Transfer Pricing Network

GSK Canada

2008-07-03T06:01:00.000-07:00

It's been a little while folks. I've been thinking I'm due for a new post and then I got the Ceteris TP Times dropped in my in-box.

Thanks to the kind people at Ceteris I was able to read about the GSK Canada case. I'm sure you've heard of it as well, but it seems to boil down to GSK Canada buying something from a Swiss sub with a transfer price at about five times what their competition was buying that same component for and using that component for the same product. The end result? GSK Canada was fined 51 Million CAD. This was decided at the end of May '08.

Interesting notes on the case seem to revolve around every one of GSK's arguments being rejected because of the precident that they would set (exclusive markets, parent controlled purchase lists...) What really struck me as astounding about the notes I read on the case was that the case focused on transactions durring the years between 1990 and 1993.

1993? That was 15 years ago! Most of you, as I know it, hadn't started your careers yet, and if you had you had just started. I'm not saying that GSK's claims were remotely defensable, parsing words and obscuring definitions, but how on Earth is light shed on a single set of transactions that happened 15 years ago?

Moreover, hasn't GSK had enough? I'll bet their lesson is well learned from the 2006 decision against them, and while that doesn't repay other evaded taxes I'm guessing they will be a little more giving to their local tax authorities in the future.

I hope all's well, and enjoy the holiday!

Mike

A Blog was Born

2008-05-12T06:25:00.000-07:00

Hello All!
It's been a little while since the comp survey - I'm leaving the data up for the time being, as I'm seeing a lot of interest in the group and the site.
To answer the minisurvey that was up here a few weeks ago I had to do some thinking. To email you all would mean to send job alerts to some of your work email adresses, and I couldn't immagine that I would find favor with a lot of you in those circumstances. Conversely, to post them here would take away from a lot of the meaning of this board - a place for the discussion of Transfer Pricing issues.
I've come up with what I think is a good solution: a JobBlog with a corresponding LinkedIn group - much the same as the set up we have here.
It can be found at http://tpjobs.blogspot.com/ (this link is an invite for the linkedin group: http://www.linkedin.com/e/gis/86277/79B66144F652) I will mail out new jobs as they come in to the membership of this group - if you're interested in joining please make sure you're aware of this and change your primary linkedin email accordingly.

More updates to come here later in the month.

Best wishes,
Mike

Compensation Survey Results

2008-04-28T08:15:00.000-07:00

I didn't get enough inputs to have meaningful data per level per city - that would require several times the response I got - which I supplemented with data received from candidates I'm working with. Ultimately I divided the country into 4 regions: North East, South, Midwest, and West. I also divided the whole list of inputs up by level (I had to make some generalizations) that broke down like big 4's heirerarchy: Staff, Senior, Manager, Sr. Manager, Director.

The North East was made up of states starting with Maryland and heading North. So New England with NY, PA, NJ, DE, and MD.

The South for my purposes here consists of states on the Eastern seaboard south of Maryland, the states on the Gulf of Mexico, and those south of MO. (VA, NC, SC, GA, FL, AL, LA, TX, OK, MI, AR, and TN)

The Midwest: MO and North, the Dakotas and East, Ohio and West plus WV for good measure.

The West: The square states and west. (Everything Else)

Here are the numbers:

Northeast Avg
$129,490.00

South Avg
$107,778.00

Midwest Avg

$152,115.63

West Avg
$94,000.00

Staff Avg
$62,698.57

Senior Avg
$80,333.33

Manager Avg
$124,937.50

Sr. Manager Avg
$178,680.00

Director Avg
$185,731.25

Now, I really should say that there's little statistical purity here. I have varying numbers of in each level, and varying levels in each geography. Ironically, the only number that I see as suspect is the average TP income in the Midwest, and that's the area with the most diverse set of inputs. Also, in the West I ommitted an input with 3 years exp who claims a base income of 185. This would have made the average "Staff" pay higher than the average "Senior" pay, though it may have made the numbers for the West more accurate on average; I think it's a little low, especially since it contains San Francisco, the most expencive area of the country.

So there it is! That's how much money you should make.

Also, thank you all for your participation in the secondary survey about whether or not you want to hear about new TP jobs. Seeing as nobody said they didn't want to hear about them, which honestly surprised me a little, I will be posting them here as well as emailing them out as they come up. I've started another blog which I may utilize as a job posting board, then again I may just do it here. We'll see.

Best,
Mike

The Survey

2008-04-09T12:28:00.000-07:00

As I mentioned a few weeks ago lots of you ask me pretty regularly what you're paid relative to market. I've been able to present some rough estimates, but this informal survey will help fill in the blanks. Take a minute and copy/paste the info below into an email to me, plug in your data, and send it out to me. Your info will stay confidential, and after enough people complete the survey I will tabulate and share the results here.

As all of you know, the more inputs for this the more accurate it will be, so please pass this around to those around you.

