung von Control Kunden over Risk durch Entrepreneur („Entrepreneurial Services“) Markt- Markt- preis preis Performance- Vertrieb/ LRD Fee C+ Entrepreneur IP IP Produktion Markt- preis Non-Routine Services Routine C+5% Markt- Lösungsansätze: preis • Klare Definition der Transaktionsströme und Unterscheidung zwischen Routine- und Nicht-Routinedienstleistungen Lieferanten • Gewinnabhängige Vergütung der Entrepreneurial Services Entrepreneur Performance Fee • Keine GuV-Segmentierung auf Ebene der Vertriebseinheiten notwendig Routine Warenfluss • Keine wesentliche Umstellung der ERP-Systeme notwendig IP Lizenz • Ggf. Verhandlungen/Vereinbarungen mit der Steuerbehörde • Quellensteuer auf Lizenzkomponenten Deloitte 2021 11
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Transfer Pricing Excellence – Digital Deloitte TP Summit Update US Tax Reform June 23, 2021
Ihre Referenten des heutigen workshops Jobst Wilmanns Andreas Maywald Partner Client Service Executive Tax & Legal | Transfer Pricing German Tax Desk Frankfurt am Main New York Telefon: +49 69 975 695 6243 Telefon: +1 212 436 7487 E-Mail: jwilmanns@deloitte.de E-Mail: anmaywald@deloitte.com Deloitte 2021 2
Tax policy – 2021 Mid-year status American Jobs Plan and Made in America Tax Plan • In March, President Biden unveiled the American Jobs Plan, financed by the Made In America Tax Plan • The Made in America Tax Plan largely tracks proposals offered by then-candidate Biden with important changes, including: Raising the corporate tax rate to 28% Raising the rate on global intangible low-taxed income (GILTI) and making other changes Additional rules to prevent inversions A modified proposal to impose a minimum tax on companies with large book profits but no income tax liability A new proposal to repeal the Foreign Derived Intangible Income (FDII) regime A new proposal to replace the Base Erosion and Anti-abuse Tax (BEAT) with the SHIELD (Stopping Harmful Inversions and Ending Low-Tax Developments) Repeal of tax provisions deemed to benefit extractive industries; replace them with incentives for renewable and alternative energy Deloitte 2021 3
Tax policy – 2021 Mid-year status American Families Plan • In April, President Biden unveiled the American Families Plan – designed to address “human infrastructure” issues, financed by higher taxes on high-income individuals • Like the Made in America Tax Plan, the tax pieces of the American Families Plan are similar to ideas proposed by then-candidate Biden, including: Raising the top marginal tax rate to 39.6% Taxing capital gains as ordinary income for those with income above $1 million, paired with a repeal of stepped-up basis at death Taxing carried interest as ordinary income Denying 1031 like-kind exchange treatment to real estate transactions with more than $500,000 in gain Enhanced audit focus on corporations and wealthy individuals, with resources for the IRS and a plan to collect a net of $700 billion in unpaid taxes Deloitte 2021 4
Key 2021 legislative dates and deadlines Busy weeks ahead…… Deloitte 2021 5
Green Book Highlights Generally consistent with ideas already put forward in the American Families Plan and the American Jobs Plan • 28% top corporate rate • 21% GILTI rate plus other changes • A minimum tax on the book income of very large companies • Repeal provisions said to advantage fossil fuels; broaden tax incentives for renewable energy • 39.6% top individual rate • Tax capital gains as ordinary income; repeal step-up in basis; tax carried interest as ordinary income • Additional tax relief for middle-income and low-income families • Large budget increase for IRS enforcement plus new reporting requirements Initial Observations Tax ideas raised during the campaign but that were not in either the AFP or AJP generally did not resurface here. Proposals generally have prospective effective dates, with one major exception. None of this is binding on Congress – they will want to put their imprint on this. Presidential budgets are usually “Dead On Arrival” on Capitol Hill, but this one seems less dead than usual. Bipartisan talks on infrastructure continue – how will that shape the outlook? Deloitte 2021 6
