Transfer Pricing Model

The model covers a three-entity group: a US parent and manufacturing and distribution subsidiaries in Ireland and Singapore. Each entity has its own profit and loss sheet, plus a consolidated view that eliminates intercompany items.

• The time frame spans a base year of actuals followed by five forecast years, with columns for each period. Named ranges allow period selection via a simple index formula, supporting consistent calculations across all years.
• This setup lets you trace how intercompany pricing decisions affect each entity’s taxable income over the forecast window, while respecting the distinct functional profiles documented in the FAR analysis.

The intercompany pricing sheet implements five OECD transfer pricing methods, with benchmarking using an interquartile range engine.

• For distribution activities, the model tests a gross-margin policy target against an external range, while the transactional net margin method panel uses a net cost plus target as the tested profit level indicator when the distribution entity is selected.
• A manufacturing scenario is also available, and its realised net cost plus margin is compared to the same benchmark.
• This structure allows you to see whether the group’s actual pricing falls inside, above, or below the arm’s length range, and the checks sheet validates the outcome without halting calculations.

The model computes US GILTI inclusion based on the foreign subsidiaries’ tested income, tangible assets, and covered taxes. It applies a statutory net deemed tangible income return, subtracts that from tested income, and then applies the GILTI rate, which reflects the section 250 deduction.

• A deemed-paid foreign tax credit at 80 percent of foreign covered taxes offsets the gross GILTI tax. Net GILTI tax flows into the US parent’s current tax and appears on the effective tax rate walk.
• Under the default high-tax foreign profile, the credit fully shields the inclusion, resulting in near-zero net GILTI tax—a directional simplification documented in the model.

This model is useful for evaluating how intercompany pricing policies affect profit allocation and tax outcomes across jurisdictions. It supports scenario testing by allowing the tested party to switch between manufacturing and distribution, and it includes a country-by-country report with capital and reserves inputs.

• An APA and audit sheet collects key positions. The effective tax rate walk integrates GILTI, and a net present value line discounts cumulative tax savings versus an all-US benchmark.
• Eight annual checks validate reconciliations, from intercompany eliminations to cash-tax closure. These outputs help build a defensible transfer pricing position without needing to rebuild the underlying calculations from scratch.