Brexit questions: I am considering restructuring my European operations. Do I need a new transfer pricing policy?

You will also be concerned to ensure that your arrangements are in line with the direction of travel that transfer pricing rules are taking as a result of BEPS. It is therefore important that the arrangements you put in place are conducted on arm’s length terms. Whilst you may not necessarily require a new transfer pricing policy you will almost certainly need to test whether your policy remains appropriate in light of the new realities.

As part of your testing process it is necessary to perform an analysis of the functions, risks and assets before and after the business restructuring. The analysis should also consider the arm’s length nature of the business rationale for the restructuring. This may include taking into account the expected benefits for each affected entity from the restructuring (taking account of anticipated synergies) and taking into consideration other options realistically available to the parties involved in the arrangements. It is also important to ensure that the contractual arrangements pertaining to the business restructuring are at arm’s length.

Particular care may need to be taken when value (either tangible or intangible) is being transferred as part of the business structuring. The choice of transfer pricing method used to value the asset being transferred depends on the functions performed, risks assumed and assets used and the economic context. Valuing the asset being transferred can be complex and create transfer pricing uncertainty. Furthermore, an analysis should be carried out to test whether at arm’s length the transfer of value gives rise to any compensation for the participating parties. Clearly if Brexit is the key driver for the restructuring this will need to be taken into account and should form an important part of your new policy.

Finally, you should take care to watch for 'inadvertent restructuring' whereby changes in the normal course of business result in a different business structure over time. You may find it helpful to conduct a functional analysis review (regardless of whether you decide to formally restructure your operations) post-Brexit to test whether any functional responsibilities are organically changing as a result of Brexit. For example you may test whether your sales operations are increasing their functional reliance on senior staff members outside/inside the UK as a direct result of Brexit.