Agility and change are inevitable parts of business. With the global megatrends are transforming the way international business is done and also impacting consumer preferences, organisations are constantly identifying and boldly adopting innovative strategies to tackle business opportunities and challenges, leading to collaboration, disruption and transformation. In the current times, every multinational enterprise (MNE) is going through this phase of change and transformation to remain relevant in the markets they operate.
Given this global backdrop, since transfer pricing policies form the backbone of all intra-group dealings in any MNE, it is important to understand the impact of such transformative changes on Indian companies, the response of organisations to changes and the resultant impact on the MNE’s value chain and global transfer pricing policies.
In the post transformation scenario where multiple never-seen-before cost structures and revenue streams can coexist, a blanket application of traditional transfer pricing methods may not always provide a true and complete picture of the value contribution by an Indian enterprise in the MNE’s value chain and the consequent pricing of intercompany transactions. Therefore, an agile and flexible approach for aligning pricing policies with new-age realities is important, while giving due cognizance to global frameworks.
This publication discusses the ongoing transformation in the automotive industry to highlight the potential impact of transformation on transfer pricing. Click here to read the detailed analysis.
Businesses throughout the world (and in India) are being impacted by changes summed up in global megatrends like demographic and social changes, technological breakthroughs, shift in global economic power and climate change. These megatrends create the urgent need for transformative changes in the supply chain and value drivers.
The Indian automotive industry is also passing through such a phase of transformation, due to which traditional automotive players need to adapt new technologies, product portfolio, market strategies, supply chain design and revenue models.
Any multinational player in the automotive sector will face transfer pricing impact over the transformation journey. The nature and extent of impact could vary for each company and industry, depending on the business model and nature of intra-group dealings. The need of the hour is to analyse the impact in light of the changes in value drivers, business model as well as revenue and cost structures.
Such transfer pricing analysis of transformative changes needs an incisive functional analysis with active involvement between the business and the tax / finance function is essential in identifying the transformed functional profile, intangibles usage, revenue and cost models and economic analysis going forward.
Value chain analysis can be used as an appropriate tool to perform an incisive functional analysis and helping ensure appropriate return being allocated to the value drivers across the supply chain of an MNE group.