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1 onesource transfer pricing Consulting Services TAX & ACCOUNTING

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3 Considering the worldwide transfer pricing issues many multinational corporations face these days, it s nice to know that, at Thomson Reuters, our transfer pricing professionals are experienced, dedicated individuals who know exactly how to assist you. Many of our professionals have worked at the Internal Revenue Service, the Big Four accounting firms, and in senior in-house transfer pricing positions. The Consulting Services of ONESOURCE Transfer Pricing represent a new addition to our complete transfer pricing solution. This new service offering can easily meet the unique transfer pricing needs of your corporation, while providing you with peace of mind. Uncertain Tax Accounting RISK ANALYSIS Uncertain tax accounting is an important issue facing CFOs and tax directors today. It requires that a tax benefit must meet a higher standard prior to a company recognizing that benefit on its financial statements. New requirements demand increased documentation and calculations to demonstrate that a tax position is more likely than not sustainable upon examination. By its very nature, transfer pricing is subjective and usually relies on a range of results rather than one data point. This uncertainty creates potential exposures under the stricter uncertain tax accounting standards governing taxpayers today. Our uncertain tax accounting risk analysis service utilizes the expertise of our transfer pricing professionals, along with uncertain tax accounting and external auditors, to sufficiently and efficiently satisfy the transfer pricing documentation requirements under uncertain tax accounting. In performing this analysis, management needs to discuss the level of documentation they require on their uncertain tax positions with their financial auditors. To streamline this process, our consultants take the following steps: We work with your CFO and tax director to determine which transfer pricing transactions have material uncertain positions We request and review all documentation covering the transactions identified We request and review relevant intercompany transfer pricing policies and memos related to the transactions We carefully analyze financials to determine whether they adhere to intercompany polices If no policy is in place, we will analyze your company s pricing related to intercompany transactions and the implications on profits We prepare an uncertain tax accounting risk analysis memo, covering the following elements: Discussion of the transactions The facts surrounding the transactions A critical review A detailed financial analysis Potential alternative positions that could be taken by the tax authorities Potential exposure calculations

4 INTERCOMPANY POLICIES & PLANNING Implementing intercompany transfer pricing policies is critical to achieving global transfer pricing compliance. If utilized correctly, it can help you strategically plan for future transactions and maximize the effective tax rate for current transactions. Our transfer pricing professionals work with you to establish policies for all significant intercompany transactions you enter into globally. We also help identify opportunities that can simplify your documentation process once a policy is instituted. This process requires a joint effort by your company and our transfer pricing professionals. The Intercompany Policies & Planning Process Includes: Requesting a list of all significant intercompany transactions Conducting fact-finding interviews and preparing a functional analysis Selecting the appropriate transfer pricing methodology for your company to use going forward Identifying appropriate comparable companies to benchmark your company s future policy against Selecting the appropriate profit level indicator for your intercompany policy Providing you with an intercompany agreement template that can be tailored based on the results of our analysis For those multinational corporations that already have policies established, we often find that those policies are not strictly followed by the parties involved in the agreement. Whether the company is operating at arm s-length or not, if the intercompany policy is not being followed, the tax authority receiving fewer taxes can potentially raise the issue that the company is not compliant with the intercompany legal agreement. As a result, the company may be subject to double taxation on a transaction. For these particular situations, we work with you to help you avoid difficulties by: Reviewing intercompany agreements Requesting and analyzing financial data that relates to the intercompany transactions covered Providing a letter stating whether your company is in compliance with the intercompany policy Providing you with exposure calculations stating the risk of non-compliance OUT-OF-RANGE ASSESSMENT Did you ever have a situation where your primary approach to analyzing a particular transaction failed to meet the arm s-length standard? This frequently happens, and it s not always a result of an incorrect transfer price. In a lot of cases, there is more than one way to legitimately analyze an intercompany transaction. While a number of transfer pricing professionals often settle on the comparable profits method (CPM) or, by rote, select the distributor as the tested party, our out-of-range assessment service seeks to gain a deeper understanding of the facts and fully exhausts all transfer pricing methodologies to identify the one that truly is the best method. A number of corporations use the CPM as a default methodology, or operating margin as a default profit level indicator ( PLI ), even though a better answer may exist. In many cases, service providers neglect to put enough effort into the method selection portion of a transfer pricing documentation engagement. Fortunately, we offer an out-of-range assessment service that takes several steps to fully assess the arm s-length nature of your company s transfer pricing policies. This includes, but is not limited to: Reviewing the report prepared by your service provider and preparing the necessary follow-up questions Reviewing and discussing the questions in greater detail with you Determining whether the transfer pricing method selected was indeed the best method: If the transfer pricing methodology is correct, we will conduct a deep-dive into the: a) Tested party selected b) Search criteria c) Comparables selected d) Profit level indicator selected If we determine that an alternative method should be considered the best method, we will conduct a new analysis by: a) Conducting fact-finding b) Selecting a new transfer pricing methodology c) If possible, providing a new economic analysis to better fit the facts surrounding your intercompany transaction