All the Best,

-Mike

Info about You:
City (Work)
Industry
Years Experience (total)
Years Experience (TP)
Title
# Of Reports
Title you report to?

Info about your comp (2007):
Salary
Historical Annual % of Increase
Bonus
Over Time (Hours/Week)

CIP on Buy-In Royalties (revisited)

2008-04-03T09:02:00.000-07:00

I regularly ask people what the "hottest topic" in transfer pricing is today and I hear again and again that it's the September 2007 CIP on Buy-Ins. I've had a variety of reasons cited ranging from, "it's illegal!" to this one I recieved on LinkedIn: "Because nothing is written is clearly and the anything to do with the IRS is bogus nonsense so you have hire a triple MBA to get through the crap." (Thanks Jan!) Some of your responses have been better thought out and logical than these, but most of the time the indignation is still there.

My understanding of the situtation is that, and I'm stealing these words from a manager at PwC, this CIP "neuters causuring" by having auditors apply the income method as the best method, because it essentially means that you need a subsidiary to buy-in to developing IP at market value eliminating any tax benefit.

So what?

Many companies don't use causuring anyway - it's seen as too risky - and that simply means that the rest will have to adjust accordingly or be penalized. This is a solid benefit for anyone in a consulting role because you will be seen as the experts on how to solve these problems that your clients now have.

Ultimately I think this is the decision of the regulatory body at hand and rightfully so. The concept of "Best Method," which they're applying here isn't intended to mean, "best for the company," but best and most fair and reasonable. It seems to me that they're saying that causuring is not. The same manager as above said that causuring is dead in the water.

I tend to agree.

-Skelly

Updates - Moving Forward

2008-03-26T10:41:00.001-07:00

It will come as no surprise to you that this is a relatively new project for me, and for the rest of you. I think that I may have started off at the wrong pace; sacrificing post quality for post quality in an attempt to put something new up on a daily basis. Now it's been a week since the last update of this page, and I'm starting to think that, going forward, weekly posts will be the way to go.

On another note, many of you have asked me about your compensation packages relative to the rest of the market: are you being paid fairly? I think probably not, it seems to me that TP is an area of increasing importance, and with that companies should be paying more and demanding more of those in their employ. It's an opportunity where the best of the best should be more easily identifiable. Maybe some day.
It's occurred to me that I now have a vehicle with which to conduct an informal, yet "scientific enough" survey about transfer pricing professionals' compensation rates - of course everything will be kept confidential, and the results will be made public here when the survey is completed. I need to do some more figuring on how to account for discrepancies in cost of living in various geographies, but I hope to have a survey up for you to fill out within a few weeks - I don't want to rush it.

Another thought has occurred to me. I have the capability to enable several, if not all, of you to create your own posts on this blog. I need to develop some criteria for (at least initially) who can post and when, and who should not, but this is something that I hope to be doing in the very near future. On this your feedback is critical - please give me your thoughts on the best way to do this, and perhaps more importantly if you're interested in posting.

Otherwise, great job building out the group so far, and let's keep plugging away!

Best,

Mike

Bring the Function In House, Revisited

2008-03-19T08:01:00.000-07:00

Almost a week ago I posted an argument to bring the transfer pricing function in house. In my discussions with TP professionals I heard some interesting feedback on the thought. The first that surprised me was a comment earlier this week on the original post:While that's certainly where I think the industry will end up, I believe it will be a long time before the bulk of Fortune 500 companies have their own transfer pricing departments. They aren't just looking at the cost of salaries, but the access to resources that the Big 4 have will take a long time to acquire. Not to mention that all 4 use proprietary transfer pricing software that is much better than anything publicly available. An additional consideration is the fact that controversy assistance will be much more expensive to outsource when you don't have a firm with extensive existing knowledge about your company's TP practices.And the second major surprise was in a conversation I was having with a candidate talking about a "client side" opportunity. This person said something to the effect of, "when a company pulls the function in house they always get it wrong." These both lead me to believe that this view is not uncommon among people in the consultancy. If this stance actually is widely held I disagree with it. In speaking with many people both in the consultancy and in law firms like Baker I've heard a lot of people say that they often have too many fact sets to keep straight. Being overwhelmed like this will guarantee that the consultancy is distracted, potentially confused, and less efficient than someone who is working with a single set of facts. It may be that these people are at the "bottom of the consultancy barrel," but I doubt that someone like that could rise to the ranks of Sr. Manager.I still think it's better to have the function in house.

Anonymous said...

I'm a consultant, but I also favor moving the TP function in-house when possible. In my experience, the Big 4 charge too much for inconsistent work. You can get competent advice from one person, and rubbish from another. Either way it is expensive. Most mid-sized multinationals could bring the TP function in house (by picking up an experienced Senior Manager) for far less than what they spend on consulting fees.

Additionally, it is a lot easier having an in-house employee stick around to make sure that the transfer pricing results get properly integrated in the company's accounting systems. I'm curious as to what resources the Big 4 have that in-house departments can't get. During my time with a Big 4 firm, I had the chance to use the proprietary software, but I found it cumbersome and incapable of handling odd situations. I can see how database expenses might be an issue for a small TP department. However, except for databases, I get by with Excel, Word, and occasionally, Minitab.

