Transfer pricing post-Brexit: a simpler solution for brokerage firms

Financial services (FS) trading entities had a real challenge with Brexit. In order to carry on MiFID II licensed activities within the EU, new EU based entities were required. The core of the business, however, be it the intellectual property, the trading systems or group strategy, often remained within the UK.

In the immediate wake of Brexit, the transfer pricing results were messy, and there were many new cross border transactions. The complications arising from having the key function of holding contracts and/or the right to execute trades held within an EU based entity, but all other entrepreneurial functions within the UK, have often led to challenges by tax authorities. Often, group entities have been vulnerable to double taxation and, in order to deal with this, a time consuming and costly Mutual Agreement Procedure has been required.

As if all this was not enough, the challenges of implementing these new arrangements were further complicated by capital requirements for specific licensed activities.

At Evelyn Partners, our experienced Transfer Pricing team is made up of tax accountants, international tax lawyers and economists. We have been supporting clients through these recent changes and have observed a few common themes:

• Two or more tax authorities often claim the group entity in their country is the entrepreneur;
• Advisers often provide a transactional approach requiring multiple expensive benchmarking sets with no consideration of implementation and capital requirements; and
• Most fundamentally, when modelling a solution, there is often a lack of recognition that the economics have changed within a group.

Our FS strategy is led by a team who have worked in the industry, understand the complexities involved and, most importantly, want the optimal outcome for your business. We recognise that the traditional service cross charge model just does not work under these circumstances. It is also messy and hard to implement.

Our “co-entrepreneur” transfer pricing model provides a solution to this, with a methodology that is accepted by the OECD, HMRC and the EU tax authorities.

Our model is robust, easy to implement and deals with the capital requirements. It is also easy to amend without unnecessary follow up fees based on our entity classification approach. We are committed to a one-time solution that will make Brexit headaches and regulatory challenges a thing of the past.

Approval code: NTAJ14062341