Financial services industry value chains and transfer pricing

Value chains are changing at a rapid pace due to factors such as COVID-19, digitalisation, new work arrangements, new competitors, and competitive forces, and many of these changes will be permanent. A series of three articles prepared by Deloitte featured in International Tax Review; the articles focused on transfer pricing in a financial services value chain context.

The articles looked at changes and disruption to value chains or business set-ups and what this means for transfer pricing purposes across banking, capital markets, fintech, and insurance, and from an investment management subsector perspective.

Across these three articles, value chains are emphasised as a way of framing transfer pricing, since they provide a variety of benefits in terms of understanding a firm’s views on value and key decision making, and—in a time of significant changes—they also provide a shared reference. Also, value chain information is central for answering the question of whether cost, revenue, or profits splitting-based transfer pricing is the best method for an intercompany transaction.

The value chain and relative importance of people, capital, and IP to the value chains can be framed for transfer pricing policy decision making, transfer pricing documentation, and transfer pricing risk mitigation/management purposes in a way that allows one to make decisions about remunerating functions/decision making.

The focus of each article is as follows:

Remote Working: The first article examines the remote working environment in the banking, capital markets, and fintech sectors. Remote working arrangements can disrupt where functions within a value chain are performed, resulting in source versus resident tax issues, potentially income attribution issues, and transfer pricing issues, which are addressed in the article.

Insurers and intangibles: The focus of the second article is insurers as they are revisiting transfer pricing positions on marketing intangibles and formulating transfer pricing for the development and use of digitalisation and technology IP.

Alterative investment products: The third financial services industry article looks at the shift to alternative investment products from traditional investment products by investment management firms and what this means from a business model and transfer pricing perspective.

For further information on financial services value chains and transfer pricing, please contact Samuel Gordon.