Inter company agreement. transfer pricing method

Inter company agreement. What is the best commercial structure & appropriate transfer pricing method

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Hi, I am seeking some general advice on transfer pricing and what points I should expect to be covered off by an advisor.  Company head office is in the US (Delaware). It has UK, Canada and Australia entities. Company raised approx $4m this year and most investors are UK based.

Below are some of the questions I think I should ask. What else is important?

1. Company head off in the US (Delaware), Has UK, Canada and Australia entities.

2. Commercial Structure between entities is the Sales Agent Model. Is this the best model for Saas Companies? 

3. Maybe be able to claim R&D in the UK. Currently determining if the software meets HMRC's criteria. 

4. Are there any disadvantages to holding IP in the UK if the company doesn't qualify for R&D tax relief

4. Given that US and UK tax rates are close enough now is the commercial model type important?

5. What Transfer pricing model is used by most SaaS companies

6. How may inter-company agreements typically required? Thanks, Margaret

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By paul.benny
21st Sep 2020 16:27

Lots of good questions there and good that you're thinking about it at a relatively early stage.

A couple of comments
- Agency looks good. You may have to get creative on the detail, so that the agent is also your appointee for collecting cash from customers, and perhaps even for marketing on your behalf, providing tech support, etc

- Although US Federal tax is a similar rate to the UK, state taxes may also come into play. Delaware may have no corporate tax, but you might be liable in other states, particularly if you have people on the ground.

- If you've developed the software here in the UK, transfer of ownership to a lower tax regime will result in an exit charge. You'll have to assess whether that is worthwhile.

- Consider not just the immediate tax expense but you how you repatriate profits/cash without creating another tax liability. I once inherited an arrangement with an otherwise dormant company that was continuing to receive royalty payments and had built up a €10m cash pile that I couldn't easily extract without crystalising a tax charge.

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Replying to paul.benny:
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By [email protected]
21st Sep 2020 19:36

Thanks Paul, Good extra points in there I hadn't thought of.

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