Private Equity & Transfer Pricing

Transfer pricing has become a critical area of focus for financial services firms, particularly within the private equity sector. Globally, tax authorities have increased their scrutiny of structures used by private equity firms.

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Why is Transfer Pricing important for Private Equity Funds? 

For private equity funds, transfer pricing is not only key but necessary to ensure your structure is optimized while aligning with international best practices.  Our broad private equity client base often tells us that transfer pricing is a top priority because:

  • The due diligence process focuses heavily on historical transfer pricing approaches applied by the fund, portfolio companies and assets to assess financial health and tax compliance. In many cases, when exiting an investment, transfer pricing policies and overarching approaches to transfer pricing compliance can impact deal pricing or in some cases even lead to deal termination.

  • Aligning transfer pricing with the fund's operating model, private equity funds can align the overarching strategic goals of the funds with transfer pricing strategy. As such, our clients tell us that transfer pricing is not only a “nice to have” but is essential to drive the success of the business.

  • In many jurisdictions it is a legal and regulatory requirement to ensure transactions such as intercompany debt and interest, management fees, transaction fees, monitoring fees and origination fees are arm’s length in nature.

  • Recent tax developments such as Amount B, Pillar 2, Trump tariffs and related supply chain management, make it particularly important for businesses in the private equity space to ensure that the transfer pricing approach adopted is robust and in line with international best practices.  

How can Meijburg help? 

The KPMG Meijburg Financial Services Transfer Pricing team is market-leading in the private equity sector, bringing cutting edge solutions and market insights to help you on your transfer pricing journey.

Our services include: 

  • Transfer pricing health checks and diagnostic analysis to help align transfer pricing with the business objectives and tax landscape.

  • The design and implementation of 100-day plans to ensure that when onboarding new assets there is a smooth transition between pre- and post-deal operations.

  • Transfer pricing policy design to optimize your structure and approach to transfer pricing.

  • Internal governance and operating frameworks to help ensure that the business prioritizes alignment between transfer pricing and operations.

  • Implementation support to help you with the practical considerations of putting transfer pricing policies into practice.

  • Transfer pricing compliance assistance to help with Local Files, Master Files, CbCR and benchmarking. 

Our approach to transfer pricing for private equity clients is flexible and customized, driven by the specific needs, culture and strategic goals of our clients. We work with you throughout your private equity transfer pricing lifecycle to review, design and implement a transfer pricing framework and methodology that is future-proof for all your deals as your business grows and evolves within the ever-changing transfer pricing landscape.  

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FAQ

Does transfer pricing affect the valuation of private equity investments?

Yes, transfer pricing can significantly impact the valuation of private equity investments. This is primarily due to the buy-side due diligence processes, which increasingly scrutinize risks or exposures stemming from historical transfer pricing practices. Therefore, it is crucial to ensure that transfer pricing policies and compliance approaches for private equity funds and their asset companies align with international best practices.

What are some of the key transfer pricing focus areas for tax authorities in the private equity space?

Tax authorities typically focus on several key transfer pricing areas concerning private equity funds and their assets: (i) the treatment of management fees from the fund to portfolio management companies; (ii) pricing of intragroup debt, such as subordinated shareholder loans; (iii) transaction, advisory, and monitoring fees; and (iv) application of group recharges. These topics are covered in our article and are part of the 'point of view' offering we recommend during the 100-day plan.

What are the main challenges in implementing transfer pricing policies in private equity portfolio companies?

One major challenge is ensuring consistency and compliance with transfer pricing rules across different jurisdictions while aligning the private equity fund's approach with that historically applied by asset companies. This requires a thorough analysis of the value chain from the fund to asset companies, focusing on key functions, risks, and assets at each level. Additionally, asset companies must fulfill their compliance obligations annually.

Do you recommend any proactive steps to ensure transfer pricing approaches applied by new assets conform with the fund’s approach to transfer pricing?

Yes, we recommend that private equity funds incorporate transfer pricing as a key feature in their 100-day plan.  This will help adapt historical transfer pricing approaches, ensuring alignment between the assets transfer pricing approach and with the private equity fund's overarching transfer pricing strategy. A "point of view" review is a solution many clients in the private equity space use to address potential risks or leakage within the first 100 days.

How can private equity funds benefit from transfer pricing strategies?

Private equity firms can benefit from transfer pricing strategies by optimizing tax efficiency while meeting compliance needs in their operating locations. A clear internal governance framework provides a robust playbook for acquiring assets, ensuring adherence to international best practices.

What are the documentation requirements for transfer pricing in the context of private equity?

Transfer pricing documentation is essential to demonstrate that policies applied to transactions are arm’s length and align with international best practices. Compliance may include preparing a master file, local file, country-by-country report, and other documents like the international dealings schedule, depending on jurisdiction. Private equity funds should ensure their portfolio companies maintain accurate and timely documentation.

What are the consequences of non-compliance with transfer pricing rules for private equity firms?

Non-compliance with transfer pricing rules can result in significant fines, tax adjustments, and reputational damage. Private equity firms should proactively monitor and adjust their transfer pricing policies to minimize risks and adhere to international regulations.

Specialist Private Equity & Transfer Pricing

Partner reyneveld.jaap [at] kpmg.com Meijburg Amstelveen
Director mclaren.alistair [at] kpmg.com Meijburg Amstelveen
Senior Manager deroyvanzuidewijn.diderick [at] kpmg.com Meijburg Amstelveen

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