According to a recent Duff & Phelps article, “Maximizing Value through the Integration of Transfer Pricing and Purchase Price Allocation,” valuation practitioners in a business combination scenario should be aware of the hazards of preparing separate analyses - one that determines the fair value of assets and businesses for financial reporting purposes and one to determine the transfer price that should be charged when assets are transferred between related entities. “Performing these studies separately can lead to the use of inconsistent assumptions, inputs and approaches that can bring about avoidable risks and penalties,” according to the article.
In addition, “Transfer Pricing (TP) and Purchase Price Allocation (PPA) valuations are applied differently but are based upon the same premise. When prepared together, the studies can support each other and provide taxpayers with a strong basis in defending their position if an audit is performed.” The benefits of preparing transfer pricing and purchase price allocation analyses together include technical and cost efficiencies, the reduction of risk, and the avoidance of penalties.
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