The Hedge Fund Law Report

The definitive source of actionable intelligence on hedge fund law and regulation

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By Topic: Transfer Pricing

  • From Vol. 9 No.18 (May 5, 2016)

    Hedge Fund Managers Must Act Now to Determine Potential Exposure to U.K. Transfer Pricing, “Google Tax” and Disguised Investment Management Fee Regimes

    The transfer-pricing policies adopted by multinationals has been subject to increased scrutiny for a number of years, a trend that promises greater tax transparency and revisions to the international tax framework. However, U.K.-based investment managers are subject to additional layers of regulation that pose a significantly greater risk, not only at a corporate level but also at an investor and personal level. Since April 2015, U.K.-based hedge fund managers have fallen within the scope of the Diverted Profits Tax and the Disguised Investment Management Fee regimes, two pieces of anti-avoidance legislation that pose their own unique set of challenges but also have themes in common with transfer pricing. In a guest article, Michael Beart, a director at Duff & Phelps, focuses on the legislation and its practical implications for hedge fund managers operating in the U.K. For more from Duff & Phelps practitioners, see “What Should Hedge Fund Managers Understand About Transfer Pricing and How to Manage the Related Risks?” (Nov. 1, 2013); and “Duff & Phelps Roundtable Focuses on Hedge Fund-Specific Valuation, Accounting and Regulatory Issues” (Feb. 4, 2010). 

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  • From Vol. 6 No.42 (Nov. 1, 2013)

    What Should Hedge Fund Managers Understand About Transfer Pricing and How to Manage the Related Risks?

    Hedge fund firms with multinational operations should understand the implications of transfer pricing for their operations.  Transfer pricing establishes the price charged between controlled parties involved in cross-border transfers of goods, intangibles and services, as well as financial transactions (e.g., loans).  While transfer pricing is most often applicable to international transactions involving distinct legal entities within a global group, the concept of “controlled parties” can extend to entities involved in domestic transactions, as well as partnerships and individuals.  Taxing authorities around the world have enacted transfer pricing rules to ensure that income is not arbitrarily shifted to other taxpayers or jurisdictions, and that reported profits are aligned with functions, assets and risks.  The arm’s length standard is the fundamental basis of most transfer pricing law, and seeks to price a transaction between controlled parties as if it occurred between two unrelated parties.  Many countries require taxpayers to maintain documentation to demonstrate that intercompany transactions comply with the arm’s length standard and can impose significant penalties absent this documentation.  As a matter of course, many taxing authorities (including the Internal Revenue Service in the U.S.) request this documentation at the outset of an audit.  In a guest article, Jessica Joy, Stefanie Perrella and Matt Rappaport – Managing Director, Vice President and Analyst, respectively, at Duff & Phelps – present an overview of transfer pricing and relevant U.S. laws.  Further, the authors discuss current events that may be indicative of how lawmakers and regulators will approach transfer pricing for hedge fund firms going forward, and present illustrative transfer pricing issues of particular relevance to hedge fund firms.

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