Transfer pricing analysis applied to partnership and shareholder dispute litigation: methodology, deliverables, and case-specific considerations.
In an owner dispute the transfer pricing question is whether a controlling owner moved profit out of the company through purchases from, sales to, services from, or licenses from entities the owner holds separately. The economist identifies each related-party transaction from the ledger and the agreements, establishes the functions, assets, and risks on each side, measures the prices against comparable transactions or the returns of comparable independent companies, and quantifies the profit diverted year by year. The restated earnings then feed the valuation of the minority interest or the damages claim, and the report keeps the arm's length adjustment and the valuation coordinated so the same profit is counted once.
Economic analysis and expert testimony on whether the prices charged between companies under common control, for goods, services, the use of intangibles, and intercompany loans, meet the arm's length standard: the result unrelated parties would have reached in the same transaction under the same circumstances. The work delineates the transactions from the intercompany agreements and the companies' actual conduct, selects the most reliable method, documents the comparables and the arm's length range, and quantifies what the price moved, for tax examinations and appeals, Tax Court and refund litigation, state tax disputes, and commercial, shareholder, and divorce cases.
Depending on the claim, the analysis consists of the fair value or fair market value of the ownership interest as of the relevant date, the difference between what the departing owner received and what the interest was worth, distributions or profits diverted through excess compensation, related-party transactions, or unrecorded revenue, and lost profits to the business or to the owner when the conduct at issue reduced earnings. The drivers are the operating agreement or shareholder agreement and its buyout terms, historical financial statements and tax returns, the general ledger, compensation and distribution records, and documentation of transactions with related entities.
We issue the final report in the form the forum requires and provide deposition and trial testimony, critique of the opposing transfer pricing analysis, and updated calculations as the record develops.
Each state page adds the courts, the expert standard, and the damages framework the report is built around in that venue.
By comparing what the company paid to or received from the affiliate with what an independent party would have paid or received for the same goods, services, or rights, using comparable transactions where they exist and the returns of comparable independent companies where they do not. The difference, year by year, is the profit the related-party prices moved.
It is evidence of what an independent party would have charged, and counsel and the court decide whether the governing agreement or the fiduciary duty adopts it as the measure. The economist presents the arm's length result and the restated earnings, and shows their effect on the value of the interest or on the damages claim under the measure counsel identifies.
Request a consultation on Transfer Pricing or call (201) 343-0700. Plaintiff and defense counsel.