McGuire Sponsel worked with a multinational manufacturer and reseller of cosmetics, supplements, and other goods worldwide. Our team analyzed the client’s business and financials to maintain their tax and Treasury strategy of retaining a margin on goods resold in North America.
Client Profile
We worked with a multinational client with entities involved in manufacturing and selling cosmetics, health food supplements, and vitamins world-wide. The client’s subsidiary employs 41 people in the United States who primarily resell the Japanese parent’s products in the North American territory. The Japanese parent employs about 2,500 full-time individuals.
Our Process
Our Global Business Services team worked closely with the CPA firm, the client, and the client’s counsel to discuss the client’s operations and needs. The client’s tax and Treasury strategy involved the subsidiary retaining a margin on goods resold in North America. McGuire Sponsel analyzed the client’s business and financials to determine a tested party, profitability of appropriate inter-company transactions, and the best method to evaluate and benchmark the data against similar multinational entities to provide an acceptable margin range.
Results
Our team ascertained the Comparable Profits Method was the best and most applicable approved method to evaluate the profitability of the U.S. subsidiary pertaining to covered resell transactions. While initial searches by relevant Standard Industrial Classification (SIC) Codes yielded nearly 200 results, our financial data screening, location comparison, and detailed review narrowed our search to 11 highly comparable companies. Using the Operating Profit Margin (OPM) as the Profit Level Indicator, we found the interquartile range of the three-year weighed average was between 2.99% and 5.56% with a median of 3.62%. Since the client’s OPM was within this range, the reseller arrangement was found reasonable while both corporations’ tax and Treasury preferences were fulfilled.