As executives of multinational companies pursue strategic growth through cross-border mergers and acquisitions (M&A), it becomes increasingly important to understand the complexities of valuations of acquired intangibles. Differences between valuations for financial reporting and transfer pricing can lead to unmet regulatory expectations and significant risks if not carefully managed. Executives may be requested by tax authorities to reconcile these differences to avoid tax uncertainties, transfer pricing penalty risks, and ensure compliance — especially when assigning value to acquired intangibles such as goodwill, synergies and customer relationships.
Recent regulatory developments highlight the importance of considering transfer pricing standards for valuations. The IRS asserts it can retroactively adjust valuations several years after the fact to be in line with the arm’s-length standard, while tax authorities in many other countries routinely challenge transfer pricing valuations that allocate substantial amounts of acquired intangibles to goodwill. Financial reporting focuses on the fair value standard and follows the principle of conservatism, while transfer pricing emphasizes the arm’s length and commensurate with income standards, following the principle of economic substance, and potential future value — often using distinct methods and assumptions. These disparities necessitate strategic planning during business reorganizations.
Grant Thornton’s Chris Lee, Senior Manager for Transfer Pricing; Steven C. Wrappe, Technical Leader for Transfer Pricing; Shalin Pathak, National Accounting Advisor; and John Seidensticker, Valuation Principal in the CFO Advisory Service at Grant Thornton Advisors LLC, explore these valuation challenges in an article published by Bloomberg Tax titled, “Transfer Pricing, Financial Reporting Differ on Acquired Intangibles.” The article outlines potential compliance gaps and proposes approaches that mitigate risk. The authors emphasize the value of coordinated or purpose-built valuations to support cross-border M&A activities, enhance documentation, and ensure compliance.
Contacts:
John N. Seidensticker
Principal, CFO Advisory Services
Grant Thornton Advisors LLC
John has been with the Valuation %26 Modeling Group at Grant Thornton for over sixteen years. His experience includes engagements involving the valuation of businesses, intangible assets and financial instruments for tax, financial reporting, corporate planning purposes, and litigation support purposes.
Denver, Colorado
Industries
- Technology, Media & Telecommunications
- Energy
- Private Equity
- Hospitality & Restaurants
Service Experience
- Commercial and Growth
- Transaction Advisory
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