5 HARMONIZATION OF STUDIES Many multinational corporations document their intercompany transactions using local service providers. As a result, documentation is usually prepared only to satisfy the local country s tax authority. For example, a U.S. parent with transactions all over the world hires a service provider to document each cross-border transaction from a Section 482 perspective. At the same time, their German subsidiary engages a local service provider to document the same transaction, but from a German regulatory perspective. Because transfer pricing is more an art than a science, two different service providers providing documentation on the same transaction will likely utilize different transfer pricing methodologies, tested parties, comparables and interquartile ranges. These inconsistencies can cause major problems if under audit because the tax authorities can either disregard the analysis, citing these inconsistencies, or select the report that benefits the local authority. ONESOURCE Transfer Pricing software is designed to provide documentation from many different country perspectives using a simple software feature; therefore, our studies are always consistent. Our approach efficiently streamlines the majority of the process because it eliminates many duplicative efforts by utilizing the same transfer pricing methodology, analyzing the financial data consistently, and presenting the same functional analysis. Additionally, because many companies have similar transactions with different legal entities or trading pairs, we are able to leverage the original study to document the other transactions with the same facts and circumstances. Obviously, this saves companies money and provides a consistent story throughout the organization. Our process for harmonizing studies includes: Reviewing all transfer pricing reports provided by all service providers across all tax jurisdictions and preparing follow-up questions Determining if contradictions exist in the transfer pricing reports covering the same transactions Determining which of the contradictory transfer pricing reports are correct Uploading reports into the ONESOURCE Transfer Pricing software Conducting transfer pricing analysis for the latest tax year Providing contemporaneous documentation for one of the two entities engaged in the intercompany transaction Utilizing software functionality to produce the same report for the tax jurisdiction of the other trading pair Providing contemporaneous documentation for any other entity engaged in a similar or identical transaction

6 MATURE STUDY REVIEW This is an area that is often overlooked by many multinational corporations. Frequently, multinationals hire a service provider to prepare documentation, or they decide to prepare it in-house. After completion of a new transfer pricing study, most service providers insist that merely updating these studies is acceptable by IRS and other foreign tax authority standards. While this is generally true, significant changes to a business in any particular tax year warrant a completely new documentation study. In addition, it has been our experience that many service providers perform new documentation for their clients every fourth year. However, in reality, this documentation is merely an update of the previous studies. This so-called new study may include an hour or two of additional factfinding. The transfer pricing methodology has likely remained the same, the comparables usually remain the same, the material in the report is virtually identical to prior years, but the price paid for the study has doubled. This is often the case even if the facts surrounding the intercompany transaction, or the company as a whole, have materially changed. As part of the Consulting Services of ONESOURCE Transfer Pricing, it is our goal to ensure that all your documentation is current and reflects the correct facts and circumstances facing your company and each intercompany transaction entered into. It is also our goal to ensure compliance with U.S. and international tax authorities which require, at the very least, reasonable effort. The process of reviewing what we term as mature studies involves: Requesting and reviewing all transfer pricing studies not up to date Conducting fact-finding interviews for all transactions deemed to be out of date Reviewing the method selection for all of your outdated transfer pricing studies and transactions PRE-AUDIT DEFENSE Performing a new functional analysis, financial analysis, and a new economic analysis Delivering final draft results Refining reports based on edits provided by you Delivering final reports Ideally, pre-audit defense begins when a tax return is being prepared for filing. This is not always the case. Taxpayers are concerned with filing their tax returns on time and, as a result, audit defense is not a concern and often postponed until the taxpayer is notified of a pending tax examination. Our tax controversy and pre-audit defense work includes, but is not limited to, the following: Working behind the scenes with you, the taxpayer Assisting and reviewing IRS documentation information requests (IDRs) Working with you and/or your outside representatives to minimize and negate potential tax assessments Recommending an advance pricing arrangement (APA) We Are Your One Source for Transfer Pricing Solutions As you can see, there are numerous benefits to choosing the Consulting Services of ONESOURCE Transfer Pricing. We work with you and help you simplify your transfer pricing management process by providing uncertain tax accounting risk analysis, out-of-range assessment, pre-audit defense, and much more. For more information on the Consulting Services of ONESOURCE Transfer Pricing, contact us today.

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8 onesource Corporate Solutions Workflow - Software - Services - Consulting - Data Management - Research ONESOURCE INCOME TAX ONESOURCE PROPERTY TAX ONESOURCE ONESOURCE SALES & USE TAX ONESOURCE TRUST TAX Domestic & International Commercial Real Estate WorkFlow Manager Business License Management Trust Tax Services Federal & State Compliance Complex Property Tax Calendar Corporate Registered Agent Trust Tax Software 1099 Reporting Property Tax Compliance Data Exchange Sales & Use Tax Compliance Trust 1099 Solutions FAS 109 Unclaimed Property Entity Manager Telecom Regulatory Compliance Trust & Estate Administration FIN 48 Exemption Certificate Management Estate Planner Fixed Assets Tax Rate Subscription Court Accounting Global Tax Planning Provision Transfer Pricing Speed. Dependability. Teamwork. Powered by ONESOURCE onesource.thomsonreuters.com/transferpricing 2009 Thomson Reuters/ONESOURCE. All Rights Reserved. Consulting_Services_brochure_9/09_500

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