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Transfer Pricing Case Study: Cutting Edge Corporation Analysis (March-April 2014)

This case study focuses on the Cutting Edge Corporation, which develops and sells electronic diagnostic equipment. It examines the international tax risks associated with the company’s structure, which includes a parent company in Country A and a subsidiary in Country B. Key aspects such as the advantages of tax havens, characteristics of preferential regimes, and specifics of low or no taxation for multinational corporations are explored. The objective is to analyze these factors and determine the main tax risks while considering the company's operations and financial statements for 2009.

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Transfer Pricing Case Study: Cutting Edge Corporation Analysis (March-April 2014)

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  1. TRANSFER PRICING CASE STUDIES WORKSHOPSAN JOSE 31 MARCH - 4 APRIL 2014 5-a. Case Study - Cutting Edge Corporation OECD freely authorises the use of this material for non-commercial purposes. All requests for commercial uses of this material or for translation rights should be submitted to rights@oecd.org. The opinions expressed and arguments employed herein are those of the author and do not necessarily reflect the official views of the OECD or of the governments of its member countries.

  2. Tax planning using havens or preferential regimes • Advantages of havens for tax planners • Low or no tax for international companies (deferral) • No transparency • No exchange of information • Characteristics of preferential regimes • low tax by sector (financial/distribution/communication) • low structural costs - premises, staff etc. • special incentives

  3. Cutting Edge Group The Cutting Edge group develops, manufactures and sells electronic diagnostic equipment used by the medical profession. The group consists of two companies: In Country A: • Cutting Edge Corporation: (“CE Corporation” or Parent Company) In Country B: • Cutting Edge (B): (“CE (B) Ltd.” or Subsidiary)

  4. Cutting Edge – Key Facts • The parent company, CE Corporation, is resident in Country A, where it has an R&D facility, a manufacturing facility and a domestic sales division. • It has one subsidiary, CE (B) Ltd, resident in Country B, which carries out a sales/distribution function.

  5. CE Accounts 2009 You are provided with the 2009 accounts for the two companies. On the assumption that you are an auditor in Country A: • What do you think will be the main international tax risk? • What further information would you ask for at this stage?

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