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Retail analytics innovator reduces transfer pricing risk as it grows in China and beyond

RFP
Retail analytics innovator reduces transfer pricing risk as it grows in China and beyondThis U.S.-based marketing intelligence company is a global provider of analytics to retail businesses, primarily through the use of an advanced technology that captures the movements of people entering or walking by a store. Its services are used by 750 clients in more than 60,000 locations worldwide, with main operations in the United States, China and European countries. Started in the early 1990s, the company currently has consolidated revenue between $50 and $90 million.

The Situation

Need help after rapid growth overseas
Like many small, dynamic multinational businesses, the company had experienced rapid growth in the demand for its services, processing the data it gathers to help retailers fine-tune marketing efforts and increase profitability. For example, the data can help determine the impact of a marketing campaign by providing in-store customer counts before and after a campaign, or provide foot traffic counts near a given location, valuable for someone considering opening a store in a mall.
Limited operations in Europe and China suddenly began to take off. The business also had acted on its philosophy of investing in acquisitions to remain cutting edge by purchasing a European company with complementary technology.

The Challenge

Put in place compliance procedures in all countries of operation
Small companies like this one, which quickly develop an international footprint, often have transfer pricing policies that are not well defined. This company’s policies were based on two goals: one, the desire to get working capital where it was needed, and two, ease of bookkeeping. It had only a vague understanding of transfer pricing, yet realized it needed to put in place proper procedures and policies to comply with the rules and regulations in all its countries of operation and reduce transfer pricing audit risk within the context of its specific financial and business goals.

What the team did

A three-pronged approach leads to transfer pricing framework, clearer vision
China in particular was a growing market for the company, yet the company recognized how onerous Chinese tax regulations were. The Grant Thornton LLP team used a three-pronged approach tailored to the company’s specific needs.
  1. The U.S.- and China-based teams held local meetings to get a 360-degree view of the issues.
  2. The Grant Thornton team discussed, designed and modeled several transfer pricing policies around specific intercompany transactions.
  3. Grant Thornton held a working session with the company, walked through the best options and discussed the implications for implementation.

The result was a set of policies, procedures and draft intercompany agreements covering the provision of various services and the movement of data and equipment between the U.S. parent and the Chinese entity. The Grant Thornton team was able to assist in completing all the administrative and documentation requirements in China to implement a transfer pricing framework.

The team subsequently met the company’s overall transfer pricing needs in three other main countries of operation. Grant Thornton’s transfer pricing risk-assessment process led the company to a more complete understanding of where the value drivers were within its multinational footprint. The company knew its China business was growing and sales had good margins. Grant Thornton was able to demonstrate how the margins were the result of sales efforts in China, the analytics provided in the United States and the technology in Europe. The company developed a heightened appreciation of where its intellectual property (IP) resides, and the IP’s impact on transfer pricing and international tax considerations.

Outcome
A welcome process cuts time spent on bureaucracy
The company has put in place a process by which entities transact with one another in a way that’s compliant with U.S., Chinese and European transfer pricing rules. Grant Thornton’s work allowed the company to develop and implement appropriate policies and procedures that allow the company to focus on growing its business, rather than worrying about, and dealing with, time-consuming compliance bureaucracy. The company has hired Grant Thornton’s Tax practice teams to assist with international, federal, and state and local tax compliance work.


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