Tax Regulations
Historically, tax regulations have never been prescriptive regarding valuations. Taxpayers could rely on tax valuation studies prepared for other purposes such as external financial reporting. However, this is no longer the case:
- The OECD has introduced tax valuation techniques in Chapter VI of its Transfer Pricing Guidelines.
- The Dutch TP decree from 2018 addresses some specific considerations in the context of a tax valuation.
- Tax authorities in many jurisdictions have enhanced their expertise and developed specific tax valuation teams for audits.
- In summary, there is now a separate domain of tax valuation knowledge. This knowledge domain can be seen as distinct from valuations prepared for financial reporting or general corporate purposes.
Tax Valuation
- Legal entity valuations/valuations of shares.
- Exit charges/transfers of business opportunity.
- Tax valuation of intangible assets:
- Technology know-how or patents
- Trademarks/tradenames
- Customer relationships
- Workforce in place
- Assistance with hard-to-value intangibles
- Tax valuation (for non-qualifying participations) for the purposes of Section 13a Dutch Corporate Income Tax Act
- Tax valuation for the participation exemption asset test
- Stock-based compensation valuation for tax purposes
- Tax valuation assistance for private individual clients/estate planning
How we can help with Tax Valuation?
Our tax valuation professionals work closely with our core transfer pricing team. This team provides additional synergies when the tax valuation involves a multinational entity with financial results that are impacted by transfer pricing policies. Tax valuations may receive intense scrutiny from the relevant tax authorities and have important financial implications. It is imperative for the company and the tax valuation analyst to understand the tax-specific nuances when developing a defensible position. Our tax valuation professionals have extensive consulting and industry experience in performing tax valuations.
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FAQ
What is a tax valuation and when is it required?
A tax valuation is used to determine the value of assets, businesses or transactions for tax purposes. A valuation may be required in the context of business reorganizations, mergers and acquisitions, corporate restructurings, transfers of intangible assets, financing transactions or tax disputes. A robust tax valuation helps organizations manage tax risks and comply with domestic and international tax requirements.
How are intangible assets valued for tax purposes?
The tax valuation of intangible assets, such as intellectual property, technology, trademarks, customer relationships and software, requires an assessment of expected economic benefits, functions, risks and market conditions. Depending on the circumstances, different valuation methodologies may be applied, including the discounted cash flow (DCF) method, market-based approaches and income-based valuation methods. A well-supported valuation can strengthen transfer pricing positions and help reduce the risk of disputes with tax authorities.
Why is tax valuation important for transfer pricing and business restructurings?
In transfer pricing and business restructuring scenarios, it is important to demonstrate that transactions take place on arm’s-length terms. A tax valuation can provide insight into the value of assets, activities, functions and risks transferred within a multinational group. This helps organizations support their tax position, comply with OECD guidance and reduce the risk of tax adjustments, double taxation or disputes with tax authorities.
