Financial Analysis
EQUITY, BUSINESS ENTITIES, ESTATES, INTANGIBLES, AND ECONOMIC VALUE

Special Topics:

• International Services - Federal Tax Issues
• Interest Expense Attribution (864e)
• Intercompany Transfer Pricing (482)
• Due Diligence
• Valuing Intellectual Property
• Insolvency Valuations Under IRC (108b)
• Accounting for the Impairment of Long-Lived Assets (FASB 121)
• Accounting for Acquired "In Process" Research & Development Costs (FAS 2)

International Services - Federal Tax Issues

ARTHUR CONSULTING GROUP, inc. provides services to its international clients which include the following:

• Section 482 Intercompany Pricing
• Section 864(e) Interest Expense Attribution
• Valuations Associated with Offshore Reorganizations
• Section 482 Transfer Pricing

As most international tax managers are now aware, the Internal Revenue Service has finalized its regulations on intercompany transfer pricing, requiring companies to keep contemporaneous documentation supporting their transfer pricing methods as being fair and arm's length, or face extreme penalties in addition to any adjustments.

This area of tax administration is very complicated. Most companies do not have exact marketplace comparables to use as points of comparison because of:

• Proprietary products.
• No external market for the products.
• Transfers of services as well as goods.
• Different pricing functions and risks across geographic region or product lines.
• Different organizational structures or strategies than apparently com parable firms.
• Incomplete company information, especially if there is a foreign parent.

Transfer Pricing: Economics, Not Accounting

The work required for transfer pricing is not accounting work -- it is fundamentally economic analysis of where value is added, where risks are taken, and what amounts to a "fair" return for the value and risk. The work can require expertise in statistics, databases, financial analysis, industrial organization economics, and business strategy.

Few companies have the in-house expertise to fully implement the required analysis and documentation. Unfortunately, few outside consulting firms have the specific blend of analytical skills, business knowledge, and knowledge of the tax requirements to fully and effectively assist their clients.

Arthur Consulting Group's financial economists are well-versed in the analysis, documentation, presentation, and support of Intercompany Transfer Pricing. We have worked on behalf of a wide variety of corporate clients, as well as on behalf of the IRS itself, in some cases.

Range of Transfer Pricing Services

Arthur Consulting Group can provide a wide range of services:

• "Turn-key" intercompany transfer pricing analysis and compliance.
• Collection of data for analysis of comparables.
• Analysis of flows, functions, and risks.
• Determination of "best method."
• Analysis of transfer pricing appropriateness.
• Provision of contemporaneous documentation.
• Analysis of exposures and prob- lem areas.
• Analysis of license and royalty rates for offshore entities.
• Review and offer written opinion related to client's in-house work.
• Review and opinion related to outside work performed for client.
• Work with your legal counsel to provide analysis and expert testimony.
• Interface between operational implications and tax requirements.

Operational Implications of Transfer Pricing

Some clients' operations are affected by intercompany transfer pricing. For example, pricing may be used to support short term strategies (e.g., low prices to build market share). They may affect corporate governance issues; executive compensation; capital budgeting; and business unit performance measurement. Tax compliance may appear to conflict with these operational programs.

Arthur Consulting Group, uniquely, is sensitive to these issues, and offers the services of one of the top experts in the world, on transfer pricing as it relates to operational effectiveness.