Anonymous said...

The problem with bringing the function in house is that the in house department gets too familiar with a single fact set, creative juices stop flowing, and they soon need to go to the consultancy anyway for new ideas.

The big 4 will always dominate transfer pricing because, esentially, that's where all the new thinking comes from.

Anonymous said...

I am guessing that is not either/or, but a bit of both. A MNE would probably understand the need for consultancy when e.g. designing a new setup and drafting a long-term set of policies. However, depending on the MNE structure and the jurisdictions in play, same understanding would hardly be found when e.g. rolling out a global documentation by simply filling out the gap between the global file and the local documentation needs. In the latter case in-house work seems to be a reasonable road to take.

And an Email from Friday:
Mike,

Thanks for the e-mail. My own thinking is that overtime most big companies will have internal TP personnel. The big 4 charge too much and a lot of the work in the Big 4 is delegated to individuals who do not see the big picture or do not understand the business of the client. There will always be a role for the Big 4 and firms like Baker but it will not be so much in TP documentation as in controversy.

Update

2008-03-17T14:01:00.000-07:00

It has been brought to my attention that since many of you are licensed professionals it is often impossible to give your opinion without having liability attached. This in mind, please feel free to comment anonymously.
All the best,
Mike

Bring the Function In House

2008-03-13T05:44:00.000-07:00

EY’s ’07-’08 survey says. “as a result of developments in financial reporting, 44% of parent respondents have increased their reliance on their audit firm for transfer pricing advice.”

There’s no doubt that this is a growing and increasingly important field. However it seems inefficient to outsource this function to the consultancy. I have heard that, depending on how frequently a company needs studies done, the total tab for outsourcing can easily exceed the combined salary of a small department. Additionally, a series of studies will do nowhere near as much to add value to the company as a small, dedicated department will. This is certainly good for the consultancy business, but companies should really follow the lead of the innovators here (GE, Pfizer, Intel, EA, etc.) and bring the function in house instead of shoveling more money at the Big 4. It will dramatically increase their profitability.

Agree?

China

2008-03-12T05:48:00.000-07:00

An email last night:
"I see that you've started this with an old but still red hot topic: employee stock options.

There is something rather new on the radar screen with all those US imports from China (over $320 billion in 2007). Much of what US companies buy are sourced from 3rd party manufacturers but with the twist that a commission is paid to a related party procurement entity (e.g. a Hong Kong) entity. The question then becomes what the commission rate should be and which method (Comparable Uncontrolled Transaction v. Comparable Profits Method) should be used."

Thanks Hal.

I've also read that China is performing more audits and making more adjustments; what I read estimated that there was a 45% increase in additional tax recipts from audit adjustments in 2007 from 2006, and I'm told that figure will only go up in years to come due to new documentation legislation the country is drafting. So what method is best used to protect your company, or your client, from this increasingly strict legislation?

Best,

Mike

Stock Options, etc

2008-03-11T12:08:00.000-07:00

Somebody brought up stock options.

The controversy they cited was the IRS requiring their cost in cost sharing and service costs, but will foreign tax authorities?

From where I sit stock options aren't something that can be adequately valued. They're more of an incentive to perform and make the company more profitable, because if the company is more profitable then the stock (and therefore the options) become more valuable. Their value isn't intangible, it's theoretical and therefore immeasurable.

Am I wrong?

Updates

2008-03-11T08:52:00.000-07:00

First, and foremost I have allowed comments from everyone - meaning you no longer need to log in (meaning you no longer need to set up an account.) This in mind, comment away.

Second; rather than coming back to check the site looking for updates, you can subsribe to the blog. This will send the updates to your email, I'm shooting for once daily. This way you will know if it is a subject you want to give your two cents on without doing much out of the ordinary.

Third, and finally; since this is a networking expiriment the goal to be kept in mind is expanding the network. Invite everyone you know in the transfer pricing world.

Cheers,

Mike

Welcome

2008-03-10T16:56:00.000-07:00

Greetings all!

For the time being this blog will be the message board of the Transfer Pricing Network group on LinkedIn (link off to the right.) If you're not already a member, please feel free to join.

Just to reiterate, the mission I am trying to accomplish is to provide transfer pricing professionals a place to network; to come together to discuss the issues that face the community.

To have this truly be successful it needs to be large enough to be representative of the community, and thus it is on you to invite anyone you think should be able to take part.

The question I pose to you is this: what is the most challenging and controversial issue facing the transfer pricing community right now? What will that issue look like in six months? In a year? I figured that we should keep this first post light. Please take a moment and think, or if you don't need it then fire away!

Best,

Mike

P.S. I am as new to this system as most of you are. I expect there to be hang ups, though I'm not sure where. If something comes up email me at mskelly@rjsassociates.com