ISCA Breakfast Talk On Arm’s Length Price Considerations

The ISCA Breakfast Talk on May 8 recorded an attendance of over 100 participants. Held at ISCA House, the session, titled “Manufacturer, Distributor Or Service Provider – A Practical Perspective For Arm’s Length Price Considerations For All”, provided attendees with a better understanding of the concept of transfer pricing (TP) and the different practical business models. 

In a third-party scenario, most entities that are part of a multinational enterprise group would operate as manufacturers, distributors, service providers, or a combination of them. These entities would generally be characterised as cost-plus entities or limited risk entities, or risk-taking entrepreneurs, etc.

Due to their diverse functional characterisations, there are several key TP implications and challenges associated with each of these entities.

Against the above backdrop, Sahil Seth, Tax Director from PKF-CAP LLP Singapore, shared the typical definition of a manufacturer, distributor and service provider, and the general cost structures applicable to such entities. He also used practical and live examples in his presentation.

Mr Seth showed the following typical structures applicable to each business model:

The key points discussed for the above structures included the (a) main functions/activities performed by each entity in an overall supply chain, (b) key commercial and TP risks applicable to each entity, and (c) typical TP remuneration methodology/approach adopted by such entities.

Mr Seth also discussed the typical and key arm’s length pricing issues/challenges observed for each business model, as well as the practical solutions used. He then touched on some of the main judicial TP rulings pronounced in the context of the above structures.  

The Q&A session featured questions from the attendees, which were appropriately addressed by the speaker using examples.

The key takeaway from the session included the accurate characterisation of the entity involved, along with selection of the appropriate TP remuneration methodology/approach for it.