Comparison of Recent Tax Proposals – International Tax Implications Wyden/Brown/Warner Current Law FY22 Biden Overhauling OECD Pillar 2 Blueprint (TCJA) “Green Book” International Taxation U.S. Corporate 28%, for fiscal year end taxpayers the tax rate is 21% Not specified N/A Tax Rate prorated • Increase rate to 21% using a 25% section 250 deduction Increase rate – TBD (could be GILTI Tax Rate 10.5% up to 100% of US corporate Being negotiated • No elimination of 960(d) haircut (up to 26.5% ETR rate1 before considering expenses) Per-country GILTI inclusion (consider taxes paid a) Per-country limitation or GILTI Country-by-country ETR test based Aggregate outside the controlled US Group (incl. CFCs) and b) Mandatory HTE with low- Calculation on book income impact of min tax rate under Pillar 2) tax income aggregated Excludes from min tax calculation a Exempts 10% return on fixed return for substantive GILTI QBAI tangible asset basis Eliminated Eliminated activities with a payroll and a fixed asset component • Losses can be shared on a • Losses shared on country-by-country basis aggregate basis • Indefinite carryforward Loss Sharing • No loss carryforward • No loss sharing across countries • Excess taxes in a jurisdiction and FTC • Losses are considered low- • No loss carryforward Not mentioned create a credit to the extent of Carryover tax under final GILTI HTE prior min-tax liability, which can • No FTC carryforward Regs and high-tax under offset liability in any jurisdiction. Prop. HTE Regs • Other excess taxes may carryforward as a tax expense Unless otherwise stated, the effective date for each of these provisions is for tax-years beginning on or after 1/1/2022. Deloitte 2021 7
Comparison of Recent Tax Proposals – International Tax Implications Wyden/Brown/Warner Current Law FY22 Biden OECD Pillar Overhauling International (TCJA) “Green Book” 2 Blueprint Taxation High-Tax No carryover Not Repeal HTE for subpart F and GILTI Not mentioned Exclusion allowed mentioned FTC Limitation No carryover Only per-country GILTI and foreign branch credit limitation Not mentioned N/A Categories allowed • R&D expenses incurred in the U.S. are directly allocated to U.S. • Eliminate 904(b)(4) source income for FTC purposes1 Expense • Appears to override 861-17 and -8 §861 regulations • 265(a) disallowance of expenses allocable to exempt income (e.g., 250 N/A Allocation rules, no indication if other deduction and 245A) expenses related to U.S. activities will be solely allocated to U.S. source income • Appears to add an additional limitation for the deduction for interest expense based on a member’s proportionate share of the group’s EBITDA reflected on the group’s financial statements. Financial Reporting • Appears to allow the US member to take into account EBITDA of CFCs to 163(j) limitation of support US interest deductions. Group Interest the U.S. Group N/A N/A Expense • Applies the lesser of existing 163j limitation and financial reporting group Limitation interest expense limitation • Disallowed interest deductions are carried forward indefinitely • Financial services entities exempt *Unless otherwise stated, the effective date for each of these provisions is for tax-years beginning on or after 1/1/2022. 1. Consider whether mandatory capitalization of R&E costs under section 174 will go into effect on 1/1/2022 as provided for in the statute (5-year amortization for US and 15-year amortization for non-U.S.) Deloitte 2021 8
Comparison of Recent Tax Proposals – International Tax Implications Current Law FY22 Biden Wyden/Brown/Warner OECD Pillar 2 (TCJA) “Green Book” Overhauling International Taxation Blueprint • Repeal and replace BEAT with SHIELD, which denies 100% of the deductions with respect to payments to related parties in low tax countries (by reference to agreed min tax rate at OECD, or, if such Referred to as agreement is not in place new GILTI rate), effective for tax years • Retain BEAT with changes Undertaxed Payments 10% rate (average beginning on or after 1/1/2023 • Provide full value for tax credits that Rule (UTPR) which gross receipts of • Payments to non-low taxed countries may be disallowed in part support domestic business investment applies to deny $500M and base based on the aggregate ratio of the financial reporting group’s low- • Reform treatment of FTCs under BEAT, deductions for BEAT erosion percentage taxed profits to its total profits, based on consolidated financial depending on revenue available payments to low- of 3%) with increase statements. • Increase rate on income tied to “base taxed entities and in tax for FTCs and erosion payments,” above the 10% rate serves as a back-stop certain other credits • Reductions to gross income for COGS for sales to related parties in on RTI for min-tax (Income low-tax countries (or to non low-tax members of a financial Inclusion Rule or IIR) reporting group if ETR is less than designated min rate) also effectively eliminated by reducing other allowable deductions, including those to unrelated parties • Eliminate QBAI offset to qualifying income 37.5% deduction • Convert FDII deduction to a “foreign- • Repeal FDII deduction FDII (13.125–21% derived innovation income” benefit, N/A • Replace with [R&D incentives] based on current year spending on effective tax rate) innovation-spurring activities in the US • Equalize rate with GILTI rate (TBD) *Unless otherwise stated, the effective date for each of these provisions is for tax-years beginning on or after 1/1/2022. Deloitte 2021 9
Comparison of Recent Tax Proposals – International Tax Implications Wyden/Brown/Warner Current FY22 Biden OECD Pillar 2 Overhauling Law (TCJA) “Green Book” Blueprint International Taxation Reduced Disallow deductions for expenses paid or incurred in connection with deductions for N/A offshoring a US trade or business Not mentioned Not mentioned Offshoring Jobs Incentives for New general business credit equal to 10% of the eligible expenses paid or N/A N/A N/A onshoring Jobs incurred in connection with onshoring a US trade or business N/A, but note that ETR is • Min tax of 15% on worldwide pre-tax book income (reduced by book determined based on NOLs) for companies with greater than $2B worldwide book income “covered taxes” imposed • Equals the excess of book tentative minimum tax over the regular tax on book income (with Book Income N/A liability. The book tentative minimum tax is reduced by general business N/A some adjustments). Minimum Tax credits and FTCs. Covered taxes include • Book tax credit (if regular tax liability exceeds 15% book tax liability) local income taxes, WHT, CFC tax, and taxes on allowed as a carryforward dividend income *Unless otherwise stated, the effective date for each of these provisions is for tax-years beginning on or after 1/1/2022. Deloitte 2021 10
Comparison of Recent Tax Proposals – International Tax Implications Wyden/Brown/Warner FY22 Biden OECD Pillar 2 Current Law (TCJA) Overhauling “Green Book” Blueprint International Taxation Ownership Continuity: • Amend 7874 to treat as a U.S. company a foreign acquirer if shareholder Ownership Continuity: of 50% (from current 60%/80%). • Different tax Management and Control: consequences • Amend 7874 to treat as a U.S. company a foreign acquirer if: (i) Corporate dependent upon immediately prior to acquisition FMV of US > FMV of Foreign Acquiring; N/A N/A Inversions continuity (50-69%, 60- (ii) primary management and control in the US; and (iii) EAG does not 79%, and 80-100%) conduct substantial business activities in the country of foreign acquiring Management and Control: corporation • N/A Expand Scope of Acquisition to include US trade or business assets of foreign partnerships and address distributions of stock. Effective for transactions completed after date of enactment Entity Check-the-box rules Source and character of any gain recognized in a disposition of a specified permitted for non per se hybrid entity and to a change in entity classification is treated as a sale or Classification entities under section exchange of stock (without regard to section 1248), effective for N/A N/A Elections 7701 transactions occurring after the date of enactment Foreign oil and gas Fossil Fuels income taxed at 10.5% Repeal of GILTI exemption for FOGEI N/A N/A Unless otherwise stated, the effective date for each of these provisions is for tax-years beginning on or after 1/1/2022. Deloitte 2021 11
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